Form 8-K Neurotrope, Inc. For: May 17
Tweet
Share
E-mail
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 17, 2020
NEUROTROPE, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 001-38045 | 46-3522381 |
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification Number) |
1185 Avenue of the Americas, 3rd Floor
New York, New York 10036
(Address of principal executive offices, including ZIP code)
(973) 242-0005
(Registrant’s telephone number, including area code)
Not applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| x | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock, par value $0.0001 per share | NTRP | The Nasdaq Stock Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company. ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 1.01 Entry into a Material Definitive Agreement
On May 17, 2020, Neurotrope, Inc., a Nevada corporation (“Neurotrope”), Petros Pharmaceuticals, Inc., a Delaware corporation formed for the purposes of effecting transactions contemplated by the Merger Agreement (“Petros”), PM Merger Sub 1, LLC, a Delaware limited liability company and a wholly-owned subsidiary of Petros (“Merger Sub 1”), PN Merger Sub 2, Inc., a Nevada corporation and a wholly-owned subsidiary of Petros (“Merger Sub 2”), and Metuchen Pharmaceuticals LLC, a Delaware limited liability company (“Metuchen”), entered into an Agreement and Plan of Merger (the “Merger Agreement”).
The Merger Agreement provides for (1) the merger of Merger Sub 1, with and into Metuchen, with Metuchen surviving as a wholly-owned subsidiary of Petros (the “Metuchen Merger”) and (2) the merger of Merger Sub 2 with and into Neurotrope, with Neurotrope surviving as a wholly-owned subsidiary of Petros (the “Neurotrope Merger” and together with the Metuchen Merger, the “Mergers”). The Mergers are intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 351 of the Internal Revenue Code of 1986, as amended.
As a result of the Metuchen Merger, each outstanding common unit or preferred unit of Metuchen will be exchanged for a number of shares of Petros common stock equal to the quotient resulting from the formula of (i) 95,908,502 divided by (ii) the number of fully-diluted units of the Company outstanding immediately prior to the effective time of the Mergers. As a result of the Neurotrope Merger, each outstanding share of Neurotrope common stock will be exchanged for one (1) share of Petros common stock and each outstanding share of Neurotrope preferred stock will be exchanged for one (1) share of Petros preferred stock. Following the Mergers, the Petros Preferred Stock will have substantially the same conversion rights (proportionally adjusted to give effect to the Mergers), powers, rights and privileges as the Neurotrope preferred stock prior to the Mergers. In addition, each outstanding option to purchase Neurotrope common stock or outstanding warrant to purchase common stock that has not previously been exercised prior to the closing of the Mergers (the “Closing”) will be converted into equivalent options and warrants to purchase shares of Petros common stock and will be adjusted to give effect to the exchange ratios set forth in the Merger Agreement.
Upon the Closing, on a pro forma basis, current Neurotrope shareholders will own approximately 20.0% of the combined company and current Metuchen investors will own approximately 80.0% of the combined company.
In connection with the Mergers, Neurotrope plans to spin-off (the “Spin-Off”) its wholly-owned subsidiary, Neurotrope Biosciences, Inc. Substantially all of the consolidated operations of Neurotrope were conducted through such subsidiary and substantially all of the consolidated operating assets and liabilities of Neurotrope reside in such subsidiary. The Spin-Off is planned to be made as a distribution to Neurotrope’s stakeholders as of a record date prior to the Mergers, but the distribution is currently contemplated to occur after the Closing. The spun-off entity will be capitalized with all cash in excess of the $20 million to be retained by Metuchen, subject to adjustment for the proceeds from any exercise of Neurotrope’s warrants between the date of execution of the Merger Agreement and closing of the Mergers. The proceeds of any such warrant exercises will be split 80% to Metuchen and 20% to the spun-off entity. The record date for the Spin-Off, the ratio of the Spin-Off shares distributed to the Neurotrope shares held as of the record date and the extent to which other stakeholders of Neurotrope may be entitled to participate in the Spin-Off have not yet been determined.
Consummation of the Mergers is subject to certain closing conditions, including, among other things, approval by the securityholders of Neurotrope and Metuchen and the listing of the Petros common stock on the Nasdaq Stock Market after the Mergers. In accordance with the terms of the Merger Agreement, (i) certain executive officers, directors and unitholders of Metuchen (solely in their respective capacities as Metuchen unitholders) holding approximately 84% of the outstanding Metuchen capital units have entered into voting agreements with Neurotrope to vote all of their Metuchen capital units in favor of adoption of the Merger Agreement (the “Metuchen Voting Agreements”) and (ii) certain executive officers, directors and stockholders of Neurotrope (solely in their respective capacities as Neurotrope stockholders) holding less than 1% of the outstanding Neurotrope common stock have entered into voting agreements with Metuchen to vote all of their shares of Neurotrope common stock in favor of approval of the Merger Agreement (the “Neurotrope Voting Agreements”, and together with the Metuchen Voting Agreements, the “Voting Agreements”). The Voting Agreements include covenants with respect to the voting of such shares or units in favor of approving the transactions contemplated by the Merger Agreement and against any competing acquisition proposals. In addition, concurrently with the execution of the Merger Agreement, (i) certain executive officers, directors and unitholders of Metuchen and (ii) certain executive officers, directors and stockholders of Neurotrope have entered into lock-up agreements (the “Lock-Up Agreements”) pursuant to which they accepted certain restrictions on transfers of shares of Petros common stock for the nine-month period following the Closing.
The Merger Agreement contains certain termination rights for both Neurotrope and Metuchen, and further provides that, upon termination of the Merger Agreement under specified circumstances, either party may be required to pay the other party a termination fee of $1,000,000 plus third party expenses incurred by the terminating party.
At the effective time of the Mergers, the Board of Directors of Petros is expected to consist of nine members, five of whom will be designated by Metuchen and four of whom will be designated by Neurotrope.
In connection with the entry into the Merger Agreement, Neurotrope and an affiliated entity of Juggernaut Capital Partners (the “Investor”) entered into a Backstop Agreement pursuant to which the Investor agreed to contribute to Metuchen at the Closing an amount equal to the Working Capital Shortfall Amount (as defined in the Merger Agreement), if any, as determined in accordance with Section 1.8 of the Merger Agreement, up to an aggregate amount not to exceed $6,000,000 (the “Commitment Cap”). Following the Closing and until the one-year anniversary of the Closing (the “Anniversary Date”), the Investor agreed to contribute, or cause an affiliate to contribute, to Petros an amount equal to the Commitment Cap less the Working Capital Shortfall Amount (the “Post-Closing Commitment”) on the Anniversary Date; provided, however, that, (a) in the event that, at any time between the Closing and the Anniversary Date, the closing price per share of Petros’ common stock on the Nasdaq Capital Market or any other securities exchanges on which the Petros common stock is then traded equals or exceeds $2.175 for a period of ten (10) consecutive trading days, then the Post-Closing Commitment shall be reduced by fifty percent (50%) and (b) in the event that, at any time between the Closing and the Anniversary Date, the closing price per share of Petros’ common stock on the Nasdaq Capital Market or any other securities exchanges on which the Petros common stock is then traded equals or exceeds $2.5375 for a period of ten (10) consecutive trading days, then the Post-Closing Commitment shall be $0.
In addition, in connection with the entry into the Merger Agreement, the Investor, Neurotrope and Metuchen entered into a Note Conversion and Loan Repayment Agreement pursuant to which the Investor agreed to fund up to $1.5 million to Metuchen from time to time no later than the Closing to permit Metuchen to make certain monthly payments pursuant to its outstanding credit facility. Further, pursuant to the terms of the Note Conversion and Loan Repayment Agreement, the Investor agreed to convert all outstanding promissory notes of Metuchen held by the Investor into shares of Petros common stock in connection with the Closing. As of the date of this Current Report on Form 8-K, the Investor has funded promissory notes of Metuchen equal to an aggregate of $8.5 million.
The preceding summary does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, the form of Metuchen Voting Agreements, the form of Neurotrope Voting Agreements, the form of Lock-Up Agreements and the form of Juggernaut Backstop Agreement, which are filed as Exhibits 2.1, 2.2, 2.3, 2.4 and 99.9, respectively, to this Form 8-K and which are incorporated herein by reference. The Merger Agreement has been attached as an exhibit to this Current Report on Form 8-K to provide investors and securityholders with information regarding its terms. It is not intended to provide any other factual information about Metuchen or Neurotrope or to modify or supplement any factual disclosures about Neurotrope in its public reports filed with the SEC. The Merger Agreement includes representations, warranties and covenants of Metuchen and Neurotrope made solely for the purpose of the Merger Agreement and solely for the benefit of the parties thereto in connection with the negotiated terms of the Merger Agreement. Investors should not rely on the representations, warranties and covenants in the Merger Agreement or any descriptions thereof as characterizations of the actual state of facts or conditions of Metuchen, Neurotrope or any of their respective affiliates. Moreover, certain of those representations and warranties may not be accurate or complete as of any specified date, may be subject to a contractual standard of materiality different from those generally applicable to SEC filings or may have been used for purposes of allocating risk among the parties to the Merger Agreement, rather than establishing matters of fact.
Forward-Looking Statements
This communication contains forward-looking statements (including within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended) concerning Neurotrope, Metuchen, the proposed transactions and other matters. These statements may discuss goals, intentions and expectations as to future plans, trends, events, results of operations or financial condition, or otherwise, based on current beliefs of the management of Neurotrope, as well as assumptions made by, and information currently available to, management. Forward-looking statements generally include statements that are predictive in nature and depend upon or refer to future events or conditions, and include words such as “may,” “will,” “should,” “would,” “expect,” “anticipate,” “plan,” “likely,” “believe,” “estimate,” “project,” “intend,” and other similar expressions. Statements that are not historical facts are forward-looking statements. Forward-looking statements are based on current beliefs and assumptions that are subject to risks and uncertainties and are not guarantees of future performance. Actual results could differ materially from those contained in any forward-looking statement as a result of various factors, including, without limitation: the risk that the conditions to the closing of the transactions are not satisfied, including the failure to obtain stockholder approval for the transactions in a timely manner or at all; uncertainties as to the timing of the consummation of the Mergers and the Spin-Off and the ability of each of Petros, Neurotrope and Metuchen to consummate the transactions; risks related to Petros’ initial listing on The Nasdaq Capital Market at the closing of the proposed transaction; risks related to Neurotrope’s ability to correctly estimate its operating expenses and its expenses associated with the transaction; the ability of Neurotrope or Metuchen to protect their respective intellectual property rights; competitive responses to the transaction; unexpected costs, charges or expenses resulting from the transaction; potential adverse reactions or changes to business relationships resulting from the announcement or completion of the transaction; and legislative, regulatory, political and economic developments. The foregoing review of important factors that could cause actual events to differ from expectations should not be construed as exhaustive and should be read in conjunction with statements that are included herein and elsewhere, including the risk factors included in Neurotrope’s most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC. Neurotrope can give no assurance that the conditions to the transaction will be satisfied. Except as required by applicable law, Neurotrope undertakes no obligation to revise or update any forward-looking statement, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.
No Offer or Solicitation
This communication is not intended to and does not constitute an offer to sell or the solicitation of an offer to subscribe for or buy or an invitation to purchase or subscribe for any securities or the solicitation of any vote in any jurisdiction pursuant to the proposed transaction or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. No offer of securities shall be made except by means of a prospectus meeting the requirements of the Securities Act of 1933, as amended. Subject to certain exceptions to be approved by the relevant regulators or certain facts to be ascertained, the public offer will not be made directly or indirectly, in or into any jurisdiction where to do so would constitute a violation of the laws of such jurisdiction, or by use of the mails or by any means or instrumentality (including without limitation, facsimile transmission, telephone and the internet) of interstate or foreign commerce, or any facility of a national securities exchange, of any such jurisdiction.
Important Additional Information Will be Filed with the SEC
In connection with the proposed transaction among Petros, Neurotrope and Metuchen, Petros intends to file relevant materials with the SEC, including a registration statement that will contain a proxy statement and prospectus. NEUROTROPE URGES INVESTORS AND STOCKHOLDERS TO READ THESE MATERIALS CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT PETROS, NEUROTROPE, METUCHEN, THE PROPOSED TRANSACTIONS AND RELATED MATTERS. Investors and shareholders will be able to obtain free copies of the proxy statement, prospectus and other documents filed by Petros and Neurotrope with the SEC (when they become available) through the website maintained by the SEC at www.sec.gov. In addition, investors and shareholders will be able to obtain free copies of the proxy statement, prospectus and other documents filed by Petros and Neurotrope with the SEC by contacting Investor Relations by mail at Neurotrope, Inc., Attn: Investor Relations, 1185 Avenue of the Americas, 3rd Floor, New York, New York 10036. Investors and stockholders are urged to read the proxy statement, prospectus and the other relevant materials when they become available before making any voting or investment decision with respect to the proposed transaction.
Participants in the Solicitation
Petros, Neurotrope and Metuchen, and each of their respective directors and executive officers and certain of their other members of management and employees, may be deemed to be participants in the solicitation of proxies in connection with the proposed transaction. Information about Neurotrope’s directors and executive officers is included in Neurotrope’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 13, 2020. Additional information regarding these persons and their interests in the transaction will be included in the proxy statement relating to the transactions when it is filed with the SEC. These documents can be obtained free of charge from the sources indicated above.
Item 8.01 Other Events.
Attached as Exhibit 99.1 is a copy of the joint press release issued by Neurotrope and Metuchen on May 18, 2020 announcing the execution of the Merger Agreement.
For the general information of investors, Neurotrope is filing herewith information relating to the Merger. Specifically, filed herewith as Exhibits 99.2, 99.3, 99.4 and 99.5, respectively, are excerpts of the “Metuchen Business,” “Metuchen Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors” and “Fairness Opinion of Gemini Partners LLC” sections or annexes expected to be disclosed as part of the prospectus contained in the Form S-4 registration statement to be filed by Petros in connection with the Mergers, which exhibits are incorporated by reference herein. Such information is as of May 18, 2020 (unless an earlier date is indicated).
Item 9.01 Financial Statements and Exhibits
(a) Financial statements of business acquired.
The audited financial statements of Metuchen as of and for the year ended December 31, 2019 (Successor), the period December 10, 2018 through December 31, 2018 (Successor) and the period January 1, 2018 through December 9, 2018 (Predecessor), are filed herewith as Exhibit 99.7. The consent of EisnerAmper LLP, independent registered public accounting firm, is attached hereto as Exhibit 23.1
(b) Pro forma financial information.
The unaudited pro forma condensed combined financial information of Neurotrope and Metuchen as of and for the year ended December 31, 2019 is filed herewith as Exhibit 99.7.
(d) Exhibits.
Reference is made to the Exhibit Index included with this Current Report on Form 8-K.
EXHIBIT INDEX
*Certain schedules and exhibits to the Merger Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the Securities and Exchange Commission upon request.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| NEUROTROPE, INC. | |
| Date: May 18, 2020 | /s/ Robert Weinstein |
|
Name: Robert Weinstein Title: Chief Financial Officer, Executive Vice President, |
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PETROS PHARMACEUTICALS, INC.,
PM MERGER SUB 1, LLC,
PN MERGER SUB 2, INC.,
NEUROTROPE, INC.,
and
METUCHEN PHARMACEUTICALS LLC
Dated as of May 17, 2020
Exhibits
| Exhibit A | Certain Definitions |
| Exhibit B-1 | Form of Company Voting Agreement |
| Exhibit B-2 | Form of Neurotrope Voting Agreement |
| Exhibit C-1 | Form of Metuchen Certificate of Merger |
| Exhibit C-2 | Form of Neurotrope Nevada Articles of Merger |
| Exhibit C-3 | Form of Neurotrope Delaware Certificate of Merger |
| Exhibit D | Form of Partnership FIRPTA Certificate |
| Exhibit E | Form of Lock-up Agreement |
| Exhibit F | Form of Registration Rights Agreement |
| Exhibit G | Form of Juggernaut Backstop Agreement |
| Exhibit H | Form of Note Conversion and Loan Repayment Agreement |
| Exhibit I | Form of Parent Amended Certificate of Incorporation |
| Exhibit J | Form of Parent Amended Bylaws |
| Exhibit K | Form of FIRPTA Notice and Certificate |
| Schedule A | List of Lock-up Agreement Signatories |
| Schedule B | List of Voting Agreement Signatories |
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, is made and entered into as of May 17, 2020 (this “Agreement”), by and among PETROS PHARMACEUTICALS, INC., a Delaware corporation (“Parent”), PM MERGER SUB 1, LLC, a Delaware limited liability company and a direct wholly owned subsidiary of Parent (“Merger Sub 1”), PN MERGER SUB 2, INC., a Delaware corporation and a direct wholly owned subsidiary of Parent (“Merger Sub 2” and, together with Merger Sub 1, the “Merger Subs”), NEUROTROPE, INC. a Nevada corporation (“Neurotrope”), and METUCHEN PHARMACEUTICALS LLC, a Delaware limited liability company (“Company”). Parent, Merger Sub 1, Merger Sub 2, Neurotrope and Company are each a “Party” and referred to collectively herein as the “Parties.” Certain capitalized terms used in this Agreement are defined in Exhibit A.
RECITALS:
WHEREAS, in anticipation of the Mergers (as defined below), Neurotrope and the Company have formed, directly or indirectly, (i) Parent, (ii) Merger Sub 1 and (iii) Merger Sub 2;
WHEREAS, the Parties intend to effect the Mergers upon the terms and conditions set forth in this Agreement whereby (i) Merger Sub 1 shall be merged with and into the Company (the “Metuchen Merger”), with the Company surviving as a direct wholly owned subsidiary of Parent and (ii) simultaneous with the Metuchen Merger, Merger Sub 2 shall be merged with and into the Neurotrope (the “Neurotrope Merger” and, together with the Metuchen Merger, the “Mergers”), with Neurotrope surviving as a direct wholly owned subsidiary of Parent;
WHEREAS, the board of directors of Neurotrope (“Neurotrope Board”) (i) has determined that the Neurotrope Merger is fair to, and in the best interests of, Neurotrope and its stockholders, (ii) has approved this Agreement, the Neurotrope Merger, the change of control of Neurotrope, the Spin-Off (defined below), and the other actions contemplated by this Agreement, and (iii) has determined to recommend that the stockholders of Neurotrope vote to approve the Neurotrope Stockholder Approval Matter and such other actions as contemplated by this Agreement;
WHEREAS, the board of managers of Company (“Company Board”) (i) has determined that the Metuchen Merger is advisable and fair to, and in the best interests of, Company and its members, (ii) has approved this Agreement, the Metuchen Merger and the other transactions contemplated by this Agreement and the agreements entered into in connection herewith (the “Company Transactions”) and has deemed this Agreement advisable and (iii) has determined to recommend that the Company Members vote or consent to approve the Company Member Matters;
WHEREAS, Parent, as the sole member of Merger Sub 1 and the sole stockholder of Merger Sub 2, has approved the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, including the Metuchen Merger, the Neurotrope Merger and adopted this Agreement;
WHEREAS, for U.S. federal income tax purposes, it is intended that the Mergers will qualify as a contribution governed by Section 351 of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated thereunder and intend for this Agreement to constitute a “plan of reorganization” within the meaning of the Code;
| 2 |
WHEREAS, pursuant to the terms and conditions of this Agreement, the holders of the outstanding Company Units immediately prior to the Effective Times (as defined below) will own approximately 80.00% of the capital stock of Parent immediately following the Effective Times and the holders of the outstanding stock of Parent immediately prior to the Effective Times will own approximately 20.00% of the capital stock of Parent immediately following the Effective Times.
WHEREAS, concurrently and in connection with the Mergers, the Parties intend that Neurotrope will, in one or a series of transactions, including by operation of Legal Requirements, (i) transfer, and cause SpinCo to accept, the Excess Cash (as defined below), (ii) assign, and cause SpinCo to assume, certain of the operating assets and liabilities of Neurotrope, and (iii) after the Effective Times, assign, including by way of stock transfer, asset sale, merger, pro rata distribution or otherwise, all outstanding equity interests of SpinCo to Neurotrope stockholders as of the record date (the “Spin-Off”);
WHEREAS, as a condition to the willingness of, and an inducement to Neurotrope to enter into this Agreement, contemporaneously with the execution and delivery of this Agreement, the holders of a majority of the Company Preferred Units (as defined herein) will, pursuant to the required provisions of the operating agreement of the Company, deliver written consent authorizing the Company Board to cause the Company to enter into this Agreement and consummate the Metuchen Merger and the Transactions in connection therewith (the “Preferred Members Consent”);
WHEREAS, as a condition to the willingness of, and an inducement to each of Neurotrope and the Company to enter into this Agreement, contemporaneously with the execution and delivery of this Agreement, each of the Company Voting Agreement Signatories is entering into a voting agreement, in favor of Company, in substantially the form of Exhibit B-1 attached hereto (the “Company Voting Agreements”), and each of the Neurotrope Voting Agreement Signatories is entering into a voting agreement, in favor of Neurotrope, in substantially the form of Exhibit B-2 attached hereto (individually, the “Neurotrope Voting Agreements” and collectively with the Company Voting Agreements, the “Voting Agreements”) under which the Voting Agreement Signatories will agree, with respect to a portion of Company Units or the shares of Neurotrope Capital Stock, as applicable, held thereby, to vote as members or stockholders, as applicable, in favor of the Company Member Matters or Neurotrope Stockholder Approval Matter, as applicable, pursuant to the terms and conditions of the Voting Agreements, as applicable; and
WHEREAS, as a condition to the willingness of, and an inducement to each of Neurotrope and Company to enter into this Agreement, contemporaneously with the execution and delivery of this Agreement, each of the Lock-up Signatories is entering into a lock-up agreement, in substantially the form of Exhibit E attached hereto (the “Lock-up Agreements”) with respect to the shares of Parent Common Stock held thereby from time to time after the Mergers.
WHEREAS, as a condition to willingness of, and an inducement to Neurotrope to enter into this Agreement, contemporaneously with the execution and delivery of this Agreement, Juggernaut is entering into the Juggernaut Backstop Agreement in the form of Exhibit G and the Note Conversion and Loan Repayment Agreement in the form of Exhibit H.
| 3 |
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing and the representations, warranties and covenants herein contained, and for other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby agree as follows:
Article
1.
THE MERGERS
1.1 Metuchen Merger.
(a) At the Metuchen Effective Time (as defined below), Merger Sub 1 shall be merged with and into the Company upon the terms and subject to the conditions set forth in this Agreement and in accordance with the applicable provisions of the Delaware Limited Liability Company Act (“Delaware Law”), whereupon the separate corporate existence of Merger Sub 1 shall cease and Company shall continue its existence under Delaware Law as the surviving limited liability company (the “Metuchen Surviving LLC”). As a result of the Metuchen Merger, the Metuchen Surviving LLC shall become a wholly owned subsidiary of Parent.
(b) From and after the Metuchen Effective Time, the Metuchen Surviving LLC shall possess all the rights, powers, privileges and franchises and be subject to all of the obligations, liabilities and duties of Company and Merger Sub 1, all as provided under Delaware Law.
(c) For federal income tax purposes, it is intended that the Metuchen Merger be treated as a contribution of all Company Units in the Company to Parent in a transaction governed by Section 351 of the Code.
1.2 Neurotrope Merger.
(a) At the Neurotrope Effective Time (as defined below), Merger Sub 2 shall be merged with and into Neurotrope upon the terms and subject to the conditions set forth in this Agreement and in accordance with the applicable provisions of the Delaware General Corporation Law (the “DGCL”) and the Nevada Revised Statutes (“Nevada Law”), whereupon the separate corporate existence of Merger Sub 2 shall cease and Neurotrope shall continue its existence as the surviving corporation (the “Neurotrope Surviving Corporation” and, together with the Metuchen Surviving LLC, the “Surviving Companies”). As a result of the Neurotrope Merger, upon the Neurotrope Effective Time, Neurotrope shall be admitted as a member of Neurotrope Surviving Corporation, and Neurotrope Surviving Corporation shall continue without dissolution and shall be a wholly owned subsidiary of Parent.
| 4 |
(b) From and after the Neurotrope Effective Time, the Neurotrope Surviving Corporation shall possess all the rights, powers, privileges and franchises and be subject to all of the obligations, liabilities and duties of Neurotrope and Merger Sub 2, all as provided under the DGCL and applicable Nevada Law.
1.3 Closing. Unless this Agreement has been terminated and the Transactions herein contemplated have been abandoned pursuant to Section 7.1 of this Agreement, and subject to the satisfaction or waiver of the conditions set forth in Article VI of this Agreement, the consummation of the Mergers (the “Closing”) will take place at the offices of Morgan, Lewis & Bockius, LLP, 1111 Pennsylvania Avenue NW, Washington, DC 20004, at 10:00 a.m. on a date to be specified by the Parties which will be no later than seven (7) Business Days after satisfaction or waiver of the conditions set forth in Article VI (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of each such conditions), or at such other time, date and place as Neurotrope and Company may mutually agree in writing. The date on which the Closing actually takes place is referred to as the “Closing Date”.
1.4 Effective Times.
(a) Upon the terms and subject to the conditions set forth in this Agreement, as soon as practicable on the Closing Date, the Parties shall cause the Mergers to be consummated by: (i) with respect to the Metuchen Merger, executing and filing a Certificate of Merger in accordance with the relevant provisions of Delaware Law (the “Metuchen Certificate of Merger”), in substantially the form of Exhibit C-1 attached hereto, together with any required related certificates, with the Secretary of State of the State of Delaware (“Delaware Secretary of State”), in such form as required by, and executed in accordance with the relevant provisions of, Delaware Law; and (ii) with respect to the Neurotrope Merger, (A) executing and filing a Certificate of Merger in accordance with the relevant provisions of the DGCL (the “Neurotrope Certificate of Merger”), in substantially the form of Exhibit C-2 attached hereto, and (B) executing and filing Articles of Merger in accordance with the relevant provisions of the DGCL (the “Neurotrope Articles of Merger”), in substantially the form of Exhibit C-3 attached hereto, together with any required related certificates, with the Delaware Secretary of State and the Secretary of State of the State of Nevada (the “Nevada Secretary of State”) in such form as required by, and executed in accordance with the relevant provisions of, the DGCL and Nevada Law.
(b) The Metuchen Merger shall become effective at such time as the Metuchen Certificate of Merger is duly filed with the Delaware Secretary of State or at such later date or time as is agreed between the Parties and specified in the Metuchen Certificate of Merger (such time as the Metuchen Merger becomes effective being the “Metuchen Effective Time”).
(c) The Neurotrope Merger shall become effective at such time as the Neurotrope Certificate of Merger and the Neurotrope Articles of Merger are duly filed with the Delaware Secretary of State and the Nevada Secretary of State, as the case may be, or at such later date or time as is agreed between the Parties and specified in the Neurotrope Certificate of Merger and Neurotrope Articles of Merger (such time as the Neurotrope Merger becomes effective being the “Neurotrope Effective Time” and, together with the Metuchen Effective Time, the “Effective Times”).
| 5 |
1.5 Effect of the Mergers. At the Effective Times, the effect of the Mergers will be as provided in this Agreement, the Metuchen Certificate of Merger, the Neurotrope Certificate of Merger, the Neurotrope Articles of Merger and the applicable provisions of Delaware Law and the DGCL, as applicable. Without limiting the generality of the foregoing, and subject thereto, at the applicable Effective Time, all the property, rights, privileges of each of Company and Neurotrope shall vest in the applicable Surviving Company, and all debts, liabilities, obligations and duties of each of Company and Neurotrope shall become debts, liabilities, obligations and duties of the applicable Surviving Company.
1.6 Governing Documents.
(a) Immediately after the Effective Times, (i) the certificate of incorporation of Parent shall be amended and restated in its entirety in the form set forth in Exhibit I hereto until thereafter changed or amended as provided therein or by applicable law and (ii) the bylaws of Parent shall be amended and restated in their entirety in the form set forth in Exhibit J hereto until thereafter changed or amended as provided therein or by applicable law.
(b) Immediately after the Metuchen Effective Time, the certificate of formation and the limited liability company agreement of Metuchen Surviving LLC shall be amended and restated to be identical to the certificate of formation and the limited liability company agreement of Merger Sub 1. No amendment to the limited liability company agreement of Metuchen Surviving LLC will in any way affect any indemnification obligations under the limited liability company agreement of the Company in existence on the date of this Agreement.
(c) Immediately after the Neurotrope Effective Time, the certificate of incorporation and by-laws of the Neurotrope Surviving Corporation shall be amended and restated to be identical to the certificate of incorporation and by-laws of Merger Sub 2.
1.7 Directors and Officers. From and after the Effective Times, until successors are duly elected or appointed and qualified in accordance with applicable law, the directors and officers of Parent shall be the directors and officers set forth in Section 6.11 herein. Prior to the execution of this Agreement, each member of the board of managers of the Company has executed a written resignation effective as of the Metuchen Effective Time.
1.8 Calculation of Working Capital.
(a) Not less than seven (7) Business Days prior to the anticipated date for Closing (the “Anticipated Closing Date”), Company will deliver to Neurotrope a schedule (the “Working Capital Schedule”) setting forth, in reasonable detail, Company’s good faith, estimated calculation (the “Working Capital Calculation”) of Working Capital (using an estimate of the Company’s accounts payable, Transaction Costs and accrued expenses as of the Anticipated Closing Date and determined in a manner substantially consistent with the manner in which such items were determined in connection with the Company Financials) as of the close of business on the Business Day immediately preceding the Anticipated Closing Date (the “Working Capital Determination Time”) prepared and certified by Company’s Chief Financial Officer (or if there is no Chief Financial Officer, the Chief Executive Officer of the Company). The date on which the Working Capital Schedule is delivered being referred to hereinafter as the “Delivery Date”. Company shall make available to Neurotrope, as reasonably requested by Neurotrope, the work papers and back-up materials used or useful in preparing the Working Capital Schedule and, if requested by Neurotrope, the Company’s accountants and counsel at reasonable times and upon reasonable notice.
| 6 |
(b) Within three (3) Business Days after the Delivery Date (the last day of such period, the “Response Date”), Neurotrope shall have the right to dispute any part of the Working Capital Calculation by delivering a written notice to that effect to Company (a “Dispute Notice”). Any Dispute Notice shall identify in reasonable detail the nature and amounts of any proposed revisions to the Working Capital Calculation.
(c) If, on or prior to the Response Date, (i) Neurotrope notifies Company in writing that it has no objections to the Working Capital Calculation or (ii) Neurotrope fails to deliver a Dispute Notice as provided in Section 1.8(b), then the Working Capital Calculation as set forth in the Working Capital Schedule shall be deemed to have been finally determined for purposes of this Agreement and to represent the Working Capital at the Working Capital Determination Time for purposes of this Agreement.
(d) If Neurotrope delivers a Dispute Notice on or prior to the Response Date, then representatives of Neurotrope and Company shall promptly meet and attempt in good faith to resolve the disputed item(s) and negotiate an agreed-upon determination of Working Capital, which agreed upon Working Capital amounts shall be deemed to have been finally determined for purposes of this Agreement and to represent the Working Capital at the Working Capital Determination Time for purposes of this Agreement.
(e) If Representatives of Neurotrope and the Company are unable to agree upon the calculation of Working Capital as of the Working Capital Determination Time pursuant to Section 1.8(d) within two (2) Business Days after delivery of the Dispute Notice (or such other period as Neurotrope and the Company may mutually agree upon), then any remaining disagreements as to the calculation of Working Capital shall be referred to an independent auditor of recognized national standing jointly selected by Neurotrope and Company (the “Accounting Firm”). Company shall promptly deliver to the Accounting Firm the work papers and back-up materials used in preparing the Working Capital Schedule, and Neurotrope and Company shall use commercially reasonable efforts to cause the Accounting Firm to make its determination within ten (10) calendar days of accepting its selection. Company and Neurotrope shall be afforded the opportunity to present to the Accounting Firm any material related to the unresolved disputes and to discuss the issues with the Accounting Firm; provided, however, that no such presentation or discussion shall occur without the presence of a Representative of each of Company and Neurotrope. The determination of the Accounting Firm shall be limited to the disagreements submitted to the Accounting Firm. The determination of the amount of Accounts Receivable and Accounts Payable made by the Accounting Firm shall be made in writing delivered to each of Neurotrope and Company, shall be final and binding on Neurotrope and Company and shall be deemed to have been finally determined for purposes of this Agreement and to represent the Accounts Receivable and Accounts Payable at the Working Capital Determination Time for purposes of this Agreement. The Parties shall delay the Closing until the resolution of the matters described in this Section 1.8(e). If this Section 1.8(e) applies as to the determination of the Working Capital at the Working Capital Determination Time described in Section 1.8(a), upon resolution of the matter in accordance with this Section 1.8(e), the Parties shall not be required to determine Working Capital again even though the Closing Date may occur later than the Anticipated Closing Date, except that either Neurotrope or Company may request a redetermination of Working Capital if the Closing Date is more than thirty (30) calendar days after the Anticipated Closing Date.
| 7 |
(f) In the event that Accounts Payable shall exceed Accounts Receivable as finally determined in accordance with the foregoing provisions of this Section 1.8, payment of the amount by which Accounts Payable exceeds Accounts Receivable (the “Working Capital Shortfall Amount”) shall be governed by the Juggernaut Backstop Agreement.
Article 2.
2.1 Effect on Company Units and Merger Sub 1. At the Metuchen Effective Time, by virtue of the Metuchen Merger and without any action on the part of the Company, Parent, Merger Sub 1 or any holders of (i) Preferred Units or (ii) Common Units:
(a) Cancellation of Certain Company Units. All Company Units that are owned by the Company, Merger Sub 1 or any wholly owned subsidiary of the Company immediately prior to the Metuchen Effective Time shall automatically be canceled, and no Parent Common Stock or other consideration shall be delivered or deliverable in exchange therefor.
(b) Conversion of Company Units. Subject to the other provisions of this Article II, each Company Unit issued and outstanding immediately prior to the Metuchen Effective Time shall be converted into a number of validly issued, fully paid and non-assessable shares of Parent Common Stock equal to the quotient resulting from the formula of (i) 95,908,502 divided by (ii) the number of Company Outstanding Units (the “Company Exchange Ratio”); provided, however, that if the Parties mutually agree, for Nasdaq listing purposes, then the Company Exchange Ratio may be adjusted, in which case any other ratios described herein that would be impacted by such change shall be proportionately adjusted (such shares referred to as the “Company Merger Consideration”).
(c) Conversion of Merger Sub 1 Membership Interests. At the Metuchen Effective Time, each common limited liability company interest of Merger Sub 1 shall be converted into one common limited liability company interest of Metuchen Surviving LLC.
(d) Cancellation of Parent Stock. All shares of Parent Common Stock that are held by the Company immediately prior to the Effective Times shall cease to be outstanding and shall be cancelled and shall cease to exist, and no consideration shall be delivered in exchange therefor.
2.2 Metuchen Exchange Procedures.
(a) Exchange Agent. Prior to the Effective Times, Parent shall deposit with a nationally recognized financial institution or trust company designated by Parent and Neurotrope and reasonably acceptable to the Company to act as exchange agent (the “Exchange Agent”) for the exchange of certificates representing the full number of shares of Parent Stock (as defined below) issuable pursuant to Sections 2.1(b), 2.3(b) and 2.3(c) in exchange for outstanding shares of Neurotrope Stock and Company Units (such shares of Parent Stock provided to the Exchange Agent, the “Exchange Fund”). Parent shall cause the Exchange Agent to deliver the Parent Common Stock contemplated to be issued pursuant to Sections 2.1(b), 2.3(b) and 2.3(c) out of the Exchange Fund. The Exchange Fund shall not be used for any other purpose. Parent, the Company and Neurotrope shall enter into an agreement relating to the Exchange Agent’s responsibilities under this Agreement.
| 8 |
(b) Delivery of Parent Stock. Upon the delivery of by each holder of Company Units of a Unitholder FIRPTA Certificate, Parent shall cause the Exchange Agent to deliver as promptly as practicable after the Metuchen Effective Time, in respect of each Company Unit, the shares of Parent Common Stock (all of which shall be in uncertificated book-entry form unless a physical certificate is requested by such holder of record, such shares are the subject of a lock-up agreement or lock-up provisions in Parent’s certificate of incorporation or such shares constitute restricted securities or control securities under the Securities Act of 1933, as amended and the rules and regulations promulgated thereunder (the “Securities Act”) representing, in the aggregate, the whole number of shares that such holder has the right to receive pursuant to Section 2.1(b) and such holder shall cease to be a member of the Metuchen Surviving LLC or to have any rights or interests with respect thereto.
(c) Withholding Rights. Parent shall be entitled to deduct and withhold from the consideration otherwise payable to any holder of a Company Unit pursuant to this Agreement such amounts as may be required to be deducted and withheld with respect to the making of such payment under the Code, or under any provision of state, local or foreign tax Legal Requirement. To the extent that amounts are so withheld and paid over to the appropriate taxing authority, Parent will be treated as though it withheld an appropriate amount of the type of consideration otherwise payable pursuant to this Agreement to any holder of Company Units, sold such consideration for an amount of cash equal to the fair market value of such consideration at the time of such deemed sale and paid such cash proceeds to the appropriate taxing authority.
2.3 Effect on Capital Stock of Neurotrope, Merger Sub 2 and Parent. At the Neurotrope Effective Time, by virtue of the Neurotrope Merger and without any action on the part of Neurotrope, Parent, Merger Sub 2 or any holder of (i) any shares of Neurotrope common stock, $0.0001 par value per share (“Neurotrope Common Stock”) or (ii) any shares of Neurotrope preferred stock, $0.0001 par value per share (“Neurotrope Preferred Stock” and, together with Neurotrope Common Stock, “Neurotrope Stock”):
(a) Conversion of Certain Stock. All shares of Neurotrope Common Stock that are held by Neurotrope as treasury stock or that are owned by Neurotrope, Merger Sub 2 or any other wholly owned subsidiary of Neurotrope immediately prior to the Neurotrope Effective Time shall cease to be outstanding and shall be cancelled and shall cease to exist, and no consideration shall be delivered in exchange therefor.
(b) Conversion of Neurotrope Common Stock. Subject to the other provisions of Article II (including, without limitation, Section 2.6), each share of Neurotrope Common Stock issued and outstanding immediately prior to the Neurotrope Effective Time (other than Dissenting Shares) shall be converted into a number of validly issued, fully paid and non-assessable shares of Parent Common Stock equal to 1.00 (the “Neurotrope Common Exchange Ratio”; provided, however, that if the Parties mutually agree, for Nasdaq listing purposes, then the Neurotrope Common Exchange Ratio may be some ratio other than 1.00, in which case any other ratios described herein that would be impacted by such change shall be proportionately adjusted (such shares referred to collectively as the “Neurotrope Common Merger Consideration”). As of the Neurotrope Effective Time, all shares of Neurotrope Common Stock shall cease to be outstanding and shall cease to exist, and each holder of a certificate representing any such shares of Neurotrope Common Stock (a “Neurotrope Common Certificate”) or shares of Neurotrope Common Stock held in book entry form (the “Neurotrope Common Book-Entry Shares”) shall, subject to Section 2.6, cease to have any rights with respect thereto, except the right to receive, in accordance with this Section 2.3(b), the Neurotrope Common Merger Consideration upon surrender of such Neurotrope Common Certificate, without interest.
| 9 |
(c) Conversion of Neurotrope Preferred Stock. Subject to the other provisions of Article II (including, without limitation, Section 2.6), each share of Neurotrope Preferred Stock issued and outstanding immediately prior to the Neurotrope Effective Time (other than Dissenting Shares) shall be converted into a number of validly issued, fully paid and non-assessable shares of Parent Preferred Stock equal to 1.00 (the “Neurotrope Preferred Exchange Ratio”; provided that if the Parties mutually agree, for Nasdaq listing purposes, then the Neurotrope Preferred Exchange Ratio may be some ratio other than 1.00, in which case any other ratios described herein that would be impacted by such change shall be proportionately adjusted (such shares referred to collectively as the “Neurotrope Preferred Merger Consideration” and collectively with the Neurotrope Common Merger Consideration, the “Neurotrope Merger Consideration”). As of the Neurotrope Effective Time, all shares of Neurotrope Preferred Stock shall cease to be outstanding and shall cease to exist, and each holder of a certificate representing any such shares of Neurotrope Preferred Stock (a “Neurotrope Preferred Certificate” and collectively with the Neurotrope Common Certificate, the “Neurotrope Certificates”) or shares of Neurotrope Preferred Stock held in book entry form (the “Neurotrope Preferred Book-Entry Shares” and collectively with the Neurotrope Common Book-Entry Shares, the “Neurotrope Book-Entry Shares”) shall, subject to Section 2.6, cease to have any rights with respect thereto, except the right to receive, in accordance with this Section 2.3(c), the Neurotrope Preferred Merger Consideration upon surrender of such Neurotrope Preferred Certificate, without interest. Following the Mergers, the Parent Preferred Stock will have substantially the same conversion rights (proportionally adjusted to give effect to the Mergers), powers, rights and privileges as the Neurotrope Preferred Stock prior to the Mergers.
(d) Conversion of Neurotrope Options. At the Neurotrope Effective Time, each Neurotrope Option that is outstanding and unexercised immediately prior to the Neurotrope Effective Time, whether or not vested, shall be converted into and become an option to purchase Parent Common Stock, and Parent shall assume the Neurotrope Stock Option Plans and each such Neurotrope Option in accordance with its terms (as in effect as of the date of this Agreement). All rights with respect to Neurotrope Common Stock under Neurotrope Options assumed by Parent shall thereupon be converted into rights with respect to Parent Common Stock. Accordingly, from and after the Neurotrope Effective Time: (i) each Neurotrope Option assumed by Parent may be exercised solely for shares of Parent Common Stock; (ii) the number of shares of Parent Common Stock subject to each Neurotrope Option assumed by Parent shall be determined by multiplying (A) the number of shares of Neurotrope Common Stock that were subject to such Neurotrope Option, as in effect immediately prior to the Neurotrope Effective Time by (B) the Neurotrope Common Exchange Ratio and rounding the resulting number down to the nearest whole number of shares of Parent Common Stock; (iii) the per share exercise price for the Parent Common Stock issuable upon exercise of each Neurotrope Option assumed by Parent shall be determined by dividing (A) the per share exercise price of Neurotrope Common Stock subject to such Neurotrope Option, as in effect immediately prior to the Neurotrope Effective Time, by (B) the Neurotrope Common Exchange Ratio and rounding the resulting exercise price up to the nearest whole cent; and (iv) any restriction on the exercise of any Neurotrope Option assumed by Parent shall continue in full force and effect and the term, exercisability, vesting schedule and other provisions of such Neurotrope Option shall otherwise remain unchanged; provided, however, that: (A) to the extent provided under the terms of a Neurotrope Option, such Neurotrope Option assumed by Parent in accordance with this Section 2.3(d) shall, in accordance with its terms, be subject to further adjustment as appropriate to reflect any stock split, division or subdivision of shares, stock dividend, reverse stock split, consolidation of shares, reclassification, recapitalization or other similar transaction with respect to Parent Common Stock subsequent to the Neurotrope Effective Time; and (B) Parent’s Board of Directors or a committee thereof shall succeed to the authority and responsibility of the Neurotrope Board or any committee thereof with respect to each Neurotrope Option assumed by Parent. Notwithstanding anything to the contrary in this Section 2.3(d), the conversion of each Neurotrope Option (regardless of whether such option qualifies as an “incentive stock option” within the meaning of Section 422 of the Code) into an option to purchase shares of Parent Common Stock shall be made in a manner consistent with Treasury Regulation Section 1.424-1, such that the conversion of a Neurotrope Option shall not constitute a “modification” of such Neurotrope Option for purposes of Section 409A or Section 424 of the Code.
| 10 |
(e) Conversion of Neurotrope Warrants. At the Neurotrope Effective Time, each Neurotrope Warrant that is outstanding and unexercised immediately prior to the Neurotrope Effective Time, whether or not vested, shall be converted into and become a warrant to purchase Parent Common Stock, and Parent shall assume each such Neurotrope Warrant in accordance with its terms (as in effect as of the date of this Agreement). All rights with respect to Neurotrope Common Stock under Neurotrope Warrants assumed by Parent shall thereupon be converted into rights with respect to Parent Common Stock. Accordingly, from and after the Neurotrope Effective Time: (i) each Neurotrope Warrant assumed by Parent may be exercised solely for shares of Parent Common Stock; (ii) the number of shares of Parent Common Stock subject to each Neurotrope Warrant assumed by Parent shall be determined by multiplying (A) the number of shares of Neurotrope Common Stock that were subject to such Neurotrope Warrant, as in effect immediately prior to the Neurotrope Effective Time by (B) the Neurotrope Common Exchange Ratio and rounding the resulting number down to the nearest whole number of shares of Parent Common Stock; (iii) the per share exercise price for the Parent Common Stock issuable upon exercise of each Neurotrope Warrant assumed by Parent shall be determined by dividing (A) the per share exercise price of Neurotrope Common Stock subject to such Neurotrope Warrant, as in effect immediately prior to the Neurotrope Effective Time, by (B) the Neurotrope Common Exchange Ratio and rounding the resulting exercise price up to the nearest whole cent; and (iv) any restriction on the exercise of any Neurotrope Warrant assumed by Parent shall continue in full force and effect and the term, exercisability, vesting schedule and other provisions of such Neurotrope Warrant shall otherwise remain unchanged; provided, however, that to the extent provided under the terms of a Neurotrope Warrant, such Neurotrope Warrant assumed by Parent in accordance with this Section 2.3(e) shall, in accordance with its terms, be subject to further adjustment as appropriate to reflect any stock split, division or subdivision of shares, stock dividend, reverse stock split, consolidation of shares, reclassification, recapitalization or other similar transaction with respect to Parent Common Stock subsequent to the Neurotrope Effective Time.
| 11 |
(f) Conversion of Merger Sub 2 Stock. Each share of Merger Sub 2 common stock issued and outstanding immediately prior to the Neurotrope Effective Time shall be converted into one share of common stock, par value $0.01 per share, of Neurotrope Surviving Corporation.
(g) Cancellation of Parent Stock. Each share of Parent Common Stock that is held by Neurotrope immediately prior to the Effective Times shall cease to be outstanding and shall be cancelled and shall cease to exist, and no consideration shall be delivered in exchange therefor.
2.4 Neurotrope Exchange Procedures.
(a) Neurotrope Certificates. Parent shall instruct the Exchange Agent to mail, as soon as reasonably practicable after the Neurotrope Effective Time, to each holder of record of a Neurotrope Certificate (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Neurotrope Certificates shall pass, only upon delivery of the Neurotrope Certificates to the Exchange Agent and shall be in customary form and have such other provisions as are reasonably satisfactory to both Neurotrope and the Company) and (ii) instructions for use in effecting the surrender of the Neurotrope Certificates in exchange for the Neurotrope Merger Consideration. Upon surrender of a Neurotrope Certificate for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly executed, and such other documents as may reasonably be required by the Exchange Agent, the holder of such Neurotrope Certificate shall be entitled to receive in exchange therefor, and Parent shall cause the Exchange Agent to deliver in exchange thereof as promptly as practicable the number of whole shares of Parent Common Stock and/or Parent Preferred Stock (which shall be in non-certificated book entry form unless a physical certificate is requested by such holder, such shares are the subject of a lock-up agreement or lock-up provisions in Parent’s certificate of incorporation or such shares constitute restricted securities or control securities under the Securities Act), as the case may be, representing, in the aggregate, the whole number of shares that such holder has the right to receive pursuant to Section 2.3(b) and/or (c), as the case may be, and the Neurotrope Certificate so surrendered shall forthwith be cancelled. In the event of a transfer of ownership of Neurotrope Common Stock or Neurotrope Preferred Stock that is not registered in the transfer records of Neurotrope, shares may be issued to a person other than the person in whose name the Neurotrope Certificate so surrendered is registered, if such Neurotrope Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such issuance shall pay any transfer or other taxes required by reason of the issuance to a person other than the registered holder of such Neurotrope Certificate or establish to the satisfaction of Parent that such tax has been paid or is not applicable.
| 12 |
(b) Neurotrope Book-Entry Shares. Notwithstanding anything to the contrary contained in this Agreement, any holder of Neurotrope Book-Entry Shares shall not be required to deliver a Neurotrope Certificate or an executed letter of transmittal to the Exchange Agent to receive the applicable Neurotrope Merger Consideration that such holder is entitled to receive pursuant to this Article II. In lieu thereof, each holder of record of one or more Neurotrope Book-Entry Shares whose shares of Neurotrope Common Stock and/or Neurotrope Preferred Stock, as the case may be, were converted into the right to receive the applicable Neurotrope Merger Consideration shall automatically upon the Neurotrope Effective Time (or, at any later time at which such Neurotrope Book-Entry Shares shall be so converted) be entitled to receive, and Parent shall cause the Exchange Agent to pay and deliver as promptly as practicable after the Neurotrope Effective Time, in respect of each share of Neurotrope Common Stock or Neurotrope Preferred Stock, as the case may be, the number of whole shares of Parent Common Stock and/or Parent Preferred Stock, as the case may be (which, in each case, shall be in non-certificated book entry form unless a physical certificate is requested by such holder of record, such shares are the subject of a lock-up agreement or lock-up provisions in Parent’s certificate of incorporation or such shares constitute restricted securities or control securities under the Securities Act), representing, in the aggregate, the whole number of shares that such holder has the right to receive pursuant to Sections 2.1(b) and 2.1(c), and the Neurotrope Book-Entry Shares of such holder shall forthwith be canceled.
(c) No Further Ownership Rights in Neurotrope Common Stock. The Neurotrope Merger Consideration issued in accordance with the terms of this Article II upon the surrender of the Neurotrope Certificates (or, automatically, in the case of the Neurotrope Book-Entry Shares) shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Neurotrope Common Stock or Neurotrope Preferred Stock. After the Neurotrope Effective Time there shall be no further registration of transfers on the stock transfer books of Neurotrope Surviving Corporation of shares of Neurotrope Common Stock or Neurotrope Preferred Stock that were outstanding immediately prior to the Neurotrope Effective Time. If, after the Neurotrope Effective Time, any Neurotrope Certificates formerly representing shares of Neurotrope Stock are presented to the Neurotrope Surviving Corporation or the Exchange Agent for any reason, they shall be cancelled and exchanged as provided in this Article II. No dividends or other distributions, if any, with a record date after the Neurotrope Effective Time shall be paid to the holder of any unsurrendered Neurotrope Common Stock or Neurotrope Preferred Stock until such holder shall surrender such Neurotrope Common Stock or Neurotrope Preferred Stock, as the case may be, in accordance with this Section 2.4. After the surrender of Neurotrope Common Stock and Neurotrope Preferred Stock in accordance with this Section 2.4, the holder thereof shall be entitled (in addition to the Neurotrope Merger Consideration issuable to such holder pursuant to this Article II) to any dividends or other distributions, without interest thereon, which, prior to such surrender, had become payable with respect to the Parent Common Stock and/or Parent Preferred Stock, as the case may be, to be issued in exchange for such Neurotrope Common Stock and/or Neurotrope Preferred Stock, as the case may be.
(d) Termination of Exchange Fund. Any portion of the Exchange Fund that remains undistributed to the holders of Neurotrope Common Stock and Neurotrope Preferred Stock for 180 days after the Neurotrope Effective Time shall be delivered to Parent, upon demand, and any holder of Neurotrope Common Stock or Neurotrope Preferred Stock who has not theretofore complied with this Article II shall thereafter look only to Parent (subject to abandoned property, escheat or other similar laws) for payment of its claim for the Neurotrope Merger Consideration and any dividends and distributions which such holder has the right to receive with respect to such Neurotrope Merger Consideration. Notwithstanding any other provision of this Agreement, any portion of the Neurotrope Merger Consideration that remains undistributed to the holders of Neurotrope Certificates as of the second anniversary of the Neurotrope Effective Time (or immediately prior to such earlier date on which the Neurotrope Merger Consideration or such cash would otherwise escheat to or become the property of any Governmental Body), shall, to the extent permitted by applicable Law, become the property of the Neurotrope Surviving Corporation, free and clear of all claims or interest of any person previously entitled thereto.
| 13 |
(e) No Liability. None of Neurotrope, the Company, Parent, the Merger Subs or the Exchange Agent shall be liable to any person in respect of any shares of Parent Common Stock or Parent Preferred Stock from the Exchange Fund properly delivered to a public official pursuant to any applicable abandoned property, escheat or similar Legal Requirement.
(f) Lost, Stolen or Destroyed Certificates. In the event any Neurotrope Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Neurotrope Certificate to be lost, stolen or destroyed and, if required by Parent or the Exchange Agent, the posting by such person of a bond in reasonable amount as indemnity against any claim that may be made against it with respect to such Neurotrope Certificate, the Exchange Agent (or, if subsequent to the termination of the Exchange Fund and subject to Section 2.4(d), Parent) will issue in exchange for such lost, stolen or destroyed Neurotrope Certificate the shares of Parent Common Stock or Parent Preferred Stock, as the case may be, that would be deliverable in respect thereof pursuant to this Agreement had such lost, stolen or destroyed Neurotrope Certificate been surrendered as provided in this Article II.
(g) Withholding Rights. Parent shall be entitled to deduct and withhold from the consideration otherwise payable to any holder of Neurotrope Common Stock, and Neurotrope Preferred Stock, Neurotrope Option, or Neurotrope Warrant pursuant to this Agreement such amounts as may be required to be deducted and withheld with respect to the making of such payment under the Code, or under any provision of state, local or foreign tax Legal Requirement. To the extent that amounts are so withheld and paid over to the appropriate taxing authority, Parent will be treated as though it withheld an appropriate amount of the type of consideration otherwise payable pursuant to this Agreement to any holder of Neurotrope Common Stock, and Neurotrope Preferred Stock, Neurotrope Option, or Neurotrope Warrant sold such consideration for an amount of cash equal to the fair market value of such consideration at the time of such deemed sale and paid such cash proceeds to the appropriate taxing authority.
2.5 No Fractional Shares. No certificates or scrip representing fractional shares of Parent Common Stock or Parent Preferred Stock will be issued in the Mergers, but in lieu thereof, the number of shares of Parent Common Stock or Parent Preferred Stock, as the case may be, to be delivered to each holder of Company Common Units, Neurotrope Common Stock or Neurotrope Preferred Stock shall be rounded down to the nearest whole share.
2.6 Dissenting Shares. Notwithstanding anything in this Agreement to the contrary, and solely to the extent available to Neurotrope stockholders under Section 92A.390 et seq. of the Nevada Revised Statutes, Neurotrope Capital Stock that is outstanding immediately prior to the Neurotrope Effective Time and that is held by stockholders who shall not have voted in favor of the Neurotrope Merger or consented thereto in writing and who shall have demanded properly in writing appraisal (“Dissent Rights”) for such shares (collectively, the “Dissenting Shares”) in accordance with Section 92A.390 et seq. of the Nevada Revised Statutes shall not be converted into or represent the right to receive shares of Parent Common Stock or Parent Preferred Stock, as the case may be. To the extent Dissent Rights are available pursuant to Section 92A.390 et seq. of the Nevada Revised Statutes, such stockholders shall be entitled to receive payment of the appraised value of the Dissenting Shares held by them in accordance with the provisions of said Section 92A.390 except that all Dissenting Shares held by stockholders who shall have failed to perfect or who effectively shall have withdrawn or lost their rights to appraisal of such Dissenting Shares under such Section 92A.390 et seq. of the Nevada Revised Statutes shall thereupon be deemed to have been converted into and to have become exchangeable, as of the Neurotrope Merger Effective Time, for the right to receive, without any interest thereon, the shares of Parent Common Stock or Parent Preferred Stock, as the case may be, in the manner provided in Section 2.3 above. For the avoidance of doubt, neither Neurotrope nor any other Party intends to confer upon any Neurotrope stockholder any right of appraisal or dissenters’ right that is in addition to the rights to which Neurotrope stockholders are expressly entitled under Section 92A.390 et seq. of the Nevada Revised Statutes by reason of the Neurotrope Merger.
| 14 |
2.7 Certain Adjustments. If, between the date of this Agreement and the Closing Date (and as permitted by Article VI), the outstanding Neurotrope Common Stock, Neurotrope Preferred Stock, Company Units, Parent Common Stock or Parent Preferred Stock shall have been changed into a different number of shares or units or a different class by reason of any dividend, distribution, subdivision, reorganization, reclassification, redemption, recapitalization, stock split, reverse stock split, combination or exchange of shares, or any similar event shall have occurred, then the Company Merger Consideration and the Company Exchange Ratio and any other similarly dependent items, as the case may be, shall be equitably adjusted, without duplication, to proportionally reflect such change.
2.8 Further Assurances. If at any time before or after the Effective Times, Neurotrope or the Company reasonably believes or is advised that any further instruments, deeds, assignments or assurances are reasonably necessary or desirable to consummate the Mergers or to carry out the purposes and intent of this Agreement at or after the Effective Times, then Neurotrope, Parent, the Merger Subs, the Company and the Surviving Companies and their respective officers and directors shall execute and deliver all such proper instruments, deeds, assignments or assurances and do all other things reasonably necessary or desirable to consummate the Mergers and to carry out the purposes and intent of this Agreement. Each of Neurotrope and the Company shall timely take all necessary action, in its capacity as a stockholder of Parent, and shall cause its officers, employees and representatives, in their capacities as directors and officers of Parent, Merger Sub 1 and/or Merger Sub 2, to timely take all necessary action, required to give effect to the terms and provisions of this Agreement. Neither Neurotrope nor the Company shall, in its capacity as a stockholder of Parent, nor shall Neurotrope or the Company permit its officers, directors, managers or representatives to take, in their capacities as officers and/or directors of Parent, Merger Sub 1 or Merger Sub 2, any action that would, or would reasonably be expected to result in the failure of Parent, Merger Sub 1 or Merger Sub 2 to comply with their respective obligations hereunder or would otherwise prohibit, materially delay or impede the Closing or the satisfaction of any condition to either Neurotrope’s or the Company’s obligations to consummate the Closing.
| 15 |
Article 3.
REPRESENTATIONS AND WARRANTIES OF COMPANY
Except as set forth in the corresponding sections or subsections of the Company Disclosure Schedule, the Company represents and warrants to Neurotrope as follows:
3.1 Organization and Qualification; Charter Documents.(a)
(a) Part 3.1(a) of the Company Disclosure Schedule identifies each Subsidiary of Company and indicates its jurisdiction of organization. Neither Company nor any of the Entities identified in Part 3.1(a) of the Company Disclosure Schedule owns any capital stock of, or any equity interest of any nature in, any other Entity, other than the Entities identified in Part 3.1(a) of the Company Disclosure Schedule. None of the Metuchen Companies has agreed or is obligated to make, or is bound by any Contract under which it may become obligated to make, any future investment in or capital contribution to any other Entity.
(b) Each of the Metuchen Companies is a corporation, limited liability company or similar entity duly organized, validly existing and, in jurisdictions that recognize the concept, is in good standing under the laws of the jurisdiction of its incorporation, formation or other establishment, as applicable, and has all necessary Entity power and authority: (i) to conduct its business in the manner in which its business is currently being conducted; (ii) to own and use its assets in the manner in which its assets are currently owned and used; and (iii) to perform its obligations under all Contracts by which it is bound.
(c) Each of the Metuchen Companies (in jurisdictions that recognize the following concepts) is qualified to do business as a foreign Entity, and is in good standing, under the laws of all jurisdictions where the nature of its business requires such qualification except where the failure to be so qualified would not, individually or in the aggregate, have a Company Material Adverse Effect.
(d) Company has made available to Neurotrope accurate and complete copies of: (i) the certificate of incorporation, bylaws and other charter and organizational documents of each Metuchen Company, including all amendments thereto; (ii) the stock records of each Metuchen Company; and (iii) the minutes and other records of the meetings and other proceedings (including any actions taken by written consent or otherwise without a meeting) of the stockholders of each Metuchen Company, the board of directors of each Metuchen Company and all committees of the board of directors of each Metuchen Company. Except as disclosed in Part 3.1(a) of the Company Disclosure Schedule, the books of account, stock records, minute books and other records of the Metuchen Companies are accurate, up-to-date and complete in all material respects, and have been maintained in accordance with prudent business practices.
3.2 Capital Structure.
(a) The authorized equity of Company consists of 5,691,281.99 fully diluted Company Units, of which (i) 1,619,753.11 Company Preferred Units are issued and outstanding as of the date of this Agreement, (ii) 3,434,551.28 Company Common Units are issued and outstanding as of the date of this Agreement, and (iii) 636,977.59 Company Units are reserved for issuance in connection with the Company Warrants and Company Options as set forth in Section 3.2(b) herein. No Company Units are held in Company’s treasury as of the date of this Agreement. All outstanding Company Units are duly authorized, validly issued, fully paid and non-assessable and were issued in compliance with all applicable federal and state securities Legal Requirements.
| 16 |
(b) As of the date of this Agreement, (i) no Company Common Units are reserved for issuance to employees, consultants and non-employee directors, and no Company Options are issued or outstanding, and (ii) Company has reserved 636,977.59 Company Common Units for issuance to holders of Company Warrants upon their exercise. All Company Common Units subject to issuance as aforesaid, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, would be duly authorized, validly issued, fully paid and non-assessable. Part 3.2(b) of the Company Disclosure Schedule lists each holder of Company Units and the number and type of Company Units held by such holder, each outstanding Company Option and Company Warrant, the name of the holder of such Company Option or Company Warrant, the number of shares subject to such Company Option or Company Warrant, the exercise price of such Company Option or Company Warrant, the vesting schedule of such Company Option or Company Warrant and whether the exercisability of such Company Option or Company Warrant will be accelerated in any way by the transactions contemplated by this Agreement, indicating the extent of acceleration, if any.
(c) Except as set forth on Part 3.2(c) of the Company Disclosure Schedule: (i) none of the outstanding Company Units are entitled or subject to any preemptive right, right of repurchase or forfeiture, right of participation, right of maintenance or any similar right; (ii) none of the outstanding Company Units are subject to any right of first refusal in favor of Company or any other Person for which a waiver of such right of first refusal shall have not been obtained; (iii) there are no outstanding bonds, debentures, notes or other indebtedness of the Metuchen Companies having a right to vote on any matters on which the Company Members have a right to vote; (iv) there is no Contract to which the Metuchen Companies are a party relating to the voting or registration of, or restricting any Person from purchasing, selling, pledging or otherwise disposing of (or from granting any option or similar right with respect to), any Company Units. Except as set forth on Part 3.2(c) of the Company Disclosure Schedule, none of the Metuchen Companies is under any obligation, or is bound by any Contract pursuant to which it may become obligated, to repurchase, redeem or otherwise acquire any outstanding Company Units or other securities. Each Company Preferred Unit is convertible into one Company Common Unit.
3.3 Authority; Non-Contravention; Approvals
(a) Company has the requisite limited liability company power and authority to enter into this Agreement and, subject to the Preferred Members Consent, to perform its obligations hereunder and to consummate the Company Transactions. The execution and delivery of this Agreement by Company, the performance by Company of its obligations hereunder and the consummation by Company of the Company Transactions have been duly authorized by all necessary limited liability company action on the part of Company, subject only to the Preferred Members Consent and the filing and recordation of the Metuchen Certificate of Merger pursuant to Delaware Law. The Preferred Members Consent is the only vote of the holders of any class or series of Company Units necessary to adopt this Agreement and approve the Mergers and the other Company Transactions (the “Required Company Vote”). This Agreement has been duly executed and delivered by Company and, assuming the due authorization, execution and delivery by Neurotrope and Parent, constitutes the valid and binding obligation of Company, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy and other similar laws and general principles of equity.
| 17 |
(b) The Company Board, by resolutions duly adopted by unanimous written consent of the Company Board and, as of the date of this Agreement, not subsequently rescinded or modified in any way, has, as of the date of this Agreement (i) approved this Agreement and the Mergers, and determined that this Agreement and the Transactions, including the Mergers, are fair to, and in the best interests of the Company Members, and (ii) resolved to recommend that the holders of a majority of the Company Preferred Units adopt this Agreement and approve the Mergers and all other Transactions and directed that such matters be submitted for consideration of the holders of a majority of the Company Preferred Units.
(c) The execution and delivery of this Agreement by Company does not, and the performance of this Agreement by Company will not, (i) conflict with or violate the certificate of formation or operating agreement of Company or the equivalent organizational documents of any of its Subsidiaries, (ii) subject to obtaining the Preferred Members Consent and compliance with the requirements set forth in Section 3.3(d) below, conflict with or violate any Legal Requirement applicable to Company or any of its Subsidiaries or by which its or any of their respective properties is bound or affected, except for any such conflicts or violations that would not, individually or in the aggregate, have a Company Material Adverse Effect or would not prevent or materially delay the consummation of the Mergers, (iii) require any Metuchen Company to make any filing with or give any notice to a Person, to obtain any Consent from a Person, or result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair Company’s rights or alter the rights of obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the properties or assets of Company or any of its Subsidiaries pursuant to, any Company Contract (as defined below), except as would not, individually or in the aggregate, have a Company Material Adverse Effect or prevent or materially delay the Mergers or (iv) result in the creation of any Encumbrance (other than Permitted Encumbrances) on any of the properties or assets of any Metuchen Company, except as would not, individually or in the aggregate, have a Company Material Adverse Effect or prevent or materially delay the Mergers.
(d) No material consent, approval, order or authorization of, or registration, declaration or filing with any Governmental Body is required by or with respect to the Company in connection with the execution and delivery of this Agreement or the consummation of the Transactions, except for (i) the filing of the Metuchen Certificate of Merger with the Secretary of State of the State of Delaware; (ii) the filing of the Registration Statement, in which the Proxy Statement will be included as a prospectus with the Securities and Exchange Commission (“SEC”) in accordance with the Securities Act and the Securities Exchange Act of 1934, as amended (the “Exchange Act”); (iii) such Consents, orders, registrations, declarations and filings as may be required under applicable federal and state securities laws and (iv) such Consents as may be required under (A) the HSR Act or (B) any other Legal Requirements that are designed or intended to prohibit, restrict, or regulate actions having the purpose or effect of monopolization or restraint of trade or significant impediments or lessening of competition or creation or strengthening of a dominant position through merger or acquisition (“Foreign Antitrust Laws” and, together with the HSR Act, the “Antitrust Laws”), in any case that are applicable to the transactions contemplated by this Agreement.
| 18 |
3.4 Anti-Takeover Statutes Not Applicable. The Company Board has taken all actions so that no state takeover statute or similar Legal Requirement applies or purports to apply to the execution, delivery or performance of this Agreement or to the consummation of the Mergers or the other Transactions.
3.5 Company Financial Statements; No Undisclosed Liabilities.
(a) The audited consolidated financial statements (including any related notes thereto) representing the financial condition of Company as of December 31, 2019 and 2018 (collectively, the “Company Financials”), including any available quarterly financial statements (including any related notes thereto), (i) were prepared in accordance with United States generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto), (ii) fairly presented the consolidated financial position of Company and its Subsidiaries as at the respective dates thereof and the consolidated results of its operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments which were not, or are not expected to be, material in amount, and (iii) are consistent with, and have been prepared from, the books and records of Company. The balance sheet of Company as of December 31, 2019, is hereinafter referred to as the “Company Balance Sheet.” Notwithstanding the foregoing, unaudited financial statements are subject to normal recurring year-end adjustments (the effect of which will not, individually or in the aggregate, be material) and the absence of footnotes.
(b) Except as disclosed in Part 3.5(b) of the Company Disclosure Schedule, each of Company and its Subsidiaries maintains a system of internal accounting controls designed to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Company and each of its Subsidiaries maintains internal controls over financial reporting that provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
(c) Since January 1, 2017 (the “Company Lookback Date”), there have been no formal investigations regarding financial reporting or accounting policies and practices discussed with, reviewed by or initiated at the direction of the chief executive officer, chief financial officer or general counsel of Company, the Company Board or any committee thereof. Since the Company Lookback Date, neither the Company nor its independent auditors have identified (i) any significant deficiency or material weakness in the system of internal accounting controls utilized by Company, (ii) any fraud, whether or not material, that involves Company’s management or other employees who have a role in the preparation of financial statements or the internal accounting controls utilized by Company, or (iii) any claim or allegation regarding any of the foregoing.
| 19 |
(d) Except as disclosed in the Company Financials, neither Company nor any of its Subsidiaries has any liabilities, Indebtedness, obligation, expense, claim, deficiency, guaranty, or endorsement of any kind, whether accrued, absolute, contingent, matured, or unmatured (whether or not required to be reflected in the financial statements in accordance with GAAP) (each, a “Liability”) except Liabilities (i) identified in the Company Balance Sheet, (ii) incurred in connection with the Transactions, (iii) described on Part 3.5(d) of the Company Disclosure Schedule, (iv) incurred since the date of the Company Balance Sheet in the ordinary course of business consistent with past practices, (v) set forth in any Company Contract or (vi) would not have, individually or in the aggregate, a Company Material Adverse Effect.
3.6 Absence Of Certain Changes Or Events. Except as disclosed in Part 3.6 of the Company Disclosure Schedule, since the date of the Company Balance Sheet through the date of this Agreement and other than with respect to the negotiation, execution and performance of this Agreement, each of the Metuchen Companies has conducted its business only in the ordinary course of business consistent with past practice, and there has not been: (a) any event that has had a Company Material Adverse Effect, (b) any material change by Company in its accounting methods, principles or practices, except as required by concurrent changes in GAAP or as disclosed in the notes to the Company Financials, (c) any revaluation by Company of any of its assets having a Company Material Adverse Effect, or writing off notes or accounts receivable other than in the ordinary course of business, or (d) any other action, event or occurrence that would have required the consent of Neurotrope pursuant to Section 5.1 of this Agreement had such action, event or occurrence taken place after the execution and delivery of this Agreement.
3.7 Taxes.
(a) Each income and other material Tax Return that any Metuchen Company was required to file under applicable Legal Requirements: (i) has been timely filed on or before the applicable due date (including any extensions of such due date) and (ii) is true and complete in all material respects. All material Taxes due and payable by Company or its Subsidiaries have been timely paid, except to the extent such amounts are being contested in good faith by Company or are properly reserved for on the books or records of Company and its Subsidiaries. Except as disclosed in Part 3.7 of the Company Disclosure Schedule, no extension of time with respect to any date on which a Tax Return was required to be filed by any Metuchen Company is in force (except where such Tax Return was filed), and no waiver or agreement by or with respect to any Metuchen Company is in force for the extension of time for the payment, collection or assessment of any Taxes, and no request has been made by any Metuchen Company in writing for any such extension or waiver (except, in each case, in connection with any request for extension of time for filing Tax Returns). There are no liens for Taxes on any asset of any Metuchen Company other than liens for Taxes not yet due and payable, Taxes contested in good faith or that are otherwise not material and reserved against in accordance with GAAP. No deficiency with respect to Taxes has been proposed, asserted or assessed in writing against Company or its Subsidiaries which has not been fully paid or adequately reserved or reflected in the Company Financials.
| 20 |
(b) No closing agreements, private letter rulings, technical advice memoranda or similar agreements or rulings have been entered into by any Metuchen Company with any taxing authority or issued by any taxing authority to any Metuchen Company. There are no outstanding rulings of, or request for rulings with, any Governmental Body addressed to any Metuchen Company that are, or if issued would be, binding on any Metuchen Company.
(c) No Metuchen Company is a party to any Contract with any third party relating to allocating or sharing the payment of, or liability for, Taxes or Tax benefits (other than pursuant to customary provisions included in credit agreements, leases, and agreements entered with employees, in each case, not primarily related to Taxes and entered into in the ordinary course of business). No Metuchen Company has any liability for the Taxes of any third party under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign Legal Requirement) as a transferee or successor or otherwise by operation of Legal Requirements.
(d) None of the Metuchen Companies is a “controlled foreign corporation” within the meaning of Section 957 of the Code or “passive foreign investment company” within the meaning of Section 1297 of the Code.
(e) No Metuchen Company has participated in, or is currently participating in, a “listed transaction” within the meaning of Treasury Regulation Section 1.6011-4(b)(2). Company has disclosed on its respective United States federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of United States federal income Tax within the meaning of Section 6662 of the Code.
(f) No Metuchen Company is nor has been at any time during the five-year period ending at the Metuchen Effective Time a “United States real property holding corporation” as defined in Section 897(c)(2) of the Code and the applicable Treasury Regulations.
(g) No Metuchen Company has distributed stock of another Person, or has had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Sections 355 or 361 of the Code.
3.8 Intellectual Property.
(a) The Company, directly or through any of its Subsidiaries, owns, or has the right to use, and has the right to bring actions for the infringement of, all Company IP Rights, except for any failure to own or have such right to use, or have the right to bring actions that would not reasonably be expected to have a Company Material Adverse Effect.
(b) Part 3.8(b) of the Company Disclosure Schedule is an accurate, true and complete listing of all Company Registered IP.
(c) Part 3.8(c) of the Company Disclosure Schedule accurately identifies (i) all Company IP Rights licensed to the Company or any of its Subsidiaries (other than (A) any non-customized software that (1) is so licensed solely in executable or object code form pursuant to a non-exclusive, internal use software license and other Intellectual Property associated with such software and (2) is not incorporated into, or material to the development, manufacturing, or distribution of, any of the Company’s or any of its Subsidiaries’ products or services, (B) any Intellectual Property licensed ancillary to the purchase or use of equipment, reagents or other materials, and (C) any confidential information provided under confidentiality agreements), (ii) the corresponding Company Contract pursuant to which such Company IP Rights are licensed to the Company or any of its Subsidiaries and (iii) whether the license or licenses granted to the Company or any of its Subsidiaries are exclusive or non-exclusive.
| 21 |
(d) Part 3.8(d) of the Company Disclosure Schedule accurately identifies each Company Contract pursuant to which any Person has been granted any license under, or otherwise has received or acquired any right (whether or not currently exercisable) or interest in, any Company IP Rights (other than (i) any confidential information provided under confidentiality agreements and (ii) any Company IP Rights non-exclusively licensed to suppliers or service providers for the sole purpose of enabling such supplier or service providers to provide services for the Company’s benefit).
(e) Neither the Company nor any of its Subsidiaries is bound by, and no Company IP Rights are subject to, any Contract containing any covenant or other provision that in any way limits or restricts the ability of the Company or any of its Subsidiaries to use, exploit, assert, or enforce any Company IP Rights anywhere in the world, in each case, in a manner that would materially limit the business of the Company as currently conducted.
(f) The Company or one of its Subsidiaries exclusively owns all right, title, and interest to and in Company IP Rights (other than (i) Company IP Rights exclusively and non-exclusively licensed to the Company or one of its Subsidiaries, as identified in Part 3.8(c) of the Company Disclosure Schedule, (ii) any non-customized software that (A) is licensed to the Company or any of its Subsidiaries solely in executable or object code form pursuant to a non-exclusive, internal use software license and other Intellectual Property associated with such software and (B) is not incorporated into, or material to the development, manufacturing, or distribution of, any of the Company’s or any of its Subsidiaries’ products or services and (iii) any Intellectual Property licensed ancillary to the purchase or use of equipment, reagents or other materials), in each case, free and clear of any Encumbrances (other than Permitted Encumbrances). Without limiting the generality of the foregoing:
(i) All documents and instruments necessary to register or apply for or renew registration of Company Registered IP have been validly executed, delivered, and filed in a timely manner with the appropriate Governmental Body except for any such failure, individually or collectively, that would not reasonably be expected to have a Company Material Adverse Effect.
(ii) Each Person who is or was an employee or contractor of the Company or any of its Subsidiaries and who is or was involved in the creation or development of any Company IP Rights purported to be owned by the Company has signed a valid, enforceable agreement containing an assignment of such Intellectual Property to the Company or such Subsidiary and confidentiality provisions protecting trade secrets and confidential information of the Company and its Subsidiaries.
(iii) To the Knowledge of the Company, no current or former stockholder, officer, director, or employee of the Company or any of its Subsidiaries has any claim, right (whether or not currently exercisable), or interest to or in any Company IP Rights purported to be owned by the Company. To the Knowledge of the Company, no employee of the Company or any or any of its Subsidiaries is (a) bound by or otherwise subject to any Contract restricting him or her from performing his or her duties for the Company or such Subsidiary or (b) in breach of any Contract with any former employer or other Person concerning Company IP Rights purported to be owned by the Company or confidentiality provisions protecting trade secrets and confidential information comprising Company IP Rights purported to be owned by the Company.
| 22 |
(iv) No funding, facilities, or personnel of any Governmental Body were used, directly or indirectly, to develop or create, in whole or in part, any Company IP Rights in which the Company or any of its Subsidiaries has an ownership interest.
(v) The Company and each of its Subsidiaries has taken reasonable steps to maintain the confidentiality of and otherwise protect and enforce its rights in all proprietary information that the Company or such Subsidiary holds, or purports to hold, as a trade secret.
(vi) Neither the Company nor any of its Subsidiaries has assigned or otherwise transferred ownership of, or agreed to assign or otherwise transfer ownership of, any Company IP Rights to any other Person.
(vii) To the Knowledge of the Company, the Company IP Rights constitute all Intellectual Property necessary for the Company and its Subsidiaries to conduct its business as currently conducted.
(g) The Company has delivered or made available to Neurotrope, a complete and accurate copy of all Company IP Rights Agreements. With respect to each of the Company IP Rights Agreements: (i) each such agreement is valid and binding on the Company or its Subsidiaries, as applicable, and in full force and effect; (ii) the Company has not received any written notice of termination or cancellation under such agreement, or received any written notice of breach or default under such agreement, which breach has not been cured or waived; and (iii) neither the Company nor its Subsidiaries, and to the Knowledge of the Company, no other party to any such agreement, is in breach or default thereof in any material respect.
(h) The manufacture, marketing, license, sale or intended use of any product or technology currently licensed or sold or under development by the Company or any of its Subsidiaries does not violate any license or agreement between the Company or its Subsidiaries and any third party, and, to the Knowledge of the Company, does not infringe or misappropriate any Intellectual Property right of any other party, which infringement or misappropriation would reasonably be expected to have a Company Material Adverse Effect. To the Knowledge of the Company, no third party is infringing upon, or violating any license or agreement with the Company or its Subsidiaries relating to any Company IP Rights.
(i) There is no current or pending Legal Proceeding (including, but not limited to, opposition, interference or other proceeding in any patent or other government office) contesting the validity, ownership or right to use, sell, license or dispose of any Company IP Rights, nor has the Company or any of its Subsidiaries received any written notice asserting that any Company IP Rights or the proposed use, sale, license or disposition thereof conflicts with or infringes or misappropriates or will conflict with or infringe or misappropriate the rights of any other Person.
| 23 |
(j) Each item of Company IP Rights that is Company Registered IP is and at all times has been filed and maintained in compliance with all applicable Legal Requirements and all filings, payments, and other actions required to be made or taken to maintain such item of Company Registered IP in full force and effect have been made by the applicable deadline, except for any failure to perform any of the foregoing, individually or collectively, that would not reasonably be expected to have a Company Material Adverse Effect.
(k) To the Knowledge of the Company, no trademark (whether registered or unregistered) or trade name owned, used, or applied for by the Company or any of its Subsidiaries conflicts or interferes with any trademark (whether registered or unregistered) or trade name owned, used, or applied for by any other Person. None of the goodwill associated with or inherent in any trademark (whether registered or unregistered) in which the Company or any of its Subsidiaries has or purports to have an ownership interest has been impaired as determined by the Company or any of its Subsidiaries in accordance with GAAP.
(l) Except as set forth in Parts 3.8(c) or 3.8(d) of the Company Disclosure Schedule (i) neither the Company nor any of its Subsidiaries is bound by any Contract to indemnify, defend, hold harmless, or reimburse any other Person with respect to any Intellectual Property infringement, misappropriation, or similar claim, and (ii) neither the Company nor any of its Subsidiaries has ever assumed, or agreed to discharge or otherwise take responsibility for, any existing or potential liability of another Person for infringement, misappropriation, or violation of any Intellectual Property right, which assumption, agreement or responsibility remains in force as of the date of this Agreement.
(m) Neither the Company nor any of its Subsidiaries is party to any Contract that, as a result of such execution, delivery and performance of this Agreement, will cause the grant of any license or other right to any Company IP Rights or impair the right of the Company or the Surviving Corporation and its Subsidiaries to use, sell or license or enforce any Company IP Rights or portion thereof, except for the occurrence of any such grant or impairment that would not individually or in the aggregate, reasonably be expected to result in a Company Material Adverse Effect.
3.9 Compliance with Legal Requirements.
Except as disclosed in in Part 3.9 of the Company Disclosure Schedule:
(a) Company and its Subsidiaries are not and have not been at any time in conflict with (i) any Legal Requirement, order, judgment or decree applicable to Company or any of its Subsidiaries or by which Company or any of its Subsidiaries are bound or affected (or to which the parent of Company is bound), or (ii) any Contract to which Company or any of its Subsidiaries is a party or by which Company or any of its Subsidiaries or its or any of their respective properties is bound or affected, except for any immaterial conflicts, defaults or violations. To Company’s knowledge, no investigation or review by any Governmental Body is pending or, to the knowledge of Company, threatened against Company or its Subsidiaries, nor any product Commercialized or intended to be Commercialized by Company, nor has any Governmental Body indicated to any Metuchen Company or its parent in writing an intention to conduct the same.
| 24 |
(b) Company and its Subsidiaries hold all permits, licenses, registrations, authorizations, variances, exemptions, orders and approvals from Governmental Bodies which are necessary to the operation of the business of Company and its Subsidiaries taken as a whole (collectively, the “Company Permits”). Company and its Subsidiaries are in compliance in all material respects with the terms of the Company Permits. No action, proceeding, revocation proceeding, amendment procedure, writ, injunction or claim is pending or, to the knowledge of Company, threatened, which seeks to revoke or limit any Company Permit. The rights and benefits of each Company Permit will be available to the Surviving Company immediately after the Metuchen Effective Time on terms substantially identical to those enjoyed by Company immediately prior to the Effective Time. Company has made available to Neurotrope all Company Permits and correspondence from the FDA or other comparable Governmental Body.
(c) The Metuchen Companies and Persons acting in concert with and on behalf of Company:
(i) have not used in any capacity the services of any individual or entity debarred, excluded, or disqualified under 21 U.S.C. Section 335a, 42 U.S.C. Section 1320a-7, 21 C.F.R. Section 312.70, or any similar laws, rules or regulations; and
(ii) have not been convicted of any crime or engaged in any conduct that has resulted, or would reasonably be expected to result, in debarment, exclusion, or disqualification under 21 U.S.C. Section 335a, 42 U.S.C. Section 1320a-7, 21 C.F.R. Section 312.70, or any similar laws, rules regulations.
(d) None of the Metuchen Companies, and to the knowledge of Company, no Representative of any of the Metuchen Companies on their behalf with respect to any matter relating to any of the Metuchen Companies, has: (i) used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; (ii) made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns or violated any provision of the Foreign Corrupt Practices Act of 1977, as amended or (iii) made any other unlawful payment.
(e) No product or product candidate manufactured, tested, distributed, held, licensed or marketed (“Commercialized”) by or on behalf of Company, or by or on behalf of any of the other Metuchen Companies, has at any time been recalled, withdrawn, suspended or discontinued (whether voluntarily or otherwise). No Governmental Body or institutional review board or comparable body has commenced, or threatened to initiate, any proceeding seeking the recall, market withdrawal, suspension or withdrawal of approval, or seizure of any such product or product candidate; the imposition of material sales, marketing or production restriction on any such product or product candidate; or the suspension, termination or other restriction of preclinical or clinical research with respect to any such product candidate by or on behalf of any of the Metuchen Companies, including any action regarding any investigator participating in any such research, nor is any such proceeding pending. Company has, prior to the execution of this Agreement, provided or made available to Neurotrope all information about adverse drug experiences obtained or otherwise received by Company or by any of the Metuchen Companies from any source, in the United States or outside the United States, including information derived from clinical investigations prior to any market authorization approvals, commercial marketing experience, postmarketing clinical investigations, postmarketing epidemiological/surveillance studies or registries, reports in the scientific literature, and unpublished scientific papers for any product or product candidate Commercialized by any of the Metuchen Companies.
| 25 |
(f) Neither Company nor any of the Metuchen Companies, or Persons acting in concert with or on behalf of Company or Metuchen Companies or any officers, employees or agents of the same, has with respect to any product that is Commercialized by or on behalf of Company, or, any of the other Metuchen Companies, made an untrue statement of a material fact or fraudulent statement to the FDA or any other Governmental Body, failed to disclose a material fact required to be disclosed to the FDA or any other Governmental Body, or committed an act, made a statement, or failed to make a statement that, at the time such disclosure was made, would reasonably be expected to provide a basis for the FDA to invoke its policy respecting “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities” set forth in 56 Fed. Reg. 46191 (September 10, 1991) or any other Governmental Body to invoke any similar policy.
(g) All pre-clinical and clinical studies conducted by or on behalf of Company relating to product or product candidates have been, or are being, conducted in all material respects in compliance with the applicable requirements of the FDA’s Good Laboratory Practice and Good Clinical Practice requirements, including regulations under 21 C.F.R. Parts 50, 54, 56, 58, 312 and applicable guidance documents, as amended from time to time, the Animal Welfare Act, and all applicable similar requirements in other jurisdictions, including all requirements relating to protection of human subjects participating in any such clinical studies.
(h) Company and each of the Metuchen Companies have, filed with the FDA, any other Governmental Body, and any institutional review board or comparable body, all required notices, supplemental applications, and annual or other reports, including adverse experience reports, with respect to each investigational new drug application or any comparable foreign regulatory application, related to the manufacture, testing, study, or sale of any of its products or product candidates, as applicable.
(i) Company and the Metuchen Companies, and their Representatives, are and at all times have been, in compliance with, and the business of Company and the Metuchen Companies (including the research, development, labeling, manufacture, testing, storage, use, sale, offer for sale, importation, and other distribution or commercial exploitation of any products Commercialized by or on behalf of Company) has been operated in accordance with, all Legal Requirements relating to health care regulatory matters, including to the extent applicable, each of the following: (i) all applicable Legal Requirements of any Governmental Body, including the United States Department of Health and Human Services and its constituent agencies, the Centers for Medicare & Medicaid Services, the Office of Inspector General, and the FDA (collectively with other applicable federal, state or foreign regulatory authorities and any Governmental Bodies, “Regulatory Authorities”), including the federal Food, Drug, and Cosmetic Act (21 U.S.C. § 321 et seq.), the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)), the Anti-Inducement Law (42 U.S.C. § 1320a-7a(a)(5)), the Federal Civil Monetary Penalties Law (42 U.S.C. §§ 1320a-7a and 1320a-7b), the Stark Law (42 U.S.C. § 1395nn), the Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. § 1320d et seq.), the exclusion laws (42 U.S.C. § 1320a-7), the Physician Payments Sunshine Act (42 U.S.C. § 1320a-7h), and the implementing rules, regulations, and guidance documents promulgated pursuant to the foregoing laws, (ii) the applicable Legal Requirements precluding off-label marketing of drugs, devices and other health care products, (iii) all other United States laws and regulations with respect to the marketing, sale, pricing, price reporting, and reimbursement of drugs, devices and other health care products, including the provisions of the Federal False Claims Act, 31 U.S.C. §3729 et seq., the Medicare Program (Title XVIII of the Social Security Act), the Medicaid Program (Title XIX of the Social Security Act), and the regulations promulgated pursuant to such Legal Requirements, and (iv) any state, local or foreign equivalents to any of the foregoing. No event has occurred, and no condition or circumstance exists, that will constitute or result in a violation by Company or the Metuchen Companies of, or a failure on the part of Company or the Metuchen Companies to comply with, any such Legal Requirements.
| 26 |
3.10 Legal Proceedings; Orders.
(a) Except as set forth in Part 3.10(a) of the Company Disclosure Schedule, there is no pending Legal Proceeding, and no Person has threatened to commence any Legal Proceeding: (i) that involves any of the Metuchen Companies, any business of any of the Metuchen Companies or any of the assets owned, leased or used by any of the Metuchen Companies; (ii) that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the Mergers or any of the other Transactions or (iii) that involves any product Commercialized by any of the Metuchen Companies. None of the Legal Proceedings identified in Part 3.10(a) of the Company Disclosure Schedule has had or, if adversely determined, would reasonably be expected to have or result in a Company Material Adverse Effect. To the knowledge of Company, no event has occurred, and no claim, dispute or other condition or circumstance exists, that would reasonably be expected to give rise to or serve as a basis for the commencement of any Legal Proceeding of the type described in clause “(i)” or clause “(ii)” of the first sentence of this Section 3.10(a).
(b) There is no Order to which any of the Metuchen Companies, or the assets owned or used by any of the Metuchen Companies (including, without limitation, any product Commercialized or intended to be Commercialized by any of the Metuchen Companies), is subject. To the knowledge of Company, no officer or other key employee of any of the Metuchen Companies is subject to any Order that prohibits such officer or other employee from engaging in or continuing any conduct, activity or practice relating to the business of any of the Metuchen Companies.
3.11 Brokers’ And Finders’ Fees. Except as set forth in Part 3.11 of the Company Disclosure Schedule, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the Mergers or any of the other Transactions based upon arrangements made by or on behalf of any of the Metuchen Companies.
3.12 Employee Benefit Plans.
(a) Part 3.12(a) of the Company Disclosure Schedule sets forth, as of the date of this Agreement, a complete and accurate list of each material Employee Benefit Plan which is currently sponsored, maintained, contributed to, or required to be contributed to or with respect to which any potential liability is borne by any Metuchen Company or any ERISA Affiliate of any Metuchen Company (collectively, the “Company Employee Plans”). No Metuchen Company nor, to the knowledge of Company, any other person or entity, has made any commitment to modify, change or terminate any Company Employee Plan, other than with respect to a modification, change or termination required by Legal Requirements. With respect to each material Company Employee Plan, Company has made available to Neurotrope, accurate and complete copies of the following documents: (i) the plan document and any related trust agreement, including amendments thereto; (ii) any current summary plan descriptions and other material communications to participants relating to the plan; (iii) each plan trust, insurance, annuity or other funding contract or service provider agreement related thereto; (iv) the most recent plan financial statements and actuarial or other valuation reports prepared with respect thereto, if any; (v) the most recent IRS determination or opinion letter, if any; (vi) copies of the most recent plan year nondiscrimination and coverage testing results for each plan subject to such testing requirements; and (vii) the most recent annual reports (Form 5500) and all schedules attached thereto for each Company Employee Plan that is subject to ERISA and Code reporting requirements.
| 27 |
(b) Each Company Employee Plan is being, and has been, administered in accordance with its terms and in compliance with the requirements prescribed by any and all Legal Requirements (including ERISA and the Code), in all material respects. No Metuchen Company is in material default under or material violation of, and has no knowledge of any material defaults or material violations by any other party to, any of Company Employee Plans. All contributions required to be made by any Metuchen Company or any ERISA Affiliate of any Metuchen Company to any Company Employee Plan have been timely paid or accrued on the most recent Company Financials on file with the SEC, if required under GAAP. Any Company Employee Plan intended to be qualified under Section 401(a) of the Code has either obtained from the Internal Revenue Service a favorable determination letter or opinion letter as to its qualified status under the Code, and to the knowledge of Company, no event has occurred and no condition exists with respect to the form or operation of such Company Employee Plan that would cause the loss of such qualification.
(c) No Company Employee Plan provides retiree medical or other retiree welfare benefits to any person, except as required by COBRA. No suit, administrative proceeding or action has been brought, or to the knowledge of Company, is threatened against or with respect to any such Company Employee Plan, including any audit or inquiry by the Internal Revenue Service or the United States Department of Labor (other than routine claims for benefits arising under such plans).
(d) No Metuchen Company nor any ERISA Affiliate of any Metuchen Company has, during the past six (6) years from the date hereof, maintained, established, sponsored, participated in or contributed to, or is obligated to contribute to, or otherwise incurred any obligation or liability (including any contingent liability) under, any “multiemployer plan” (as defined in Section 3(37) of ERISA) or any “pension plan” (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA or Section 412 of the Code. No Metuchen Company nor any ERISA Affiliate of any Metuchen Company has, as of the date of this Agreement, any actual or potential withdrawal liability (including any contingent liability) for any complete or partial withdrawal (as defined in Sections 4203 and 4205 of ERISA) from any multiemployer plan.
| 28 |
(e) Except as set forth in Part 2.12(e) of the Company Disclosure Schedule, consummation of the Mergers will not (i) entitle any current or former employee or other service provider of any Metuchen Company or any ERISA Affiliate of any Metuchen Company to severance benefits or any other payment (including unemployment compensation, golden parachute, bonus or benefits under any Company Employee Plan); (ii) accelerate the time of payment or vesting of any such benefits or increase the amount of compensation due any such employee or service provider; (iii) result in the forgiveness of any indebtedness; (iv) result in any obligation to fund future benefits under any Company Employee Plan; or (v) result in the imposition of any restrictions with respect to the amendment or termination of any of Company Employee Plans. No benefit payable or that may become payable by any Metuchen Company pursuant to any Company Employee Plan in connection with the transactions as a result of or arising under this Agreement will constitute an “excess parachute payment” (as defined in Section 280G(b)(1) of the Code) subject to the imposition of an excise Tax under Section 4999 of the Code or the deduction for which would be disallowed by reason of Section 280G of the Code.
3.13 Title to Assets; Real Property.
(a) The Metuchen Companies own, and have good, valid and marketable title to, or, in the case of leased assets, valid leasehold interests in or other rights to use, all tangible assets purported to be owned or leased by them. All of said assets are owned by the Metuchen Companies free and clear of any Encumbrances, except for Permitted Encumbrances.
(b) All material items of equipment and other tangible assets owned by or leased to the Metuchen Companies are adequate for the uses to which they are being put, are in good condition and repair (ordinary wear and tear excepted) and are adequate for the conduct of the business of the Metuchen Companies in the manner in which such businesses are currently being conducted immediately prior to the Effective Time. The Metuchen Companies do not own and have never owned any real property or any interest in real property. Part 3.13(b) of the Company Disclosure Schedule sets forth a complete and accurate list of all real property leases to which Company is a party.
3.14 Environmental Matters.
(a) No substance that has been designated by any Governmental Body or by applicable federal, state or local Legal Requirement, to be radioactive, toxic, hazardous or otherwise a danger to health (through exposure in the environment) or the environment, including, without limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances listed as hazardous substances pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to the United States Resource Conservation and Recovery Act of 1976, as amended, and the regulations promulgated pursuant to said laws (a “Hazardous Material”), has been released, as a result of the deliberate actions of Company or any of its Subsidiaries, or, to Company’s knowledge, as a result of any actions of any third party or otherwise, in, on or under any property, including the land and the improvements, ground water and surface water thereof, that Company or any of its Subsidiaries currently owns, operates, occupies or leases, in such quantities as would cause a Company Material Adverse Effect.
| 29 |
(b) Neither Company nor any of its Subsidiaries has, since the Company Lookback Date, transported, stored, used, manufactured, disposed of, or released Hazardous Materials (collectively, “Hazardous Material Activities”) in material violation of any Legal Requirement in effect on or before the date hereof.
(c) Company and its Subsidiaries currently hold all environmental approvals, permits, licenses, clearances and consents (the “Company Environmental Permits”) necessary for the conduct of Company’s and its Subsidiaries’ Hazardous Material Activities and other businesses of Company and its Subsidiaries as such activities and businesses are currently being conducted, except where the failure to so hold would not have a Company Material Adverse Effect.
(d) No material action, proceeding, revocation proceeding, amendment procedure, writ, injunction or claim is pending, or to the knowledge of Company, threatened concerning any Company Environmental Permit, Hazardous Material or any Hazardous Material Activity of Company or any of its Subsidiaries.
3.15 Labor Matters.
(a) To the Company’s knowledge, no key employee or group of employees has threatened to terminate employment with Company or has plans to terminate such employment.
(b) The Company is not a party to or bound by any collective bargaining agreement, nor has it experienced any strikes, grievances, claims of unfair labor practices or other collective bargaining disputes.
(c) Except as disclosed in Part 3.15(c) of the Company Disclosure Schedule, neither Company nor any of its Subsidiaries is a party to any written or oral: (i) agreement with any current or former employee the benefits of which are contingent upon, or the terms of which will be materially altered by, the consummation of the Mergers or other Transactions; (ii) agreement with any current or former employee of Company providing any term of employment or compensation guarantee extending for a period longer than one year from the date hereof or for the payment of compensation in excess of $100,000 per annum; or (iii) agreement or plan the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, upon the consummation of the Mergers.
3.16 Company Contracts.
(a) Except for Excluded Contracts or as set forth in Part 3.16 of the Company Disclosure Schedule, neither Company nor any of its Subsidiaries is a party to or is bound by:
(i) any management, employment, severance, retention, transaction bonus, change in control, consulting, relocation, repatriation or expatriation agreement or other similar Contract between: (i) any of the Metuchen Companies or any of their ERISA Affiliates; and (ii) any active, retired or former employees, directors or consultants of any Metuchen Company or any of their ERISA Affiliates, other than any such Contract that is terminable “at will” (or following a notice period imposed by applicable Legal Requirements) without any obligation on the part of any Metuchen Company or any of their ERISA Affiliates to make any severance, termination, change in control or similar payment or to provide any benefit, other than severance payments required to be made by any Metuchen Company under applicable foreign Legal Requirements;
| 30 |
(ii) any Contracts identified or required to be identified in Part 3.13(b) of the Company Disclosure Schedule;
(iii) any Contract with any distributor, reseller or sales representative with an annual value in excess of $250,000;
(iv) any Contract with any manufacturer, vendor, or other Person for the supply of materials or performance of services by such third party to Company in relation to the manufacture of the Company’s products or product candidates with an annual value in excess of $250,000;
(v) any agreement or plan, including, without limitation, any stock option plan, stock appreciation right plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the Transactions or the value of any of the benefits of which will be calculated on the basis of any of the Transactions;
(vi) any Contract incorporating or relating to any guaranty, any warranty, any sharing of liabilities or any indemnity not entered into in the ordinary course of business, including any indemnification agreements between Company or any of its Subsidiaries and any of its officers or directors;
(vii) any Contract imposing, by its express terms, any material restriction on the right or ability of any Metuchen Company: (A) to compete with any other Person; (B) to acquire any product or other asset or any services from any other Person; or (C) to develop, sell, supply, distribute, offer, support or service any product or any technology or other asset to or for any other Person;
(viii) any Contract currently in force relating to the disposition or acquisition of assets not in the ordinary course of business or any ownership interest in any corporation, partnership, joint venture or other business enterprise;
(ix) any mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit in excess of $250,000;
(x) any joint marketing or development agreement;
(xi) any commercial Contract that would reasonably be expected to have a material effect on the ability of the Company to perform any of its material obligations under this Agreement, or to consummate any of the transactions contemplated by this Agreement;
| 31 |
(xii) any Contract that provides for: (A) any right of first refusal, right of first negotiation, right of first notification or similar right with respect to any securities or assets of any Metuchen Company for which a waiver of such right shall have not been obtained; or (B) any “no shop” provision or similar exclusivity provision with respect to any securities or assets of any Metuchen Company; or
(xiii) any Contract that contemplates or involves the payment or delivery of cash or other consideration in an amount or having a value in excess of $250,000 or more in the aggregate, or contemplates or involves the performance of services having a value in excess of $250,000 in the aggregate other than any arrangement or agreement expressly contemplated or provided for under this Agreement.
(b) Company has made available to Neurotrope an accurate and complete copy of each Contract listed or required to be listed in Part 3.16 of the Company Disclosure Schedule (any such Contract, a “Company Contract”). Neither Company nor any of its Subsidiaries, nor to the Company’s knowledge any other party to a Company Contract, has breached or violated in any material respect or materially defaulted under, or received written notice that it has breached, violated or defaulted under, any of the terms or conditions of any of the Company Contracts. To the knowledge of Company, no event has occurred, and no circumstance or condition exists, that (with or without notice or lapse of time) would reasonably be expected to: (i) result in a violation or breach in any material respect of any of the provisions of any Company Contract; (ii) give any Person the right to declare a default in any material respect under any Company Contract; (iii) give any Person the right to receive or require a rebate, chargeback, penalty or change in delivery schedule under any Company Contract; (iv) give any Person the right to accelerate the maturity or performance of any Company Contract; or (v) give any Person the right to cancel, terminate or modify any Company Contract. Each Company Contract is valid, binding, enforceable and in full force and effect, except as enforceability may be limited by bankruptcy and other similar laws and general principles of equity.
3.17 Books And Records. Except as disclosed in Part 3.17 of the Company Disclosure Schedule, the minute books of Company and its Subsidiaries made available to Neurotrope are the only minute books of Company and contain accurate summaries, in all material respects, of all meetings of directors (or committees thereof) and stockholders or actions by written consent, as applicable, since the time of organization or incorporation of Company or such Subsidiaries, as the case may be. The books and records of Company accurately reflect in all material respects the assets, liabilities, business, financial condition and results of operations of Company and have been maintained in accordance with good business and bookkeeping practices.
3.18 Insurance.
(a) The Company or its Subsidiaries maintain all policies of fire, theft, casualty, general liability, workers compensation, business interruption, environmental, product liability and automobile insurance policies and bond and surety arrangements and other forms of insurance (the “Company Insurance Policies”) in such amounts, with such deductibles and against such risks and losses that are necessary for the operation of the Company’s and its Subsidiaries’ businesses in all material respects. The Company Insurance Policies are in full force and effect, maintained with reputable companies against loss relating to the business, operations and properties and such other risks as companies engaged in similar business as the Metuchen Companies would, in accordance with good business practice, customarily insure. All premiums due and payable under such Company Insurance Policies have been paid on a timely basis and each Metuchen Company is in compliance in all material respects with all other terms thereof. True, complete and correct copies, of such Company Insurance Policies, or summaries of all terms material thereof, have been made available to Neurotrope.
| 32 |
(b) There are no material claims pending under any Company Insurance Policies as to which coverage has been questioned, denied or disputed. All material claims thereunder have been filed in a due and timely fashion and no Metuchen Company has been refused insurance for which it has applied or had any policy of insurance terminated (other than at its request), nor has any Metuchen Company received notice from any insurance carrier that: (i) such insurance will be canceled or that coverage thereunder will be reduced or eliminated; or (ii) premium costs with respect to such insurance will be increased, other than premium increases in the ordinary course of business applicable on their terms to all holders of similar policies.
3.19 Government Contracts. Company has not been suspended or debarred from bidding on contracts with any Governmental Body, and no such suspension or debarment has been initiated or threatened. The consummation of the Mergers and other Transactions will not result in any such suspension or debarment of Company or Neurotrope (other than any such suspension or debarment to the extent resulting from the Company becoming a subsidiary of Neurotrope).
3.20 Interested Party Transactions. Except as disclosed in Part 3.20 of the Company Disclosure Schedule, no event has occurred during the past three years that would be required to be reported by Company as a Certain Relationship or Related Transaction pursuant to Item 404 of Regulation S-K, if Company were required to report such information in periodic reports pursuant to the Exchange Act.
3.21 Disclosure; Company Information. The information relating to Company or its Subsidiaries to be supplied by or on behalf of Company for inclusion or incorporation by reference in the Registration Statement and the Proxy Statement will not, on the date of filing thereof or the date that it is first mailed to the Neurotrope stockholders, as applicable, or at the time of the Neurotrope Stockholders’ Meeting or at the time of any amendment or supplement thereof, contain any untrue statement of any material fact, or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading at the time and in light of the circumstances under which such statement is made. Notwithstanding the foregoing, no representation is made by Company with respect to the information that has been or will be supplied by Parent, Neurotrope or any of their respective Representatives for inclusion in the Registration Statement and the Proxy Statement.
Article
4.
REPRESENTATIONS AND WARRANTIES OF NEUROTROPE
Except as set forth in the corresponding sections or subsections of the Neurotrope Disclosure Schedule and except for any disclosure set forth in any of the Neurotrope SEC Documents (excluding any “risk factor” sections thereof), Neurotrope represents and warrants to Company as follows:
| 33 |
4.1 Organization and Qualification.
(a) Part 4.1(a) of the Neurotrope Disclosure Schedule identifies each Subsidiary of Neurotrope and indicates its jurisdiction of organization. Neither Neurotrope nor any of the Entities identified in Part 4.1(a) of the Neurotrope Disclosure Schedule owns any capital stock of, or any equity interest of any nature in, any other Entity, other than the Entities identified in Part 4.1(a) of the Neurotrope Disclosure Schedule. None of the Neurotrope Companies has agreed or is obligated to make, or is bound by any Contract under which it may become obligated to make, any future investment in or capital contribution to any other Entity. No representations and warranties in this Section 4.1(a) are being given as to SpinCo.
(b) Neurotrope is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada and Neurotrope has all necessary corporate or limited liability company power and authority: (i) to conduct its business in the manner in which its business is currently being conducted; (ii) to own and use its assets in the manner in which its assets are currently owned and used; and (iii) to perform its obligations under all Contracts by which it is bound.
(c) Neurotrope (in jurisdictions that recognize the following concepts) is qualified to do business as a foreign corporation or limited liability company, and is in good standing, under the laws of all jurisdictions where the nature of its business requires such qualification, except as would not have and would not reasonably be expected to have or result in a Neurotrope Material Adverse Effect.
(d) The copies of the certificate of incorporation and bylaws of Neurotrope which are incorporated by reference as exhibits to Neurotrope’s Annual Report on Form 10-K for the year ended December 31, 2019 are complete and correct copies of such documents and contain all amendments thereto as in effect on the date of this Agreement.
4.2 Capital Structure.
(a) The authorized capital stock of Neurotrope consists of 150,000,000 shares of Neurotrope Common Stock, par value, $0.0001, of which 22,184,695 shares are issued and outstanding (which includes zero shares of restricted stock) as of the close of business on the day prior to the date hereof and 50,000,000 shares of Neurotrope Preferred Stock, par value $0.0001 per share, of which 2,957.50 shares are issued and outstanding as of the close of business on the day prior to the date hereof. No shares of capital stock are held in Neurotrope’s treasury. All outstanding shares of Neurotrope Capital Stock are duly authorized, validly issued, fully paid and non-assessable and were issued in compliance with all applicable federal and state securities laws.
(b) As of the date of this Agreement, Neurotrope had reserved an aggregate of 2,935,323 shares of Neurotrope Common Stock for issuance to employees, consultants and non-employee directors pursuant to the Neurotrope Stock Option Plans, under which options were outstanding for an aggregate of 2,326,573 shares. 21,731,258 shares of Neurotrope Common Stock were reserved for issuance to holders of warrants to purchase Neurotrope Common Stock upon their exercise. All shares of Neurotrope Common Stock subject to issuance as aforesaid, upon issuance on the terms and conditions specified in the instruments pursuant to which they are issuable, would be duly authorized, validly issued, fully paid and non-assessable. Part 4.2(b) of the Neurotrope Disclosure Schedule lists each outstanding option to purchase shares of Neurotrope Capital Stock (a “Neurotrope Option”), and the name of the holder thereof, the number of shares subject thereto, the exercise price thereof and the vesting schedule and post-termination exercise period thereof.
| 34 |
(c) [Reserved]
(d) Except as set forth in Part 4.2(d) of the Neurotrope Disclosure Schedule and except for the right to participate in the Spin-Off: (i) none of the outstanding shares of Neurotrope Capital Stock are entitled or subject to any preemptive right, right of repurchase or forfeiture, right of participation, right of maintenance or any similar right; (ii) none of the outstanding shares of Neurotrope Capital Stock are subject to any right of first refusal in favor of Neurotrope; (iii) there are no outstanding bonds, debentures, notes or other indebtedness of the Neurotrope Companies having a right to vote on any matters on which the stockholders of Neurotrope have a right to vote; (iv) there is no Contract to which the Neurotrope Companies are a party relating to the voting or registration of, or restricting any Person from purchasing, selling, pledging or otherwise disposing of (or from granting any option or similar right with respect to), any shares of Neurotrope Capital Stock. None of the Neurotrope Companies is under any obligation, or is bound by any Contract pursuant to which it may become obligated, to repurchase, redeem or otherwise acquire any outstanding shares of Neurotrope Capital Stock or other securities.
4.3 Authority; Non-Contravention; Approvals.
(a) Neurotrope has the requisite corporate power and authority to enter into this Agreement and, subject to Neurotrope Stockholder Approval, to perform its obligations hereunder and to consummate the Neurotrope Transactions. The execution and delivery by Neurotrope of this Agreement, the performance by Neurotrope of its obligations hereunder and the consummation by Neurotrope of the Neurotrope Transactions have been duly authorized by all necessary corporate or limited liability company action on the part of Neurotrope, subject only to Neurotrope Stockholder Approval and the filing and recordation of the Neurotrope Certificate of Merger pursuant to the DGCL and the Neurotrope Articles of Merger pursuant to Nevada Law. The affirmative vote of the holders of (i) a majority in voting power of the outstanding shares of Neurotrope Common Stock voting separately as a class and (ii) two-thirds in voting power of the outstanding shares of Neurotrope Preferred Stock voting separately as a class, in each case, on the applicable record date (“Neurotrope Stockholder Approval”) is the only vote of the holders of any class or series of Neurotrope Capital Stock necessary to adopt or approve the Neurotrope Stockholder Approval Matter. This Agreement has been duly executed and delivered by Neurotrope and, assuming the due authorization, execution and delivery of this Agreement by Company, this Agreement constitutes the valid and binding obligation of Neurotrope, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy and other similar laws and general principles of equity.
(b) The Neurotrope Board, by resolutions duly adopted by a vote at a meeting of all directors of Neurotrope duly called and held, and, as of the date of this Agreement, not subsequently rescinded or modified in any way, has, as of the date of this Agreement (i) approved this Agreement and the Neurotrope Merger, and determined that this Agreement and the Neurotrope Transactions, including the Neurotrope Merger, are fair to, and in the best interests of Neurotrope’s stockholders, and (ii) resolved to recommend that Neurotrope’s stockholders approve the Neurotrope Stockholder Approval Matter and directed that such matters be submitted for consideration of the stockholders of Neurotrope at the Neurotrope Stockholders’ Meeting.
| 35 |
(c) The execution and delivery of this Agreement by Neurotrope does not, and the performance of this Agreement by Neurotrope will not, (i) conflict with or violate the certificate of incorporation or bylaws of Neurotrope, (ii) subject to obtaining Neurotrope Stockholder Approval and compliance with the requirements set forth in Section 4.3(d) below, conflict with or violate any Legal Requirement, order, judgment or decree applicable to Neurotrope or by which their respective properties are bound or affected, except for any such conflicts or violations that would not have a Neurotrope Material Adverse Effect or would not prevent or materially delay the consummation of the Mergers, or (iii) require a Neurotrope Company to make any filing with or give any notice to or obtain any Consent from a Person pursuant to any Neurotrope Contract, result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or impair Neurotrope’s rights or alter the rights or obligations of any third party under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or Encumbrance on any of the properties or assets of Neurotrope pursuant to, any Neurotrope Contract.
(d) No consent, approval, order or authorization of, or registration, declaration or filing with any Governmental Body is required by or with respect to Neurotrope in connection with the execution and delivery of this Agreement or the consummation of the Neurotrope Transactions, except for (i) the filing with the SEC of any outstanding periodic reports due under the Exchange Act, (ii) the filing of the Neurotrope Certificate of Merger with the Delaware Secretary of State, (iii) the filing of the Neurotrope Articles of Merger with the Nevada Secretary of State (iv) the filing of Current Reports on Form 8-K with the SEC within four (4) Business Days after the execution of this Agreement and the Closing Date, (v) such approvals as may be required under applicable state securities or “blue sky” laws or the rules and regulations of Nasdaq or other applicable national securities exchange or over-the-counter market, (vi) such consents as may be required under the Antitrust Laws, in any case that are applicable to the transactions contemplated by this Agreement and (vii) such filings as may be required in connection with the Spin-Off.
4.4 Anti-Takeover Statutes Not Applicable. The Neurotrope Board has taken all actions so that no state takeover statute or similar Legal Requirement applies or purports to apply to the execution, delivery or performance of this Agreement or to the consummation of the Neurotrope Merger or the other Neurotrope Transactions. The Neurotrope Board has taken all action necessary to render inapplicable to this Agreement and the Transactions Section 78.438 et seq. of the Nevada Revised Statutes.
4.5 SEC Filings; Neurotrope Financial Statements; No Undisclosed Liabilities.
(a) Neurotrope has made available to Company accurate and complete copies of all registration statements, proxy statements, Certifications (as defined below) and other statements, reports, schedules, forms and other documents filed by Neurotrope with or furnished by Neurotrope to the SEC since January 1, 2017 (the “Neurotrope Lookback Date”) (the “Neurotrope SEC Documents”), other than such documents that can be obtained on the SEC’s website at www.sec.gov (the “SEC Website”). All Neurotrope SEC Documents have been timely filed and, as of the time a Neurotrope SEC Document was filed with the SEC (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing): (i) each of the Neurotrope SEC Documents complied in all material respects with the applicable requirements of the Securities Act or the Exchange Act (as the case may be) and (ii) none of the Neurotrope SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. There are no other documents that are required to be filed by Neurotrope with the SEC that have not been filed. Each of the certifications and statements relating to the Neurotrope SEC Documents required by: (1) the SEC’s Order dated June 27, 2002 pursuant to Section 21(a)(1) of the Exchange Act (File No. 4-460); (2) Rule 13a-14 or 15d-14 under the Exchange Act; or (3) 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act) is accurate and complete (the “Certifications”), and complied as to form and content with all applicable Legal Requirements in effect at the time such Neurotrope Certification was filed with or furnished to the SEC. As used in this Section 4.5, the term “file” and variations thereof will be broadly construed to include any manner in which a document or information is furnished, supplied or otherwise made available to the SEC. No representations and warranties in this Section 4.5(a) are being given as to SpinCo.
| 36 |
(b) Except as set forth in the Neurotrope SEC Documents, from the Neurotrope Lookback Date through the date hereof, Neurotrope has not received any comment letter from the SEC or the staff thereof or any correspondence from the Nasdaq or the staff thereof relating to the delisting or maintenance of listing of the Neurotrope Common Stock on the Nasdaq. Except as disclosed in the Neurotrope SEC Documents or documents which Neurotrope has made available in a data room for review by Company, Neurotrope has no unresolved SEC comments. As of the date of this Agreement, Neurotrope is in compliance in all material respects with the applicable listing and governance rules and regulations of the Nasdaq.
(c) Since the Neurotrope Lookback Date, there have been no formal internal investigations regarding financial reporting or accounting policies and practices discussed with, reviewed by or initiated at the direction of the chief executive officer or chief financial officer of Neurotrope, the Neurotrope Board or any committee thereof, other than ordinary course audits or reviews of accounting policies and practices or internal controls required by the Sarbanes-Oxley Act.
(d) Neurotrope is in compliance in all material respects with the applicable provisions of the Sarbanes-Oxley Act that are effective as of the date of this Agreement.
(e) Neurotrope and its Subsidiaries maintain disclosure controls and procedures required by Rule 13a-15 or 15d-15 under the Exchange Act. Such disclosure controls and procedures are designed to ensure that all material information (both financial and non-financial) required to be disclosed by Neurotrope in the reports that it files, submits or furnishes under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that all such information is accumulated and communicated to Neurotrope’s management as appropriate to allow timely decisions regarding required disclosure and to make the Certifications.
| 37 |
(f) Neurotrope and its Subsidiaries maintains a system of internal accounting controls designed to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Neurotrope and each of its Subsidiaries maintains internal controls over financial reporting that provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. No representations and warranties in this Section 4.5(f) are being given as to SpinCo.
(g) The financial statements (including any related notes) contained or incorporated by reference in the Neurotrope SEC Documents (the “Neurotrope Financials”): (i) complied as to form in all material respects with the published rules and regulations of the SEC applicable thereto; (ii) were prepared in accordance with GAAP (except as may be indicated in the notes to such financial statements or, in the case of unaudited financial statements, as permitted the SEC, and except that the unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end adjustments that are not reasonably expected to be material in amount) applied on a consistent basis unless otherwise noted therein throughout the periods indicated; (iii) fairly present the consolidated financial position of Neurotrope as of the respective dates thereof and the consolidated results of operations and cash flows of Neurotrope for the periods covered thereby. Neurotrope has not effected any securitization transactions or “off-balance sheet arrangements” (as defined in Item 303(c) of SEC Regulation S-K). Other than as expressly disclosed in the Neurotrope SEC Documents filed prior to the date hereof, there has been no material change in Neurotrope Neurotrope’s accounting methods or principles that would be required to be disclosed in Neurotrope’s Financials in accordance with GAAP. No representations and warranties in this Section 4.5(g) are being given as to SpinCo.
(h) Except as disclosed in the Neurotrope Financials, neither Neurotrope nor any of its Subsidiaries has any Liabilities which are, individually or in the aggregate, material to the business, results of operations or financial condition of Neurotrope and its Subsidiaries taken as a whole, except Liabilities (i) identified in the Neurotrope Financials, (ii) incurred in connection with the Neurotrope Transactions, (iii) disclosed in Part 4.5(h) of the Neurotrope Disclosure Schedule, (iv) set forth in any Neurotrope Contract (other than with respect to SpinCo), or (v) incurred since January 1, 2020 in the ordinary course of business.
4.6 Absence Of Certain Changes Or Events. Since the date of the most recent periodic report on Form 10-K filed by Neurotrope with the SEC through the date of this Agreement, each of the Neurotrope Companies has conducted its business in the ordinary course of business, and (a) there has not been any event that has had a Neurotrope Material Adverse Effect; (b) no Neurotrope Company has entered into or amended any material terms of any Contract (other than with respect to SpinCo), in each case providing for new obligations in excess of $100,000 or (c) incurred any Indebtedness.
| 38 |
4.7 Taxes.
(a) Each of the income and other material Tax Returns that any Neurotrope Company was required to file under applicable Legal Requirements: (i) has been timely filed on or before the applicable due date (including any extensions of such due date) and (ii) is true and complete in all material respects. All material Taxes due and payable by Neurotrope or its Subsidiaries have been timely paid, except to the extent such amounts are being contested in good faith by Neurotrope or are properly reserved for on the books or records of Neurotrope and its Subsidiaries. No extension of time with respect to any date on which a Tax Return was required to be filed by any Neurotrope Company is in force (except where such Tax Return was filed), and no waiver or agreement by or with respect to any Neurotrope Company is in force for the extension of time for the payment, collection or assessment of any Taxes, and no request has been made by any Neurotrope Company in writing for any such extension or waiver (except, in each case, in connection with any request for extension of time for filing Tax Returns). There are no liens for Taxes on any asset of any Neurotrope Company other than liens for Taxes not yet due and payable, Taxes contested in good faith or that are otherwise not material and reserved against in accordance with GAAP. No deficiency with respect to Taxes has been proposed, asserted or assessed in writing against Neurotrope or its Subsidiaries which has not been fully paid or adequately reserved or reflected in the Neurotrope Financials. No representations and warranties in this Section 4.7(a) are being given as to SpinCo.
(b) No closing agreements, private letter rulings, technical advice memoranda or similar agreements or rulings have been entered into by any Neurotrope Company with any taxing authority or issued by any taxing authority to a Neurotrope Company. There are no outstanding rulings of, or request for rulings with, any Governmental Body addressed to a Neurotrope Company that are, or if issued would be, binding on any Neurotrope Company.
(c) No Neurotrope Company is a party to any Contract with any third party relating to allocating or sharing the payment of, or liability for, Taxes or Tax benefits (other than pursuant to customary provisions included in credit agreements, leases, and agreements entered with employees, in each case, not primarily related to Taxes and entered into in the ordinary course of business). No Neurotrope Company has any liability for the Taxes of any third party under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign Legal Requirement) as a transferee or successor or otherwise by operation of Legal Requirements.
(d) None of the Neurotrope Companies is a “controlled foreign corporation” within the meaning of Section 957 of the Code or a “passive foreign investment company” within the meaning of Section 1297 of the Code.
(e) No Neurotrope Company has participated in, or is currently participating in, a “listed transaction” within the meaning of Treasury Regulation Section 1.6011-4(b)(2). Neurotrope has disclosed on its respective United States federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of United States federal income Tax within the meaning of Section 6662 of the Code.
| 39 |
(f) No Neurotrope Company is (or has been at any time during the five-year period ending at the Effective Time) a “United States real property holding corporation” as defined in Section 897(c)(2) of the Code and the applicable Treasury Regulations.
(g) No Neurotrope Company has distributed stock of another Person, or has had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Sections 355 or 361 of the Code.
4.8 Intellectual Property. To the knowledge of Neurotrope, Neurotrope and its Subsidiaries have, or own rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade dress, trade secrets, know-how, software, inventions, copyrights, licenses and other intellectual property rights that are necessary or required for, or used in connection with their respective businesses as presently conducted and as presently proposed to be conducted and which the failure to so have would reasonably be expected to have a Neurotrope Material Adverse Effect (collectively, the “Neurotrope Owned IP Rights”). Neither Neurotrope nor any of its Subsidiaries has received any written notice of a claim or otherwise has any knowledge of any claim that any Neurotrope Owned IP Right, or that the manufacture, sale, offer for sale, development, use or importation of any product, product candidate or service by or on behalf of Neurotrope or its Subsidiaries, violates, misappropriates or infringes upon rights of any Person, except as would not have or reasonably be expected to have a Neurotrope Material Adverse Effect.
4.9 Compliance with Legal Requirements. Other than with respect to SpinCo as to which no representations and warranties are being made in in this Section 4.9:
(a) Neurotrope and its Subsidiaries are not and have not been at any time in conflict with (i) any Legal Requirement, order, judgment or decree applicable to Neurotrope or any of its Subsidiaries or by which Neurotrope or any of its Subsidiaries are bound or affected), or (ii) any Contract to which Neurotrope or any of its Subsidiaries is a party or by which Neurotrope or any of its Subsidiaries or its or any of their respective properties is bound or affected, except for any immaterial conflicts, defaults or violations. To Neurotrope’s knowledge, no investigation or review by any Governmental Body is pending or, to the knowledge of Neurotrope, threatened against Neurotrope or its Subsidiaries, nor any product Commercialized or intended to be Commercialized by Neurotrope, nor has any Governmental Body indicated to Neurotrope or its Subsidiaries in writing an intention to conduct the same.
(b) Neurotrope and its Subsidiaries hold all permits, licenses, registrations, authorizations, variances, exemptions, orders and approvals from Governmental Bodies which are necessary to the operation of the business of Neurotrope and its Subsidiaries taken as a whole (collectively, the “Neurotrope Permits”). Neurotrope and its Subsidiaries are in compliance in all material respects with the terms of the Neurotrope Permits. No action, proceeding, revocation proceeding, amendment procedure, writ, injunction or claim is pending or, to the knowledge of Neurotrope, threatened, which seeks to revoke or limit any Neurotrope Permit. Except as set forth in Part 4.9(b) of the Neurotrope Disclosure Schedule, the rights and benefits of each Neurotrope Permit will be available to the Neurotrope Surviving Corporation immediately after the Neurotrope Effective Time on terms substantially identical to those enjoyed by Neurotrope immediately prior to the Effective Time. Neurotrope has made available to Company all Neurotrope Permits and correspondence from the FDA or other comparable Governmental Body.
| 40 |
(c) The Neurotrope Companies and Persons acting in concert with and on behalf of Neurotrope:
(i) have not used in any capacity the services of any individual or entity debarred, excluded, or disqualified under 21 U.S.C. Section 335a, 42 U.S.C. Section 1320a-7, 21 C.F.R. Section 312.70, or any similar laws, rules or regulations; and
(ii) have not been convicted of any crime or engaged in any conduct that has resulted, or would reasonably be expected to result, in debarment, exclusion, or disqualification under 21 U.S.C. Section 335a, 42 U.S.C. Section 1320a-7, 21 C.F.R. Section 312.70, or any similar laws, rules regulations.
(d) None of the Neurotrope Companies, and to the knowledge of Neurotrope, no Representative of any of the Neurotrope Companies on their behalf with respect to any matter relating to any of the Neurotrope Companies, has: (i) used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; (ii) made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns or violated any provision of the Foreign Corrupt Practices Act of 1977, as amended or (iii) made any other unlawful payment.
(e) No product or product candidate Commercialized by or on behalf of Neurotrope, or by or on behalf of any of the other Neurotrope Companies, has at any time been recalled, withdrawn, suspended or discontinued (whether voluntarily or otherwise). No Governmental Body or institutional review board or comparable body has commenced, or threatened to initiate, any proceeding seeking the recall, market withdrawal, suspension or withdrawal of approval, or seizure of any such product or product candidate; the imposition of material sales, marketing or production restriction on any such product or product candidate; or the suspension, termination or other restriction of preclinical or clinical research with respect to any such product candidate by or on behalf of any of the Neurotrope Companies, including any action regarding any investigator participating in any such research, nor is any such proceeding pending. Neurotrope has, prior to the execution of this Agreement, provided or made available to Company all information about adverse drug experiences obtained or otherwise received by Neurotrope or by any of the Neurotrope Companies from any source, in the United States or outside the United States, including information derived from clinical investigations prior to any market authorization approvals, commercial marketing experience, postmarketing clinical investigations, postmarketing epidemiological/surveillance studies or registries, reports in the scientific literature, and unpublished scientific papers relating to any product or product candidate Commercialized by any of the Neurotrope Companies.
(f) Neither Neurotrope nor any of the other Neurotrope Companies, or Persons acting in concert with or on behalf of Neurotrope or any of the other Neurotrope Companies or any officers, employees or agents of the same, has with respect to any product that is Commercialized by or on behalf of the Neurotrope, or, any of the other Neurotrope Companies, made an untrue statement of a material fact or fraudulent statement to the FDA or any other Governmental Body, failed to disclose a material fact required to be disclosed to the FDA or any other Governmental Body, or committed an act, made a statement, or failed to make a statement that, at the time such disclosure was made, would reasonably be expected to provide a basis for the FDA to invoke its policy respecting “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities” set forth in 56 Fed. Reg. 46191 (September 10, 1991) or any other Governmental Body to invoke any similar policy.
| 41 |
(g) All pre-clinical and clinical studies relating to Neurotrope product or product candidates have been, or are being, conducted in all material respects in compliance with the applicable requirements of the FDA’s Good Laboratory Practice and Good Clinical Practice requirements, including regulations under 21 C.F.R. Parts 50, 54, 56, 58, 312 and applicable guidance documents, as amended from time to time, the Animal Welfare Act, and all applicable similar requirements in other jurisdictions, including all requirements relating to protection of human subjects participating in any such clinical studies.
(h) Neurotrope has, and each of the other Neurotrope Companies have, filed with the FDA, any other Governmental Body, and any institutional review board or comparable body, all required notices, supplemental applications, and annual or other reports, including adverse experience reports, with respect to each investigational new drug application or any comparable foreign regulatory application, related to the manufacture, testing, study, or sale of any of its products or product candidates, as applicable.
(i) Neurotrope and the other Neurotrope Companies, and their Representatives, are and at all times have been, in compliance with, and the business of Neurotrope and the other Neurotrope Companies (including the research, development, labeling, manufacture, testing, storage, use, sale, offer for sale, importation, and other distribution or commercial exploitation of any products Commercialized by or on behalf of Neurotrope) has been operated in accordance with, all Legal Requirements relating to health care regulatory matters, including to the extent applicable, each of the following: (i) all applicable Legal Requirements of any Regulatory Authorities, including the federal Food, Drug, and Cosmetic Act (21 U.S.C. § 321 et seq.), the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)), the Anti-Inducement Law (42 U.S.C. § 1320a-7a(a)(5)), the Federal Civil Monetary Penalties Law (42 U.S.C. §§ 1320a-7a and 1320a-7b), the Stark Law (42 U.S.C. § 1395nn), the Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. § 1320d et seq.), the exclusion laws (42 U.S.C. § 1320a-7), the Physician Payments Sunshine Act (42 U.S.C. § 1320a-7h), and the implementing rules, regulations, and guidance documents promulgated pursuant to the foregoing laws, (ii) the applicable Legal Requirements precluding off-label marketing of drugs, devices and other health care products, (iii) all other United States laws and regulations with respect to the marketing, sale, pricing, price reporting, and reimbursement of drugs, devices and other health care products, including the provisions of the Federal False Claims Act, 31 U.S.C. §3729 et seq., the Medicare Program (Title XVIII of the Social Security Act), the Medicaid Program (Title XIX of the Social Security Act), and the regulations promulgated pursuant to such Legal Requirements, and (iv) any state, local or foreign equivalents to any of the foregoing. No event has occurred, and no condition or circumstance exists, that will constitute or result in a violation by Neurotrope or the other Neurotrope Companies of, or a failure on the part of Neurotrope or the other Neurotrope Companies to comply with, any such Legal Requirements.
| 42 |
4.10 Legal Proceedings; Orders.
(a) Except as set forth in Part 4.10(a) of the Neurotrope Disclosure Schedule, and other than with respect to SpinCo, as to which no representations and warranties are being made in this Section 4.10(a), there is no pending Legal Proceeding, and no Person has threatened in writing to commence any Legal Proceeding: (i) that involves any of the Neurotrope Companies, any business of any of the Neurotrope Companies or any of the assets owned, leased or used by any of the Neurotrope Companies or (ii) that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the Neurotrope Merger or any of the other Neurotrope Transactions. Except as set forth in Part 4.10(a)(i) of the Neurotrope Disclosure Schedule, none of the Legal Proceedings identified in Part 4.10(a) of the Neurotrope Disclosure Schedule has had or, if adversely determined, would reasonably be expected to have or result in a Neurotrope Material Adverse Effect. To the knowledge of Neurotrope, no event has occurred, and no claim, dispute or other condition or circumstance exists, that would reasonably be expected to give rise to or serve as a basis for the commencement of any Legal Proceeding of the type described in clause “(i)” or clause “(ii)” of the first sentence of this Section 4.10(a).
(b) Other than with respect to SpinCo, as to which no representations and warranties are being made in in this Section 4.10(b), there is no Order to which any of the Neurotrope Companies, or any material assets owned or used by any of the Neurotrope Companies, is subject. To the knowledge of Neurotrope, no officer or other key employee of any of the Neurotrope Companies is subject to any Order that prohibits such officer or other key employee from engaging in or continuing any conduct, activity or practice relating to the business of any of the Neurotrope Companies.
4.11 Brokers’ And Finders’ Fees. Except as set forth in Part 4.11 of the Neurotrope Disclosure Schedule, no broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the Neurotrope Merger or any of the other Transactions based upon arrangements made by or on behalf of any of the Neurotrope Companies.
4.12 Employee Benefit Plans.
(a) Part 4.12(a) of the Neurotrope Disclosure Schedule sets forth, as of the date of this Agreement, a complete and accurate list of each material Employee Benefit Plan which is currently sponsored, maintained, contributed to, or required to be contributed to or with respect to which any potential liability is borne by Neurotrope or any ERISA Affiliate of Neurotrope (collectively, the “Neurotrope Employee Plans”). Neither Neurotrope nor, to the knowledge of Neurotrope, any other person or entity, has made any commitment to modify, change or terminate any Neurotrope Employee Plan, other than with respect to a modification, change or termination required by Legal Requirements. With respect to each material Neurotrope Employee Plan, Neurotrope has made available to Company, accurate and complete copies of the following documents: (i) the plan document and any related trust agreement, including amendments thereto; (ii) any current summary plan descriptions and other material communications to participants relating to the plan; (iii) each plan trust, insurance, annuity or other funding contract or service provider agreement related thereto; (iv) the most recent plan financial statements and actuarial or other valuation reports prepared with respect thereto, if any; (v) the most recent IRS determination or opinion letter, if any; (vi) copies of the most recent plan year nondiscrimination and coverage testing results for each plan subject to such testing requirements; and (vii) the most recent annual reports (Form 5500) and all schedules attached thereto for each Neurotrope Employee Plan that is subject to ERISA and Code reporting requirements.
| 43 |
(b) Each Neurotrope Employee Plan is being, and has been, administered in accordance with its terms and in compliance with the requirements prescribed by any and all Legal Requirements (including ERISA and the Code), in all material respects. Neurotrope is not in material default under or material violation of, and have no knowledge of any material defaults or material violations by any other party to, any of Neurotrope Employee Plans. All contributions required to be made by Neurotrope or any ERISA Affiliate to any Neurotrope Employee Plan have been timely paid or accrued on the most recent Neurotrope Financials on file with the SEC, if required under GAAP. Any Neurotrope Employee Plan intended to be qualified under Section 401(a) of the Code has either obtained from the Internal Revenue Service a favorable determination letter or opinion letter as to its qualified status under the Code, and to the knowledge of Neurotrope, no event has occurred and no condition exists with respect to the form or operation of such Neurotrope Employee Plan that would cause the loss of such qualification.
(c) No Neurotrope Employee Plan provides retiree medical or other retiree welfare benefits to any person, except as required by COBRA. No suit, administrative proceeding or action has been brought, or to the knowledge of Neurotrope, is threatened against or with respect to any such Neurotrope Employee Plan, including any audit or inquiry by the Internal Revenue Service or the United States Department of Labor (other than routine claims for benefits arising under such plans).
(d) Neither Neurotrope nor any ERISA Affiliate of Neurotrope has, during the past six (6) years from the date hereof, maintained, established, sponsored, participated in or contributed to, or is obligated to contribute to, or otherwise incurred any obligation or liability (including any contingent liability) under, any “multiemployer plan” (as defined in Section 3(37) of ERISA) or any “pension plan” (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA or Section 412 of the Code. Neither Neurotrope nor any ERISA Affiliate has, as of the date of this Agreement, any actual or potential withdrawal liability (including any contingent liability) for any complete or partial withdrawal (as defined in Sections 4203 and 4205 of ERISA) from any multiemployer plan.
(e) Except as set forth in Part 4.12(e) of the Neurotrope Disclosure Schedule, consummation of the Neurotrope Merger will not (i) entitle any current or former employee or other service provider of Neurotrope or any ERISA Affiliate to severance benefits or any other payment (including unemployment compensation, golden parachute, bonus or benefits under any Neurotrope Employee Plan); (ii) accelerate the time of payment or vesting of any such benefits or increase the amount of compensation due any such employee or service provider; (iii) result in the forgiveness of any indebtedness; (iv) result in any obligation to fund future benefits under any Neurotrope Employee Plan; or (v) result in the imposition of any restrictions with respect to the amendment or termination of any of Neurotrope Employee Plans. No benefit payable or that may become payable by Neurotrope pursuant to any Neurotrope Employee Plan in connection with the Neurotrope Transactions or as a result of or arising under this Agreement will constitute an “excess parachute payment” (as defined in Section 280G(b)(1) of the Code) subject to the imposition of an excise Tax under Section 4999 of the Code or the deduction for which would be disallowed by reason of Section 280G of the Code.
| 44 |
4.13 Title to Assets; Real Property.
(a) The Neurotrope Companies own, and have good, valid and marketable title to, or, in the case of leased assets, valid leasehold interests in or other rights to use, all tangible assets purported to be owned or leased by them. All of said assets are owned or leased by the Neurotrope Companies free and clear of any Encumbrances, except for Permitted Encumbrances. No representations and warranties in this Section 4.13(a) are being given as to SpinCo.
(b) The Neurotrope Companies do not own and have not, since the Neurotrope Lookback Date, owned any real property or any interest in real property, except for the leaseholders created under the real property leases identified in Part 4.13(b) of the Neurotrope Disclosure Schedule. No representations and warranties in this Section 4.13(b) are being given as to SpinCo.
4.14 Environmental Matters.
(a) No Hazardous Material has been released as a result of the deliberate actions of Neurotrope or any of its Subsidiaries, or, to Neurotrope’s knowledge, as a result of any actions of any third party or otherwise, in, on or under any property, including the land and the improvements, ground water and surface water thereof, that Neurotrope or any of its Subsidiaries currently owns, operates, occupies or leases, in such quantities as would cause a Neurotrope Material Adverse Effect.
(b) Neither Neurotrope nor any of its Subsidiaries has engaged in Hazardous Material Activities in material violation of any Legal Requirement in effect on or before the date hereof.
(c) Neurotrope and its Subsidiaries currently hold all environmental approvals, permits, licenses, clearances and consents (the “Neurotrope Environmental Permits”) necessary for the conduct of Neurotrope’s and its Subsidiaries’ Hazardous Material Activities and other businesses of Neurotrope and its Subsidiaries as such activities and businesses are currently being conducted, except where the failure to so hold would not have a Neurotrope Material Adverse Effect.
(d) No material action, proceeding, revocation proceeding, amendment procedure, writ, injunction or claim is pending, or to the knowledge of Neurotrope, threatened concerning any Neurotrope Environmental Permit, Hazardous Material or any Hazardous Material Activity of Neurotrope or any of its Subsidiaries.
4.15 Neurotrope Contracts.
(a) Except for (x) Excluded Contracts or as set forth in the most recent exhibit list on Neurotrope’s Form 10-K for the year ended December 31, 2017 or subsequently filed with the SEC pursuant to any current or periodic report and available on the SEC Website or Parts 4.8(b) or 4.14 of the Neurotrope Disclosure Schedule, (y) any Contracts by which SpinCo is a party or may be bound, subject or affected, and (z) this Agreement or the ancillary agreements hereto, neither Neurotrope nor any of its Subsidiaries is a party to or is bound by:
| 45 |
(i) any management, employment, severance, retention, transaction bonus, change in control, material consulting, relocation, repatriation or expatriation agreement or other similar Contract between: (i) any of the Neurotrope Companies and (ii) any active, retired or former employees, directors or material consultants of any Neurotrope Company, other than any such Contract that is (x) terminable “at will” (or following a notice period imposed by applicable Legal Requirements or, in the case of consulting agreements, following the notice period required in the Contract), or (y) without any obligation on the part of any Neurotrope Company, other than severance payments required to be made by any Neurotrope Company under applicable Legal Requirements;
(ii) any Contracts identified or required to be identified in Part 4.13(b) of the Neurotrope Disclosure Schedule;
(iii) any Contract with any distributor, reseller or sales representative with an annual value in excess of $250,000;
(iv) any Contract with any manufacturer, vendor, or other Person for the supply of materials or performance of services by such third party to Neurotrope in relation to the manufacture of the Neurotrope’s products or product candidates with an annual value in excess of $250,000;
(v) any agreement or plan, including, without limitation, any stock option plan, stock appreciation right plan or stock purchase plan, any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the Neurotrope Transactions or the value of any of the benefits of which will be calculated on the basis of any of the Neurotrope Transactions;
(vi) any Contract incorporating or relating to any guaranty, any warranty, any sharing of liabilities or any indemnity not entered into in the ordinary course of business, including any indemnification agreements between Neurotrope or any of its Subsidiaries and any of its officers or directors;
(vii) any Contract imposing, by its express terms, any material restriction on the right or ability of any Neurotrope Company: (A) to compete with any other Person; (B) to acquire any product or other asset or any services from any other Person; or (C) to develop, sell, supply, distribute, offer, support or service any product or any technology or other asset to or for any other Person;
(viii) any Contract currently in force relating to the disposition or acquisition of assets not in the ordinary course of business or any ownership interest in any corporation, partnership, joint venture or other business enterprise;
(ix) any mortgages, indentures, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit;
| 46 |
(x) any joint marketing or development agreement;
(xi) any commercial Contract that would reasonably be expected to have a material effect on the ability of Neurotrope to perform any of its material obligations under this Agreement, or to consummate any of the transactions contemplated by this Agreement;
(xii) any Contract that provides for: (A) any right of first refusal, right of first negotiation, right of first notification or similar right with respect to any securities or assets of any Neurotrope Company; or (B) any “no shop” provision or similar exclusivity provision with respect to any securities or assets of any Neurotrope Company;
(xiii) any Contract that contemplates or involves the payment or delivery of cash or other consideration in an amount or having a value in excess of $250,000 in the aggregate, or contemplates or involves the performance of services having a value in excess of $250,000 in the aggregate, in each case following the date of this Agreement, other than any arrangement or agreement expressly contemplated or provided for under this Agreement; or
(xiv) any Contract that does not allow Neurotrope or Subsidiary to terminate the Contract for convenience with no more than sixty (60) days prior notice to the other party and without the payment of any rebate, chargeback, penalty or other amount to such third party in connection with any such termination in an amount or having a value in excess of $250,000 in the aggregate.
(b) Neurotrope has made available to Company an accurate and complete copy of each Contract listed or required to be listed in Part 4.15 of the Neurotrope Disclosure Schedule (any such Contract, including any Contract that would be listed in Part 4.15 but for its inclusion in the most recent exhibit list of Neurotrope’s Form 10-K for the year ended December 31, 2019 or as an exhibit to any current or periodic report subsequently filed with the SEC, but excluding Excluded Contracts, a “Neurotrope Contract”). Neither Neurotrope nor any of its Subsidiaries, nor to Neurotrope’s knowledge any other party to a Neurotrope Contract, has, since the Neurotrope Lookback Date, breached or violated in any material respect or materially defaulted under, or received written notice that it has breached, violated or defaulted under, any of the terms or conditions of any of the Neurotrope Contracts. To the knowledge of Neurotrope, no event has occurred, and, no circumstance or condition exists, that (with or without notice or lapse of time) would reasonably be expected to: (i) result in a violation or breach in any material respect of any of the provisions of any Neurotrope Contract or (ii) give any Person the right to declare a default in any material respect under any Neurotrope Contract, except for any immaterial violations, breaches or defaults. To Neurotrope’s knowledge, each Neurotrope Contract is valid, binding, enforceable and in full force and effect, except as enforceability may be limited by bankruptcy and other similar laws and general principles of equity.
(c) Effective as of the time of the closing of the Spin-Off, all Contracts to which Neurotrope is a party (other than as set forth (i) on Part 4.15(c) of the Neurotrope Disclosure Schedule and (ii) in this Agreement or the ancillary agreements hereto) will be assigned to SpinCo, and Neurotrope will have no liability under any such Contract.
| 47 |
4.16 Insurance.
(a) Part 4.16(a) of the Neurotrope Disclosure Schedule sets forth each material insurance policy (the “Neurotrope Insurance Policies”) to which Neurotrope or its Subsidiaries is a party. Neurotrope or its Subsidiaries maintain all Neurotrope Insurance Policies in such amounts, with such deductibles and against such risks and losses that are reasonably adequate for the operation of Neurotrope’s and its Subsidiaries’ businesses in all material respects. To Neurotrope’s knowledge, such Neurotrope Insurance Policies are in full force and effect, maintained with reputable companies against loss relating to the business, operations and properties and such other risks as companies engaged in similar business as the Neurotrope Companies would, in accordance with good business practice, customarily insure. Since the Neurotrope Lookback Date, all premiums due and payable under such Neurotrope Insurance Policies have been paid on a timely basis and each Neurotrope Company is in compliance in all material respects with all other terms thereof. True, complete and correct copies, of such Neurotrope Insurance Policies, or summaries of all terms material thereof, have been made available to the Company.
(b) There are no material claims pending under any Neurotrope Insurance Policies as to which coverage has been questioned, denied or disputed. Since the Neurotrope Lookback Date, all material claims thereunder have been filed in a due and timely fashion and no Neurotrope Company has been refused insurance for which it has applied or had any policy of insurance terminated (other than at its request), nor has any Neurotrope Company received notice from any insurance carrier that: (i) such insurance will be canceled or that coverage thereunder will be reduced or eliminated; or (ii) premium costs with respect to such insurance will be increased, other than premium increases in the ordinary course of business applicable on their terms to all holders of similar policies.
4.17 Interested Party Transactions. Except as set forth in the Neurotrope SEC Documents, no event has occurred during the Neurotrope Lookback Period that would be required to be reported by Neurotrope as a Certain Relationship or Related Transaction pursuant to Item 404 of Regulation S-K.
4.18 Opinion of Financial Advisor. The Neurotrope Board has received an opinion of Gemini Valuation Services, LLC, financial advisor to Neurotrope, dated the date of this Agreement, to the effect that the Exchange Ratio is fair to Neurotrope from a financial point of view. Neurotrope will furnish an accurate and complete copy of said opinion to Company for informational purposes only promptly after the date hereof.
4.19 Status of SpinCo. Immediately after giving effect to the Spin-Off, SpinCo shall be solvent and shall (a) be able to pay all of its liabilities and other obligations as they become due, and (b) have adequate capital to carry on its present or proposed business. No transfer of property is being made and no obligation is being incurred in connection with the Spin-Off or the transactions contemplated thereby with the intent to hinder, delay or defraud either present or future creditors of Neurotrope or SpinCo. In connection with the transactions contemplated hereby, SpinCo has not incurred, nor plans to incur, debts beyond its ability to pay as they become absolute and matured.
4.20 Operating Liabilities After Spin-Off. Immediately after giving effect to the Spin-Off and the transactions contemplated thereby, except as set forth on Part 4.20 of the Neurotrope Disclosure Schedule and pursuant to the terms of the Tax Matters Agreement between Neurotrope and SpinCo (the “Tax Matters Agreement”), Neurotrope shall have no liabilities relating to SpinCo, whether absolute, accrued, asserted or unasserted, contingent or otherwise.
| 48 |
4.21 Disclosure; Neurotrope Information. The information relating to Neurotrope or its Subsidiaries to be supplied by or on behalf of Neurotrope for inclusion or incorporation by reference in the Registration Statement and the Proxy Statement will not, on the date of filing thereof or the date it is first mailed to Neurotrope stockholders, as applicable, or at the time of the Neurotrope Stockholders’ Meeting, contain any untrue statement of any material fact, or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not false or misleading at the time and in light of the circumstances under which such statement is made. The Registration Statement and the Proxy Statement will comply in all material respects as to form with the requirements of the Exchange Act and the rules and regulations thereunder. Notwithstanding the foregoing, no representation is made by Neurotrope with respect to the information that has been or will be supplied by the Company or any of it Representatives for inclusion in the Registration Statement and the Proxy Statement.
Article
5.
CONDUCT OF BUSINESS PENDING THE MERGERS
5.1 Conduct of Company Business. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement pursuant to its terms or the Metuchen Effective Time (the “Pre-Closing Period”), Company agrees, except to the extent that Neurotrope consents in writing (such consent not to be unreasonably withheld, conditioned or delayed), as set forth on Part 5.1 of the Company Disclosure Schedule, as expressly permitted by this Agreement or by applicable Legal Requirements, to carry on its business in accordance with good commercial practice and to carry on its business in the usual, regular and ordinary course, consistent with past practice, to pay its debts and Taxes when due subject to good faith disputes over such debts or Taxes, to pay or perform other obligations when due, and use its commercially reasonable efforts consistent with past practices and policies to preserve intact its present business organization, keep available the services of its present officers and employees and preserve its relationships with customers, suppliers, distributors, licensors, licensees, and others with which it has business dealings. In addition, without limiting the foregoing, other than as expressly contemplated by this Agreement, without obtaining the written consent of Neurotrope, which shall not be unreasonably withheld (and in which event, if Neurotrope has not objected in writing to any request for consent within three (3) calendar days of its receipt thereof, such consent shall be deemed irrevocably granted), Company will not, and will not permit its Subsidiaries to, do any of the following:
(a) amend or otherwise change its certificate of formation or limited liability company agreement, or otherwise alter its company structure through merger, liquidation, reorganization or otherwise;
(b) issue, sell, pledge, dispose of or encumber, or authorize the issuance, sale, pledge, disposition or encumbrance of, any membership interests of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any membership interests, or any other ownership interest (including, without limitation, any phantom interest), except for the issuance of Company Units issuable in connection with the conversion of indebtedness or of preferred units;
| 49 |
(c) redeem, repurchase or otherwise acquire, directly or indirectly, any Company Units (other than pursuant a repurchase right in favor of the Company with respect to unvested shares at no more than cost);
(d) incur any Indebtedness or sell any debt securities or guarantee any debt securities or other obligations of others or sell, pledge, dispose of or create an Encumbrance over any assets;
(e) (i) declare, set aside, make or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of any of its membership interests, except that a wholly owned Subsidiary may declare and pay a dividend to its parent; (ii) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for its membership interests or (iii) amend the terms of, repurchase, redeem or otherwise acquire, or permit any Subsidiary to repurchase, redeem or otherwise acquire, any of its securities or any securities of its Subsidiaries (except pursuant to any Contract to which any Metuchen Company is a party as of the date of this Agreement), or propose to do any of the foregoing;
(f) accelerate, amend or change the period (or permit any acceleration, amendment or change) of exercisability of options or warrants or authorize cash payments in exchange for any options, except as may be required under this Agreement or as may be required by applicable Legal Requirements;
(g) sell, assign, transfer, license, sublicense or otherwise dispose of any Company IP Rights;
(h) (i) acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof or any other material property or assets, in each case with an individual value in excess of $75,000; (ii) enter into or amend any material terms of any Company Contract or grant any release or relinquishment of any material rights under any Company Contract, with new obligations or losses of rights in excess of $75,000; (iii) authorize any capital expenditures or purchase of fixed assets which are, in the aggregate, in excess of $75,000, taken as a whole or (iv) enter into or amend any contract, agreement, commitment or arrangement to effect any of the matters prohibited by this Section 5.1(h);
(i) forgive any loans to any Person, including its employees, officers, directors or Affiliates;
(j) take any action, other than as required by applicable Legal Requirements or GAAP, to change accounting policies or procedures;
(k) (i) increase the wages, salary, commissions, fringe benefits or other compensation or remuneration payable or to become payable to its directors, officers, employees or consultants; (ii) grant any severance or termination pay to, or enter into or amend any employment or severance agreement with, any director, officer, employee or consultant; (iii) establish, adopt, enter into, or amend any Employee Benefit Plan, except, in each of the subsections (i) – (iii) for bonus awards in the ordinary course of business consistent with past practice or bonus awards contingent upon the completion of the Transactions or payments, including any severance, termination or change of control payments, in compliance with any such agreements or plans existing as of the date of this Agreement and the plans, agreements or terms of which were made available to the Neurotrope prior to the date hereof, or except as required by Legal Requirements;
| 50 |
(l) hire any directors, officers, employees or consultants or terminate any directors or officers, except in each case, in the ordinary course of business and in a manner consistent with past practice;
(m) make or change any material Tax election inconsistent with past practices, adopt or change any Tax accounting method, or settle or compromise any material federal, state, local or foreign Tax liability or agree to an extension of a statute of limitations for any assessment of any Tax;
(n) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice;
(o) otherwise take any actions other than in the ordinary course of business consistent with past practice;
(p) enter into any material partnership arrangements, joint development agreements or strategic alliances;
(q) initiate any litigation, action, suit, proceeding, claim or arbitration or settle or agree to settle any litigation, action, suit, proceeding, claim or arbitration, in each case where the Company and its Subsidiaries are claiming, or would be reasonably likely to receive or become obligated for a liability, of more than $75,000 individually;
(r) except to the extent expressly permitted by this Agreement, take any action that is intended or that would reasonably be expected to, individually or in the aggregate, prevent, materially delay, or materially impede the consummation of the Mergers, or the other Transactions; or
(s) after the Working Capital Calculation is finalized pursuant to Section 1.8, incur any Liabilities or otherwise take any actions other than, in each case, in the ordinary course of business or in connection with the transactions contemplated by this Agreement;
(t) take, or agree in writing or otherwise to take, any of the actions described in Sections 5.1(a) through (s) above.
| 51 |
5.2 Conduct of Neurotrope Business. During the Pre-Closing Period, Neurotrope agrees, except to the extent that Company consents in writing (such consent not to be unreasonably withheld, conditioned or delayed), as set forth on Part 5.2 of the Company Disclosure Schedule, as expressly permitted by this Agreement, in connection with the Spin-Off (effected in compliance with the provisions of Section 6.26, including, without limitation, transferring, and causing SpinCo to accept, the Excess Cash, in connection with the implementation of any alternative structures resulting in only the Neurotrope stockholders of record prior to the Neurotrope Effective Time receiving any interest in the Spin-Off (to the extent the Spin-Off is not consummated prior to, or concurrently with, the Neurotrope Effective Time) or by applicable Legal Requirements, to carry on its business in accordance with good commercial practice and to carry on its business in the usual, regular and ordinary course, in substantially the same manner as heretofore conducted, to pay its debts and Taxes when due subject to good faith disputes over such debts or Taxes, to pay or perform other material obligations when due, and use its commercially reasonable efforts consistent with past practices and policies to preserve intact its present business organization, preserve its relationships with key customers, suppliers, distributors, licensors, licensees and others with which it has business dealings. In addition, without limiting the foregoing, other than as set forth on Part 5.2 of the Company Disclosure Schedule or as expressly contemplated by this Agreement, without obtaining the written consent of Company, which shall not be unreasonably withheld, conditioned or delayed (and in which event, if Company has not objected in writing to any request for consent within three (3) calendar days of its receipt thereof, such consent shall be deemed irrevocably granted), Neurotrope will not, and will not permit its Subsidiaries to, do any of the following:
(a) amend or otherwise change its certificate of incorporation or bylaws, or otherwise alter its corporate structure through merger, liquidation, reorganization or otherwise, or form any subsidiary;
(b) issue, sell, pledge, dispose of or encumber, or authorize the issuance, sale, pledge, disposition or encumbrance of, any shares of capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of capital stock, or any other ownership interest (including, without limitation, any phantom interest), other than the issuance of shares of common stock issuable pursuant to employee stock options under currently existing employee stock option plans or pursuant to currently outstanding warrants, as the case may be, which options, warrants or rights, as the case may be, are outstanding on the date hereof) to the extent such issuances comply with all applicable Legal Requirements; provided, however, that Neurotrope shall be permitted to issue new warrants or amend the terms of its existing warrants for the purpose of inducing the holders of existing warrants to amend or exercise such warrants, and it being understood and agreed that at the Closing, eighty percent (80%) of the gross proceeds from any exercises of warrants with an exercise price of not greater than One Dollar and Sixty-Five Cents ($1.65) between the date of this Agreement and the Closing shall be retained by Neurotrope and twenty percent (20%) of such gross proceeds shall be disbursed to SpinCo in connection with the Spin-Off; provided, further, however, that Neurotrope shall be entitled to grant up to 600,000 options to current officers and directors of Neurotrope and to provide that such options shall not expire at Closing and shall remain exercisable for one year after the termination of such officer's or director's relationship with Neurotrope; provided, further, that any such warrants issued or amended or any options issued under this Section 5.2(b) shall not be issued or amended, as applicable, without the prior review and consent of the Company, which consent shall not be unreasonably withheld, conditioned or delayed;
| 52 |
(c) redeem, repurchase or otherwise acquire, directly or indirectly, any shares of Neurotrope Capital Stock;
(d) incur any Indebtedness or sell, pledge, dispose of or create an Encumbrance over any assets (except for (i) sales of assets in the ordinary course of business and in a manner consistent with past practice, and (ii) dispositions of obsolete or worthless assets);
(e) accelerate, amend or change the period (or permit any acceleration, amendment or change) of exercisability of options or warrants or authorize cash payments in exchange for any options, except as may be required under any Neurotrope Stock Option Plan, Contract or this Agreement or as may be required by applicable Legal Requirements; provided, however, that Neurotrope shall be permitted to accelerate the vesting of all outstanding options at the Closing, provided, further, however, that Neurotrope shall be entitled to amend the terms of currently outstanding options to provide for the continued exercisability of such options for a period of one year following termination of employment or service as a director;
(f) (i) declare, set aside, make or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of any of its capital stock; (ii) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) amend the terms of, repurchase, redeem or otherwise acquire, or permit any Subsidiary to repurchase, redeem or otherwise acquire, any of its securities or any securities of its Subsidiaries (except pursuant to any Contract to which any Neurotrope Company is a party as of the date of this Agreement), or propose to do any of the foregoing;
(g) sell, assign, transfer, license, sublicense or otherwise dispose of any Neurotrope IP Rights (other than non-exclusive licenses in the ordinary course of business consistent with past practice);
(h) (i) acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof or any other material property or assets, or allow any material property or assets to become subject to any Encumbrance; (ii) enter into or amend any material terms of any Neurotrope Contract (other than solely to decrease any payment obligation of the Neurotrope Company) or grant any release or relinquishment of any material rights under any Neurotrope Contract, with new obligations or losses of rights in excess of $75,000 in the aggregate; (iii) authorize any capital expenditures or purchase of fixed assets which are, in the aggregate, in excess of $75,000, taken as a whole; or (iv) enter into or amend any contract, agreement, commitment or arrangement to effect any of the matters prohibited by this Section 5.2(h);
(i) forgive any loans to any Person, including its employees, officers, directors or Affiliates;
(j) (i) increase the wages, salary, commissions, fringe benefits or other compensation or remuneration payable or to become payable to its directors, officers, employees or consultants; (ii) grant any severance or termination pay to, or enter into or amend any employment or severance agreement with, any director, officer, employee or consultant; (iii) establish, adopt, enter into, or amend any Employee Benefit Plan, except, in each of the subsections (i) – (iii) for bonus awards in the ordinary course of business consistent with past practice or bonus awards contingent upon the completion of the Transactions or payments, including any severance, termination or change of control payments, in compliance with any such agreements or plans existing as of the date of this Agreement and the plans, agreements or terms of which were made available to the Company prior to the date hereof, or except as required by Legal Requirements;
| 53 |
(k) hire any directors, officers, employees or consultants or terminate any directors or officers, except in each case, in the ordinary course of business and in a manner consistent with past practice;
(l) take any action, other than as required by applicable Legal Requirements or GAAP, to change accounting policies or procedures;
(m) make or change any material Tax election inconsistent with past practices, adopt or change any Tax accounting method, or settle or compromise any material federal, state, local or foreign Tax liability or agree to an extension of a statute of limitations for any assessment of any Tax;
(n) pay, discharge, satisfy, modify or renegotiate any claims or Liabilities, other than the payment, discharge or satisfaction of liabilities reflected or reserved against in the financial statements of Company, or payments, discharges or satisfactions made in the ordinary course of business and consistent with past practice;
(o) enter into any material partnership arrangements, joint development agreements or strategic alliances;
(p) accelerate the collection of, or otherwise modify Neurotrope’s customary accounting or treatment of, any receivables outside the ordinary course of business consistent with past practice,
(q) initiate any litigation, action, suit, proceeding, claim or arbitration or settle or agree to settle any litigation, action, suit, proceeding, claim or arbitration, in each case where Neurotrope is claiming, or would be reasonably likely to receive or become obligated for a liability, of more than $75,000 individually;
(r) dispose of any assets or otherwise take any actions other than in the ordinary course of business consistent with past practice;
(s) [Reserved];
(t) enter into or amend or modify any Neurotrope Contract or any lease with respect to material real estate or any other Contract or lease that, if in effect as of the date hereof would constitute a Neurotrope Contract or lease with respect to material real estate hereunder; or
(u) except to the extent expressly permitted by this Agreement, take any action that is intended or that would reasonably be expected to, individually or in the aggregate, prevent, materially delay, or materially impede the consummation of the Mergers, or the other Transactions;
| 54 |
(v) take, or agree in writing or otherwise to take, any of the actions described in Sections 5.2(a) through 5.2(u) above.
Article
6.
ADDITIONAL AGREEMENTS
6.1 Registration Statement; Proxy Statement.
(a) As promptly as practicable after the date of this Agreement, and in any event no later than forty-five (45) days following the date of this Agreement, the Parties shall prepare, and Parent shall cause to be filed with the SEC, the Registration Statement, in which the Proxy Statement will be included as a prospectus.
(b) Each of the Company and Neurotrope shall use reasonable best efforts to have the Registration Statement declared effective under the Securities Act as promptly as reasonably practicable after such filing and to keep the Registration Statement effective as long as necessary to consummate the Mergers and the other transactions contemplated hereby, which shall include their respective reasonable best efforts to cause to be delivered to each other consents from their respective independent auditors, in form reasonably satisfactory to the recipient and customary in scope and substance for consents delivered by independent public accountants in connection with registration statements on Form S-4 under the Securities Act. Each of Neurotrope and the Company will cause the Proxy Statement to be mailed to their respective stockholders and unitholders as soon as reasonably practicable after the Registration Statement is declared effective under the Securities Act. Neurotrope and the Company shall also take any action required to be taken under any applicable state or provincial securities Legal Requirements in connection with the issuance and reservation of shares of Parent Common Stock and Parent Preferred Stock in the Mergers, and Neurotrope and the Company shall furnish all information concerning themselves and their respective stockholders and unitholders as may be reasonably requested in connection with any such action. No filing of, or amendment or supplement to, the Registration Statement or the Proxy Statement will be made by Parent without the prior consent of Neurotrope and the Company (which, in either case, shall not be unreasonably withheld, conditioned or delayed) and without providing the other party a reasonable opportunity to review and comment thereon. Neurotrope or the Company, as applicable, will advise the other promptly after it receives oral or written notice of the time when the Registration Statement has become effective or any supplement or amendment thereto has been filed, the issuance of any stop order, the suspension of the qualification of the shares of Parent Common Stock or Parent Preferred Stock issuable in connection with the Mergers for offering or sale in any jurisdiction, or any oral or written request by the SEC for amendment of the Proxy Statement or the Registration Statement or comments thereon and responses thereto or requests by the SEC for additional information, and will promptly provide the other with copies of any written communication from the SEC or any state securities commission. If at any time prior to the Effective Times any information relating to Neurotrope or the Company, or any of their respective affiliates, officers or directors, is discovered by Neurotrope or the Company which should be set forth in an amendment or supplement to any of the Registration Statement or the Proxy Statement, so that any of such documents would not include a misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, the party that discovers such information shall promptly notify the other parties hereto and an appropriate amendment or supplement describing such information shall be promptly filed with the SEC and, to the extent required by law, disseminated to the stockholders of Neurotrope and the unitholders of the Company.
| 55 |
(c) Prior to the Effective Times, Neurotrope and the Company shall use commercially reasonable efforts to obtain all regulatory approvals needed to ensure that the Parent Common Stock and Parent Preferred Stock to be issued in the Mergers (to the extent required) shall be registered or qualified or exempt from registration or qualification under the securities law of every jurisdiction of the United States in which any registered holder of Company Units or Neurotrope Capital Stock has an address of record on the applicable record date for determining the holders of (i) Company Units entitled to notice of and to vote pursuant to the Preferred Members Consent and (ii) Neurotrope Capital stock entitled to notice of and to vote at the Neurotrope Stockholders Meeting; provided, however, that Parent shall not be required: (i) to qualify to do business as a foreign corporation in any jurisdiction in which it is not now qualified; or (ii) to file a general consent to service of process in any jurisdiction
(d) Each of Neurotrope and the Company shall reasonably cooperate with Parent and provide, and require its Representatives, advisors, accountants and attorneys to provide, Parent and its Representatives, advisors, accountants and attorneys, with all true, correct and complete information regarding Neurotrope and the Company, as the case may be, that is required by law to be included in the Proxy Statement or Registration Statement or reasonably requested to be included in the Proxy Statement or Registration Statement. The information provided by either Neurotrope or the Company to be included in the Proxy Statement shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.
(e) If required by applicable Legal Requirements and the respective organizational documents of the Merger Subs, each Merger Sub will promptly after the execution of this Agreement and in any event no later than 11:59 p.m. (Eastern Time) on the date of this Agreement, submit this Agreement to such Merger Sub’s stockholder or member, as the case may be, for the purpose of approving the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, including the Metuchen Merger, in the case of Merger Sub 1, and the Neurotrope Merger, in the case of Merger Sub 2, by written consent (each a “Merger Sub Approval”), and each Merger Sub shall use its commercially reasonable efforts to obtain its Merger Sub Approval as promptly as reasonably practicable after the execution of this Agreement and in any event no later than 11:59 p.m. (Eastern) on the date of this Agreement.
(f) Each Merger Sub agrees that: (i) its board of directors or managers, as applicable, shall unanimously recommend that its sole stockholder or sole member, as the case may be, vote to adopt and approve (or consent in writing to the adoption and approval of) this Agreement and the Metuchen Merger, in the case of Merger Sub 1, and the Neurotrope Merger, in the case of Merger Sub 2, and shall use commercially reasonable efforts to solicit such approval within the time set forth in Section 6.1(e).
| 56 |
6.2 Preferred Members Consent; Company Board Approval.
(a) Concurrently with the execution of this Agreement, the Company has obtained and provided to Neurotrope the resolutions of the board of the Company adopting this Agreement and approving the Mergers, and all other Transactions, and acknowledging that the approval given thereby is irrevocable (the “Company Board Approval”).
(b) As promptly as practicable, and in any event within five (5) Business Days, following the date that the Registration Statement is declared effective (the “Company Vote Deadline”), the Company shall obtain the Preferred Members Consent for purposes of (i) adopting this Agreement and approving the Metuchen Merger, and all other Transactions, (ii) acknowledging that by its approval of the Metuchen Merger it is not entitled to appraisal rights with respect to its Company Units in connection with the Metuchen Merger and thereby waives any rights to receive payment of the fair value of its Company Units under Delaware Law (collectively, the “Company Member Matters”). Under no circumstances shall the Company assert that any other approval or consent is necessary by its members to approve this Agreement and the Transactions.
(c) Company agrees that the Company Board Approval shall not be withdrawn or modified in a manner adverse to Neurotrope, and no resolution by the board of managers of Company or any committee thereof to withdraw or modify the Company Board Approval in a manner adverse to Neurotrope shall be adopted or proposed.
(d) Promptly following the receipt of the Preferred Members Consent, the Company shall prepare and mail a notice (the “Member Notice”) to every member of the Company. The Member Notice shall (i) be a statement to the effect that the Company Board determined that the Metuchen Merger is in the best interests of the members of the Company and approved and adopted this Agreement, the Metuchen Merger and the other Transactions, and (ii) provide the members of the Company to whom it is sent with notice of the actions taken in the Preferred Members Consent, including the adoption and approval of this Agreement, the Metuchen Merger and the other Transactions. All materials (including any amendments thereto) submitted to the members of the Company in accordance with this Section 6.2(d) shall be subject to Neurotrope’s advance review and reasonable approval.
6.3 Neurotrope Stockholders’ Meeting.
(a) Neurotrope shall (i) take all action necessary under applicable Legal Requirements to call, give notice of and hold a meeting of the holders of Neurotrope Capital Stock (such meeting, the “Neurotrope Stockholders’ Meeting”) to vote on the Neurotrope Merger (the “Neurotrope Stockholder Approval Matter”) and (ii) mail to Neurotrope Stockholders as of the record date established for the Neurotrope Stockholders’ Meeting, the Registration Statement and the Proxy Statement. The Neurotrope Stockholders’ Meeting shall be held as promptly as practicable after the Registration Statement is declared effective under the Securities Act, and in any event no later than forty-five (45) days after the effective date of the Registration Statement (as extended pursuant to any adjournment or postponement permitted below, the “Neurotrope Vote Deadline”). Neurotrope shall take reasonable measures to ensure that all proxies solicited in connection with the Neurotrope Stockholders’ Meeting are solicited in compliance with all applicable Legal Requirements. Notwithstanding anything to the contrary contained herein, if on a date preceding the date on which or the date on which the Neurotrope Stockholders’ Meeting is scheduled, Neurotrope reasonably believes that (A) it will not receive proxies sufficient to obtain the Neurotrope Stockholder Approval, whether or not a quorum would be present or (B) it will not have sufficient shares of Neurotrope Capital Stock represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of the Neurotrope Stockholders’ Meeting, Neurotrope may, in its sole discretion, postpone or adjourn, or make one or more successive postponements or adjournments of, the Neurotrope Stockholders’ Meeting as long as the date of the Neurotrope Stockholders’ Meeting is not postponed or adjourned more than an aggregate of sixty (60) calendar days in connection with any postponements or adjournments in reliance on the preceding sentence.
| 57 |
(b) Neurotrope agrees that, subject to Section 5.3(c): (i) the Neurotrope Board shall recommend that the holders of Neurotrope Capital Stock vote to approve the Neurotrope Stockholder Approval Matter and shall use commercially reasonable efforts to solicit such approval within the timeframe set forth in Section 5.3(a) above; (ii) the Proxy Statement shall include a statement to the effect that the Neurotrope Board recommends that Neurotrope’s stockholders vote to approve the Neurotrope Stockholder Approval Matter (the recommendation of Neurotrope Board that Neurotrope’s stockholders vote to approve the Neurotrope Stockholder Approval Matter being referred to as the “Neurotrope Board Recommendation”); (iii) the Neurotrope Board Recommendation shall not be withdrawn or modified in a manner adverse to Company, and no resolution by the Neurotrope Board or any committee thereof to withdraw or modify the Neurotrope Board Recommendation in a manner adverse to Company shall be adopted or proposed; and (iv) Neurotrope shall use its reasonable best efforts to obtain from its stockholders the Neurotrope Stockholder Approval, including by soliciting proxies in favor thereof.
(c) Notwithstanding anything to the contrary contained in Section 5.3(b), at any time prior to the approval of the Neurotrope Stockholder Approval Matter by the Neurotrope Stockholder Approval, the Neurotrope Board Recommendation may be withdrawn or modified (a “Neurotrope Change in Recommendation”) if the Neurotrope Board concludes in good faith, after having consulted with Neurotrope’s outside legal counsel and financial advisors, that as a result of Neurotrope’s receipt of an Acquisition Proposal that did not result from a violation of Section 6.13 that constitutes a Superior Offer, and the withdrawal or modification of the Neurotrope Board Recommendation is required in order for the Neurotrope Board to comply with its fiduciary obligations to Neurotrope’s stockholders under applicable Legal Requirements; provided, however, that prior to Neurotrope taking any action permitted under this Section 6.3(c), Neurotrope shall provide Company with four (4) Business Days’ prior written notice advising the Company that it intends to effect such withdrawal or modification to the Neurotrope Board Recommendation and specifying, in reasonable detail, the reasons therefor (including, in the case of an Acquisition Proposal, the information required by Section 6.13(b) and during such four (4) Business Day period, (i) Neurotrope shall negotiate, and cause its Representatives to negotiate, with Company in good faith (to the extent Company wishes to negotiate) to enable Company to determine whether to propose revisions to the terms of this Agreement such that it would obviate the need for Neurotrope Board to effect such withdrawal or modification, and (ii) Neurotrope shall consider in good faith any proposal by Company to amend the terms and conditions of this Agreement in a manner that would obviate the need to effect such withdrawal or change of the Neurotrope Board Recommendation.
| 58 |
(d) Notwithstanding the occurrence of any Neurotrope Change in Recommendation, Neurotrope shall nonetheless submit this Agreement to the Neurotrope Stockholders for adoption at the Neurotrope Stockholders Meeting unless this Agreement is terminated in accordance with Article VIII prior to the Neurotrope Stockholders Meeting.
(e) Nothing contained in this Agreement shall prohibit Neurotrope or its board of directors from (i) taking and disclosing to the stockholders of Neurotrope a position as contemplated by Rule 14e-2(a) under the Exchange Act or complying with the provisions of Rule 14d-9 under the Exchange Act (other than Rule 14d-9(f) under the Exchange Act) or (ii) making a “stop, look and listen” communication to the stockholders of Neurotrope pursuant to Rule 14d-9(f) under the Exchange Act, in each case provided Neurotrope has otherwise complied with the terms of this Section 6.3, provided, however, that any disclosure made by Neurotrope or its board of directors pursuant to Rules 14d-9 or 14e-2(a) will be limited to a statement that Neurotrope is unable to take a position with respect to the bidder’s tender offer unless the Neurotrope Board determines in good faith, after consultation with its outside legal counsel, that such statement would result in a breach of its fiduciary duties under applicable Legal Requirements; provided, further, that (A) in the case of each of the foregoing clauses (i) and (ii), any such disclosure or public statement shall be deemed to be a Neurotrope Change in Recommendation subject to the terms and conditions of this Agreement unless the Neurotrope Board reaffirms the Neurotrope Board Recommendation in such disclosure or public statement; and (B) Neurotrope shall not affect a Neurotrope Change in Recommendation unless specifically permitted pursuant to the terms of Section 6.3(c).
6.4 Access to Information; Confidentiality. During the Pre-Closing Period, and upon reasonable notice and subject to restrictions contained in confidentiality agreements to which such party is subject, Company and Neurotrope will each afford to the officers, employees, accountants, counsel and other Representatives of the other party, reasonable access, during the Pre-Closing Period, to all its properties, books, contracts, commitments and records (including, without limitation, Tax records) and, during such period, Company and Neurotrope each will furnish promptly to the other all information concerning its business, properties and personnel as such other party may reasonably request, and each will make available to the other the appropriate individuals (including attorneys, accountants and other professionals) for discussion of the other’s business, properties and personnel as either party may reasonably request; provided, that each of Company and Neurotrope reserves the right to withhold any information if access to such information would be reasonably likely to result in any such party forfeiting attorney-client privilege between it and its counsel with respect to such information, in which event such party shall cause such information to be delivered in a form or summary, including any redactions that may be necessary, so as to provide as much requested information as reasonably practicable while retaining such privilege. Without limiting the generality of the foregoing, during the Pre-Closing Period, the Company and Neurotrope will promptly provide the other party with copies of: (a) all material operating and financial reports prepared by Company or Neurotrope (or their respective Representatives), as applicable, for such party’s senior management, including copies of any sales forecasts, marketing plans, development plans, discount reports, write-off reports, hiring reports and capital expenditure reports; (b) any written materials or communications sent by or on behalf of such party to its stockholders; (c) any material notice, document or other communication sent by or on behalf of any of such party to any third party to any Company Contract or Neurotrope Contract, as applicable, or sent to Company or Neurotrope by any third party to any Company Contract or Neurotrope Contract, as applicable, (other than any communication that relates solely to routine commercial transactions and that is of the type sent in the ordinary course of business and consistent with past practices); (d) any notice, report or other document filed with or sent to any Governmental Body in connection with the Mergers or any of the other Transactions; and (e) any material notice, report or other document received from any Governmental Body. Each party will keep such information confidential in accordance with the terms of the currently effective confidentiality agreement (the “Confidentiality Agreement”) between Neurotrope and Company; provided, that the Company may make disclosure of such information to its stockholders or other third parties as may be reasonably necessary to enable the Company to comply with its obligations under this Agreement, including without limitation under Section 6.2 hereof.
| 59 |
6.5 Filings; Other Actions. Each Party shall use commercially reasonable efforts to file or otherwise submit, as soon as practicable after the date of this Agreement, all applications, notices, reports and other documents reasonably required to be filed by such Party with or otherwise submitted by such Party to any Governmental Body with respect to the Mergers, and to submit promptly any additional information requested by any such Governmental Body. Without limiting the generality of the foregoing, the Parties shall, promptly after the date of this Agreement, prepare and file, if any, (a) the notification and report forms required to be filed under the HSR Act and (b) any notification or other document required to be filed in connection with the Mergers under any applicable foreign Legal Requirement relating to antitrust or competition matters. Neurotrope and Company shall respond as promptly as is practicable to respond in compliance with: (i) any inquiries or requests received from the Federal Trade Commission or the Department of Justice for additional information or documentation; and (ii) any inquiries or requests received from any state attorney general, foreign antitrust or competition authority or other Governmental Body in connection with antitrust or competition matters.
6.6 Director Indemnification and Insurance.
(a) From and after the Effective Time, Parent and the Surviving Companies will fulfill and honor in all respects the obligations of Company and Neurotrope which exist prior to the date hereof to indemnify Company’s and Neurotrope’s present and former directors and officers and their heirs, executors and assigns (each, a “D&O Indemnified Party”). The Company directors and officers who become directors and officers of Parent and Parent will enter into Parent’s standard indemnification agreement, which will be in addition to any other contractual rights to indemnification. The organizational documents of the Surviving Companies will contain provisions at least as favorable as the provisions relating to the indemnification and elimination of liability for monetary damages set forth in the applicable organizational documents of Company and Neurotrope, respectively, and the provisions relating to the indemnification and elimination of liability for monetary damages set forth in the organizational documents of Parent, Company and Neurotrope will not be amended, repealed or otherwise modified for a period of six (6) years from the Effective Times in any manner that would adversely affect the rights thereunder of individuals who, at the Effective Time, were directors, officers, employees or agents of Parent, Company or Neurotrope, unless such modification is required by Legal Requirements.
(b) Effective as of the Effective Time, Company may, at Company’s sole expense, secure a “tail” policy on Company’s existing directors and officer’s liability insurance policy for a period of six (6) years.
| 60 |
(c) Effective as of the Effective Time, Neurotrope will secure a directors and officers liability “tail” policy on Neurotrope’s existing directors and officers for a period of six (6) years.
(d) This Section 6.6 will survive any termination of this Agreement and the consummation of the Mergers at the Effective Times, is intended to benefit Parent, the Company, the Surviving Companies, Neurotrope and the D&O Indemnified Parties, and will be binding on all successors and assigns of Parent and the Surviving Companies.
6.7 Notification of Certain Matters.
(a) Company will give prompt notice to Neurotrope, and Neurotrope will give prompt notice to Company, of (i) the occurrence, or non-occurrence, of any event the occurrence, or non-occurrence, of which would be reasonably likely to cause any representation or warranty contained in this Agreement to be untrue or inaccurate such that the conditions set forth in Section 7.2(a) or Section 7.3(a), as applicable, would fail to be satisfied as of the Closing; (ii) any failure of Company or Neurotrope, as the case may be, materially to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder such that the conditions set forth in Section 7.2(b) or Section 7.3(b), as applicable, would fail to be satisfied as of the Closing and (iii) whether any holder of shares of Neurotrope Capital Stock or any security or other right convertible into or exercisable for shares of Neurotrope Capital Stock has made any demand or request for the repurchase of any such share, security or right; provided, however, that the delivery of any notice pursuant to this Section 6.7 will not limit or otherwise affect the remedies available hereunder to the party receiving such notice.
(b) Each of Company and Neurotrope will give prompt notice to the other of: (i) any notice or other communication from any person alleging that the consent of such person is or may be required in connection with the Mergers or other Transactions; (ii) any notice or other communication from any Governmental Body in connection with the Mergers or other Transactions; (iii) any litigation relating to or involving or otherwise affecting Company or Neurotrope that relates to the Mergers or other Transactions; (iv) the occurrence of a default or event that, with notice or lapse of time or both, will become a default under a Company Contract; and (v) any change that would be considered reasonably likely to result in a Company Material Adverse Effect or Neurotrope Material Adverse Effect.
6.8 Stockholder and Member Litigation. From and after the date of this Agreement until the earlier of the Effective Times or the date, if any, on which this Agreement is terminated pursuant to Article VIII, Neurotrope shall promptly notify Company of any litigation brought, or threatened, against Neurotrope and/or members of the board of directors of Neurotrope or any of its officers relating to the Transactions or otherwise and shall keep Company informed on a reasonably current basis with respect to the status thereof. From and after the date of this Agreement until the earlier of the Effective Times or the date, if any, on which this Agreement is terminated pursuant to Article VIII, Company shall promptly notify Neurotrope of any litigation brought, or threatened, against Company and/or members of the Company Board or any of its officers relating to the Transactions or otherwise and shall keep Neurotrope informed on a reasonably current basis with respect to the status thereof. Each Party shall give the other Party the right to review and comment on all material filings or responses to be made by such Party in connection with the foregoing and, no settlement shall be agreed to in connection with the foregoing without the other Party's prior written consent (such consent not to be unreasonably withheld, conditioned or delayed).
| 61 |
6.9 Public Announcements. Neurotrope and Company will consult with each other before issuing any press release or otherwise making any public statements with respect to the Mergers or this Agreement and will not issue any such press release or make any disclosure (to any customers or employees of such Party, to the public or otherwise) regarding this Agreement and/or the Transactions without the prior consent of the other party, which will not be unreasonably withheld or delayed; provided, however, that, on the advice of legal counsel, Neurotrope may comply with any SEC requirements under the Securities Act or Exchange Act which requires any disclosure, without the consent or review of Company.
6.10 Conveyance Taxes. Parent, Neurotrope and Company will cooperate in the preparation, execution and filing of all returns, questionnaires, applications or other documents regarding any real property transfer or gains, sales, use, transfer, value added, stock transfer and stamp taxes, any transfer, recording, registration and other fees, and any similar taxes which become payable in connection with the Transactions that are required or permitted to be filed on or before the Effective Time.
6.11 Board of Directors and Officers of Parent.
(a) Parent will take all actions necessary to cause the board of directors of Parent, immediately after the Effective Time, to consist of up to nine (9) directors, of which four (4) directors shall be designated by Neurotrope and shall include Josh Silverman, Bruce Bernstein, Charles Ryan and Ivan Gergel, and up to five (5) directors who shall be designated by the Company in the Proxy Statement. Prior to the mailing of the Proxy Statement, Neurotrope shall provide executed resignation letters (effective as of the Effective Time) for all members of the board of directors who will no longer be members of the board of directors of Neurotrope effective immediately after the Effective Time; provided, however, the parties acknowledge that so long as Parent remains a public reporting company, the board of directors of Parent will continue to satisfy applicable securities laws, including, without limitation, maintaining an independent audit committee, and the nominations by Company and Neurotrope hereunder will allow Parent to comply with such applicable Legal Requirements. Each member of the board of directors of Parent shall enter into an indemnification agreement with Parent, on a form to be determined by the Parties, within fifteen (15) days of their appointment.
(b) The parties hereby agree that Charles Ryan shall be appointed as the Chief Executive Officer of Parent following the Effective Times.
| 62 |
6.12 Non-Solicitation by Company.
(a) Beginning on the date hereof and continuing until the earlier of the Metuchen Effective Time or the date, if any, on which this Agreement is terminated pursuant to Article VIII, the Company will not and will not authorize or permit any of its Subsidiaries or any Representative of Company or its Subsidiaries, directly or indirectly, to, (i) solicit, initiate, knowingly encourage, induce or facilitate the making, submission or announcement of any Acquisition Proposal or take any action that would reasonably be expected to lead to an Acquisition Proposal, (ii) furnish any nonpublic information regarding Company or its Subsidiaries to any Person in connection with or in response to an Acquisition Proposal or an inquiry or indication of interest that could lead to an Acquisition Proposal, (iii) engage in discussions or negotiations with any Person with respect to any Acquisition Proposal, (iv) approve, endorse or recommend any Acquisition Proposal or (v) enter into any letter of intent or similar document or any agreement contemplating or otherwise relating to any Acquisition Transaction (other than an Acceptable Company Confidentiality Agreement); provided, however, that prior to the adoption of this Agreement by the Preferred Members Consent, this Section 6.12(a) will not prohibit Company from furnishing nonpublic information regarding Company and its Subsidiaries to, entering into discussions with, any Person in response to any bona fide written Acquisition Proposal that, after consultation with a financial advisor and outside legal counsel, Company’s board of directors determines in good faith is, or would reasonably be expected to result in, a Company Superior Offer (and is not withdrawn) if (1) such Acquisition Proposal did not result from a breach of this Section 6.12(a); (2) the Company Board concludes in good faith, after having taken into account the advice of its outside legal counsel, that, in light of such Acquisition Proposal and the terms of this Agreement, failure to take such action would result in a breach of its fiduciary obligations to Company’s stockholders under applicable Legal Requirements; (3) at least two (2) Business Days prior to furnishing any such information to, or entering into discussions with, such Person, Neurotrope gives Company written notice of the identity of such Person, the terms and conditions of any proposals or offers (including, if applicable, copies of any written requests, proposals or offers, including proposed agreements) made thereby and of Company’s intention to furnish information to, or enter into discussions with, such Person, and Company receives from such Person an executed confidentiality agreement on terms no less favorable to Company than the confidentiality agreement between Neurotrope and Company and containing customary limitations on the use and disclosure of all nonpublic written and oral information furnished to such Person by or on behalf of Company as well as customary “standstill” provisions (an, “Acceptable Company Confidentiality Agreement”) and (4) substantially contemporaneous with furnishing any such information to such Person, Company furnishes such nonpublic information to Neurotrope (to the extent such nonpublic information has not been previously furnished by Company to Parent). Without limiting the generality of the foregoing, Company acknowledges and agrees that in the event any Representative of Company (or its Subsidiaries), whether or not such Representative is purporting to act on behalf of Company (or its Subsidiaries), takes any action that, if taken by Company (or its Subsidiaries), would constitute a breach of this Section 6.12, the taking of such action by such Representative will be deemed to constitute a breach of this Section 6.12 by Neurotrope for purposes of this Agreement.
(b) Company will promptly (and in no event later than 48 hours after receipt of any Acquisition Proposal, any inquiry or indication of interest that could lead to an Acquisition Proposal or any request for nonpublic information) advise Neurotrope orally and in writing of any Acquisition Proposal, any inquiry or indication of interest that could lead to an Acquisition Proposal or any request for nonpublic information relating to Company or its Subsidiaries (including the identity of the Person making or submitting such Acquisition Proposal, inquiry, indication of interest or request, the material terms thereof and copies of any written material submitted therewith) that is made or submitted by any Person during the Pre-Closing Period. Company will keep Neurotrope informed on a prompt basis in all material respects with respect to the status of any such Acquisition Proposal, inquiry, indication of interest or request and any modification or proposed modification thereto and shall deliver copies of any written material submitted therewith.
| 63 |
(c) Company will immediately cease and cause to be terminated any existing discussions with any Person that relate to any Acquisition Proposal and will promptly request from each person that has executed a confidentiality agreement in connection with its consideration of making an Acquisition Proposal prior to the date hereof to return or destroy (as provided in the terms of such confidentiality agreement) all confidential information concerning the Company or any of its Subsidiaries and promptly terminate all physical and electronic data access previously granted to such person.
6.13 Non-Solicitation by Neurotrope.
(a) Beginning on the date hereof and continuing until the earlier of the Neurotrope Effective Time or the date, if any, on which this Agreement is terminated pursuant to Article VIII, Neurotrope will not and will not authorize or permit any of its Subsidiaries or any Representative of Neurotrope or its Subsidiaries, directly or indirectly, to, (i) solicit, initiate, knowingly encourage, induce or facilitate the making, submission or announcement of any Acquisition Proposal or take any action that would reasonably be expected to lead to an Acquisition Proposal; (ii) furnish any nonpublic information regarding Neurotrope or its Subsidiaries to any Person in connection with or in response to an Acquisition Proposal or an inquiry or indication of interest that could lead to an Acquisition Proposal; (iii) engage in discussions or negotiations with any Person with respect to any Acquisition Proposal; (iv) approve, endorse or recommend any Acquisition Proposal or (v) enter into any letter of intent or similar document or any agreement contemplating or otherwise relating to any Acquisition Transaction (other than an Acceptable Neurotrope Confidentiality Agreement); provided, however, that prior to the adoption of this Agreement by the Neurotrope Stockholder Approval, this Section 6.13(a) will not prohibit Neurotrope from furnishing nonpublic information regarding Neurotrope and its Subsidiaries to, entering into discussions with, any Person in response to any bona fide written Acquisition Proposal that, after consultation with a financial advisor and outside legal counsel, the Neurotrope Board determines in good faith is, or would reasonably be expected to result in, a Neurotrope Superior Offer (and is not withdrawn) if (1) such Acquisition Proposal did not result from a breach of this Section 6.13(a); (2) the Neurotrope Board concludes in good faith, after having taken into account the advice of its outside legal counsel, that, in light of such Acquisition Proposal and the terms of this Agreement, failure to take such action would result in a breach of its fiduciary obligations to Neurotrope’s stockholders under applicable Legal Requirements; (3) at least two (2) Business Days prior to furnishing any such information to, or entering into discussions with, such Person, Neurotrope gives Company written notice of the identity of such Person, the terms and conditions of any proposals or offers (including, if applicable, copies of any written requests, proposals or offers, including proposed agreements) made thereby and of Neurotrope’s intention to furnish information to, or enter into discussions with, such Person, and Neurotrope receives from such Person an executed confidentiality agreement on terms no less favorable to Neurotrope than the confidentiality agreement between Neurotrope and Company and containing customary limitations on the use and disclosure of all nonpublic written and oral information furnished to such Person by or on behalf of Neurotrope as well as customary “standstill” provisions (an, “Acceptable Neurotrope Confidentiality Agreement”) and (4) substantially contemporaneous with furnishing any such information to such Person, Neurotrope furnishes such nonpublic information to Company (to the extent such nonpublic information has not been previously furnished by Neurotrope to Company). Without limiting the generality of the foregoing, Neurotrope acknowledges and agrees that in the event any Representative of Neurotrope (or its Subsidiaries), whether or not such Representative is purporting to act on behalf of Neurotrope (or its Subsidiaries), takes any action that, if taken by Neurotrope (or its Subsidiaries), would constitute a breach of this Section 6.13, the taking of such action by such Representative will be deemed to constitute a breach of this Section 6.13 by Neurotrope for purposes of this Agreement.
| 64 |
(b) Neurotrope will promptly (and in no event later than 48 hours after receipt of any Acquisition Proposal, any inquiry or indication of interest that could lead to an Acquisition Proposal or any request for nonpublic information) advise Company orally and in writing of any Acquisition Proposal, any inquiry or indication of interest that could lead to an Acquisition Proposal or any request for nonpublic information relating to Neurotrope or its Subsidiaries (including the identity of the Person making or submitting such Acquisition Proposal, inquiry, indication of interest or request, the material terms thereof and copies of any written material submitted therewith) that is made or submitted by any Person during the Pre-Closing Period. Neurotrope will keep Company informed on a prompt basis in all material respects with respect to the status of any such Acquisition Proposal, inquiry, indication of interest or request and any modification or proposed modification thereto and shall deliver copies of any written material submitted therewith.
(c) Neurotrope will immediately cease and cause to be terminated any existing discussions with any Person that relate to any Acquisition Proposal and will promptly request from each person that has executed a confidentiality agreement in connection with its consideration of making an Acquisition Proposal prior to the date hereof to return or destroy (as provided in the terms of such confidentiality agreement) all confidential information concerning Company or any of its Subsidiaries and promptly terminate all physical and electronic data access previously granted to such person.
6.14 Section 16 Matters. Subject to the following sentence, prior to the Effective Times, Parent, Neurotrope and Company will take all such steps as may be required (to the extent permitted under applicable Legal Requirements and no-action letters issued by the SEC) to cause any acquisition of Parent Common Stock (including derivative securities with respect to Parent Common Stock) by each Person (including any director by deputization) who is or will be subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Parent, to be exempt under Rule 16b-3 under the Exchange Act. At least thirty (30) days prior to the Closing Date, Company will furnish the following information to Neurotrope for each Person who, immediately after the Effective Time, will become subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Neurotrope: (a) the number of Company Units held by such Person and expected to be exchanged for shares of Parent Common Stock pursuant to the Metuchen Merger and (b) the number of other derivative securities (if any) with respect to Company Units held by such individual and expected to be converted into shares of Parent Common Stock or derivative securities with respect to Parent Common Stock in connection with the Mergers.
6.15 [Reserved]
| 65 |
6.16 [Reserved]
6.17 Parent S-8 Registration Statement. Parent shall file with the SEC, promptly following the Effective Times, a registration statement on Form S-8, if available, for use by Parent, relating to the shares of Parent Common Stock issuable with respect to Neurotrope Options assumed by Parent in accordance with Section 2.3.
6.18 Parent Warrants. If required by any applicable Neurotrope Warrant, promptly after the date of this Agreement, and in any event within twenty (20) Business Days before the Neurotrope Effective Time, Neurotrope shall deliver notice to the holders of such Neurotrope Warrants with respect to the Transactions and the rights of the holders thereof in connection therewith, subject to the review and approval of Company (not to be unreasonably withheld, conditioned or delayed).
6.19 Metuchen Allocation Certificate; Indebtedness; Invoices; Parent Certificate.
(a) Company will prepare and deliver to Neurotrope at least two (2) Business Days prior to the Closing Date a certificate signed by the Chief Financial Officer and Secretary of Company in a form reasonably acceptable to Neurotrope which sets forth (i) a true and complete list of the Company Members immediately prior to the Metuchen Effective Time and the number and type of Company Units owned by each such Company Member and (ii) the allocation of the Metuchen Merger Consideration among the Company Members pursuant to the Metuchen Merger (the “Metuchen Allocation Certificate”).
(b) At least five (5) Business Days prior to the Closing Date, Neurotrope shall, to the extent applicable, deliver to Company an accurate and complete copy of: one or more payoff letters, each dated no more than five (5) Business Days prior to the Closing Date, with respect to all outstanding Indebtedness of Neurotrope, to: (A) satisfy such Indebtedness as of the Closing; and (B) terminate and release any Encumbrances related thereto; and (ii) Neurotrope Invoices with respect to all Transaction Costs estimated to be due and payable by Neurotrope as of the Closing Date.
(c) Neurotrope will prepare and deliver to Company at least five (5) Business Days prior to the Closing Date a certificate signed by the Chief Financial Officer and Secretary of Neurotrope in a form reasonably acceptable to Company which sets forth the calculation of Neurotrope Closing Cash and Neurotrope Closing Liabilities, together, in each case, with reasonable supporting detail (the “Neurotrope Closing Certificate”), which Neurotrope Closing Certificate shall be subject to the reasonable review and approval of Company. Following delivery of the Neurotrope Closing Certificate until the Closing, Company and its accountants shall, upon reasonable notice and during normal business hours, be permitted to discuss with Neurotrope and its accountants the calculation of Neurotrope Closing Cash and Neurotrope Closing Liabilities and shall be provided complete and accurate copies of, and have reasonable access, upon reasonable notice at reasonable times during normal business hours, to the work papers and supporting records of Neurotrope and its accountants so as to allow Company and its accountants to verify the accuracy of the Neurotrope Closing Cash.
| 66 |
6.20 Employees; Employee Benefit Matters.
(a) Effective as of immediately prior to the Closing, at Company’s request, Neurotrope shall terminate, in compliance with applicable Legal Requirements, the employment of any employee of Neurotrope as requested by Company. Neurotrope shall be responsible for the payment of all final payments, wages, salary and benefits and other remuneration, including, any severance, bonus, accrued vacation, payment in lieu of notice period and vacation pay or other payments or amounts due to such employees, whether under Legal Requirements or Contract with respect to their services as employees of Neurotrope and the termination of their employment, and all such payments shall be made to each such employee prior to the Closing and be considered Transaction Costs.
(b) For purposes of vesting, eligibility to participate, and level of benefits under the benefit plans, programs, contracts or arrangements of Parent or any of its Subsidiaries (including, following the Closing, the Company and its Subsidiaries and Neurotrope and its Subsidiaries) providing benefits to any Continuing Employee after the Closing (the “Post-Closing Plans”), each employee who continues to be employed by Neurotrope, the Company or any of their respective Subsidiaries immediately following the Closing (“Continuing Employees”) shall be credited with his or her years of service with Neurotrope, Company or any of their respective Subsidiaries and their respective predecessors; provided, however, that the foregoing shall not apply to the extent that its application would result in a duplication of benefits. In addition, and without limiting the generality of the foregoing, for purposes of each Post-Closing Plan providing medical, dental, pharmaceutical and/or vision benefits to a Continuing Employee, Parent shall cause all pre-existing condition exclusions and actively-at-work requirements of such Post-Closing Plan to be waived for such Continuing Employee and his or her covered dependents to the extent and unless such conditions would have been waived or satisfied under the employee benefit plan whose coverage is being replaced under the Post-Closing Plan, and Parent shall use commercially reasonable efforts to cause any eligible expenses incurred by a Continuing Employee and his or her covered dependents during the portion of such plan year in which coverage is replaced with coverage under a Post-Closing Plan to be taken into account under such Post-Closing Plan with respect to the plan year in which participation in such Post-Closing Plan begins for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable to such Continuing Employee and his or her covered dependents for such plan year as if such amounts had been paid in accordance with such Post-Closing Plan.
6.21 Company Disclosure Schedule; Neurotrope Disclosure Schedules. Each of Company and Neurotrope may in its discretion, for informational purposes only, supplement the information set forth on the Company Disclosure Schedule or Neurotrope Disclosure Schedule, as applicable, with respect to any matter now existing or hereafter arising that, if existing or occurring at or prior to the date of this Agreement, would have been required to be set forth or described in the Company Disclosure Schedule or Neurotrope Disclosure Schedule, as applicable, on the date of this Agreement or that is necessary to correct any information in the Company Disclosure Schedule or Neurotrope Disclosure Schedule, as applicable, which has been rendered inaccurate thereby promptly following discovery thereof. Any such amended or supplemented disclosure shall not be deemed to modify the representations and warranties of Company, Parent for purposes of Sections 7.2(a) and 7.3(a) of this Agreement.
| 67 |
6.22 Tax Matters. Notwithstanding anything herein to the contrary, none of Neurotrope, the Company, Parent or the Merger Subs shall take, or omit to take, any action that would, or could reasonably be expected to, prevent or impede the Mergers from qualifying as a contribution governed by Section 351 of the Code. Prior to the Effective Times, Neurotrope and the Company shall use their commercially reasonable efforts, and shall cause their respective Subsidiaries to use their commercially reasonable efforts, to take or cause to be taken any action necessary for the Mergers to qualify as a contribution governed by Section 351 of the Code. This Agreement is intended to constitute, and the parties hereto hereby adopt this Agreement as, a “plan of reorganization” within the meaning of Treasury Regulation Section 1.368-2(g) and 1.368-3(a). Each of Neurotrope and the Company shall report the Mergers as a contribution governed by Section 351 of the Code in which no gain or loss is recognized by Neurotrope, its stockholders, the holders of Company Units, the Company, Parent or Merger Sub, unless otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code.
6.23 Lock-up Agreements. During the Pre-Closing Period, Company shall deliver a Company Lock-up Agreement to each of the Company Members and shall use its commercially reasonable efforts to cause its Company Members to enter into such Company Lock-up Agreement.
6.24 Listing. Parent shall use its commercially reasonable efforts, (a) to the extent required by the rules and regulations of Nasdaq, to prepare and submit to Nasdaq a notification form for the listing of the shares of Parent Common Stock to be issued in connection with the Transactions, and to cause such shares to be approved for listing (subject to official notice of issuance) and (b) to the extent required by Nasdaq Marketplace Rule 5110, to file an initial listing application for the Parent Common Stock on Nasdaq (the “Nasdaq Listing Application”) and to cause such Nasdaq Listing Application to be conditionally approved prior to the Effective Times. The Parties will use commercially reasonable efforts to coordinate with respect to compliance with Nasdaq rules and regulations. The Company and Neurotrope will cooperate with Parent as reasonably requested by Parent with respect to the Nasdaq Listing Application and promptly furnish to Parent all information concerning the Company and its members or Neurotrope and its stockholders, as applicable, that may be required or reasonably requested in connection with any action contemplated by this Section 6.24.
6.25 Company Financial Statements. Within thirty (30) calendar days following the date of this Agreement, Company will furnish to Neurotrope unaudited interim financial statements for each interim period completed prior to Closing that would be required to be included in the Proxy Statement or Registration Statement or any periodic report due prior to the Closing if the Company were subject to the periodic reporting requirements under the Securities Act or the Exchange Act (the “Company Interim Financial Statements”). The Company Interim Financial Statements will be suitable for inclusion in the Proxy Statement or Registration Statement and prepared in accordance with GAAP as applied on a consistent basis during the periods involved (except in each case as described in the notes thereto) and on that basis will present fairly, in all material respects, the financial position and the results of operations, changes in stockholders’ equity, and cash flows of the Company as of the dates of and for the periods referred to in the Company Interim Financial Statements.
6.26 Further Assurances. Prior to the Effective Time, the Parties will exercise their reasonable best efforts to cause to be satisfied those conditions set forth under Article VII. At and after the Effective Times, the officers and directors of the applicable Surviving Company shall be authorized to execute and deliver, in the name and on behalf of the applicable Surviving Company, any deeds, bills of sale, assignments, or assurances and to take and do, in the name and on behalf of the Company or Neurotrope, as the case may be, any other actions and things to vest, perfect, or confirm of record or otherwise in the applicable Surviving Company any and all right, title, and interest in, to and under any of the rights, properties, or assets of the Company or Neurotrope, as the case may be, acquired or to be acquired by the applicable Surviving Company as a result of, or in connection with, the Mergers.
| 68 |
(a) Spin-Off Transaction. During the Pre-Closing Period, Neurotrope shall use commercially reasonable efforts to consummate the Spin-Off, the record date for which shall be prior to the consummation of the Mergers and the payment date for which shall be as soon as commercially reasonable after the consummation of the Mergers, in each case, in accordance with applicable Legal Requirements, including, without limitation, transferring, and causing SpinCo to accept, the Excess Cash. Neurotrope shall provide the Company a reasonable opportunity to review all documents and agreements related to the Spin-Off. Prior to effecting the Spin-Off, Neurotrope shall (a) seek and obtain written agreements in form and substance reasonably acceptable to Company from all counterparties to any Contracts entered into by Neurotrope that are assigned or transferred to SpinCo in connection with the Spin-Off releasing Neurotrope from any and all liabilities and obligations under such Contracts, (b) provide evidence reasonably satisfactory to Company that no material Tax will arise to Neurotrope as a result of the Spin-Off and (c) deliver to Company a schedule setting forth the list of Contracts and other assets and all related liabilities and obligations to be transferred to SpinCo in connection with the Spin-Off.
Article
7.
CONDITIONS TO THE MERGERS
7.1 Conditions To Obligation Of Each Party To Effect The Mergers. The respective obligations of each party to effect the Mergers will be subject to the satisfaction at or prior to the applicable Effective Time of the following conditions:
(a) No Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order (whether temporary, preliminary or permanent) issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Mergers will be in effect, nor will any proceeding brought by any administrative agency or commission or other Governmental Body or instrumentality, domestic or foreign, seeking any of the foregoing be pending; and there will not be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Mergers, which makes the consummation of the Mergers illegal.
(b) Effectiveness of Registration Statement. The Registration Statement shall have become effective in accordance with the provisions of the Securities Act, and shall not be subject to any stop order or proceeding (or threatened proceeding by the SEC) seeking a stop order with respect to the Registration Statement.
(c) Governmental Approvals. Any waiting period applicable to the consummation of the Mergers under the HSR Act will have expired or been terminated.
| 69 |
(d) Company and Neurotrope Approvals. This Agreement will have been duly adopted and the Mergers will have been duly approved by the Preferred Members Consent and Company Board Approval, and the Neurotrope Stockholder Approval Matter will have been duly adopted and approved by the Neurotrope Stockholder Approval.
(e) Stock Exchange Listing. The shares of Parent Common Stock to be issued in the Mergers shall have been approved for listing on the Nasdaq, subject to official notice of issuance.
7.2 Additional Conditions to Obligations of Neurotrope. The obligations of Neurotrope to effect the Mergers is also subject to the following conditions:
(a) Representations and Warranties. The representations and warranties of Company (i) that constitute the Company Fundamental Representations shall have been true and correct in all respects as of the date of this Agreement and shall be true and correct in all respects on and as of the Closing Date with the same force and effect as if made on and as of such date (except to the extent such representations and warranties are specifically made as of a particular date, in which case such representations and warranties shall be true and correct as of such date) and (ii) contained in this Agreement (other than the Company Fundamental Representations) will be true and correct in all respects on and as of the Closing Date, with the same force and effect as if made on and as of the Closing Date (except for those representations and warranties which address matters only as of a particular date, in which case such representations and warranties shall be true and correct as of such date), except for those inaccuracies that, individually or in the aggregate, do not constitute a Company Material Adverse Effect; provided, however, for purposes of this clause (ii), all “Company Material Adverse Effect” qualifications and other materiality qualifications limiting the scope of the representations and warranties of Company contained in this Agreement will be disregarded. Neurotrope will have received a certificate to such effect signed by an officer of Company.
(b) Agreements and Covenants. Company will have performed or complied with in all material respects its agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Effective Times. Neurotrope will have received a certificate to such effect signed by an officer of Company.
(c) Officer’s Certificate. Neurotrope shall have received a certificate executed by the Chief Executive Officer or Chief Financial Officer of Company certifying (i) that the conditions set forth in Sections 7.2(a), (b) and (d) have been duly satisfied and (ii) that the information set forth in the Metuchen Allocation Certificate delivered by Company in accordance with Section 6.19(a) is true and accurate in all respects as of the Closing Date.
(d) Company Material Adverse Effect. Since the date of this Agreement, there will have been no change, occurrence or circumstance in the business, results of operations or financial condition of Company or any Subsidiary of Company having, individually or in the aggregate, a Company Material Adverse Effect.
(e) Partnership FIRPTA Certificate. Neurotrope will have received from Company applicable FIRPTA documentation, consisting of a certificate in accordance with the requirements of Section 1.1445-11T(d)(2)(i) of the Treasury Regulations, dated as of the Closing Date and executed on behalf of the Company, in substantially the form of Exhibit D attached hereto.
| 70 |
(f) Metuchen Allocation Certificate. The Chief Financial Officer of Company will have executed and delivered to Neurotrope the Metuchen Allocation Certificate.
(g) Lock-up Agreements. The Lock-up Agreements executed by each of the Company Lock-up Signatories and each executive officer and director of the Company who is elected or appointed, as applicable, as an executive officer and director of Parent as of immediately following the Closing shall be in full force and effect.
(h) Company Board of Managers Resignation Letters. Neurotrope will have received a duly executed copy of a resignation letter from each of the resigning members of the board of managers of Company and each of its Subsidiaries contemplated by Section 6.11, pursuant to which each such person will resign as a member of the board of managers of Company immediately following the Effective Time.
(i) Juggernaut Backstop Agreement. The Juggernaut Backstop Agreement shall be in full force and effect and Juggernaut shall have complied in all respects with its duties and obligations thereunder.
(j) JCP Notes and other Indebtedness. Immediately prior to the Effective Time, the JCP Notes and any other Indebtedness between the Company and any of its Affiliates shall have been converted into Company Common Units.
(k) Company Warrants. Immediately prior to the Effective Time, all outstanding Company Warrants shall have been exercised in exchange for Common Units of the Company.
(l) Company Working Capital. Company Working Capital as of the Closing shall be greater than or equal to $0, or, if less than $0, Juggernaut shall have complied in all respects with its duties and obligations under the Juggernaut Backstop Agreement.
7.3 Additional Conditions to Obligations Of Company. The obligation of Company to effect the Mergers is also subject to the following conditions:
(a) Representations and Warranties. The representations and warranties of Neurotrope (i) set forth in Sections 4.2 (Capital Structure) and 4.3 (Authority; Non-Contravention; Approvals) will be true and correct in all material respects on and as of the Closing Date, with the same force and effect as if made on and as of the Closing Date, except for those representations and warranties which address matters only as of a particular date (which will remain true and correct in all material respects as of such date) and (ii) contained in this Agreement (other than those set forth in Sections 4.2 (Capital Structure) and 4.3 (Authority; Non-Contravention; Approvals)) will be true and correct in all respects on and as of the Closing Date, with the same force and effect as if made on and as of the Closing Date (except for those representations and warranties which address matters only as of a particular date, in which case such representations and warranties shall be true and correct as of such date), except for those inaccuracies that, individually or in the aggregate, do not constitute and would not reasonably be expected to constitute a Neurotrope Material Adverse Effect; provided, however, for purposes of this clause (ii), all “Neurotrope Material Adverse Effect” qualifications and other materiality qualifications limiting the scope of the representations and warranties of Neurotrope contained in this Agreement will be disregarded. Company will have received a certificate to such effect signed by an officer of Neurotrope.
| 71 |
(b) Agreements and Covenants. Neurotrope will have performed or complied with in all material respects its agreements and covenants required by this Agreement to be performed or complied with by them on or prior to the Effective Time. Company will have received a certificate to such effect signed by an officer of Neurotrope.
(c) Officer’s Certificate. Company shall have received a certificate executed by the Chief Executive Officer or Chief Financial Officer of Neurotrope certifying (i) that the conditions set forth in Sections 7.3(a), (b) and (d) have been duly satisfied and (ii) that the information set forth in the Neurotrope Certificate delivered by Neurotrope in accordance with Section 6.19(c) is true and accurate in all respects as of the Closing Date.
(d) Neurotrope Material Adverse Effect. Since the date of this Agreement, there will have been no change, occurrence or circumstance in the business, results of operations or financial condition of Neurotrope or any Subsidiary of Neurotrope having, individually or in the aggregate, a Neurotrope Material Adverse Effect, that is continuing.
(e) Neurotrope Board of Directors Resignation Letters. Company will have received a duly executed copy of a resignation letter from each of the resigning members of the board of directors of Neurotrope contemplated by Section 6.11 and each of the Neurotrope Subsidiaries, as applicable, pursuant to which each such person will resign as a member of the board of directors of Neurotrope immediately following the Effective Time.
(f) Neurotrope Certificate. The Chief Financial Officer of Neurotrope will have executed and delivered to Company the Neurotrope Closing Certificate.
(g) Lock-Up Agreements. The Lock-up Agreements executed by each of the Neurotrope Lock-up Signatories and each executive officer and director of Neurotrope who is elected or appointed, as applicable, as an executive officer and director of Neurotrope as of immediately following the Closing, each of which shall be in full force and effect.
(h) Neurotrope Invoices. Company will have received written acknowledgements pursuant to which Neurotrope’s outside legal counsel and any financial advisor, accountant or other Person who performed services for or on behalf of Neurotrope, or who is otherwise entitled to any compensation from Neurotrope that in each case is owed Transaction Costs from Neurotrope: (i) the total amount of Transaction Costs that are payable to such Person; and (ii) that, upon receipt of the amount referred to in clause “(i)” above, such party will have been paid in full and is not (and will not be) owed any other Transaction Costs (collectively, the “Neurotrope Invoices”).
(i) Employee Matters. Company will have received evidence reasonably satisfactory to it as to compliance by Neurotrope with the provisions of Section 6.20(a).
| 72 |
(j) Transfer Agent Instructions. Parent shall have delivered irrevocable instructions to the Exchange Agent to effect the exchanges set forth in Article II hereof.
(k) Execution of a Registration Rights Agreement. Parent and Juggernaut shall have executed a Registration Rights Agreement in substantially the form attached hereto as Exhibit F.
(l) Spin-Off Transaction. The Spin-Off Transaction shall have been duly approved by the Neurotrope, and all conditions precedent to the consummation of the Spin-Off, other than the effectiveness of the Mergers, shall have been satisfied.
(m) FIRPTA Notice and Certificate. Company will have received from Neurotrope applicable FIRPTA documentation, consisting of (i) a notice to the IRS, in accordance with the requirements of Section 1.897-2(h)(2) of the Treasury Regulations, dated as of the Closing Date and executed by Neurotrope, together with written authorization for Parent to deliver such notice form to the IRS on behalf of Neurotrope after the Closing, and (ii) a FIRPTA Notification Letter, in substantially the form of Exhibit K attached hereto, dated as of the Closing Date and executed by Neurotrope.
Article
8.
TERMINATION
8.1 Termination. This Agreement may be terminated and the Mergers may be abandoned, at any time prior to the Effective Time, notwithstanding approval thereof by the stockholders of Company and Neurotrope:
(a) by mutual written consent of Company and Neurotrope duly authorized by each of their respective boards of directors and managers, as applicable;
(b) by either Neurotrope or Company if the Mergers have not been consummated by the End Date (provided that the right to terminate this Agreement under this Section 8.1(b) will not be available to any party whose failure to fulfill any obligation under this Agreement has been a primary cause of the failure of the Mergers to occur on or before such date); provided, however, in the event that the SEC has not declared effective under the Securities Act the Registration Statement by the date which is sixty (60) days prior to the End Date, then Neurotrope shall be entitled to extend the End Date for an additional sixty (60) days;
(c) by either Neurotrope or Company if a court of competent jurisdiction or governmental, regulatory or administrative agency or commission will have issued a non-appealable final order, decree or ruling or taken any other action, in each case having the effect of permanently restraining, enjoining or otherwise prohibiting the Mergers;
(d) by Neurotrope if the Preferred Members Consent shall not have been obtained by the Company Vote Deadline; provided, however, that once the Preferred Members Consent has been obtained, Neurotrope may not terminate this Agreement pursuant to this Section 8.1(d);
| 73 |
(e) by Company if the Neurotrope Stockholder Approval shall not have been obtained by the Neurotrope Vote Deadline; provided, however, that once the Neurotrope Stockholder Approval has been obtained, Company may not terminate this Agreement pursuant to this Section 8.1(e); provided, further, that the right to terminate this Agreement under this Section 8.1(e) will not be available if Company’s failure to fulfill any obligation under this Agreement has been a primary cause of the failure of the Neurotrope Stockholder Approval to be obtained at or before such time;
(f) by either Neurotrope or Company, if the Neurotrope Stockholder’s Meeting shall have been held (subject to any adjournment or postponement permitted by Section 6.3(a)) and the Neurotrope Stockholder Approval contemplated by this Agreement will not have been obtained thereat (provided that the right to terminate this Agreement under this Section 8.1(f) will not be available to any party whose failure to fulfill any obligation under this Agreement has been a primary cause of the failure of the Neurotrope Stockholder Approval to be obtained thereat);
(g) by Company if the Neurotrope Board has effected a Neurotrope Change in Recommendation;
(h) by Neurotrope upon breach of any of the representations, warranties, covenants or agreements on the part of Company set forth in this Agreement, or if any representation or warranty of Company will have become inaccurate, in either case such that the conditions set forth in Section 7.2(a) or Section 7.2(b) would not be satisfied as of the time of such breach or as of the time such representation or warranty will have become inaccurate; provided, however, if such breach or inaccuracy is curable by Company, then this Agreement will not terminate pursuant to this Section 8.1(h) as a result of such particular breach or inaccuracy unless the breach or inaccuracy remains uncured as of the tenth (10th) Business Day following the date of written notice given by Neurotrope to Company of such breach or inaccuracy and its intention to terminate the agreement pursuant to this Section 8.1(h); provided, further that no termination may be made pursuant to this Section 8.1(h) solely as a result of the failure of Company to obtain the Preferred Members Consent (in which case such termination must be made pursuant to Section 8.1(d));
(i) by Company upon breach of any of the representations, warranties, covenants or agreements on the part of Neurotrope set forth in this Agreement, or if any representation or warranty of Neurotrope will have become inaccurate, in either case such that the conditions set forth in Section 7.3(a) or Section 7.3(b) would not be satisfied as of the time of such breach or as of the time such representation or warranty will have become inaccurate; provided, however, if such breach or inaccuracy is curable by Neurotrope, then this Agreement will not terminate pursuant to this Section 8.1(i) as a result of such particular breach or inaccuracy unless the breach or inaccuracy remains uncured as of the tenth (10th) Business Day following the date of written notice given by Company to Neurotrope of such breach or inaccuracy and its intention to terminate the agreement pursuant to this Section 8.1(i); provided, further, that no termination may be made pursuant to this Section 8.1(i) solely as a result of the failure of Neurotrope to obtain the Neurotrope Stockholder Approval (in which case such termination must be made pursuant to Section 8.1(e)); or
| 74 |
(j) by Neurotrope in connection with Neurotrope entering into a definitive agreement to effect a Neurotrope Superior Offer.
8.2 Effect Of Termination. In the event of the termination of this Agreement pursuant to Section 8.1, this Agreement will forthwith become void and there will be no liability on the part of any party hereto or any of its Affiliates, directors, officers or stockholders except (i) as set forth in Sections 8.2, and Article IX hereof and (ii) for any liability for any willful breach of any representation, warranty, covenant or obligation contained in this Agreement (for purposes of this Section 8.2, a “willful breach” is an act or omission with the actual knowledge that such act or omission would cause a breach of this Agreement). No termination of this Agreement will affect the obligations of the parties contained in the Confidentiality Agreement, all of which obligations will, in addition to this Article VIII and Article IX, survive termination of this Agreement in accordance with its terms.
8.3 Expenses; Termination Fees.
(a) Except as set forth in this Section 8.3 or specifically set forth elsewhere in this Agreement, all Transaction Costs shall be paid by the Party incurring such expenses, whether or not the Mergers are consummated, provided, however, that Neurotrope and the Company shall share equally all fees and expenses, other than attorneys’ and accountants’ fees and expenses, incurred in relation to the filings by the Parties under any filing requirement under the HSR Act and any foreign antitrust law applicable to this Agreement and the transactions contemplated hereby; provided, further however, that Neurotrope and the Company shall also share equally all fees and expenses incurred in relation to the printing and filing with the SEC of the Registration Statement (including any financial statements and exhibits) and any amendments or supplements thereto and paid to a financial printer or the SEC.
(b) If this Agreement is terminated by Neurotrope pursuant to Section 8.1(d) or Section 8.1(h) (solely as a result of a failure by the Company to satisfy the closing condition set forth in Section 7.2(i)), then Company shall pay to Neurotrope an amount equal to (i) $1,000,000 plus (ii) all reasonable out-of-pocket fees and expenses incurred by Neurotrope in connection with this Agreement and the Transactions incurred by Neurotrope, by wire transfer of same-day funds within ten (10) Business Days following the date on which Neurotrope submits to the Company true and correct copies of reasonable documentation supporting such expenses (the “Company Termination Fee”), plus any amount payable to Neurotrope pursuant to Section 8.3(e).
(c) If this Agreement is terminated by Company pursuant to Section 8.1(g) or Section 8.1(j), then Neurotrope shall pay to Company an amount equal to (i) $1,000,000 plus (ii) all reasonable out-of-pocket fees and expenses incurred by the Company in connection with this Agreement and the Transactions incurred by the Company, by wire transfer of same-day funds within ten (10) Business Days following the date on which the Company submits to Neurotrope true and correct copies of reasonable documentation supporting such expenses (the “Neurotrope Termination Fee”), plus any amount payable to the Company pursuant to Section 8.3(e).
(d) If this Agreement is terminated by Company pursuant to Section 8.1(e), then Neurotrope shall reimburse the Company for all reasonable out-of-pocket fees and expenses incurred by the Company in connection with this Agreement and the Transactions, by wire transfer of same-day funds within ten (10) Business Days following the date on which the Company submits to Neurotrope true and correct copies of reasonable documentation supporting such Third Party Expenses.
| 75 |
(e) If either Party fails to pay when due any amount payable by it under this Section 8.3, then (i) such Party shall reimburse the other Party for reasonable costs and expenses (including reasonable fees and disbursements of counsel) incurred in connection with the collection of such overdue amount and the enforcement by the other Party of its rights under this Section 8.3 and (ii) such Party shall pay to the other Party interest on such overdue amount (for the period commencing as of the date such overdue amount was originally required to be paid and ending on the date such overdue amount is actually paid to the other Party in full) at a rate per annum equal to the “prime rate” (as announced by Bank of America or any successor thereto) in effect on the date such overdue amount was originally required to be paid plus three percent.
Article
9.
GENERAL PROVISIONS
9.1 Notices. Any notice or other communication required or permitted to be delivered to any party under this Agreement will be in writing and will be deemed properly delivered, given and received: (a) if delivered by hand, when delivered; (b) if sent on a Business Day by email before 11:59 p.m. (recipient’s time), when transmitted; (c) if sent by email on a day other than a Business Day, or if sent by email after 11:59 p.m. (recipient’s time), on the Business Day following the date when transmitted; (d) if sent by registered, certified or first class mail, the third (3rd) Business Day after being sent; and (e) if sent by overnight delivery via a national courier service, one Business Day after being sent, in each case to the address set forth beneath the name of such party below (or to such other address as such party shall have specified in a written notice given to the other parties hereto):
| (a) | If to Neurotrope or Merger Sub 2: |
Neurotrope, Inc.
1185 Avenue of the Americas, 3rd Floor
New York, New York
Attn: Charles Ryan
Email: [email protected]
With a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
666 Third Avenue
New York, NY 10017
Attn: Kenneth Koch
Email: [email protected]
Attn: Daniel Bagliebter
Email: [email protected]
| 76 |
| (b) | If to Company, Parent or Merger Sub 1: |
Metuchen Pharmaceuticals LLC
200 U.S. 9, Ste 500
Manalapan Township, NJ 07726
Attn: Greg Ford
Email: [email protected]
With a copy to:
Morgan, Lewis & Bockius LLP
1111 Pennsylvania Avenue, NW
Washington, DC 20004
Attn: Andrew M. Ray
Email: [email protected]
and a copy to:
Juggernaut Capital Partners
5301 Wisconsin Avenue NW, Suite 570
Washington, DC 20015
Attn: John Shulman
Email: [email protected]
9.2 Amendment. This Agreement may be amended by the parties hereto by action taken by or on behalf of their respective boards of directors at any time prior to the Effective Times; provided, however, that, after approval of the Mergers by the Preferred Members Consent or the Neurotrope Stockholder Approval, as applicable, no amendment may be made which by Legal Requirements requires further approval by such stockholders without such further approval. This Agreement may not be amended except by an instrument in writing signed by the parties hereto.
9.3 Headings. The headings contained in this Agreement are for reference purposes only and will not affect in any way the meaning or interpretation of this Agreement.
9.4 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement will nevertheless remain in full force and effect so long as the economic or legal substance of the Transactions is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto will negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that Transactions are fulfilled to the extent possible.
9.5 Entire Agreement. This Agreement constitutes the entire agreement and supersede all prior agreements and undertakings (other than the Confidentiality Agreement), both written and oral, among the parties, or any of them, with respect to the subject matter hereof and, except as otherwise expressly provided herein, are not intended to confer upon any other person any rights or remedies hereunder.
| 77 |
9.6 Successors and Assigns. This Agreement will be binding upon: (a) Parent and its successors and assigns (if any); (b) Company and its successors and assigns (if any); (c) Neurotrope and its successors and assigns (if any); (d) Merger Sub 1 and its successors and assigns (if any); (e) Merger Sub 2 and its successors and assigns (if any); and (f) the Company Members. This Agreement will inure to the benefit of: (i) Parent; (ii) Company; (iii) Neurotrope; (iv) Merger Sub 1; (v) Merger Sub 2; (vi) the other Neurotrope Indemnified Persons; and (vii) the respective successors and assigns (if any) of the foregoing. No party may assign this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other parties hereto.
9.7 Parties In Interest. This Agreement will be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, expressed or implied, is intended to or will confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement, other than Section 6.6 (which is intended to be for the benefit of the parties indemnified thereby and may be enforced by such parties); provided, that SpinCo shall be deemed to be a successor of Neurotrope for purposes of this Section 9.7.
9.8 Waiver. No failure or delay on the part of any party hereto in the exercise of any right hereunder will impair such right or be construed to be a waiver of, or acquiescence in, any breach of any representation, warranty or agreement herein, nor will any single or partial exercise of any such right preclude other or further exercise thereof or of any other right. At any time prior to the Effective Times, any party hereto may, with respect to any other party hereto, (a) extend the time for the performance of any of the obligations or other acts, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (c) waive compliance with any of the agreements or conditions contained herein. Any such extension or waiver will be valid if set forth in an instrument in writing signed by the party or parties to be bound.
9.9 Remedies Cumulative; Specific Performance. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. Each party to this Agreement agrees that, in the event of any breach or threatened breach by the other party of any covenant, obligation or other provision set forth in this Agreement: (a) such party will be entitled, without any proof of actual damages (and in addition to any other remedy that may be available to it) to: (i) a decree or order of specific performance or mandamus to enforce the observance and performance of such covenant, obligation or other provision; and (ii) an injunction restraining such breach or threatened breach; and (b) such party will not be required to provide any bond or other security in connection with any such decree, order or injunction or in connection with any related action or Legal Proceeding.
| 78 |
9.10 Governing Law; Venue; Waiver of Jury Trial.
(a) This Agreement will be governed by, and construed in accordance with, the laws of the State of New York, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof.
(b) Any action, suit or other Legal Proceeding relating to this Agreement or the enforcement of any provision of this Agreement will be brought or otherwise commenced exclusively in the Court of Chancery of the State of Delaware or, if jurisdiction over the matter is vested exclusively in the federal courts, the United States District Court for the Southern District of Delaware. Each party to this Agreement: (i) expressly and irrevocably consents and submits to the exclusive jurisdiction of such court (and each appellate court therefrom) in connection with any such action, suit or Legal Proceeding; (ii) agrees that such court will be deemed to be a convenient forum and (iii) agrees not to assert (by way of motion, as a defense or otherwise), in any such action, suit or Legal Proceeding commenced in any such court, any claim that such party is not subject personally to the jurisdiction of such court, that such action, suit or Legal Proceeding has been brought in an inconvenient forum, that the venue of such action, suit or other Legal Proceeding is improper or that this Agreement or the subject matter of this Agreement may not be enforced in or by such court.
(c) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LEGAL REQUIREMENTS, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR OTHER LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS.
9.11 Counterparts and Exchanges by Electronic Transmission or Facsimile. This Agreement may be executed in one or more counterparts, and by the different parties hereto in separate counterparts and by facsimile or electronic (i.e., PDF) transmission, each of which when executed will be deemed to be an original but all of which taken together will constitute one and the same agreement.
9.12 Attorney Fees. In any action at law or suit in equity to enforce this Agreement or the rights of any of the parties hereunder, the prevailing party in such action or suit will be entitled to receive a reasonable sum for its attorneys’ fees and all other reasonable costs and expenses incurred in such action or suit.
9.13 Cooperation. In further of, and not in limitation of, any other provision of this Agreement, each party hereto agrees to cooperate fully with the other parties hereto and to execute and deliver such further documents, certificates, agreements and instruments and to take such other actions as may be reasonably requested by the other parties hereto to evidence or reflect the Transactions and to carry out the intent and purposes of this Agreement.
9.14 Non-Survival of Representations, Warranties. The representations and warranties of the Company and Neurotrope contained in this Agreement or any certificate or instrument delivered pursuant to this Agreement shall terminate at the Effective Times, and only the covenants that by their terms survive the Effective Times and this Article IX shall survive the Effective Times.
| 79 |
9.15 Construction.
(a) References to “cash,” “dollars” or “$” are to U.S. dollars.
(b) For purposes of this Agreement, whenever the context requires: the singular number will include the plural, and vice versa; the masculine gender will include the feminine and neuter genders; the feminine gender will include the masculine and neuter genders; and the neuter gender will include masculine and feminine genders.
(c) The parties hereto agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party will not be applied in the construction or interpretation of this Agreement.
(d) As used in this Agreement, the words “include” and “including,” and variations thereof, will not be deemed to be terms of limitation, but rather will be deemed to be followed by the words “without limitation.”
(e) Except as otherwise indicated, all references in this Agreement to “Sections,” “Exhibits” and “Schedules” are intended to refer to Sections of this Agreement and Exhibits or Schedules to this Agreement.
(f) Any reference to legislation or to any provision of any legislation shall include any modification, amendment, re-enactment thereof, any legislative provision substituted therefore and all rules, regulations, and statutory instruments issued or related to such legislations.
(g) The term “knowledge of Company”, and all variations thereof, will mean the actual knowledge of John Shulman, Greg Ford, Keith Lavan and Fady Boctor, and the knowledge such persons would reasonably be expected to have after making reasonable inquiry of their direct reports who are responsible for the subject matter of the particular representation or warranty. The term “knowledge of Neurotrope”, and all variations thereof, will mean the actual knowledge of Josh Silverman, Charles Ryan and Bob Weinstein, and the knowledge such persons would reasonably be expected to have after making reasonable inquiry of their direct reports who are responsible for the subject matter of the particular representation or warranty.
(h) Whenever the last day for the exercise of any privilege or the discharge of any duty hereunder shall fall upon a Saturday, Sunday, or any date on which banks in New York, New York are authorized or obligated by Legal Requirements to be closed, the Party having such privilege or duty may exercise such privilege or discharge such duty on the next succeeding day which is a regular Business Day.
[Signature Page Follows]
| 80 |
IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to be executed as of the date first written above.
| PETROS PHARMACEUTICALS, INC. | ||
| /s/ John Shulman | ||
| By: John Shulman | ||
| Its: Chief Executive Officer | ||
| PM MERGER SUB 1, LLC | ||
| /s/ John Shulman | ||
| By: John Shulman | ||
| Its: Authorized Officer | ||
| PN MERGER SUB 2, INC. | ||
| /s/ John Shulman | ||
| By: John Shulman | ||
| Its: Chief Executive Officer | ||
| NEUROTROPE, INC | ||
| /s/ Charles S. Ryan | ||
| By: Charles S. Ryan | ||
| Its: Chief Executive Officer | ||
| METUCHEN PHARMACEUTICALS LLC | ||
| By: | /s/ John Shulman | |
| Its: | Authorized Person | |
[Signature Page to Agreement and Plan of Merger]
| 81 |
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
“Accounts Payable” means all trade accounts payable of the Company occurred in the ordinary course of business and consistent with past practice.
“Accounts Receivable” means in respect of the Company, all trade accounts and notes receivable and other rights to payment from customers and all security for such accounts or rights to payment.
“Acquisition Proposal” means any offer, proposal or indication of interest contemplating or which would reasonably be interpreted to be lead to the contemplation of an Acquisition Transaction.
“Acquisition Transaction” means any transaction or series of transactions involving:
(a) any merger, consolidation, amalgamation, share exchange, business combination, issuance of securities, acquisition of securities, tender offer, exchange offer or other similar transaction (i) in which Company (or its Subsidiaries) or Neurotrope (or its Subsidiaries) is a constituent corporation, (ii) in which a Person or “group” (as defined in the Exchange Act and the rules promulgated thereunder) of Persons directly or indirectly acquires beneficial or record ownership of securities representing more than twenty percent (20%) of the outstanding securities of any class of voting securities of Company (or its Subsidiaries) or Neurotrope (or its Subsidiaries), or (iii) in which Company (or its Subsidiaries) or Neurotrope (or its Subsidiaries) issues securities representing more than twenty percent (20%) of the outstanding securities of any class of voting securities of any such Entity (other than as contemplated under this Agreement);
(b) any sale, lease, exchange, transfer, license, acquisition or disposition of any business or businesses or assets that constitute or account for twenty percent (20%) or more of the consolidated net revenues, net income or assets of Company (or its Subsidiaries) or Neurotrope (or its Subsidiaries); or
(c) any liquidation or dissolution of any of Company (or its Subsidiaries) or Neurotrope (or its Subsidiaries)
provided, that Acquisition Transaction shall not include the Transactions, including, without limitation, the Spin-Off.
“Affiliates” mean, with respect to any Person, any other Person which directly or indirectly controls, is controlled by or is under common control with such Person.
“Business Day” means a day other than a Saturday, Sunday or other day on which banks located in New York, New York are authorized or required by applicable Legal Requirements to close.
“COBRA” means the health care continuation and notice provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985 and the regulations thereunder or any state Legal Requirement governing health care coverage extension or continuation.
“Company Common Units” means the membership units designed as “Common Units” as set forth in the operating agreement of the Company.
| 82 |
“Company Disclosure Schedule” means the disclosure schedule in agreed form that has been delivered by Company to Neurotrope on the date of this Agreement.
“Company Fundamental Representations” means the representations and warranties of the Company set forth in Sections 3.1 (Organization and Qualification; Charter Documents), 3.2 (Capital Structure), 3.3 (Authority; Non-Contravention; Approvals), 3.8 (Intellectual Property), 3.11 (Brokers’ And Finders’ Fees) and 3.13 (Title to Assets; Real Property).
“Company IP Rights” shall mean all Intellectual Property owned, licensed, or controlled by the Company or its Subsidiaries that is necessary for or used in the operation of the business of the Company and its Subsidiaries as presently conducted.
“Company IP Rights Agreement” shall mean any instrument or agreement governing, related to or pertaining to any Company IP Rights.
“Company Material Adverse Effect” means any effect, change, event or circumstance (an “Effect”) that (a) has or would reasonably be expected to have a material adverse effect on the business, financial condition, operations or results of operations of the Metuchen Companies taken as a whole; provided, however, that, in no event will any of the following, alone or in combination, be deemed to constitute, nor shall any of the following be taken into account in determining whether there has occurred, a Company Material Adverse Effect: Effects resulting from (i) conditions generally affecting the industries in which the Metuchen Companies operate (ii) changes generally affecting the United States or global economy or capital markets as a whole; (iii) any natural disaster or any acts of terrorism, sabotage, military action or war, epidemic, pandemic or disease outbreak (including the COVID-19 virus) or any escalation or worsening thereof; or (iv) any changes (after the date of this Agreement) in GAAP or applicable Legal Requirements, and with respect to items (i) - (iv), only to the extent that, individually or in the aggregate, such Effects do not have a disproportionate impact on the Metuchen Companies taken as a whole; or (b) prevents the Company from consummating the Mergers.
“Company Members” mean the holders of Company Units issued and outstanding immediately prior to the Effective Time.
“Company Option” means an option to purchase Company Units.
“Company Outstanding Units” means the (a) the Company Units outstanding immediately prior
to the Metuchen Effective Time (assuming the conversion of (i) the Company Preferred Units into Company Common Units and (ii) the JCP Notes into Company Common Units, in each case, immediately prior to the Metuchen Effective Time) and (b) the Company Units that, immediately prior to the Metuchen Effective Time, are issuable upon exercise of Company Options (whether or not vested or currently exercisable) and Company Warrants.
“Company Preferred Units” means the membership units designed as “Preferred Units” as set forth in the operating agreement of the Company.
| 83 |
“Company Registered IP” shall mean all Company IP Rights that are owned by the Company that are registered, filed or issued under the authority of, with or by any Governmental Body, including all patents, registered copyrights and registered trademarks and all applications for any of the foregoing.
“Company Superior Offer” means an unsolicited, bona fide written Acquisition Proposal (with all references to twenty percent (20%) in the definition of Acquisition Proposal being treated as references to fifty percent (50%) for these purposes) made by a third party that (a) was not obtained or made as a direct or indirect result of a breach of (or in violation of) this Agreement and (b) the terms of which the Company Board determines, in its reasonable judgment after consulting in good faith with an independent financial advisor and its outside legal counsel, to be more favorable to its stockholders from a financial point of view than the terms of the Mergers, as well as the likelihood of the consummation thereof, which consideration shall include whether any financing is or may be required to consummate the transaction contemplated by such proposal, and whether such financing is committed and is reasonably capable of being obtained by the applicable offeror.
“Company Units” means the Company Common Units and Company Preferred Units reflecting membership interests of the Company.
“Company Voting Agreement Signatories” means those Persons set forth on Schedule B identified as Company Voting Agreement Signatories.
“Company Warrant” means a warrant to purchase Company Units.
“Consent” means any approval, consent, ratification, permission, waiver or authorization.
“Contract” means any written agreement, contract, subcontract, lease, understanding, arrangement, instrument, note, option, warranty, purchase Order, license, sublicense, insurance policy, benefit plan or legally binding commitment or undertaking of any nature.
“Copyrights” mean all copyrights and copyrightable works (including without limitation databases and other compilations of information, mask works and semiconductor chip rights), including all rights of authorship, use, publication, reproduction, distribution, performance, transformation, moral rights and rights of ownership of copyrightable works and all registrations and rights to register and obtain renewals and extensions of registrations, together with all other interests accruing by reason of international copyright.
| 84 |
“Deferred Purchase Price” has the meaning set forth in the definition of Indebtedness.
“Effect” has the meaning set forth in the definition of Company Material Adverse Effect.
“Employee Benefit Plan” means each plan, program, policy, contract, agreement or other arrangement providing for retirement, pension, deferred compensation, severance, separation pay, relocation benefits, termination pay, performance awards, bonus compensation, incentive compensation, stock option, stock purchase, stock bonus, phantom stock, stock appreciation right, supplemental retirement, profit sharing, fringe benefits, cafeteria benefits, medical benefits, life insurance, disability benefits, accident benefits, salary continuation, accrued leave, vacation, sabbatical, sick pay, sick leave, or other employee benefits, whether written or unwritten, including each “voluntary employees’ beneficiary association” under Section 501(c)(9) of the Code and each “employee benefit plan” within the meaning of Section 3(3) of ERISA, in each case, for active, retired or former employees, directors or consultants.
“Encumbrance” means any lien, pledge, hypothecation, charge, mortgage, easement, encroachment, imperfection of title, title exception, title defect, right of possession, lease, tenancy license, security interest, encumbrance, community property interest or restriction of any nature (including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset and any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset). For the avoidance of doubt, Encumbrance does not include Out-Licenses.
“End Date” means the date that is six (6) months after the date of this Agreement.
“Entity” means any corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any company limited by shares, limited liability company or joint stock company), firm, society or other enterprise, association, organization or entity.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“ERISA Affiliate” means any trade or business (whether or not incorporated) that is or at any relevant time was treated as a single employer with any Person within the meaning of Section 414 of the Code.
| 85 |
“Excess Cash” shall mean cash held by Neurotrope in excess of the sum of (i) Twenty Million Dollars ($20,000,000) plus (ii) the amount of gross proceeds to be retained by Neurotrope from any exercises of Neurotrope Warrants as set forth in Section 5.2(b); provided, however, that if any Neurotrope Warrants are exercised during the Pre-Closing Period, the proceeds of such exercised Neurotrope Warrants which would be retained by Parent and not distributed to SpinCo will be used to pay the Transaction Costs contemplated by this Agreement or reimburse either Neurotrope or the Company, as the case may be, for any Transaction Costs contemplated by this Agreement that have been paid prior to the Closing. To the extent that the proceeds of any Neurotrope Warrants exercised during the Pre-Closing Period, if any, are inadequate to cover the aggregate Transaction Costs of each of Neurotrope and the Company, the balance of the unpaid Transaction Costs shall be borne fifty percent (50%) via a reduction in the Twenty Million Dollars ($20,000,000) be retained by Parent and fifty percent (50%) via a reduction in the amount that would otherwise be distributed to SpinCo.
“Excluded Contracts” means (i) any non-exclusive Contract concerning “off-the-shelf” or similar computer software that is available on commercially reasonable terms, (ii) standard non-disclosure, confidentiality and material transfer Contracts granting non-exclusive rights to IP Rights and entered into in the Ordinary Course of Business, (iii) Contracts that have expired on their own terms or were terminated and for which there are no material outstanding obligations, and (v) purchase orders and associated terms and conditions for which the underlying goods or services have been delivered or received.
“FDA” means the United States Food and Drug Administration.
“Governmental Body” means any: (a) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; or (c) governmental or quasi-governmental authority of any nature (including any governmental division, regulatory agency, department, agency, commission, instrumentality, official, ministry, fund, foundation, center, organization, unit, body or Entity and any court or other tribunal).
“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
“Indebtedness” means (i) all obligations for borrowed money and advancement of funds; (ii) all obligations evidenced by notes, bonds, debentures or similar instruments, contracts or arrangements (whether or not convertible), (iii) all obligations for the deferred purchase price of property or services (including any potential future earn-out, purchase price adjustment, releases of “holdbacks” or similar payments, but excluding any such obligations to the extent there is cash being held by a third party in escrow exclusively for purposes of satisfying such obligations) (“Deferred Purchase Price”); (iv) all obligations arising out of any financial hedging, swap or similar arrangements; (v) all obligations as lessee that would be required to be capitalized in accordance with GAAP, whether or not recorded; (vi) all obligations in connection with any letter of credit, banker’s acceptance, guarantee, surety, performance or appeal bond, or similar credit transaction; (vii) interest payable with respect to Indebtedness referred to in clause (i) through (vi), and (viii) the aggregate amount of all prepayment premiums, penalties, breakage costs, “make whole amounts,” costs, expenses and other payment obligations of such Person that would arise (whether or not then due and payable) if all such items under clauses (i) through (vii) were prepaid, extinguished, unwound and settled in full as of such specified date. For purposes of determining the Deferred Purchase Price obligations as of a specified date, such obligations shall be deemed to be the maximum amount of Deferred Purchase Price owing as of such specified date (whether or not then due and payable) or potentially owing at a future date.
| 86 |
“Intellectual Property” shall mean (a) United States, foreign and international patents, patent applications, including provisional applications, statutory invention registrations, invention disclosures and inventions, (b) trademarks, service marks, trade names, domain names, URLs, trade dress, logos and other source identifiers, including registrations and applications for registration thereof, (c) copyrights, including registrations and applications for registration thereof, and (d) software, formulae, customer lists, trade secrets, know-how, confidential information and other proprietary rights and intellectual property, whether patentable or not.
“JCP Notes” shall mean all Indebtedness between the Company and Juggernaut (and any of its Affiliates), including, without limitation, (a) that certain Subordinated Promissory Note dated as of January 31, 2020, by and between the Company and Juggernaut, (b) that certain Subordinated Promissory Note dated as of April 1, 2020, by and between the Company and Juggernaut and (c) that certain Subordinated Promissory Note dated as of April 22, 2020, by and between the Company and Juggernaut.
“Juggernaut” means JCP III SM AIV, L.P. and its Affiliates.
“Juggernaut Backstop Agreement” means that certain backstop agreement substantially in the form attached hereto as Exhibit G, as the same may be amended, restated, or otherwise modified from time to time in accordance with its terms.
“Legal Proceeding” means any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any court or other Governmental Body or any arbitrator or arbitration panel.
“Legal Requirements” mean any federal, state, local, municipal, foreign or other law, statute, constitution, controlling principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Body.
“Lock-up Agreement Signatories” means those Persons set forth on Schedule A.
“Metuchen Companies” mean Company and its direct and indirect Subsidiaries.
“Nasdaq” means The Nasdaq Capital Market.
“Neurotrope Capital Stock” means Neurotrope Common Stock and Neurotrope Preferred Stock.
“Neurotrope Closing Cash” means Neurotrope’s cash on hand immediately prior to the Neurotrope Effective Time.
| 87 |
“Neurotrope Closing Liabilities” means Neurotrope’s liabilities immediately prior to the Neurotrope Effective Time.
“Neurotrope Companies” means Neurotrope and its direct and indirect Subsidiaries.
“Neurotrope Disclosure Schedule” means the disclosure schedule that has been delivered by Neurotrope to Company on the date of this Agreement.
“Neurotrope IP Rights” means all Intellectual Property owned, licensed, or controlled by Neurotrope or its Subsidiaries that is necessary for or used in the operation of the business of Neurotrope as anticipated to be conducted following the Closing.
“Neurotrope Material Adverse Effect” means any Effect that, considered together with all other Effects, (a) has a material adverse effect on the business, financial condition, operations or results of operations of Neurotrope and its Subsidiaries (excluding SpinCo) taken as a whole; provided, however, that, in no event will any of the following, alone or in combination, be deemed to constitute, nor will any of the following be taken into account in determining whether there has occurred, a Neurotrope Material Adverse Effect: Effects resulting (i) from conditions generally affecting the industries in which Neurotrope participates; (ii) changes generally affecting the United States or global economy or capital markets as a whole; (iii) changes in the trading price or trading volume of Neurotrope Common Stock (it being understood, however, that any Effect causing or contributing to such changes in the trading price or trading volume of Neurotrope Common Stock may if not otherwise to be disregarded pursuant to a different subclause of this definition, constitute a Neurotrope Material Adverse Effect and may be taken into account in determining whether a Neurotrope Material Adverse Effect has occurred); (iv) any natural disaster or any acts of terrorism, sabotage, military action or war, epidemic, pandemic or disease outbreak (including the COVID-19 virus) or any escalation or worsening thereof; and (v) any changes (after the date of this Agreement) in GAAP or applicable Legal Requirements, and with respect to items (i), (ii), (iv) and (v), only to the extent that, individually or in the aggregate, such Effects do not have a disproportionate impact on the Neurotrope Companies taken as a whole; or (b) prevents Neurotrope from consummating the Neurotrope Merger.
“Neurotrope Stock Option Plans” mean the Neurotrope, Inc. 2017 Equity Incentive Plan, as amended, and the Neurotrope, Inc. 2013 Equity Incentive Plan.
“Neurotrope Superior Offer” means an unsolicited, bona fide written Acquisition Proposal (with all references to twenty percent (20%) in the definition of Acquisition Proposal being treated as references to fifty percent (50%) for these purposes) made by a third party that (a) was not obtained or made as a direct or indirect result of a breach of (or in violation of) this Agreement and (b) the terms of which the Neurotrope Board determines, in its reasonable judgment after consulting in good faith with an independent financial advisor and its outside legal counsel, to be more favorable to its stockholders from a financial point of view than the terms of the Mergers, as well as the likelihood of the consummation thereof, which consideration shall include whether any financing is or may be required to consummate the transaction contemplated by such proposal, and whether such financing is committed and is reasonably capable of being obtained by the applicable offeror.
| 88 |
“Neurotrope Transactions” means the Neurotrope Merger and the Spin-Off.
“Neurotrope Voting Agreement Signatories” means those Persons set forth on Schedule B identified as Neurotrope Voting Agreement Signatories.
“Neurotrope Warrant” means any warrant to purchase shares of Neurotrope Capital Stock.
“Order” means any order, writ, injunction, judgment or decree.
“Permitted Encumbrances” means (i) Liens for Taxes, assessments or other governmental charges or levies not yet delinquent or that are being contested in good faith by appropriate Legal Proceedings or that may thereafter be paid without penalty; (ii) statutory Liens of landlords or lessors under rental agreements for amounts not delinquent, (iii) mechanics’, carriers’, warehousemen’s, workers’, repairers’ and similar Liens imposed by applicable Legal Requirements or arising or incurred in the ordinary course of business consistent with past practice with respect to amounts not yet due and payable or being contested in good faith by appropriate Legal Proceedings; (iv) Liens incurred or deposits made in the ordinary course of business consistent with past practice in connection with workers’ compensation, unemployment insurance or other types of social security; and (v) licenses and other similar rights granted and obligations incurred in the ordinary course of business consistent with past practice that are not material to the operation of the applicable business, (vi) Liens or encumbrances of record affecting any owned or leased real property, any matters that would be disclosed by a survey of any owned or leased real property and any zoning, land use, covenants, conditions and restrictions or similar matters affecting any owned or leased real property, in each case that would not be reasonably likely to materially interfere with the present use or occupancy of such real property.
“Person” means any person, Entity, Governmental Body, or group (as defined in Section 13(d)(3) of the Exchange Act).
“Proxy Statement” shall mean the proxy statement to be sent to Company’s stockholders in connection with the approval of this Agreement and the Mergers (by signing the Preferred Members Consent) and to Neurotrope’s stockholders in connection with the Neurotrope Stockholders’ Meeting.
“Registration Statement” shall mean the registration statement on Form S-4 (or any other applicable form under the Securities Act to register Parent Common Stock and Parent Preferred Stock) to be filed with the SEC by Parent registering the public offering and sale of Parent Common Stock and Parent Preferred Stock in connection with the Mergers, as said registration statement may be amended prior to the time it is declared effective by the SEC.
A party’s “Representatives” include each Person that is or becomes (a) a Subsidiary or other controlled Affiliate of such party or (b) an officer, director, employee, partner, attorney, advisor, accountant, agent or representative of such party or of any such party’s Subsidiaries or other controlled Affiliates.
“SpinCo” means Neurotrope Bioscience, Inc., a Delaware corporation.
| 89 |
An Entity will be deemed to be a “Subsidiary” of another Person if such Person directly or indirectly owns, beneficially or of record, (a) an amount of voting securities of or other interests in such Entity that is sufficient to enable such Person to elect at least a majority of the members of such Entity’s board of directors or other governing body, or (b) at least fifty percent (50%) of the outstanding equity or financial interests of such Entity.
“Tax” and “Taxes” mean any federal, state, local, or non-U.S. income, gross receipts, license, payroll, employment, excise, escheat, severance, stamp, occupation, premium, windfall profits, customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not and including any obligations to indemnify or otherwise assume or succeed to the Tax liability of any other Person.
“Tax Return” means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.
“Transaction Costs” means the aggregate amount of costs and expenses of a Person or any of its Subsidiaries incurred in connection with the negotiation, preparation and execution of this Agreement and the consummation of the Transactions, including (a) any brokerage fees and commissions, finders’ fees or financial advisory fees, any fees and expenses of counsel or accountants payable by such Person or any of its Subsidiaries and any transaction bonuses or similar items in connection with the Transactions, (b) any bonus, severance, change-in-control payments or similar payment obligations (including payments with “single-trigger” provisions triggered at and as of the consummation of the Transactions) that become due or payable to any director, officer, employee or consultant of such Person in connection with the consummation of the Transactions, (c) any payments to third parties under any Contract to which such Person or its Subsidiaries are a party triggered by the consummation of the Transactions, or any payment or consideration arising under or in relation to obtaining any consents, waivers or approvals of any third party under any Contract to which such Person or its Subsidiaries are a party required to be obtained in connection with the consummation of the Transactions in order for any such Contract to remain in full force and effect following the Closing or resulting from agreed-upon modification or early termination of any such Contract, in each case with respect to the foregoing matters (a)-(c), to the extent unpaid; provided, that Neurotrope and Company shall share equally all out of pocket costs and expenses, other than attorneys’, accountants’ and other similar service provider’s fees and expenses, incurred in relation to (i) the filings by the Parties under any filing requirement under the HSR Act and any foreign antitrust Legal Requirement applicable to this Agreement and the Transactions; (ii) the filing with the SEC of the preliminary and definitive Proxy Statement (including any financial statements and exhibits), including printer fees, and any amendments or supplements thereto, and the printing and delivery of such documents to the Parties’ stockholders; and (iii) any fees incurred in connection with obtaining Nasdaq approval for the Mergers, the name and ticker symbol changes, and the listing of the shares of Parent Common Stock to be issued, to the extent contemplated by this Agreement. For the avoidance of doubt, all fees and costs incurred in connection with the Spin-Off shall be borne by Neurotrope.
| 90 |
“Transactions” means collectively the Company Transactions and the Neurotrope Transactions.
“Unitholder FIRPTA Certificate” shall mean either (a) (i) an IRS Form W-9 and (ii) a duly executed certification pursuant to Treasury Regulation Section 1.1445-2(b) and proposed Treasury Regulation Section 1.1446(f)-2(b)(2) certifying that withholding is not required by reason of the non-foreign status of a holder of Company Units or (b) a duly executed certification pursuant to Treasury Regulation Section 1.1445-2(d)(2) and proposed Treasury Regulation section 1.1446(f)-2(b)(6) certifying that withholding is not required by reason of the operation of a nonrecognition provision of the Code.
“Working Capital” shall mean (i) the Accounts Receivable of the Company, less the Accounts Payable of the Company, plus (ii) cash and cash equivalents of the Company, in each case, as of the Working Capital Determination Time.
Additionally, the following terms have the meanings assigned to such terms in the Sections of this Agreement set forth below opposite such term:
| Defined Word | Section of Agreement | |
| “Acceptable Company Confidentiality Agreement” | Section 6.12(a) | |
| “Acceptable Neurotrope Confidentiality Agreement” | Section 6.13(a) | |
| “Accounting Firm” | Section 1.8(e) | |
| “Agreement” | Preamble | |
| “Anticipated Closing Date” | Section 1.8(a) | |
| “Antitrust Laws” | Section 3.3(d) | |
| “Certifications” | Section 4.5(a) | |
| “Closing” | Section 1.3 | |
| “Closing Date” | Section 1.3 | |
| “Code” | Recitals | |
| “Commercialized” | Section 3.9(e) | |
| “Company” | Preamble | |
| “Company Balance Sheet” | Section 3.5(a) | |
| “Company Board” | Recitals | |
| “Company Board Approval” | Section 6.2(a) | |
| “Company Contract” | Section 3.16(b) | |
| “Company Employee Plans” | Section 3.12(a) | |
| “Company Environmental Permits” | Section 3.14(c) | |
| “Company Exchange Ratio” | Section 2.1(b) | |
| “Company Financials” | Section 3.5(a) | |
| “Company Insurance Policies” | Section 3.18(a) | |
| “Company Interim Financial Statements” | Section 6.25 |
| 91 |
| “Company Lookback Date” | Section 3.5(c) | |
| “Company Member Matters” | Section 6.2(b) | |
| “Company Merger Consideration” | Section 2.1(b) | |
| “Company Permits” | Section 3.9(b) | |
| “Company Termination Fee” | Section 8.3(b) | |
| “Company Vote Deadline” | Section 6.2(b) | |
| “Company Voting Agreements” | Recitals | |
| “Confidentiality Agreement” | Section 6.4 | |
| “Continuing Employees” | Section 6.20(b) | |
| “DGCL” | Section 1.2(a) | |
| “D&O Indemnified Party” | Section 6.6(a) | |
| “Delaware Law” | Section 1.1(a) | |
| “Delaware Secretary of State” | Section 1.4(a) | |
| “Delivery Date” | Section 1.8(a) | |
| “Dispute Notice” | Section 1.8(b) | |
| “Dissent Rights” | Section 2.6 | |
| “Dissenting Shares” | Section 2.6 | |
| “Effective Times” | Section 1.4(c) | |
| “Exchange Act” | Section 3.3(d) | |
| “Exchange Agent” | Section 2.2(a) | |
| “Exchange Fund” | Section 2.2(a) | |
| “Foreign Antitrust Laws” | Section 3.3(d) | |
| “GAAP” | Section 5.5(a) | |
| “Hazardous Material” | Section 3.14(a) | |
| “Hazardous Material Activities” | Section 3.14(b) | |
| “knowledge of Company” | Section 9.15(g) | |
| “knowledge of Neurotrope” | Section 9.15(g) | |
| “Liability” | Section 3.5(d) | |
| “Lock-up Agreements” | Recitals | |
| “Member Notice” | Section 6.2(d) | |
| “Merger Sub 1” | Preamble | |
| “Merger Sub 2” | Preamble | |
| “Merger Sub Approval” | Section 6.1(e) | |
| “Merger Subs” | Preamble | |
| “Mergers” | Recitals | |
| “Metuchen Allocation Certificate” | Section 6.19(a) |
| 92 |
| “Metuchen Certificate of Merger” | Section 1.4(a) | |
| “Metuchen Effective Time” | Section 1.4(b) | |
| “Metuchen Merger” | Recitals | |
| “Metuchen Surviving LLC” | Section 1.1(a) | |
| “Nasdaq Listing Application” | Section 6.24 | |
| “Neurotrope” | Preamble | |
| “Neurotrope Certificate of Merger” | Section 1.4(a) | |
| “Neurotrope Board” | Recitals | |
| “Neurotrope Board Recommendation” | Section 6.3(b) | |
| “Neurotrope Book-Entry Shares” | Section 2.3(c) | |
| “Neurotrope Certificates” | Section 2.3(c) | |
| “Neurotrope Change in Recommendation” | Section 6.3(c) | |
| “Neurotrope Closing Certificate” | Section 6.19(c) | |
| “Neurotrope Common Book-Entry Shares” | Section 2.3(b) | |
| “Neurotrope Common Certificate” | Section 2.3(b) | |
| “Neurotrope Common Exchange Ratio” | Section 2.3(b) | |
| “Neurotrope Common Merger Consideration” | Section 2.3(b) | |
| “Neurotrope Common Stock” | Section 2.3(a) | |
| “Neurotrope Contract” | Section 4.15(b) | |
| “Neurotrope Effective Time” | Section 1.4(c) | |
| “Neurotrope Employee Plans” | Section 4.12(a) | |
| “Neurotrope Environmental Permits” | Section 5.14(c) | |
| “Neurotrope Financials” | Section 4.5(g) | |
| “Neurotrope Insurance Policies” | Section 4.16(a) | |
| “Neurotrope Lookback Date” | Section 4.5(a) | |
| “Neurotrope Merger” | Recitals | |
| “Neurotrope Merger Consideration” | Section 2.3(c) | |
| “Neurotrope Option” | Section 4.2(b) | |
| “Neurotrope Owned IP Rights” | Section 4.8 | |
| “Neurotrope Permits” | Section 4.9(b) | |
| “Neurotrope Preferred Book-Entry Shares” | Section 2.3(c) | |
| “Neurotrope Preferred Certificate” | Section 2.3(c) | |
| “Neurotrope Preferred Exchange Ratio” | Section 2.3(c) | |
| “Neurotrope Preferred Merger Consideration” | Section 2.3(c) | |
| “Neurotrope Preferred Stock” | Section 2.3 | |
| “Neurotrope SEC Documents” | Section 4.5(a) |
| 93 |
| “Neurotrope Stock” | Section 2.3 | |
| “Neurotrope Stockholder Approval” | Section 4.3(a) | |
| “Neurotrope Stockholder Approval Matter” | Section 6.3(a) | |
| “Neurotrope Stockholders’ Meeting” | Section 6.3(a) | |
| “Neurotrope Surviving Corporation” | Section 1.2(a) | |
| “Neurotrope Termination Fee” | Section 8.3(c) | |
| “Neurotrope Vote Deadline” | Section 6.3(a) | |
| “Neurotrope Voting Agreements” | Recitals | |
| “Parent” | Preamble | |
| “Party” or “Parties” | Preamble | |
| “Post-Closing Plans” | Section 6.20(b) | |
| “Pre-Closing Period” | Section 5.1 | |
| “Preferred Members Consent” | Recitals | |
| “Regulatory Authorities” | Section 3.9(i) | |
| “Response Date” | Section 1.8(b) | |
| “Required Company Vote” | Section 3.3(a) | |
| “SEC” | Section 3.3(d) | |
| “SEC Website” | Section 4.5(a) | |
| “Securities Act” | Section 2.3(b) | |
| “Spin-Off” | Recitals | |
| “Surviving Companies” | Section 1.2(a) | |
| “Tax Matters Agreement” | Section 4.20 | |
| “Transactions” | Recitals | |
| “Voting Agreements” | Recitals | |
| “Working Capital Calculation” | Section 1.8(a) | |
| “Working Capital Determination Time” | Section 1.8(a) | |
| “Working Capital Schedule” | Section 1.8(a) | |
| “Working Capital Shortfall Amount” | Section 1.8(f) |
| 94 |
Exhibit 2.2
VOTING AGREEMENT
This VOTING AGREEMENT (this “Agreement”) is entered into as of May 17, 2020, by and between Metuchen Pharmaceuticals LLC, a Delaware limited liability company (“Company”), and the undersigned (the “Stockholder”).
WHEREAS, as of the date hereof, the Stockholder is the sole record and beneficial owner of and has the sole power to vote (or to direct the voting of) the number of shares of common stock, par value $0.0001 per share (the “Common Shares”) of Neurotrope, Inc. a Nevada corporation (“Neurotrope”), set forth opposite the Stockholder’s name on Schedule I hereto (such Common Shares together with any other shares of Neurotrope (“Shares”) the voting power of which is acquired by such Stockholder during the period from the date hereof through the date on which this Agreement is terminated in accordance with its terms, are collectively referred to herein as the “Subject Shares”);
WHEREAS, Petros Pharmaceuticals, Inc., a Delaware corporation (“Parent”), PM Merger Sub 1, LLC, a Delaware limited liability company and direct wholly owned subsidiary of Parent (“Merger Sub 1”), PN Merger Sub 2, Inc., a Delaware corporation and direct wholly owned subsidiary of Parent (“Merger Sub 2”), Company and Neurotrope, are concurrently entering into an agreement and plan of merger, dated as of the date hereof (as amended from time to time, the “Merger Agreement”), pursuant to which (i) Merger Sub 1 will be merged with and into the Company (the “Metuchen Merger”) with the Company continuing as the surviving limited liability company and as a wholly owned subsidiary of Parent, and (ii) Merger Sub 2 will be merged with and into Neurotrope (the “Neurotrope Merger” and together with the Metuchen Merger, the “Mergers”) with Neurotrope continuing as the surviving corporation and as a wholly owned subsidiary of Parent;
WHEREAS, the Neurotrope Merger requires the affirmative vote of the holders of (i) a majority in voting power of the outstanding shares of Neurotrope Common Stock (as defined in the Merger Agreement) voting separately as a class and (ii) two-thirds in voting power of the outstanding shares of Neurotrope Preferred Stock (as defined in the Merger Agreement) voting separately as a class, in each case, on the applicable record date;
WHEREAS, as an inducement to Company’s willingness to enter into the Merger Agreement and consummate the transactions contemplated thereby, transactions from which the Stockholder believes it will derive substantial benefits through its ownership interest in Neurotrope, the Stockholder is entering into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, the parties agree as follows:
ARTICLE
I
DEFINITIONS
Section 1.1 Capitalized Terms. For purposes of this Agreement, capitalized terms used and not defined herein shall have the respective meanings ascribed to them in the Merger Agreement.
ARTICLE
II
VOTING AGREEMENT AND IRREVOCABLE PROXY
Section 2.1 Agreement to Vote. The Stockholder hereby agrees that, during the Voting Period (as defined below), and at any duly called meeting of the stockholders of Neurotrope (or any adjournment or postponement thereof), or in any other circumstances (including action by written consent of stockholders in lieu of a meeting) upon which a vote, adoption or other approval or consent with respect to the adoption of the Merger Agreement or the approval of the Neurotrope Merger and any of the transactions contemplated thereby is sought, the Stockholder shall, if a meeting is held, appear at the meeting, in person or by proxy, and shall provide a written consent or vote (or cause to be voted), in person or by proxy, all its Subject Shares, in each case (a) in favor of (i) any proposal to adopt and approve or reapprove the Merger Agreement and the other transactions contemplated thereby and (ii) waiving any notice that may have been or may be required relating to the Neurotrope Merger or any of the other transactions contemplated by the Merger Agreement, and (b) against any Acquisition Proposal and any action in furtherance of any such Acquisition Proposal. As used herein, (x) the term “Expiration Time” shall mean the earliest to occur of (A) the Effective Time and (B) the date and time of the valid termination of the Merger Agreement in accordance with its terms, and (y) the term “Voting Period” shall mean such period of time between the date hereof and the Expiration Time.
Section 2.2 Grant of Irrevocable Proxy. The Stockholder hereby appoints Company and any designee of Company, and each of them individually, as the Stockholder’s proxy, with full power of substitution and resubstitution, to vote, in the event the Stockholder shall fail to take any action in accordance with the requirements of Section 2.1 hereof, including by executing written consents, during the Voting Period with respect to any and all of the Subject Shares on the matters and in the manner specified in Section 2.1; provided, however, that such vote shall be restricted to the matters set forth in Section 2.1 and such vote shall be (a) in favor of (i) any proposal to adopt and approve or reapprove the Merger Agreement and the other transactions contemplated thereby and (ii) waiving any notice that may have been or may be required relating to the Neurotrope Merger or any of the other transactions contemplated by the Merger Agreement, and (b) against any Acquisition Proposal and any action in furtherance of any such Acquisition Proposal. The Stockholder shall take all further action or execute such other instruments as may be necessary to effectuate the intent of any such proxy. The Stockholder affirms that the irrevocable proxy given by it hereby with respect to the Merger Agreement and the transactions contemplated thereby is given to Company by the Stockholder to secure the performance of the obligations of the Stockholder under this Agreement. It is agreed that Company (and its officers on behalf of Company) will use the irrevocable proxy that is granted by the Stockholder hereby solely to the extent specified in this Section 2.2 and only in accordance with applicable Legal Requirements and that, to the extent Company (and its officers on behalf of Company) uses such irrevocable proxy, it will only vote (or sign written consents in respect of) the Subject Shares subject to such irrevocable proxy with respect to the matters specified in, and in accordance with the provisions of, Section 2.1.
| -2- |
Section 2.3 Nature of Irrevocable Proxy. The proxy granted pursuant to Section 2.2 to Company by the Stockholder shall be irrevocable during the Voting Period, shall be deemed to be coupled with an interest sufficient in law to support an irrevocable proxy and shall revoke any and all prior proxies or powers of attorney granted by the Stockholder and no subsequent proxy or power of attorney shall be given or written consent executed (and if given or executed, shall not be effective) by the Stockholder with respect thereto. The proxy that may be granted hereunder shall terminate upon the termination of this Agreement, but shall survive the death or incapacity of the Stockholder and any obligation of the Stockholder under this Agreement shall be binding upon the heirs, personal representatives and successors of the Stockholder.
ARTICLE
III
COVENANTS
Section 3.1 Subject Shares.
(a) The Stockholder agrees that (i) from the date hereof until the Expiration Time, it shall not, and shall not commit or agree to, without Company’s prior written consent, directly or indirectly, whether by merger, consolidation or otherwise, offer for sale, sell (including short sales), transfer, tender, pledge, encumber, assign or otherwise dispose of (including by gift or by operation of law) (collectively, a “Transfer”), or enter into any contract, option, derivative, hedging or other agreement or arrangement or understanding (including any profit-sharing arrangement) with respect to, or consent to or permit, a Transfer of, any or all of the Subject Shares or any interest therein; and (ii) during the Voting Period, it shall not, and shall not commit or agree to, without Company’s prior written consent, (A) grant any proxies or powers of attorney with respect to any or all of the Subject Shares or agree to vote (or sign written consents in respect of) the Subject Shares on any matter or divest itself of any voting rights in the Subject Shares, or (B) take any action that would have the effect of preventing or disabling the Stockholder from performing its obligations under this Agreement. Notwithstanding the foregoing, the Stockholder may (1) make transfers or dispositions of the Subject Shares to any member of the immediate family of the Stockholders or to any trust for the direct or indirect benefit of the Stockholder or the immediate family of the Stockholder, (2) make transfers or dispositions of the Subject Shares by will, other testamentary document or intestate succession to the legal representative, heir, beneficiary or a member of the immediate family of the Stockholder, (3) make transfers of the Subject Shares to stockholders, direct or indirect affiliates (within the meaning set forth in Rule 405 under the Securities Act of 1933, as amended), current or former partners (general or limited), members or managers of the Stockholder, as applicable, or to the estates of any such stockholders, affiliates, partners, members or managers, or to another corporation, partnership, limited liability company or other business entity that controls, is controlled by or is under common control with the Stockholder, (4) make transfers that occur by operation of law pursuant to a qualified domestic relations order or in connection with a divorce settlement, (5) make transfers or dispositions not involving a change in beneficial ownership and (6) if the Stockholder is a trust, make transfers or dispositions to any beneficiary of the Stockholder or the estate of any such beneficiary. The Stockholder agrees that any Transfer of Subject Shares not permitted hereby shall be null and void and that any such prohibited Transfer shall be enjoined. If any voluntary or involuntary transfer of any Subject Shares covered hereby shall occur (including, but not limited to, a sale by the Stockholder’s trustee in bankruptcy, or a sale to a purchaser at any creditor’s or court sale), the transferee (which term, as used herein, shall include any and all transferees and subsequent transferees of the initial transferee) shall take and hold such Subject Shares subject to all of the restrictions, liabilities and rights under this Agreement, which shall continue in full force and effect.
| -3- |
(b) In the event of a stock dividend or distribution, or any change in the Subject Shares by reason of any stock dividend or distribution, split-up, recapitalization, combination, conversion, exchange of Shares or the like, the term “Subject Shares” shall be deemed to refer to and include the Subject Shares as well as all such stock dividends and distributions and any securities into which or for which any or all of the Subject Shares may be changed or exchanged or which are received in such transaction. The Stockholder further agrees that, in the event Stockholder purchases or otherwise acquires beneficial or record ownership of or an interest in, or acquires the right to vote or share in the voting of, any additional Shares, in each case after the execution of this Agreement, the Stockholder shall deliver promptly to Company written notice of such event, which notice shall state the number of additional Shares so acquired. The Stockholder agrees that any such additional Shares shall be subject to the terms of this Agreement, including all covenants, agreements, obligations, representations and warranties set forth herein as if those additional Shares were owned by the Stockholder on the date of this Agreement.
Section 3.2 Stockholder’s Capacity. All agreements and understandings made herein shall be made solely in the Stockholder’s capacity as a holder of the Subject Shares and not in any other capacity.
Section 3.3 Other Offers. Except to the extent Neurotrope is permitted to take such action pursuant to the Merger Agreement, neither the Stockholder (in the Stockholder’s capacity as such), shall, nor shall the Stockholder authorize or permit any of its Representatives to, take any of the following actions: (a) solicit, initiate, knowingly encourage or knowingly facilitate an Acquisition Proposal, (b) furnish any non-public information regarding Company to any Person in connection with or in response to an Acquisition Proposal, (c) engage in, enter into, continue or otherwise participate in any discussions or negotiations with any Person with respect to, or otherwise knowingly cooperate in any way with any person (or any representative thereof) with respect to, any Acquisition Proposal, (d) approve, endorse or recommend or propose to approve, endorse or recommend, any Acquisition Proposal or (e) enter into any letter of intent or similar document or any Contract contemplating, approving, endorsing or recommending or proposing to approve, endorse or recommend, any Acquisition Transaction or accepting any Acquisition Proposal; provided, however, that none of the foregoing restrictions shall apply to the Stockholder’s and its Representatives’ interactions with Parent, Neurotrope, Company and its and their respective subsidiaries and representatives. Without limiting the foregoing, it is understood that any violation of the foregoing restrictions by any Representatives of the Stockholder shall be deemed to be a breach of this Section 3.3 by the Stockholder. The Stockholder shall, and shall use reasonable best efforts to cause its Representatives to, immediately cease any and all existing discussions or negotiations with any Persons conducted heretofore with respect to any Acquisition Proposal.
| -4- |
Section 3.4 Communications. The Stockholder hereby (a) consents to and authorizes the publication and disclosure by Parent, Neurotrope, and Company (including in any publicly filed documents relating to the Neurotrope Merger or any transaction contemplated by the Merger Agreement) of: (i) the Stockholder’s identity; (ii) the Stockholder’s beneficial ownership of the Subject Shares; and (iii) the nature of the Stockholder’s commitments, arrangements and understandings under this Agreement, and any other information that Parent, Neurotrope, or Company determines to be necessary in any SEC disclosure document in connection with the Merger or any transactions contemplated by the Merger Agreement, and (b) agrees as promptly as practicable to notify Parent, Neurotrope, and Company of any required corrections with respect to any written information supplied by the Stockholder specifically for use in any such disclosure document.
Section 3.5 Voting Trusts. The Stockholder agrees that it will not, nor will it permit any entity under its control to, deposit any of its Subject Shares in a voting trust or subject any of its Subject Shares to any arrangement with respect to the voting of such Subject Shares other than as provided herein.
Section 3.6 Waiver of Appraisal Rights. The Stockholder hereby irrevocably and unconditionally waives, and agrees not to assert, exercise or perfect (or attempt to exercise, assert or perfect) any rights of appraisal or rights to dissent from the Neurotrope Merger or quasi-appraisal rights that it may at any time have under applicable Legal Requirements. The Stockholder agrees not to commence, join in, facilitate, assist or encourage, and agrees to take all actions necessary to opt out of any class in any class action with respect to, any claim, derivative or otherwise, against Parent, Merger Sub 1, Merger Sub 2, Neurotrope, Company or any of their respective successors, directors or officers, (a) challenging the validity, binding nature or enforceability of, or seeking to enjoin the operation of, this Agreement or the Merger Agreement, or (b) alleging a breach of any fiduciary duty of any Person in connection with the evaluation, negotiation, entry into or consummation of the Merger Agreement.
ARTICLE
IV
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER
The Stockholder hereby represents and warrants to Company as follows:
Section 4.1 Due Authorization, etc. The Stockholder is a natural person, corporation, limited partnership or limited liability company. If Stockholder is a corporation, limited partnership or limited liability company, Stockholder is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, organized or constituted. The Stockholder has all necessary power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby by the Stockholder have been duly authorized by all necessary action on the part of the Stockholder and no other proceedings on the part of the Stockholder are necessary to authorize this Agreement, or to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Stockholder and (assuming the due authorization, execution and delivery by Company) constitutes a valid and binding obligation of the Stockholder, enforceable against the Stockholder in accordance with its terms, except to the extent enforcement is limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Legal Requirements of general applicability relating to or affecting creditors’ rights and by general equitable principles.
| -5- |
Section 4.2 Ownership of Shares. Schedule I hereto sets forth opposite the Stockholder’s name the Shares over which the Stockholder has sole record and beneficial ownership as of the date hereof. As of the date hereof, the Stockholder is the lawful owner of the Shares denoted as being owned by the Stockholder on Schedule I hereto, has the sole power to vote or cause to be voted such Shares and has the sole power to dispose of or cause to be disposed such Shares (other than, if Stockholder is a partnership or a limited liability company, the rights and interest of persons and entities that own partnership interests or units in Stockholder under the partnership agreement or operating agreement governing Stockholder and applicable partnership or limited liability company law, or if Stockholder is a married individual and resides in a state with community property laws, the community property interest of his or her spouse to the extent applicable under such community property laws, which spouse hereby consents to this Agreement by executing the spousal consent attached hereto). The Stockholder has, and will at all times up until the Expiration Time have, good and valid title to the Shares denoted as being owned by the Stockholder on Schedule I hereto, free and clear of any and all pledges, mortgages, liens, charges, proxies, voting agreements, encumbrances, adverse claims, options, security interests and demands of any nature or kind whatsoever, other than (a) those created by this Agreement, or (b) those existing under applicable securities laws.
Section 4.3 No Conflicts. (a) No filing with any Governmental Body, and no authorization, consent or approval of any other person is necessary for the execution of this Agreement by the Stockholder and (b) none of the execution and delivery of this Agreement by the Stockholder, the consummation by the Stockholder of the transactions contemplated hereby or compliance by the Stockholder with any of the provisions hereof shall (i) conflict with or result in any breach of the organizational documents of the Stockholder, (ii) result in, or give rise to, a violation or breach of or a default under any of the terms of any material contract, understanding, agreement or other instrument or obligation to which the Stockholder is a party or by which the Stockholder or any of the Subject Shares or its assets may be bound or (iii) violate any applicable order, writ, injunction, decree, judgment, statute, rule or regulation, except for any of the foregoing as would not reasonably be expected to impair the Stockholder’s ability to perform its obligations under this Agreement.
Section 4.4 Finder’s Fees. No investment banker, broker, finder or other intermediary is entitled to a fee or commission from Parent, Merger Sub 1, Merger Sub 2, Neurotrope or Company in respect of this Agreement based upon any Contract made by or on behalf of the Stockholder, solely in the Stockholder’s capacity as a stockholder of Neurotrope.
Section 4.5 No Litigation. As of the date of this Agreement, there is no Legal Proceeding pending or, to the knowledge of the Stockholder, threatened against the Stockholder that would reasonably be expected to impair the ability of the Stockholder to perform its obligations hereunder or consummate the transactions contemplated hereby.
| -6- |
ARTICLE
V
TERMINATION
Section 5.1 Termination. This Agreement shall automatically terminate, and neither Company nor the Stockholder shall have any rights or obligations hereunder and this Agreement shall become null and void and have no effect upon the earliest to occur of: (a) the Effective Time; or (b) the valid termination of the Merger Agreement in accordance with its terms. The parties acknowledge that, upon termination of this Agreement as permitted under and in accordance with the terms of this Article V, no party to this Agreement shall have the right to recover any claim with respect to any losses suffered by such party in connection with such termination, except that the termination of this Agreement shall not relieve either party to this Agreement from liability for such party’s intentional and material breach of any terms of this Agreement. Notwithstanding anything to the contrary herein, the provisions of this Article V and Article VI shall survive the termination of this Agreement.
ARTICLE
VI
MISCELLANEOUS
Section 6.1 Further Actions. Subject to the terms and conditions set forth in this Agreement, the Stockholder agrees to take any and all actions and to do all things reasonably necessary to effectuate this Agreement.
Section 6.2 Fees and Expenses. Except as otherwise specifically provided herein, each party shall bear its own expenses in connection with this Agreement and the transactions contemplated hereby.
Section 6.3 Amendments, Waivers, etc. This Agreement may not be amended except by an instrument in writing signed by the parties hereto and specifically referencing this Agreement. The failure of any party to assert any rights or remedies shall not constitute a waiver of such rights or remedies.
Section 6.4 Notices. Any notice, request, instruction or other document required to be given hereunder shall be sufficient if in writing, and sent by confirmed electronic mail transmission of a “portable document format” (“.pdf”) attachment (provided that any notice received by electronic mail transmission or otherwise at the addressee’s location on any business day after 5:00 p.m. (addressee’s local time) shall be deemed to have been received at 9:00 a.m. (addressee’s local time) on the next business day), by reliable overnight delivery service (with proof of service), or hand delivery, addressed as follows:
If to Company, to:
Metuchen Pharmaceuticals LLC
c/o Juggernaut Capital Partners
5301 Wisconsin Avenue NW, Suite 570
Washington, DC 20015
Attn: John Shulman
Email: [email protected]
| -7- |
with a copy to (which shall not constitute notice):
Morgan, Lewis & Bockius LLP
1111 Pennsylvania Avenue, NW
Washington, DC 20004
Attn: Andrew M. Ray
Email: [email protected]
If to the Stockholder, to the address or electronic mail address set forth on the signature pages hereto, or to such other person or address as any party shall specify by written notice so given.
Section 6.5 Headings. Headings of the Articles and Sections of this Agreement are for convenience of the parties only and shall be given no substantive or interpretive effect whatsoever.
Section 6.6 Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application of such provision to any person or any circumstance, is invalid or unenforceable (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application of such provision, in any other jurisdiction.
Section 6.7 Entire Agreement; Assignment. This Agreement constitutes the entire agreement, and supersedes all other prior agreements and understandings, both written and oral, between the parties, or any of them, with respect to the subject matter hereof. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties, except that without consent, Company may assign all or any of its rights and obligations hereunder to any of its Affiliates that assume the rights and obligations of Company under the Merger Agreement. Subject to the preceding two sentences, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. Notwithstanding anything to the contrary set forth herein, the Stockholder agrees that this Agreement and the obligations hereunder shall be binding upon any Person to which record or beneficial ownership of the Stockholder’s Subject Shares shall pass, whether by operation or law or otherwise, including the Stockholder’s heirs, guardians, administrators or successors and assigns, and the Stockholder agrees to take all actions necessary to effect the foregoing.
| -8- |
Section 6.8 Governing Law. THIS AGREEMENT AND ALL QUESTIONS RELATING TO THE INTERPRETATION OR ENFORCEMENT OF THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF TO THE EXTENT THAT SUCH PRINCIPLES WOULD DIRECT A MATTER TO ANOTHER JURISDICTION.
Section 6.9 Specific Performance. The Stockholder acknowledges that any breach of this Agreement would give rise to irreparable harm for which monetary damages would not be an adequate remedy and each of Company and Neurotrope shall be entitled to a decree of specific performance and to temporary, preliminary and permanent injunctive relief to prevent breaches or threatened breaches of any of the provisions of this Agreement, without the necessity of proving the inadequacy of monetary damages as a remedy, which shall be the sole and exclusive remedy for any such breach.
Section 6.10 Submission to Jurisdiction. The parties hereby irrevocably submit to the exclusive personal jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims relating to such action, suit or proceeding shall be heard and determined in such courts. The parties hereby consent to and grant any such court jurisdiction over the person of such parties and, to the extent permitted by law, over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 6.4 or in such other manner as may be permitted by Legal Requirements shall be valid and sufficient service thereof.
Section 6.11 Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 6.11.
| -9- |
Section 6.12 Counterparts. This Agreement may be executed in two or more counterparts (including by facsimile transmission or other means of electronic transmission, such as by electronic mail in “.pdf” form), each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument, and shall become effective when one or more counterparts have been signed by each of the parties and delivered (by facsimile or otherwise) to the other parties.
[Remainder of page left intentionally blank. Signature pages follow.]
| -10- |
IN WITNESS WHEREOF, Company and the Stockholder have caused this Agreement to be duly executed as of the day and year first above written.
| METUCHEN PHARMACEUTICALS, LLC | |||
| By: | |||
| Name: | |||
| Title: | |||
[Signature Page to Voting Agreement]
| [Stockholder] | |
| Address: [●] | |
| Email Address: [●] |
[Signature Page to Voting Agreement]
SPOUSAL CONSENT
I ____________________, spouse of ____________________, having the legal capacity, power and authority to do so, hereby confirm that I have read and approve the foregoing the Voting Agreement (the “Agreement”). In consideration of the terms and conditions as set forth in the Agreement, I hereby appoint my spouse as my attorney in fact with respect to the exercise of any rights and obligations under the Agreement, and agree to be bound by the provisions of the Agreement insofar as I may have any rights or obligations in the Agreement under the community property laws of the State of California or similar laws relating to marital or community property in effect in the state of our residence as of the date of the Agreement.
| Name: | ||
| Date: | ||
[Signature Page to Spousal Consent]
Schedule I
Ownership of Common Shares
| Name and Address of Stockholder | Number of Common Shares |
| [ ] | [ ] |
Exhibit 2.3
VOTING AGREEMENT
This VOTING AGREEMENT (this “Agreement”) is entered into as of May 17, 2020, by and between Neurotrope, Inc., a Nevada corporation (“Neurotrope”), and the undersigned (the “Member”).
WHEREAS, as of the date hereof, the Member is the sole record and beneficial owner of and has the sole power to vote (or to direct the voting of) the number of preferred units (the “Preferred Units”) of Metuchen Pharmaceuticals LLC, a Delaware limited liability company (“Company”), set forth opposite the Member’s name on Schedule I hereto (such Preferred Units together with any other equity interests of Company (“Units”) the voting power of which is acquired by such Member during the period from the date hereof through the date on which this Agreement is terminated in accordance with its terms, are collectively referred to herein as the “Subject Units”);
WHEREAS, Petros Pharmaceuticals, Inc., a Delaware corporation (“Parent”), PM Merger Sub 1, LLC, a Delaware limited liability company and direct wholly owned subsidiary of Parent (“Merger Sub 1”), PN Merger Sub 2, Inc., a Nevada corporation and direct wholly owned subsidiary of Parent (“Merger Sub 2”), Company and Neurotrope, are concurrently entering into an agreement and plan of merger, dated as of the date hereof (as amended from time to time, the “Merger Agreement”), pursuant to which (i) Merger Sub 1 will be merged with and into the Company (the “Metuchen Merger”) with the Company continuing as the surviving limited liability company and as a wholly owned subsidiary of Parent, and (ii) Merger Sub 2 will be merged with and into Neurotrope (the “Neurotrope Merger” and together with the Metuchen Merger, the “Mergers”) with Neurotrope continuing as the surviving corporation and as a wholly owned subsidiary of Parent;
WHEREAS, the adoption of the Merger Agreement requires the affirmative vote of the holders of a majority in voting power of the outstanding preferred units of Company outstanding on the applicable record date; and
WHEREAS, as an inducement to Neurotrope’s willingness to enter into the Merger Agreement and consummate the transactions contemplated thereby, transactions from which the Member believes it will derive substantial benefits through its ownership interest in Company, the Member is entering into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, the parties agree as follows:
ARTICLE
I
DEFINITIONS
Section 1.1 Capitalized Terms. For purposes of this Agreement, capitalized terms used and not defined herein shall have the respective meanings ascribed to them in the Merger Agreement.
ARTICLE
II
VOTING AGREEMENT AND IRREVOCABLE PROXY
Section 2.1 Agreement to Vote. The Member hereby agrees that, during the Voting Period (as defined below), and at any duly called meeting of the members of Company (or any adjournment or postponement thereof), or in any other circumstances (including action by written consent of members in lieu of a meeting) upon which a vote, adoption or other approval or consent with respect to the adoption of the Merger Agreement or the approval of the Metuchen Merger and any of the transactions contemplated thereby is sought, the Member shall, if a meeting is held, appear at the meeting, in person or by proxy, and shall provide a written consent or vote (or cause to be voted), in person or by proxy, all its Subject Units, in each case (a) in favor of (i) any proposal to adopt and approve or reapprove the Merger Agreement and the other transactions contemplated thereby and (ii) waiving any notice that may have been or may be required relating to the Metuchen Merger or any of the other transactions contemplated by the Merger Agreement, and (b) against any Acquisition Proposal and any action in furtherance of any such Acquisition Proposal. As used herein, (x) the term “Expiration Time” shall mean the earliest to occur of (A) the Effective Time and (B) the date and time of the valid termination of the Merger Agreement in accordance with its terms, and (y) the term “Voting Period” shall mean such period of time between the date hereof and the Expiration Time.
Section 2.2 Grant of Irrevocable Proxy. The Member hereby appoints Neurotrope and any designee of Neurotrope, and each of them individually, as the Member’s proxy, with full power of substitution and resubstitution, to vote, in the event the Member shall fail to take any action in accordance with the requirements of Section 2.1 hereof, including by executing written consents, during the Voting Period with respect to any and all of the Subject Units on the matters and in the manner specified in Section 2.1; provided, however, that such vote shall be restricted to the matters set forth in Section 2.1 and such vote shall be (a) in favor of (i) any proposal to adopt and approve or reapprove the Merger Agreement and the other transactions contemplated thereby and (ii) waiving any notice that may have been or may be required relating to the Metuchen Merger or any of the other transactions contemplated by the Merger Agreement, and (b) against any Acquisition Proposal and any action in furtherance of any such Acquisition Proposal. The Member shall take all further action or execute such other instruments as may be necessary to effectuate the intent of any such proxy. The Member affirms that the irrevocable proxy given by it hereby with respect to the Merger Agreement and the transactions contemplated thereby is given to Neurotrope by the Member to secure the performance of the obligations of the Member under this Agreement. It is agreed that Neurotrope (and its officers on behalf of Neurotrope) will use the irrevocable proxy that is granted by the Member hereby solely to the extent specified in this Section 2.2 and only in accordance with applicable Legal Requirements and that, to the extent Neurotrope (and its officers on behalf of Neurotrope) uses such irrevocable proxy, it will only vote (or sign written consents in respect of) the Subject Units subject to such irrevocable proxy with respect to the matters specified in, and in accordance with the provisions of, Section 2.1.
Section 2.3 Nature of Irrevocable Proxy. The proxy granted pursuant to Section 2.2 to Neurotrope by the Member shall be irrevocable during the Voting Period, shall be deemed to be coupled with an interest sufficient in law to support an irrevocable proxy and shall revoke any and all prior proxies or powers of attorney granted by the Member and no subsequent proxy or power of attorney shall be given or written consent executed (and if given or executed, shall not be effective) by the Member with respect thereto. The proxy that may be granted hereunder shall terminate upon the termination of this Agreement, but shall survive the death or incapacity of the Member and any obligation of the Member under this Agreement shall be binding upon the heirs, personal representatives and successors of the Member.
| -2- |
ARTICLE
III
COVENANTS
Section 3.1 Subject Units.
(a) The Member agrees that (i) from the date hereof until the Expiration Time, it shall not, and shall not commit or agree to, without Neurotrope’s prior written consent, directly or indirectly, whether by merger, consolidation or otherwise, offer for sale, sell (including short sales), transfer, tender, pledge, encumber, assign or otherwise dispose of (including by gift or by operation of law) (collectively, a “Transfer”), or enter into any contract, option, derivative, hedging or other agreement or arrangement or understanding (including any profit-sharing arrangement) with respect to, or consent to or permit, a Transfer of, any or all of the Subject Units or any interest therein; and (ii) during the Voting Period, it shall not, and shall not commit or agree to, without Neurotrope’s prior written consent, (A) grant any proxies or powers of attorney with respect to any or all of the Subject Units or agree to vote (or sign written consents in respect of) the Subject Units on any matter or divest itself of any voting rights in the Subject Units, or (B) take any action that would have the effect of preventing or disabling the Member from performing its obligations under this Agreement. Notwithstanding the foregoing, the Member may (1) make transfers or dispositions of the Subject Units to any member of the immediate family of the Member or to any trust for the direct or indirect benefit of the Member or the immediate family of the Member, (2) make transfers or dispositions of the Subject Units by will, other testamentary document or intestate succession to the legal representative, heir, beneficiary or a member of the immediate family of the Member, (3) make transfers of the Subject Units to unitholders, direct or indirect affiliates (within the meaning set forth in Rule 405 under the Securities Act of 1933, as amended), current or former partners (general or limited), members or managers of the Member, as applicable, or to the estates of any such unitholders, affiliates, partners, members or managers, or to another corporation, partnership, limited liability company or other business entity that controls, is controlled by or is under common control with the Member, (4) make transfers that occur by operation of law pursuant to a qualified domestic relations order or in connection with a divorce settlement, (5) make transfers or dispositions not involving a change in beneficial ownership and (6) if the Member is a trust, make transfers or dispositions to any beneficiary of the Member or the estate of any such beneficiary. The Member agrees that any Transfer of Subject Units not permitted hereby shall be null and void and that any such prohibited Transfer shall be enjoined. If any voluntary or involuntary transfer of any Subject Units covered hereby shall occur (including, but not limited to, a sale by the Member’s trustee in bankruptcy, or a sale to a purchaser at any creditor’s or court sale), the transferee (which term, as used herein, shall include any and all transferees and subsequent transferees of the initial transferee) shall take and hold such Subject Units subject to all of the restrictions, liabilities and rights under this Agreement, which shall continue in full force and effect.
| -3- |
(b) In the event of a dividend or distribution, or any change in the Subject Units by reason of any dividend or distribution, split-up, recapitalization, combination, conversion, exchange of Units or the like, the term “Subject Units” shall be deemed to refer to and include the Subject Units as well as all such dividends and distributions and any securities into which or for which any or all of the Subject Units may be changed or exchanged or which are received in such transaction. The Member further agrees that, in the event Member purchases or otherwise acquires beneficial or record ownership of or an interest in, or acquires the right to vote or share in the voting of, any additional Units, in each case after the execution of this Agreement, the Member shall deliver promptly to Neurotrope written notice of such event, which notice shall state the number of additional Units so acquired. The Member agrees that any such additional Units shall be subject to the terms of this Agreement, including all covenants, agreements, obligations, representations and warranties set forth herein as if those additional Units were owned by the Member on the date of this Agreement.
Section 3.2 Member’s Capacity. All agreements and understandings made herein shall be made solely in the Member’s capacity as a holder of the Subject Units and not in any other capacity.
Section 3.3 Other Offers. Except to the extent Company is permitted to take such action pursuant to the Merger Agreement, neither the Member (in the Member’s capacity as such), shall, nor shall the Member authorize or permit any of its Representatives to, take any of the following actions: (a) solicit, initiate, knowingly encourage or knowingly facilitate an Acquisition Proposal, (b) furnish any non-public information regarding Neurotrope to any Person in connection with or in response to an Acquisition Proposal, (c) engage in, enter into, continue or otherwise participate in any discussions or negotiations with any Person with respect to, or otherwise knowingly cooperate in any way with any person (or any representative thereof) with respect to, any Acquisition Proposal, (d) approve, endorse or recommend or propose to approve, endorse or recommend, any Acquisition Proposal or (e) enter into any letter of intent or similar document or any Contract contemplating, approving, endorsing or recommending or proposing to approve, endorse or recommend, any Acquisition Transaction or accepting any Acquisition Proposal; provided, however, that none of the foregoing restrictions shall apply to the Member’s and its Representatives’ interactions with Parent, Neurotrope, Company and its and their respective subsidiaries and representatives. Without limiting the foregoing, it is understood that any violation of the foregoing restrictions by any Representatives of the Member shall be deemed to be a breach of this Section 3.3 by the Member. The Member shall, and shall use reasonable best efforts to cause its Representatives to, immediately cease any and all existing discussions or negotiations with any Persons conducted heretofore with respect to any Acquisition Proposal.
Section 3.4 Communications. The Member hereby (a) consents to and authorizes the publication and disclosure by Parent, Neurotrope, and Company (including in any publicly filed documents relating to the Merger or any transaction contemplated by the Merger Agreement) of: (i) the Member’s identity; (ii) the Member’s beneficial ownership of the Subject Units; and (iii) the nature of the Member’s commitments, arrangements and understandings under this Agreement, and any other information that Parent, Neurotrope, or Company determines to be necessary in any SEC disclosure document in connection with the Merger or any transactions contemplated by the Merger Agreement and (b) agrees as promptly as practicable to notify Parent, Neurotrope, and Company of any required corrections with respect to any written information supplied by the Member specifically for use in any such disclosure document.
| -4- |
Section 3.5 Voting Trusts. The Member agrees that it will not, nor will it permit any entity under its control to, deposit any of its Subject Units in a voting trust or subject any of its Subject Units to any arrangement with respect to the voting of such Subject Units other than as provided herein.
Section 3.6 Waiver of Appraisal Rights. The Member hereby irrevocably and unconditionally waives, and agrees not to assert, exercise or perfect (or attempt to exercise, assert or perfect) any rights of appraisal or rights to dissent from the Merger or quasi-appraisal rights that it may at any time have under applicable Legal Requirements. The Member agrees not to commence, join in, facilitate, assist or encourage, and agrees to take all actions necessary to opt out of any class in any class action with respect to, any claim, derivative or otherwise, against Parent, Merger Sub 1, Merger Sub 2, Neurotrope, Company or any of their respective successors, directors or officers, (a) challenging the validity, binding nature or enforceability of, or seeking to enjoin the operation of, this Agreement or the Merger Agreement, or (b) alleging a breach of any fiduciary duty of any Person in connection with the evaluation, negotiation, entry into or consummation of the Merger Agreement.
ARTICLE
IV
REPRESENTATIONS AND WARRANTIES OF MEMBER
The Member hereby represents and warrants to Neurotrope as follows:
Section 4.1 Due Authorization, etc. The Member is a natural person, corporation, limited partnership or limited liability company. If Member is a corporation, limited partnership or limited liability company, Member is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, organized or constituted. The Member has all necessary power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby by the Member have been duly authorized by all necessary action on the part of the Member and no other proceedings on the part of the Member are necessary to authorize this Agreement, or to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Member and (assuming the due authorization, execution and delivery by Neurotrope) constitutes a valid and binding obligation of the Member, enforceable against the Member in accordance with its terms, except to the extent enforcement is limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar Legal Requirements of general applicability relating to or affecting creditors’ rights and by general equitable principles.
| -5- |
Section 4.2 Ownership of Units. Schedule I hereto sets forth opposite the Member’s name the Units over which the Member has sole record and beneficial ownership as of the date hereof. As of the date hereof, the Member is the lawful owner of the Units denoted as being owned by the Member on Schedule I hereto, has the sole power to vote or cause to be voted such Units and has the sole power to dispose of or cause to be disposed such Units (other than, if Member is a partnership or a limited liability company, the rights and interest of persons and entities that own partnership interests or units in Member under the partnership agreement or operating agreement governing Member and applicable partnership or limited liability company law, or if Member is a married individual and resides in a state with community property laws, the community property interest of his or her spouse to the extent applicable under such community property laws, which spouse hereby consents to this Agreement by executing the spousal consent attached hereto). The Member has, and will at all times up until the Expiration Time have, good and valid title to the Units denoted as being owned by the Member on Schedule I hereto, free and clear of any and all pledges, mortgages, liens, charges, proxies, voting agreements, encumbrances, adverse claims, options, security interests and demands of any nature or kind whatsoever, other than (i) those created by this Agreement, or (ii) those existing under applicable securities laws.
Section 4.3 No Conflicts. (a) No filing with any Governmental Body, and no authorization, consent or approval of any other person is necessary for the execution of this Agreement by the Member and (b) none of the execution and delivery of this Agreement by the Member, the consummation by the Member of the transactions contemplated hereby or compliance by the Member with any of the provisions hereof shall (i) conflict with or result in any breach of the organizational documents of the Member, (ii) result in, or give rise to, a violation or breach of or a default under any of the terms of any material contract, understanding, agreement or other instrument or obligation to which the Member is a party or by which the Member or any of the Subject Units or its assets may be bound or (iii) violate any applicable order, writ, injunction, decree, judgment, statute, rule or regulation, except for any of the foregoing as would not reasonably be expected to impair the Member’s ability to perform its obligations under this Agreement.
Section 4.4 Finder’s Fees. No investment banker, broker, finder or other intermediary is entitled to a fee or commission from Parent, Merger Sub 1, Merger Sub 2, Neurotrope, or Company in respect of this Agreement based upon any Contract made by or on behalf of the Member, solely in the Member’s capacity as a member of Company.
Section 4.5 No Litigation. As of the date of this Agreement, there is no Legal Proceeding pending or, to the knowledge of the Member, threatened against the Member that would reasonably be expected to impair the ability of the Member to perform its obligations hereunder or consummate the transactions contemplated hereby.
ARTICLE
V
TERMINATION
Section 5.1 Termination. This Agreement shall automatically terminate, and neither Neurotrope nor the Member shall have any rights or obligations hereunder and this Agreement shall become null and void and have no effect upon the earliest to occur of: (a) the Effective Time; or (b) the valid termination of the Merger Agreement in accordance with its terms. The parties acknowledge that, upon termination of this Agreement as permitted under and in accordance with the terms of this Article V, no party to this Agreement shall have the right to recover any claim with respect to any losses suffered by such party in connection with such termination, except that the termination of this Agreement shall not relieve either party to this Agreement from liability for such party’s intentional and material breach of any terms of this Agreement. Notwithstanding anything to the contrary herein, the provisions of this Article V and Article VI shall survive the termination of this Agreement.
| -6- |
ARTICLE
VI
MISCELLANEOUS
Section 6.1 Further Actions. Subject to the terms and conditions set forth in this Agreement, the Member agrees to take any and all actions and to do all things reasonably necessary to effectuate this Agreement.
Section 6.2 Fees and Expenses. Except as otherwise specifically provided herein, each party shall bear its own expenses in connection with this Agreement and the transactions contemplated hereby.
Section 6.3 Amendments, Waivers, etc. This Agreement may not be amended except by an instrument in writing signed by the parties hereto and specifically referencing this Agreement. The failure of any party to assert any rights or remedies shall not constitute a waiver of such rights or remedies.
Section 6.4 Notices. Any notice, request, instruction or other document required to be given hereunder shall be sufficient if in writing, and sent by confirmed electronic mail transmission of a “portable document format” (“.pdf”) attachment (provided that any notice received by electronic mail transmission or otherwise at the addressee’s location on any business day after 5:00 p.m. (addressee’s local time) shall be deemed to have been received at 9:00 a.m. (addressee’s local time) on the next business day), by reliable overnight delivery service (with proof of service), or hand delivery, addressed as follows:
If to Neurotrope, to
Neurotrope, Inc.
1185 Avenue of the Americas, 3rd Floor
New York, New York 10036
Attention: Charles S. Ryan
| Email: | [email protected] |
with a copy to (which shall not constitute notice):
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
666 Third Avenue
New York, NY 10017
Attn: Kenneth R. Koch
Daniel A. Bagliebter
| Email: | [email protected] |
If to the Member to the address or electronic mail address set forth on the signature pages hereto, or to such other person or address as any party shall specify by written notice so given.
| -7- |
Section 6.5 Headings. Headings of the Articles and Sections of this Agreement are for convenience of the parties only and shall be given no substantive or interpretive effect whatsoever.
Section 6.6 Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the application of such provision to any person or any circumstance, is invalid or unenforceable (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application of such provision, in any other jurisdiction.
Section 6.7 Entire Agreement; Assignment. This Agreement constitutes the entire agreement, and supersedes all other prior agreements and understandings, both written and oral, between the parties, or any of them, with respect to the subject matter hereof. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties, except that without consent, Neurotrope may assign all or any of its rights and obligations hereunder to any of its Affiliates that assume the rights and obligations of Neurotrope under the Merger Agreement. Subject to the preceding two sentences, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. Notwithstanding anything to the contrary set forth herein, the Member agrees that this Agreement and the obligations hereunder shall be binding upon any Person to which record or beneficial ownership of the Member’s Subject Units shall pass, whether by operation or law or otherwise, including the Member’s heirs, guardians, administrators or successors and assigns, and the Member agrees to take all actions necessary to effect the foregoing.
Section 6.8 Governing Law. THIS AGREEMENT AND ALL QUESTIONS RELATING TO THE INTERPRETATION OR ENFORCEMENT OF THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF TO THE EXTENT THAT SUCH PRINCIPLES WOULD DIRECT A MATTER TO ANOTHER JURISDICTION.
Section 6.9 Specific Performance. The Member acknowledges that any breach of this Agreement would give rise to irreparable harm for which monetary damages would not be an adequate remedy and each of Company and Neurotrope shall be entitled to a decree of specific performance and to temporary, preliminary and permanent injunctive relief to prevent breaches or threatened breaches of any of the provisions of this Agreement, without the necessity of proving the inadequacy of monetary damages as a remedy, which shall be the sole and exclusive remedy for any such breach.
| -8- |
Section 6.10 Submission to Jurisdiction. The parties hereby irrevocably submit to the exclusive personal jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in said courts or that the venue thereof may not be appropriate or that this Agreement may not be enforced in or by such courts, and the parties hereto irrevocably agree that all claims relating to such action, suit or proceeding shall be heard and determined in such courts. The parties hereby consent to and grant any such court jurisdiction over the person of such parties and, to the extent permitted by law, over the subject matter of such dispute and agree that mailing of process or other papers in connection with any such action or proceeding in the manner provided in Section 6.4 or in such other manner as may be permitted by Legal Requirements shall be valid and sufficient service thereof.
Section 6.11 Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 6.11.
Section 6.12 Counterparts. This Agreement may be executed in two or more counterparts (including by facsimile transmission or other means of electronic transmission, such as by electronic mail in “.pdf” form), each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument, and shall become effective when one or more counterparts have been signed by each of the parties and delivered (by facsimile or otherwise) to the other parties.
[Remainder of page left intentionally blank. Signature pages follow.]
| -9- |
IN WITNESS WHEREOF, Neurotrope and the Member have caused this Agreement to be duly executed as of the day and year first above written.
| neurotrope, inc. | |||
| By: | |||
| Name: | Charles S. Ryan | ||
| Title: | Chief Executive Officer | ||
[Signature Page to Voting Agreement]
| JCP SM AIV, L.P., | ||||
| By: | Juggernaut Partners III GP, L.P., | |||
| its general partner | ||||
| By: | Juggernaut Partners III GP, Ltd., | |||
| its general partner | ||||
| By: | ||||
| Name: | John Shulman | |||
| Title: | Managing Partner | |||
| Address: | 5301 Wisconsin Avenue, NW | |||
| Suite 570 | ||||
| Washington, DC 20015 | ||||
| Email Address: | [email protected] | |||
[Signature Page to Voting Agreement]
Schedule I
Ownership of Units
| Name and Address of Member | Number of Preferred Units |
|
JCP SM AIV, L.P. 5301 Wisconsin Avenue, NW Suite 570 Washington, DC 20015 |
1,129,497 |
Exhibit 2.4
Lock-up Agreement
May 17, 2020
This Lock-up Agreement (this “Agreement”) is executed in connection with the Agreement and Plan of Merger (as amended from time to time, the “Merger Agreement”) by and among Petros Pharmaceuticals, Inc., a Delaware corporation (“Parent”), PM Merger Sub 1, LLC, a Delaware limited liability company and direct wholly owned subsidiary of Parent (“Merger Sub 1”), PN Merger Sub 2, Inc., a Nevada corporation and direct wholly owned subsidiary of Parent (“Merger Sub 2”), Neurotrope, Inc., a Nevada corporation (“Neurotrope”), and Metuchen Pharmaceuticals LLC, a Delaware limited liability company (“Company”), dated as of May 17, 2020. Capitalized terms used herein but not defined shall have the meanings ascribed to such terms in the Merger Agreement.
In connection with, and as an inducement to, the parties entering into the Merger Agreement and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the undersigned, by executing this Agreement, agrees that, without the prior written consent of Neurotrope and Company, during the period commencing at the Effective Times and continuing until the end of the Lock-up Period (as hereinafter defined), the undersigned will not: (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, make any short sale or otherwise transfer or dispose of or lend, directly or indirectly, any shares of Common Stock of Parent (the “Parent Common Stock”) or any securities convertible into, exercisable or exchangeable for or that represent the right to receive Parent Common Stock (including without limitation, Parent Common Stock which may be deemed to be beneficially owned by the undersigned in accordance with the rules and regulations of the Securities and Exchange Commission and securities which may be issued upon exercise of a stock option or warrant) whether now owned or hereafter acquired (the “Securities”); (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Parent Common Stock or such other securities, in cash or otherwise; (3) make any demand for or exercise any right with respect to, the registration of any Parent Common Stock or any security convertible into or exercisable or exchangeable for Parent Common Stock; (4) except for the Voting Agreements, grant any proxies or powers of attorney with respect to any Securities, deposit any Securities into a voting trust or enter into a voting agreement or similar arrangement or commitment with respect to any Securities; or (5) publicly disclose the intention to do any of the foregoing (each of the foregoing restrictions, the “Lock-up Restrictions”).
Notwithstanding the terms of the foregoing paragraph, the Lock-up Restrictions shall automatically terminate and cease to be effective on the date that is the nine (9) month anniversary of the Effective Times. The period during which the Lock-up Restrictions apply to the Securities shall be deemed the “Lock-up Period” with respect thereto.
The undersigned agrees that the Lock-up Restrictions preclude the undersigned from engaging in any hedging or other transaction with respect to any then-subject Securities which is designed to or which reasonably could be expected to lead to or result in a sale or disposition of such Securities even if such Securities would be disposed of by someone other than the undersigned. Such prohibited hedging or other transactions would include without limitation any short sale or any purchase, sale or grant of any right (including without limitation any put or call option) with respect to such Securities or with respect to any security that includes, relates to, or derives any significant part of its value from such Securities.
Notwithstanding the foregoing, the undersigned may transfer any of the Securities (i) as a bona fide gift or gifts or charitable contribution(s), (ii) to any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned, (iii) if the undersigned is a corporation, partnership, limited liability company, trust or other business entity (1) to another corporation, partnership, limited liability company, trust or other business entity that is a direct or indirect affiliate (as defined in Rule 405 promulgated under the Securities Act of 1933, as amended) of the undersigned or (2) as distributions of shares of Parent Common Stock or any security convertible into or exercisable for Parent Common Stock to limited partners, limited liability company members or stockholders of the undersigned or holders of similar equity interests in the undersigned, (iv) if the undersigned is a trust, to the beneficiary of such trust, (v) by testate succession or intestate succession, (vi) to any immediate family member, any investment fund, family partnership, family limited liability company or other entity controlled or managed by the undersigned, (vii) to a nominee or custodian of a person or entity to whom a disposition or transfer would be permissible under clauses (i) through (vi), (viii) to Parent in a transaction exempt from Section 16(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) upon a vesting event of the Securities or upon the exercise of options or warrants to purchase Parent Common Stock on a “cashless” or “net exercise” basis or to cover tax withholding obligations of the undersigned in connection with such vesting or exercise (but for the avoidance of doubt, excluding all manners of exercise that would involve a sale in the open market of any securities relating to such options or warrants, whether to cover the applicable aggregate exercise price, withholding tax obligations or otherwise), (ix) to Parent in connection with the termination of employment or other termination of a service provider and pursuant to agreements in effect as of the Effective Times whereby Parent has the option to repurchase such shares or securities, (x) acquired by the undersigned in open market transactions after the Effective Times, (xi) pursuant to a bona fide third party tender offer, merger, consolidation or other similar transaction made to all holders of Parent’s capital stock involving a change of control of Parent, provided that in the event that such tender offer, merger, consolidation or other such transaction is not completed, the Securities shall remain subject to the restrictions contained in this Agreement, or (xii) pursuant to an order of a court or regulatory agency; provided, in the case of clauses (i)-(vii), that (A) such transfer shall not involve a disposition for value and (B) the transferee agrees in writing with Parent to be bound by the terms of this Agreement; and provided, further, in the case of clauses (i)-(ix), no filing by any party under Section 16(a) of the Exchange Act shall be required or shall be made voluntarily in connection with such transfer. For purposes of this Agreement, “immediate family” shall mean any relationship by blood, marriage or adoption, not more remote than first cousin.
In addition, the foregoing restrictions shall not apply to (i) the exercise of stock options granted pursuant to equity incentive plans existing immediately following the Effective Times, including the “net” exercise of such options in accordance with their terms and the surrender of Parent Common Stock in lieu of payment in cash of the exercise price and any tax withholding obligations due as a result of such exercise (but for the avoidance of doubt, excluding all manners of exercise that would involve a sale in the open market of any securities relating to such options, whether to cover the applicable aggregate exercise price, withholding tax obligations or otherwise); provided that it shall apply to any of the Securities issued upon such exercise, (ii) conversion or exercise of warrants into Parent Common Stock or into any other security convertible into or exercisable for Parent Common Stock that are outstanding as of the Effective Times (but for the avoidance of doubt, excluding all manners of conversion or exercise that would involve a sale in the open market of any securities relating to such warrants, whether to cover the applicable aggregate exercise price, withholding tax obligations or otherwise); provided that it shall apply to any of the Securities issued upon such conversion or exercise; and provided, further that the recipient of Parent Common Stock agrees in writing with Parent to be bound by the terms of this Agreement, or (iii) the establishment of any contract, instruction or plan (a “Plan”) that satisfies all of the requirements of Rule 10b5-1(c)(1)(i)(B) under the Exchange Act; provided that no sales of the Securities shall be made pursuant to such a Plan prior to the expiration of the Lock-up Period, and such a Plan may only be established if no public announcement of the establishment or existence thereof and no filing with the Securities and Exchange Commission or other regulatory authority in respect thereof or transactions thereunder or contemplated thereby, by the undersigned, Parent or any other person, shall be required, and no such announcement or filing is made voluntarily, by the undersigned, Parent or any other person, prior to the expiration of the applicable Lock-up Period. In furtherance of the foregoing, Parent and its transfer agent and registrar are hereby authorized to decline to make any transfer of shares of Parent Common Stock if such transfer would constitute a violation or breach of this Agreement.
The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this Agreement and that upon request, the undersigned will execute any additional documents reasonably necessary to ensure the validity or enforcement of this Agreement. All authority herein conferred or agreed to be conferred and any obligations of the undersigned shall be binding upon the successors, assigns, heirs or personal representatives of the undersigned.
The undersigned understands that the undersigned shall be released from all obligations under this Agreement if the Merger Agreement is terminated prior to the Effective Times pursuant to its terms, upon the date of such termination.
The undersigned understands that Neurotrope and Company are entering into the Merger Agreement in reliance upon this Agreement.
This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
This Agreement, and any certificates, documents, instruments and writings that are delivered pursuant hereto, constitutes the entire agreement and understanding of Parent, Neurotrope and Company and the undersigned in respect of the subject matter hereof and supersedes all prior understandings, agreements or representations by or among Parent, Neurotrope and Company and the undersigned, written or oral, to the extent they relate in any way to the subject matter hereof.
| Very truly yours, | |
| Printed Name of Holder | |
| By: | |
|
Signature | |
|
Printed Name of Person Signing (and indicate capacity of person if signing as signing as custodian, trustee, or on behalf of an entity) |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements of Neurotrope, Inc. on Form S-3 (Nos. 333-237745, 333-217089, 333-215159 and 333-208502) and Form S-8 (Nos. 333-233464, 333-222274, 333-222273 and 333-200310) of our report dated May 16, 2020, on our audit of the consolidated financial statements of Metuchen Pharmaceuticals, LLC and Subsidiaries as of December 31, 2019 (Successor) and 2018 (Successor) and for the year ended December 31, 2019 (Successor), and each of the periods December 10, 2018 through December 31, 2018 (Successor), and January 1, 2018 through December 9, 2018 (Predecessor), which report is included in this Current Report on Form 8-K to be filed on or about May 17, 2020. Our report includes an explanatory paragraph about the existence of substantial doubt concerning the Company's ability to continue as a going concern.
/s/ EisnerAmper LLP
EISNERAMPER LLP
Iselin, New Jersey
May 17, 2020
Exhibit 99.1
 |
 |
Neurotrope and Metuchen Pharmaceuticals
Announce Merger
Agreement to Form Petros Pharmaceuticals,
a Men’s Health Company
Lead asset Stendra® (avanafil) Looks to Build on $25 Million of 2019 Gross Sales
Disruptive pipeline opportunity with topical treatment for Peyronie’s disease
Neurotrope Bioscience, Inc. will continue as a separately traded entity with its lead Bryostatin program treating neurodegeneration
Charles S. Ryan, J.D., Ph.D. named President and Chief Executive Officer of Petros
New York, N.Y. and Manalapan Township, N.J., May 18, 2020 -- Neurotrope, Inc. (Nasdaq: NTRP) and Metuchen Pharmaceuticals, L.L.C., a privately-held biopharmaceutical company (“Metuchen”), focused on identifying, developing, acquiring, and commercializing innovative therapeutics for men’s health conditions, today announced that the two companies have entered into a definitive merger agreement under which Metuchen and Neurotrope, Inc. (“Neurotrope”) will merge in an all-stock transaction resulting in a newly formed holding company to be renamed Petros Pharmaceuticals, Inc. (“Petros”). Petros is expected to become a Nasdaq traded company focused solely on men’s health conditions. Petros’ cornerstone product would be Metuchen’s Stendra® (avanafil) for erectile dysfunction (“ED”). Petros’ pipeline would include Metuchen’s recently in-licensed product H-100 for Peyronie’s disease, and it would include a business development program exploring various men’s health products, including endothelial dysfunction, prostate cancer, psychosexual and psychosocial ailments, hormone health and substance use disorders.
Upon completion of the proposed merger, based on certain assumptions, it is anticipated that existing Neurotrope shareholders will own approximately 20% and Metuchen shareholders will own approximately 80% of the combined company, in each case on a pro forma basis and based upon the final Neurotrope common stock share count at close. The transaction has been approved by the boards of directors of both companies. Metuchen’s principal investor is Juggernaut Capital Partners, a leading private equity firm with over $1 billion in capital commitments. Funding for Petros is expected to include approximately $20 million of Neurotrope’s available cash and cash equivalents (subject to adjustment) as well as revenue from sales of Metuchen’s U.S. Food and Drug Administration (“FDA”)-approved erectile dysfunction treatment, Stendra® (avanafil). The merger is expected to close during the third quarter of 2020, subject to customary closing conditions, including approval of the merger agreement by the shareholders of Neurotrope.
Upon closing of the transaction, Neurotrope Bioscience’s (“NBI”) current lead asset, Bryostatin-1 to treat neurodegeneration, and substantially all of its existing assets, operations and liabilities, except for cash retained by Petros in accordance with the terms of the merger agreement, will be spun-out into a new, separately traded company. NBI is expected to retain approximately $14 million which includes cash plus the recently awarded National Institutes of Health (“NIH”) clinical trial grant.. Stakeholders of Neurotrope prior to the merger will own all of the shares of NBI As previously announced, NBI will conduct a Phase 2 clinical study focused on patients with moderate-severity Alzheimer’s disease (“AD”), which it expects the spun-off entity to initiate shortly. In addition to continuing work on AD, Neurotrope plans to continue pursuing other indications using bryostatin such as Multiple Sclerosis and Fragile X syndrome. Daniel Alkon, M.D., who will remain NBI’s President and Chief Scientific Officer and become a Director, stated, “I am encouraged that Neurotrope Bioscience will continue its original focus, and potentially expand its plans to treat neurodegeneration.”
1
Charles S. Ryan, J.D., Ph.D., Chief Executive Officer of Neurotrope, will be President, Chief Executive Officer and a Director of Petros. Four members of the Board of Directors of Neurotrope will be directors of Petros, including Ivan Gergel, M.D., who served, among other prior roles, as Chief Scientific Officer and Executive Vice President, Research & Development of Endo Health Solutions, Inc, a company focused on urology and men’s health as well as other therapeutic areas. Neurotrope Director Bruce Bernstein and Chairman Josh Silverman will also be on the Board of Petros. John Shulman, Founder and Managing Partner of Juggernaut Capital and Executive Chairman of Metuchen will also join the Board of Petros along with four additional directors to be identified by Metuchen prior to the merger.
“Following an extensive review of strategic alternatives, Neurotrope’s Board of Directors believes that a merger with Metuchen and the formation of Petros offers shareholders the most compelling opportunity for a new direction to further enhance long-term value,” said Dr. Ryan. “Petros provides a platform to create the first publicly traded biopharmaceutical company focused exclusively on FDA-approved treatments for men’s health conditions, an underserved area of healthcare with significant growth potential. We believe Petros will be well positioned financially and strategically to potentially accelerate the commercial growth of Stendra®, as well as advance its pipeline programs and opportunities.”
"Stendra® is a unique asset in the ED space, and its distinct features enable it to compete in an area dominated by generic drugs," said Mr. Shulman. "This merger will enable Petros to dramatically accelerate the commercial relaunch of Stendra® and build a pipeline of other therapeutic products to improve men’s health including a topical treatment H100 for Peyronie’s disease. At Juggernaut, we look forward to supporting Petros to deliver on its mission of bringing value to patients within the men’s health space by investing in Stendra® and the many opportunities that lie ahead."
“We are delighted to offer our investors an investment in two companies, Petros Pharmaceuticals, Inc. and the spin-out company Neurotrope Bioscience, Inc.,” said Mr. Silverman. “With financial support from the NIH and certain existing NBI assets, we look forward to beginning a new Phase 2 trial of Bryostatin-1 and working towards treating neurodegeneration. Separately, Petros will be positioned to grow its cornerstone product, Stendra®, within a market of approximately 500,000 new class prescriptions per month, or approximately 25% of the total ED market of up to 30 million men, while simultaneously developing a disruptive pipeline addressing a number of underserved and unmet conditions in men’s health.”
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC served as legal counsel to Neurotrope and NBI and Morgan, Lewis & Bockius served as legal counsel to Metuchen with respect to the transaction.
Lead Asset Stendra® (avanafil)
Stendra® (avanafil), originally launched by Auxilium Pharmaceuticals prior to that company’s sale to Endo Pharmaceuticals, is an oral phosphodiesterase 5 (PDE5) inhibitor for the treatment of ED that can be dosed as early as ~15 minutes before sexual activity, can be taken with or without food, and is well tolerated, with a rate of discontinuation (2.0%) equivalent to placebo (1.7%) in clinical trials. Stendra® was designed and developed expressly for erectile dysfunction. Metuchen recently undertook a relaunch of Stendra®, following Juggernaut’s acquisition of a majority position in Metuchen in 2018, generating gross revenues of approximately $30 million in 2019. Upon closing of the merger, Petros intends to accelerate the relaunch of Stendra® with a well-funded commercial organization and refocused strategy. Currently, Stendra® is covered for 75% of commercially insured lives, with a co-pay as low as $0.
Lead Pipeline Program H100™
Metuchen’s lead pipeline program includes the recently in-licensed drug candidate H-100, a non-invasive, compounded, topical treatment for Peyronie’s disease (PD). In its current formulation, H-100 demonstrated positive efficacy and tolerability in a 22 patient prospective, randomized, double-blind, placebo-controlled study in patients with PD. Metuchen intends to optimize manufacturing and the patented formulation of H-100, then seek FDA guidance on the studies necessary to achieve approval and labeling of the product. PD is a progressive, wound-healing disorder of the penis involving the formation of plaques and the subsequent development of penile curvature or indentations. The current non-surgical standard of care in PD, an injectable, was granted Orphan Designation by the FDA in 1996.
“As a topical treatment, we believe H-100 can have a transformative effect on the management of a disease that causes pain, anxiety and psychological distress,” said Fady Boctor, Chief Marketing Officer of Metuchen. “Our goal is to deliver on this promise rapidly and cost effectively with a proprietary, clinically validated therapeutic.”
About STENDRA® (avanafil)
STENDRA® (avanafil) is approved in the U.S. by the FDA for the treatment of erectile dysfunction. Metuchen Pharmaceuticals LLC has exclusive marketing rights to STENDRA in the U.S., Canada, South America and India.
STENDRA is available through retail and mail order pharmacies.
For more information about STENDRA, please visit www.STENDRA.com.
Important Safety Information
STENDRA® (avanafil) is prescribed to treat erectile dysfunction (ED).
Do not take STENDRA if you take nitrates, often prescribed for chest pain, as this may cause a sudden, unsafe drop in blood pressure.
Discuss your general health status with your healthcare provider to ensure that you are healthy enough to engage in sexual activity. If you experience chest pain, nausea, or any other discomforts during sex, seek immediate medical help.
STENDRA may affect the way other medicines work. Tell your healthcare provider if you take any of the following; medicines called HIV protease inhibitors, such as ritonavir (Norvir®), indinavir (Crixivan®), saquinavir (Fortavase® or Invirase®) or atazanavir (Reyataz®); some types of oral antifungal medicines, such as ketoconazole (Nizoral®), and itraconazole (Sporanox®); or some types of antibiotics, such as clarithromycin (Biaxin®), telithromycin (Ketek®), or erythromycin.
In the rare event of an erection lasting more than 4 hours, seek immediate medical help to avoid long-term injury.
In rare instances, men taking PDE5 inhibitors (oral erectile dysfunction medicines, including STENDRA) reported a sudden decrease or loss of vision. It is not possible to determine whether these events are related directly to these medicines or to other factors. If you experience sudden decrease or loss of vision, stop taking PDE5 inhibitors, including STENDRA, and call a doctor right away.
Sudden decrease or loss of hearing has been rarely reported in people taking PDE5 inhibitors, including STENDRA. It is not possible to determine whether these events are related directly to the PDE5 inhibitors or to other factors. If you experience sudden decrease or loss of hearing, stop taking STENDRA and contact a doctor right away. If you have prostate problems or high blood pressure for which you take medicines called alpha blockers or other anti-hypertensives, your doctor may start you on a lower dose of STENDRA.
Drinking too much alcohol when taking STENDRA may lead to headache, dizziness, and lower blood pressure.
STENDRA in combination with other treatments for ED is not recommended.
STENDRA does not protect against sexually transmitted diseases, including HIV.
The most common side effects of STENDRA are headache, flushing, runny nose and congestion.
Please see full patient prescribing information for STENDRA (50 mg, 100 mg, 200 mg) tablets.
About Neurotrope Bioscience, Inc.
NBI is a clinical-stage biopharmaceutical company that has historically worked to develop novel therapies for neurodegenerative diseases. NBI has conducted clinical and preclinical studies of its lead therapeutic candidate, Bryostatin-1, in Alzheimer’s disease, and preclinical studies for rare diseases and brain injury, including Fragile X syndrome, multiple sclerosis, stroke, Niemann-Pick Type C disease, Rett syndrome, and traumatic brain injury. The FDA has granted Orphan Drug Designation to NBI for Bryostatin-1 as a treatment for Fragile X syndrome. Bryostatin-1 has already undergone testing in more than 1,500 people in cancer studies, thus creating a large safety data base that will further inform clinical trial designs.
Additional information about Neurotrope may be found on its website: www.neurotrope.com.
About Metuchen Pharmaceuticals
Metuchen pharmaceuticals is committed to becoming the world’s leading men’s health company by identifying, developing, acquiring, and commercializing innovative therapeutics for men’s health issues including, but not limited to erectile dysfunction, endothelial dysfunction, psychosexual and psychosocial ailments, Peyronie’s disease (acute and chronic), hormone health and substance use disorders.
No Offer or Solicitation
This communication shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No public offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
Important Additional Information Will be Filed with the SEC
In connection with the proposed transaction between Petros, Neurotrope and Metuchen, Petros intends to file relevant materials with the SEC, including a registration statement that will contain a proxy statement and prospectus. BEFORE MAKING ANY VOTING OR INVESTMENT DECISION, INVESTORS AND STOCKHOLDERS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) AND ANY OTHER RELEVANT DOCUMENTS THAT NEUROTROPE MAY FILE WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTIONS. Stockholders may obtain, free of charge, copies of the definitive proxy statement/prospectus and any other documents filed by Petros with the SEC in connection with the proposed transactions at the SEC's website (www.sec.gov), at Neurotrope’s website: www.neurotrope.com, or by directing written request to: Neurotrope, Inc., 1185 Avenue of the Americas, 3rd Floor, New York, New York 10036, Attention: Robert Weinstein.
Participants in the Solicitation
Petros, Neurotrope, Metuchen and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of Neurotrope in connection with the proposed transaction. Information regarding the special interests of these directors and executive officers in the merger will be included in the proxy statement/prospectus referred to above. Additional information regarding the directors and executive officers of Neurotrope is also included in Neurotrope’s Definitive Proxy Statement on Schedule 14A relating to the 2019 Annual Meeting of Stockholders, which was filed with the SEC on June 5, 2019. This document is available free of charge at the SEC web site (www.sec.gov), at Neurotrope’s website, or by directing a written request to Neurotrope as described above.
Cautionary Note Regarding Forward-Looking Statements
Any statements contained in this press release that do not describe historical facts may constitute forward-looking statements. These forward-looking statements include statements regarding Petros, Neurotrope, Metuchen, the combined company, the proposed transaction and other matters. Such forward-looking statements are subject to risks and uncertainties and other influences, many of which Neurotrope has no control over. Actual results and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements as a result of these risks and uncertainties, including, without limitation: the risk that the conditions to the closing of the proposed transactions are not satisfied, including the failure to obtain stockholder approval for the proposed transactions in a timely manner or at all; uncertainties as to the timing of the consummation of the proposed transactions and the ability of each of Petros, Neurotrope and Metuchen to consummate the proposed transactions; risks related to Petros’ initial listing on the Nasdaq Capital Market at the closing of the proposed transactions; risks related to Neurotrope’s ability to correctly estimate its operating expenses and its expenses associated with the proposed transactions; the ability of Neurotrope or Metuchen to protect their respective intellectual property rights; competitive responses to the transaction; unexpected costs, charges or expenses resulting from the proposed transactions; potential adverse reactions or changes to business relationships resulting from the announcement or completion of the proposed transactions; and legislative, regulatory, political and economic developments. The foregoing review of important factors that could cause actual events to differ from expectations should not be construed as exhaustive and should be read in conjunction with statements that are included herein and elsewhere, including Neurotrope’s filings with the Securities and Exchange Commission, including Neurotrope’s Annual Report on Form 10-K for the year ended December 31, 2019 and Current Reports on Form 8-K filed with the SEC. Neurotrope can give no assurance that the conditions to the proposed transactions will be satisfied. Except as required by applicable law, Neurotrope does not undertake to update these forward-looking statements.
Contact information:
Investors and Media
Lisa Sher
Argot Partners
212-600-1902
Juggernaut/Metuchen
Deirdre Walsh
Abernathy MacGregor
[email protected]
212-371-5999
Exhibit 99.2
METUCHEN BUSINESS
Overview
Metuchen is a pharmaceutical company focused on men’s health therapeutics with a full range of commercial capabilities including sales, marketing, regulatory and medical affairs, finance, trade relations, pharmacovigilance, market access relations, manufacturing, and distribution. On September 30, 2016, Metuchen acquired from Vivus, Inc. (“the Vivus Transaction”), all of the rights to license, develop, market, sell, and distribute the drug avanafil (Stendra®) in the United States, Canada, South America, and India, including all assets related to, or necessary for, the exercise of such rights, such as licenses, trademarks, and intellectual property rights. The drug avanafil was initially developed by Mitsubishi Tanabe Pharma Corporation and the rights to avanafil were licensed to Vivus in December 2000. Stendra® (avanafil) was approved by the FDA in April 2012 to treat male erectile dysfunction. Metuchen has distribution agreements with the three largest pharmaceutical distributors (McKesson, Cardinal and Amerisource Bergen), enabling Metuchen to provide Stendra® to customers through most retail pharmacies in the United States.
In addition to established nationwide trade and distribution mechanisms, Metuchen pharmaceuticals also collaborates with several commercial insurance entities with contracted access to their current pharmaceutical asset, STENDRA, and enduring capabilities to expand these commercial insurance relationships for future assets. Although commercial insurance collaboration and contracts remain an important factor in patient access and affordability, Medicare and Medicaid remain largely out of scope for STENDRA and most sexual dysfunction therapies. As with many sexual dysfunction therapeutics, Medicare and Medicaid do not normally contract or reimburse for these therapies unless concomitantly indicated for other ailments beyond sexual dysfunction considered medically necessary. Nevertheless, commercial insurance access remains competitive and widely available for STENDRA.
The oral erectile dysfunction market (specifically the PDE5I class) has experienced significant growth over the last 24 months especially, with a 44% increase in prescriptions (filled in pharmacies) in 2019 vs. 2018. As generic options have become available, they have led the growth in prescription volume with an enduring presence of branded prescription volume, indicating durable brand loyalty and value. The trajectory of growth in this class is projected to continue to grow at a Compounded Annual Growth Rate of 8% through 2023. North America will remain the lead market in this growth due to its established healthcare landscape and the prominence of comorbid conditions associated with ED.
Stendra® is an FDA approved PDE-5 inhibitor prescription medication for the treatment of erectile dysfunction (“ED”) and is the only patent protected PDE-5 inhibitor on the market. As a distinct molecule with high in-vitro affinity and selectivity for penile tissue (clinical significance of this in-vitro selectivity profile is unknown), Stendra® offers the erectile dysfunction therapeutic landscape a valuable addition as an oral ED therapy that may be taken as early as approximately 15 minutes prior to sexual engagement, with or without food when using the 100mg or 200mg dosing (does not apply to 50mg dosing).
Metuchen was founded by Joseph J. Krivulka, an experienced pharmaceutical executive who held several key leadership positions at leading pharmaceutical companies such as Mylan Laboratories Inc. and its subsidiary Bertek Inc., and was also the co-founder of Reliant Pharmaceuticals which was sold to GlaxoSmithKline in 2007 for $1.65 billion. During the period from Metuchen’s inception in 2016 through 2018, the founder became ill and decided to outsource the sales and marketing function to an affiliated contractor. The level of performance expected from this affiliated contractor was not realized. In 2018, the founder passed away which caused significant disruption to the business. Metuchen terminated this affiliate contractor and in 2019, Metuchen was forced to establish its own internal sales, marketing, and trade distribution functions for Stendra®. This transition led to a period of redundant sales and marketing expenses and caused a substantial increase in General and Administrative investment in 2019. It also became apparent in 2017 and 2018 that an excess of product was sold into the marketplace prior to Metuchen’s acquisition of the rights to Stendra® from Vivus, which would lead to significantly higher than usual product returns due to product expiration dates.
With their integrated operational structure now in place for over a year, and enhancing the executive leadership, Metuchen expects to have greater visibility and control over the refinement and optimization of its gross-to-net and General and Administration expenses. Metuchen can also now directly monitor its distribution channels into efficient inventory levels with the aim to bring product returns back to more customary levels. By partnering with critical trade entities and continuing to work alongside payers for commercial insurance coverage and by establishing key collaborations with industry thought leaders and professional societies, Metuchen seeks to continue to increase sales for Stendra®.
Since Metuchen began managing sales and marketing internally in 2019, Metuchen has seen consistent prescription tablet count increases with quarter over quarter revenue growth, ranging from 2% to 12%, and the second half of 2019 demonstrating a 15% revenue growth over the first half of 2019, with an incremental tablet growth of approximately 17,000 tablets from the first half of 2019 to the second half of 2019. The velocity of growth was negatively impacted by an FDA warning letter received in August 2019 which related to certain legacy marketing activities requiring the company to withdraw the violative materials, provide corrective messaging, and launch a new campaign under a newly formed regulatory review committee using an industry best practice model. Metuchen believes it complied with all FDA requests and continues to maintain rigorous promotional compliance oversight. Even with the nascent internal infrastructure and the loss of sales momentum in the third and fourth quarter of 2019, in aggregate, Metuchen consistently grew tablet sales across 2019, deploying a specialized key account sales model augmented by an omni-channel campaign reaching nearly 30,000 healthcare professionals. Metuchen also enhanced its digital campaigns designed to create awareness among patients and their partners, reaching over 200,000 consumers across 2019. Additionally, Metuchen engaged in a wide array of specialty medical conferences often with educational product theaters and launched a national savings coupon for enhanced product access. Metuchen believes these activities have established the framework for continued growth into 2020 and beyond. Now, following a year of internal management over marketing, sales and trade distribution functions, Metuchen believes that it is positioned for a multi-channel sales and marketing campaign as it enters the second half of 2020, beginning in June during Men’s Health Month.
During their time on patent, Viagra®, Cialis® and Levitra® had combined annual sales of approximately $4 billion. Viagra®, Cialis® and Levitra® all lost patent protection over the past two years and Stendra® remains the only patent protected oral ED drug on the market. Currently, there are approximately 1 million prescriptions regularly filled for oral ED therapy each month, and Metuchen believes Stendra® is positioned to expand its growth trajectory offering prescribers a patient-centered therapeutic option for the treatment of ED.
Metuchen has begun to leverage a comprehensive commercial infrastructure to broadly and competitively commercialize Stendra®. With enduring wholesaler relationships, industry competitive insurance contracts, robust patient out of pocket savings programs, and expansive retail availability, Metuchen believes it is positioned well to competitively offer appropriate patients and their prescribers an attractive therapeutic option, addressing a market that generates approximately 1 million prescriptions per month. We believe Stendra® is accessible and affordable across a significant share of retail pharmacies and managed care organizations or PBMs throughout the U.S.; from retail giants such as CVS, Walgreens, and RiteAid to retail grocers with pharmacy models such as Kroger and Publix to the smaller independent pharmacies servicing their local communities. Stendra® is also available via three specialty pharmacies (regional and national) for prescriber and patient preference for at-home mailing and convenient prescription adjudication. According to MMIT, a managed care solutions and advisory organization, Stendra® is currently on 73% of commercially insured plans across the country. We believe this is a direct reflection of strong market access and managed care contracting.
Additionally, Metuchen has established a strong direct promotion and engagement channel with prominent urologists, market key opinion leaders with respect to men’s health issues, and with medical institutions. These engagements help Metuchen establish credibility, while engaging in progressive clinical dialogue and continuing medical education as it pertains to prescribing Stendra® and other products that are in the pipeline. Metuchen markets Stendra® at all junctures of prescription generation and demand through clinician-led speaker programs, patient-centered coupon cards, specialty pharmacy distribution, digital strategies, and field sales operations. With the emerging prominence of telemedicine services, Stendra® is also available through industry leading telemedicine providers and organizations.
Metuchen also markets its own line of ED products in the form of VED products through Timm Medical and PTV. Metuchen plans to continue to grow the VED business both domestically and internationally. Metuchen believes that its potential domestic growth will come through the expansion of its distribution partner network, leveraging existing relationships with key decision makers. This will allow for increased local purchase availability for consumers. Metuchen believes that its potential international growth will come through additional work with existing customers to expand its current base of business while also working to unlock new international territories. In addition to expanding the distribution network, Metuchen is pursuing better use of the historical clinical data available regarding VEDs.
In addition to ED products, Metuchen is committed to identifying and developing other pharmaceuticals to advance men’s health. In March 2020, Metuchen acquired an exclusive global license to H100™ from Hybrid Medical LLC (“Hybrid”). H100™ is a novel and patented topical formulation candidate for the treatment of acute Peyronie’s disease. Peyronie’s disease is a condition that occurs upon penile tissue disruption often caused by sexual activity or injury, healing into collagen-based scars that may ultimately harden and cause penile deformity. Based on the studies cited further below, Peyronie’s disease may affect millions of men around the world, and there is no approved non-invasive treatment option. Based on current approved therapies, if approved, H100 would become the first and only clinically approved topical non-invasive formulation for the treatment of Peyronie’s disease. Metuchen has established its foundation for growth and, with the addition of H100 to the product portfolio and other pipeline opportunities for additional products, Metuchen believes that it can build an industry leading men’s health pharmaceutical company.
History and Corporate Information
Metuchen Pharmaceuticals LLC was formed as a limited liability company in the State of Delaware on July 22, 2016. It had no activity until it formally commenced operations on October 1, 2016. Metuchen was organized for the purposes of (i) acquiring the U.S., Canadian, South American, and Indian marketing authorization rights to Stendra®, (ii) owning the purchased assets, (iii) entering into related manufacturing and supply and distribution agreements, and (iv) engaging in any other lawful act or activity ancillary or incidental to the foregoing.
On December 10, 2018, (“Acquisition Date”) JCP III CI AIV, L.P. (“JCP”), an affiliate of Juggernaut Capital Partners (the “JCP Investor”), acquired from Krivulka Family LLC (“Krivulka”) all of Krivulka’s ownership interest in Metuchen Therapeutics, LLC (“MT”), a holding company that owns 55% of Metuchen, giving JCP a controlling interest in Metuchen (such transaction, the “JCP Acquisition”). Prior to this transaction, Krivulka owned 68% of MT. As of May 1, 2020, investment funds affiliated with the Juggernaut Capital Partners (the “JCP Investor”) owned, either directly or indirectly, approximately 82% of the outstanding membership interests in Metuchen.
Metuchen acquired the rights to Stendra® on September 30, 2016 when it entered into a License and Commercialization Agreement (the “License Agreement”) with Vivus to purchase and receive the license for the commercialization of Stendra® for a one-time fee of $70 million. The License Agreement gives Metuchen the right to sell avanafil in the U.S. and its territories, Canada, South America, and India. In December 2000, Vivus originally was granted the license from Mitsubishi Tanabe Pharma Corporation to develop, market, and manufacture avanafil.
Metuchen will pay MTPC a royalty of 5% on the first $500 million of net sales and 6% of net sales thereafter. In consideration for the trademark assignment and the use of the trademarks associated with Stendra® and the Vivus technology, Metuchen shall (a) during the first, second, and third years following the expiration of the royalty period in a particular country in Metuchen’s territory, pay to Vivus a royalty equal to 2% of the net sales of Stendra® in such territory; and (b) following the fourth and fifth years following the end of the royalty period in such territory, pay to Vivus a royalty equal to 1% of the net sales of Stendra® in such territory. After the royalty period, no further royalties shall be owed with respect to net sales of Stendra® in such territory. In addition, Metuchen will be responsible for a pro-rata portion of a one-time $6 million milestone payment to be paid once $250 million in sales has been reached on the separate revenue stream of Stendra® during any calendar year.
In connection with the License Agreement, Metuchen and Vivus also entered into a Commercial Supply Agreement (the “Vivus Supply Agreement”) on the effective date of the License Agreement. As part of the License Agreement, Metuchen also acquired Vivus’ Stendra® product and sample inventories as of September 30, 2016, for an additional $0.8 million. The Vivus Supply Agreement provided that Vivus would manufacture, test, and supply the product to Metuchen or its designee, directly or through one or more third parties for a period of 5 years. During that period, Metuchen is required to purchase minimum annual quantities from Vivus. On September 30, 2019, Metuchen provided a written notice of termination of the Vivus Supply Agreement effective September 30, 2021. In connection with the Vivus Supply Agreement, Metuchen has an ongoing dispute with Vivus with respect certain amounts owed under the supply agreement. See “Risks Related to Metuchen’s Business, Industry and Operations - Metuchen is subject to the terms of a commercial supply agreement with Vivus, and it has disputed certain amounts owed under the supply agreement” for further information.
On March 27, 2018, Metuchen entered into a sublicense agreement with Acerus Pharmaceuticals Corporation, an Ontario corporation (“Acerus”) (the “Acerus Sublicense Agreement”) pursuant to which Metuchen granted to Acerus an exclusive sublicense in Canada for, among other things, the development and commercialization of Stendra® for a one-time fee of $100,000. Metuchen is also entitled to receive an additional $400,000 if Stendra® is approved by Canadian regulators. Additionally, the Acerus Sublicense Agreement provides for a 12% royalty on net product sales. In addition, in August 2018, Metuchen entered into a Commercial Supply Agreement with Acerus (the “Acerus Supply Agreement”), pursuant to which Acerus will purchase the product from Metuchen in accordance with the terms of the Acerus Supply Agreement. The Acerus Supply Agreement remains in effect so long as the Acerus Sublicense Agreement is in effect.
In December 2018, Metuchen acquired all of the issued and outstanding equity interests of Timm Medical and PTV. Timm Medical and PTV market men’s health products, including Stendra®, primarily through urology practices. Timm Medical and PTV offer a line of VEDs and adjustable constriction devices for the treatment of erectile dysfunction. After its acquisition, Timm Medical became responsible for all sales and marketing of medical device products within the United States. International sales and marketing became PTV’s responsibility, along with distribution for both domestic and international sales. PTV also became the source of global manufacturing and assembly of Metuchen’s medical device products.
In March 2020, Metuchen entered into an exclusive license and development agreement with Hybrid Medical LLC for H100™ (the “Hybrid Medical License Agreement”). Under the terms of the Hybrid Medical License Agreement Metuchen has the exclusive right, including the right to sublicense, to use, sell, market and commercialize H100™ globally. The agreement provides that Metuchen’s exclusive right extends to any new indications or field uses for H100™ beyond the already identified use for Peyronie’s disease.
Our Vision
Metuchen is highly focused on unique and differentiated therapeutic solutions for the men’s health landscape. Metuchen focuses on men ages 18 and older. In the near term, Metuchen’s objective is for its men’s health product portfolio to be the best-in class solution for ED disorders. Beginning with Stendra®, Metuchen is committed to demonstrating its capacity for growth and market insights for new and emerging therapeutics. Metuchen’s overall goal is to identify and develop the most comprehensive therapeutic line available for men to provide a more holistic approach to men’s health and well-being. Metuchen believes that it has the expertise and experience to provide innovative and differentiated therapies for a spectrum of underserved men’s health conditions, such as erectile dysfunction, Peyronie’s disease, endothelial dysfunction, prostate cancer and hormonal deficiency, among others.
Key elements of Metuchen’s strategy include:
| · | Advancing Stendra® as a first line as well as a second line therapeutic choice for ED treatment; |
| · | Research and development into new formulations for Stendra®; |
| · | Leveraging Metuchen’s medical device products to capture value of VEDs and adjustable constriction devices; |
| · | Working with partners in developing and bringing to market H100™ for the treatment of Acute Peyronie’s disease; and |
| · | Continuing to develop and acquire differentiated product and profiles to provide a suite of solutions for a variety of men’s health conditions including endothelial dysfunction, prostate cancer, hormone health and products promoting overall health and wellness in men. |
Men’s Health Market
Mild and moderate ED affects approximately 10% of men per decade of life (i.e., 50 percent of men in their 50s, 60 percent of men in their 60s). Approximately 5% of men that are 40 years old have complete erectile dysfunction, and that number increases to about 15% of men at age 70. Older men are more likely to have health conditions requiring medication that interferes with erectile function. Additionally, as men age, they may need more stimulation to get an erection, and a greater recovery time between erections. There are several different ways that ED can be treated.1
Peyronie’s disease is a condition in which scar tissue forms inside the penis and can lead to ED. Researchers approximate that 1 in 100 men in the U.S. over the age of 18 have been diagnosed with Peyronie’s disease; however the same researchers have found evidence that it is more widespread, perhaps affecting up to one in ten based on sub-clinical symptoms.2 Peyronie’s disease may be characterized in two phases. The acute phase is within approximately 12 months of penile injury or trauma. The penis is normally tender with some pain and may begin exhibiting a deformity, often a curvature. The chronic phase is normally beyond the acute and exhibits a stable and palpable plaque of collagen that makes the curvature, or any associated deformity, residual and may begin to worsen into calcification. Injections and surgery become the mode of treatment but there is no known cure and a reliable, non-invasive option has not been identified.
1 Source: https://www.uwhealth.org/urology/erectile-dysfunction-ed/20537
2 Source: The Prevalence of Peyronie’s Disease in the United States: a Population-Based Study (2016)
Overview of ED Therapy Types
According to the Erectile Dysfunction Drugs Market Overview report, the ED drugs market is expected to grow at a compound annual growth rate of approximately 8% during the period of 2019 to 2023.3
The largest market is in North America because of the access to an established healthcare infrastructure and growing new drug R&D initiatives. Several factors, including sedentary lifestyles, alcoholism, and smoking, greatly increase the risk of erectile dysfunction. Metuchen believes that the adoption of these lifestyle choices is increasing and will lead to the overall growth of the demand in men’s health therapies. Growth of the global men’s health market is also driven by both the increasing geriatric population and the growing number of patient’s awareness campaigns by government and non-government organizations worldwide.
Metuchen’s Products
Prescription Medication
Stendra®
Metuchen’s marketed pharmaceutical product, Stendra®, was approved by the FDA in April 2012. Stendra® is administered orally in tablet form. Stendra® is available in 50 mg, 100 mg, and 200 mg tablets. After ingestion, Stendra® has a number of key clinical characteristics, including (i) a molecular structure allowing for enhanced affinity for targeted tissue as demonstrated in in-vitro studies (clinical significance of this in-vitro selectivity profile is unknown) (ii) the ability to dose as early as approximately 15 minutes prior to sexual engagement with doses of 100 or 200 mg, and (iii) a comprehensive series of studies demonstrating clinically significant results, as compared to placebo, in the ability to attain an erection when stimulated, the ability to maintain the erection to completion and a patient reported improvement in erectile function (assessed every 4 weeks while taking Stendra® during clinical trials). According to many physicians, avanafil’s (Stendra) primary product benefit is its flexible dosing potential, i.e. may be taken with or without food, and at the 100mg dose and 200mg dose, may be taken as early as approximately 15 minutes prior to sexual engagement. Moreover, Stendra® has demonstrated a discontinuation rate due to adverse events comparable to placebo (no active drug).
3 Source: https://www.marketreportsworld.com/enquiry/request-sample/12347497
According to market research studies, Metuchen believes that a large number of ED patients switch among oral ED treatments. Stendra® presents the market landscape with an additional treatment option that may prove to be a choice therapy by many. Metuchen believes that Stendra® may continue to capture a meaningful portion of the patient population that is seeking an alternative to either (i) other branded products, or (ii) the risk of counterfeit variability among generic products.
Generics for sildenafil (Viagra®), tadalafil (Cialis®), and vardenafil (Levitra®), representing virtually all of our direct competitors for Stendra® have entered the market. This generic competition for Viagra®, Cialis® and Levitra® began in 2017 and 2018 as these brands lost their patent protection. Since avanafil maintains its patent protection, Stendra® is the only ED drug actively detailed to prescribers. This effectively gives Stendra® 100% share of the healthcare practitioner marketing and promotion voice for branded ED products. Marketing support will come through personal promotion to prescribers (sales aids, samples, coupons, etc.) and direct to consumer promotion (internet, media investment, and targeted advertising in health journals).
H100
H100™ is a topical application expected to be used as a combination therapy with at least one active ingredient, Nicardipine (a calcium channel blocker) responsible for the improvement of penile curvature. Under the Hybrid Medical License Agreement, Metuchen has exclusive operational and budgetary oversight for all development, manufacturing, marketing, lifecycle strategy and commercialization efforts including all regulatory applications and approvals. H100™ is currently in pre-clinical development and Metuchen expects to have a pre-investigational new drug application meeting with the FDA in Fall 2020. Based on current approved therapies, if approved, H100 would become the first and only clinically approved topical, non-invasive formulation for the treatment of Peyronie’s disease. Metuchen expects that H100 could become a first line therapy for Peyronie’s disease if approved by the FDA.
Medical Devices
Metuchen offers a range of men’s health medical device products including VenoSeal (adjustable constriction loop) and various VEDs and through its subsidiary, Timm Medical. VEDs and VenoSeal do not require a prescription, but patients often introduced to Timm Medical through urologist’s recommendations. Metuchen believes in the value of VEDs as both monotherapy and as a possible adjunct to a multifaceted ED therapeutic regimen.
Vacuum Erection Devices (VEDs)
Timm Medical and PTV offer six portfolio VED products: the PTV Automatic 3000, the PTV Automatic 2000, the PTV Manual 3000, the Osbon Esteem Manual, the Osbon Esteem Automatic and the Osbon ErecAid Classic. Each product consists of a pump-head with an acrylic cylinder that attaches directly to the device with exception of the Osbon Erecaid Classic system, which is a two-handed application model. These devices are considered 510(k)-exempt, and thus do not require premarket review by the FDA. A constriction ring or band is placed on the cylinder at the other end, which is applied to the body. The cylinder and pump are used to create a vacuum to help the penis become erect; the band or constriction ring is used to help maintain the erection. All VED products offered by Metuchen include a “quick release” feature to ensure the safety of our customers. Metuchen believes that its battery-powered products are especially helpful for men who do not have good hand strength or coordination or who have arthritis. Our products may be covered, at least in part, by certain insurance policies if a medical cause for ED has been documented.
VenoSeal
Timm Medical and PTV also market and sell VenoSeal, a product for treatment for venous leak conditions that prevent the penis from remaining fully engorged with blood during an erection. VenoSeal is an adjustable constriction loop designed to be placed on the base of the penis. Metuchen believes, based on client interviews that it conducted, that when properly used, the VenoSeal device is comfortable for both the user and partner while providing enough pressure to maintain a strong erection.
Sales and Marketing Channels
Metuchen currently leverages numerous channels to promote, market, and sell its therapeutics throughout various customer segments. With a sophisticated and integrated data intelligence engine, Metuchen is able to continually measure, study, calculate, target, and optimize its channel investment allocation. Metuchen’s primary marketing vector is its physician-based customer channel. Metuchen has sales representatives in the field promoting directly to high-volume physicians of various specialties. These physicians are identified as high-volume oral ED treaters based on therapeutic prescription activity. Metuchen’s representatives are trained and equipped with promotional material, samples, and savings coupons that help them educate and inform physicians about its primary product, Stendra®. Additionally, Metuchen targets physicians–at-large, national, professional trade associations where it sponsors a booth and, in some cases a product theater. At these events, Metuchen also established numerous one-on-one meetings with key opinion leaders. Digitally, Metuchen conducts ongoing search engine optimization to improve its online exposure to both medical providers and potential customers. Metuchen targets physicians with display ads, paid search terms, and a physician specific webpage. Metuchen targets consumers for direct marketing and promotion. Metuchen’s coupon campaign uses print ads, digital display ads, paid search terms and paid social ads. Metuchen’s coupons are downloadable, each containing a unique code identifier enabling full tracking of customer use all the way through to adjudication.
Metuchen targets managed care organizations (payers) to deliver value-based contracts and improve its placement on their approved drug list (formularies). Stendra® currently enjoys approximately 73% coverage across all managed care organizations throughout the U.S. with 35% of that being unhindered and preferred access. With regards to retail pharmacies, Stendra® has an expansive presence across both major retail chains and independent pharmacies. To strengthen script adjudication even further, Metuchen has collaborated with three well-known specialty pharmacies. These pharmacies provide personalized service to physicians and patients, including discrete shipping to patient’s homes. Metuchen believes that it has implemented a best-in-industry, multi-channel, and multi-customer segment marketing plan that differentiates its market strategy and presence, ultimately growing its sales and market share.
Metuchen’s medical devices are marketed to urologist offices as well as to distributors both domestically and internationally. Metuchen is still integrating Timm Medical’s products into its sales channels but historically, Timm Medical marketed its own line of erectile dysfunction products, as well as other third-party men’s health products. However, since its acquisition, Timm Medical has handled sales and marketing of Metuchen’s medical device products in the United States. PTV, on the other hand, has taken on responsibility for international sales and marketing. Metuchen believes that domestic growth will come through the expansion of its distribution partner network, leveraging existing relationships that its partners have with key decision makers. This will allow for increased local purchase availability for consumers. Metuchen also believes that international growth will come through additional work with existing customers to expand their current base of business while also working to unlock new international territories. In addition to expanding the distribution network, Metuchen is pursuing better use of the historical clinical data available regarding VEDs.
Competition
The pharmaceutical market is highly competitive, including the men’s health sector. Metuchen believes that competition in the sale of its products is based primarily on efficacy, regulatory compliance, brand awareness, availability, product safety, and price. Metuchen’s pharmaceutical products are subject to competition from alternate therapies during the period of patent protection and thereafter from generic or other competitive products. All of Metuchen’s existing products compete with generic and other competitive products in the marketplace. In particular, Stendra® competes directly with sildenafil (Viagra®), tadalafil (Cialis®), and vardenafil (Levitra®). U.S. competitors for VED’s include Encore, Vacurect, Augusta, Spartan, Genesis, and Gesiva.
Competing in the branded product business requires Metuchen to identify and quickly bring to market new products and technological innovations. Successful marketing of branded products depends primarily on the ability to communicate the efficacy, safety, and value to healthcare professionals in private practice, group practices, and managed care organizations. Metuchen anticipates that its branded product offerings will support its existing therapeutic lines. Metuchen regularly examines its business strategies and may, from time to time, reallocate resources from one therapeutic area to another, withdraw from a therapeutic area, and/or add an additional therapeutic area in order to maximize growth potential.
Metuchen competes with other pharmaceutical companies for product line acquisitions, as well as for new products and acquisitions of other companies.
Intellectual Property
Metuchen’s ability to protect its products with strong intellectual property is an important factor in the success and continued growth of its business. Metuchen protects its products using several forms of intellectual property including patents, trademarks, trade secrets and copyrights. Some of its technology relies upon third-party licensed intellectual property.
Metuchen has the exclusive license to United States Patent Nos. 6,656,935 and 7,501,409, Canadian Patent Nos. 2,383,466 and 2,420,461, and Brazil Patent No. 0014526. These patents contain both composition of matter claims as well as method of treatment claims. To date, one or more of these have been challenged by several different alleged infringers in the U.S. and Canada. Each alleged infringer has agreed to cease and desist the allegedly infringing activity.
Metuchen owns the trademark registration for Stendra® in the U.S., Canada, Argentina, Brazil, Chile, Columbia, and Peru. Metuchen has a pending trademark application in India. Metuchen also owns the trademark registration application for Spedra (a trade name for avanafil) in Canada, Argentina, Brazil, Columbia, and India. Metuchen owns several registrations and pending applications on logos and tag lines.
Metuchen has established business procedures designed to maintain the confidentiality of its proprietary information, including the use of confidentiality agreements and assignment-of-inventions agreements with employees, independent contractors, consultants, and companies with it conducts business.
Pharmaceutical Products
Stendra®
United States Patent No. 6,656,935 and Canadian Patent No. 2,383,466 contain issued claims which include composition of matter claims directed to the chemical formulation for avanafil, the active ingredient in Stendra®. These patent claims are not limited to any particular dosage size or any particular formulation, including pure avanafil bulk powder. United States Patent 6,656,935 expires on April 27, 2025 (with 1687 days of patent term extension under 35 USC 156); the Canadian patent expires on September 13, 2022. The Canadian patent is entitled to two years of patent term extension from the original expiration date of September 13, 2020.
In contrast, United States Patent No. 7501409 and Canadian Patent No. 2420461 have issued claims directed to using avanafil in combination with certain excipients. These excipients are important to the oral bioavailability of avanafil. In particular, the FDA requires these excipients to be used in the form of avanafil approval by the FDA for commercial sale. Thus, this patent claims the pharmaceutical formulation of avanafil approved by the FDA in U.S. United States Patent 7,501,409 expires on May 05, 2023; the Canadian patent is similar. Stendra® is a registered trademark in the US.
H100
Metuchen has an exclusive license from Hybrid Medical, Inc. to three US patents and two European patents directed to the formulation and use of H100 in the treatment of Peyronie’s disease. United States Patent 9,333,242 contains claims directed to a transdermal gel composition containing the unique formulation of H100. United States Patent 9,238,059 contains claims directed to a method for inhibiting or treating Peyronie's disease, comprising topically administering to a portion of penile dermis of a human with Peyronie's disease an effective amount of a gel composition containing the formulation of H100. Additionally, U.S Patent 10,471,131 contains further formulation claims and method of treatment claims directed to the use of H100 in the treatment of Peyronie’s disease. There are two corresponding European Patents (EP3269372A1 and EP2804606B) that have similar corresponding issued claims.
Medical Devices
PTV holds two trademarks for VEDs in the United States, which are subject to renewal in 2028 and Timm Medical holds seven trademarks for VEDs in the United States, with renewal dates between 2022 to 2030. In addition to its US trademarks, Timm Medical holds trademarks in the European Union, Mexico, Australia, Sweden, Benelux and Canada. Timm Medical’s international trademarks are subject to renewal between 2028 to 2030.
Manufacturers and Single Source Suppliers
Metuchen uses a third-party manufacturer for developmental and commercial production of its Stendra® product line. Metuchen is responsible for the assembly of its medical device products. Metuchen believes there is currently an excess capacity for manufacturing in the marketplace for its medical device products and therefore believes there are opportunities to lower manufacturing cost through outsourcing to regions and countries that can produce on a more cost-effective basis. Metuchen currently has multiple contract manufacturers for its products, and it issues purchase orders to these suppliers each time Metuchen requires replenishment of its product inventory. Metuchen’s active pharmaceutical ingredient is currently produced in France and is shipped to the US in tablet form for packaging. All of Metuchen’s current manufacturers for its medical device products are based in the U.S., except for one based in China.
Employees and Labor Relations
Metuchen currently has 38 full-time employees and no part-time employees. Metuchen also relies on a number of consultants. Subject to the availability of financing, Metuchen intends to expand its staff as part of its growth strategy.
Government Regulation and Product Approval
Government authorities in the United States, at the federal, state, and local level, and in other countries, extensively regulate, among other things, the research, development, testing, approval, manufacture, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, import, export, pricing, and reimbursement of drug and medical device products. The processes for obtaining regulatory approvals or clearances in the United States and in foreign countries, along with compliance with applicable statutes and regulations, require the expenditure of substantial time and financial resources.
FDA Regulation
In the United States, the FDA regulates drug and medical device products under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing regulations.
FDA Oversight of Drug Products
The process required by the FDA before new drug product candidates may be marketed in the United States generally involves the following:
| • | completion of preclinical laboratory tests, animal studies, and formulation studies in compliance with the FDA’s Good Laboratory Practice, or GLP, regulations; |
| • | submission to the FDA of an Investigational New Drug Application, or IND, which must become effective before human clinical trials may begin at United States clinical trial sites; |
| • | approval by an IRB for each clinical site, or centrally, before each trial may be initiated; |
| • | adequate and well-controlled human clinical trials to establish the safety and efficacy of a drug product candidate for its intended use, performed in accordance with Good Clinical Practices, or GCPs; |
| • | development of manufacturing processes to ensure the product candidate’s identity, strength, quality, purity, and potency; |
| • | submission to the FDA of a New Drug Application, or NDA; |
| • | satisfactory completion of an FDA advisory committee review, if applicable; |
| • | satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the products are produced to assess compliance with current Good Manufacturing Practices, or cGMPs, and to assure that the facilities, methods, and controls are adequate to preserve the therapeutics’ identity, strength, quality, purity, and potency as well as satisfactory completion of an FDA inspection of selected clinical sites and selected clinical investigators to determine GCP compliance; and |
| • | FDA review and approval of the NDA to permit commercial marketing for particular indications for use. |
Certain of the above steps, however, may not be required or may be abbreviated in the case of a 505(b)(2) NDA application, as further discussed below.
Preclinical Studies and IND Submission for Drugs
The testing and approval process of product candidates requires substantial time, effort, and financial resources. 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 studies include laboratory evaluation of chemistry, pharmacology, toxicity, and product formulation, as well as animal studies to assess potential safety and efficacy. Such studies must generally be conducted in accordance with the FDA’s GLPs. Prior to commencing the first clinical trial at a United States investigational site with a product candidate, an IND sponsor must submit the results of the preclinical tests and preclinical literature, together with manufacturing information, analytical data, any available clinical data or literature, and proposed clinical study protocols among other things, to the FDA as part of an IND. In the case of drug product candidates for which the sponsor will seek marketing approval via a 505(b)(2) NDA application, some of the above information may be abbreviated or omitted.
An IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, notifies the applicant of safety concerns or questions related to one or more proposed clinical trials and places the trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin.
Clinical Trials for Drugs
Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with federal regulations and GCP requirements, which include the requirements that all research subjects provide their informed consent in writing for their participation in any clinical trial, as well as review and approval of the study by an IRB. Investigators must also provide certain information to the clinical trial sponsors to allow the sponsors to make certain financial disclosures to the FDA. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, the trial procedures, the parameters to be used in monitoring safety, the effectiveness criteria to be evaluated, and a statistical analysis plan. In addition, an IRB at each study site participating in the clinical trial or a central IRB must review and approve the plan for any clinical trial, informed consent forms, and communications to study subjects before a study commences at that site. An IRB considers, among other things, whether the risks to individuals participating in the trials are minimized and are reasonable in relation to anticipated benefits, and whether the planned human subject protections are adequate. The IRB must continue to oversee the clinical trial while it is being conducted. Once an IND is in effect, each new clinical protocol and any amendments to the protocol must be submitted to the IND for FDA review, and to the IRB for approval. Progress reports detailing the results of the clinical trials must also be submitted at least annually to the FDA and the IRB and more frequently if serious adverse events or other significant safety information is found.
The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s or GCP requirements, if the trial is not being conducted in accordance with the IRB approved protocol, or if the trial poses an unexpected serious harm to subjects. The FDA or an IRB may also impose conditions on the conduct of a clinical trial. Clinical trial sponsors may also choose to discontinue clinical trials as a result of risks to subjects, a lack of favorable results, or changing business priorities.
Information about most clinical trials, including a description of the study and study results, must be submitted by the study sponsor within specific timeframes to the National Institutes of Health, or NIH, for public dissemination on their clinicaltrials.gov website.
The manufacture of investigational drugs for the conduct of human clinical trials is subject to cGMP requirements. Investigational drugs and active ingredients imported into the United States are also subject to regulation by the FDA. Further, the export of investigational products outside of the United States is subject to regulatory requirements of the receiving country as well as U.S. export requirements under the FDCA.
In general, for purposes of NDA approval, human clinical trials are typically conducted in three sequential phases, which may overlap or be combined.
| • | Phase 1—Studies are initially conducted in healthy human volunteers or subjects with the target disease or condition and test the product candidate for safety, dosage tolerance, structure-activity relationships, mechanism of action, absorption, metabolism, distribution, and excretion. If possible, Phase 1 trials may also be used to gain an initial indication of product effectiveness. |
| • | Phase 2—Controlled studies are conducted in limited subject populations with a specified disease or condition to evaluate preliminary efficacy, identify optimal dosages, dosage tolerance and schedule, possible adverse effects and safety risks, and expanded evidence of safety. |
| • | Phase 3—These adequate and well-controlled clinical trials are undertaken in expanded subject populations, generally at geographically dispersed clinical trial sites, to generate enough data to provide statistically significant evidence of clinical efficacy and safety of the product candidate for approval, to establish the overall risk-benefit profile of the product candidate, and to provide adequate information for the labeling of the product candidate. Typically, two Phase 3 trials are required by the FDA for product approval. |
Moreover, in the case of 505(b)(2) NDAs, the above studies may be abbreviated. Additional kinds of data may also help to support an NDA, such as patient experience data. Real world evidence may also support an NDA for already approved products, and, for appropriate indications sought through supplemental NDAs, data summaries may provide marketing application support. Real world evidence may further be used to inform the design of clinical trials.
The FDA may also require, or companies may conduct, additional clinical trials for the same indication after a product is approved. These so-called Phase 4 studies may be made a condition to be satisfied after approval. The results of Phase 4 studies can confirm or refute the effectiveness of a product candidate, and can provide important safety information.
Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the product candidate as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, manufacturers must develop methods for testing the identity, strength, quality, potency, and purity of the final product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.
Drug Product Marketing Application Submission, Review by the FDA, and Marketing Approval
Assuming successful completion of the required clinical and preclinical testing, the results of product development, including chemistry, manufacture, and controls, non-clinical studies, and clinical trial results, including negative or ambiguous results as well as positive findings, are all submitted to the FDA, along with the proposed labeling, as part of an NDA, requesting approval to market the product for one or more indications. In most cases, the submission of a marketing application is subject to a substantial application user fee. These user fees must be paid at the time of the first submission of the application, even if the application is being submitted on a rolling basis. Product candidates that are designated as orphan products, which are further described below, are also not subject to application user fees unless the application includes an indication other than the orphan indication.
In addition, under the Pediatric Research Equity Act, or PREA, an NDA or supplement to an NDA for a new active ingredient, indication, dosage form, dosage regimen, or route of administration, must contain data that are adequate to assess the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. Orphan products are also exempt from the PREA requirements.
The FDA also may require submission of a risk evaluation and mitigation strategy, or REMS, to ensure that the benefits of the product candidate outweigh the risks. The REMS plan could include medication guides, physician communication plans, and elements to assure safe use, such as restricted distribution methods, patient registries, or other risk minimization tools. An assessment of the REMS must also be conducted at set intervals. Following product approval, a REMS may also be required by the FDA if new safety information is discovered and the FDA determines that a REMS is necessary to ensure that the benefits of the product outweigh the risks.
Once the FDA receives an application, it has 60 days to review the NDA to determine if it is substantially complete to permit a substantive review, before it accepts the application for filing. The FDA may request additional information rather than accept an application for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review.
Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act, or PDUFA, the FDA has set the goal of completing its review of 90% of all applications for new molecular entities within ten months of the 60-day filing date. The FDA also has the review goal of completing its review of 90% of non-new molecular entity marketing applications within ten months of the agency’s receipt of the application. These review goals are referred to as the PDUFA date. The PDUFA date is only a goal, thus, the FDA does not always meet its PDUFA dates. The review process and the PDUFA date may also be extended if the FDA requests or the sponsor otherwise provides additional information or clarification regarding the submission.
The FDA may also refer applications to an advisory committee. Before approving a product candidate for which no active ingredient (including any ester or salt of active ingredients) has previously been approved by the FDA, the FDA must either refer that product candidate to an external advisory committee or provide in an action letter, a summary of the reasons why the FDA did not refer the product candidate to an advisory committee. The FDA may also refer other product candidates to an advisory committee if FDA believes that the advisory committee’s expertise would be beneficial. An advisory committee is typically a panel that includes clinicians and other experts, which review, evaluate, and make a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
The FDA reviews applications to determine, among other things, whether a product candidate meets the agency’s approval standards and whether the manufacturing methods and controls are adequate to assure and preserve the product’s identity, strength, quality, potency, and purity. Before approving a marketing application, the FDA typically will inspect the facility or facilities where the product is manufactured, referred to as a Pre-Approval Inspection. The FDA will not approve an application unless it determines that the manufacturing processes and facilities, including contract manufacturers and subcontractors, are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving a marketing application the FDA will inspect one or more clinical trial sites to assure compliance with GCPs.
After evaluating the marketing application and all related information, including the advisory committee recommendation, if any, and inspection reports regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a Complete Response Letter, or CRL. A CRL indicates that the review cycle of the application is complete and the application is not ready for approval and describes all of the specific deficiencies that the FDA identified. A CRL generally contains a statement of specific conditions that must be met in order to secure final approval of the marketing application, and may require additional clinical or preclinical testing in order for the FDA to reconsider the application. The deficiencies identified may be minor, for example, requiring labeling changes; or major, for example, requiring additional clinical trials. If a CRL is issued, the applicant may either: resubmit the marketing application, addressing all of the deficiencies identified in the letter; withdraw the application; or request an opportunity for a hearing. The FDA has the goal of reviewing 90% of application resubmissions in either two or six months of the resubmission date, depending on the kind of resubmission. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s satisfaction, the FDA may issue an approval letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications.
Even if the FDA approves a product, it may limit the approved indications or populations for use of the product, require that contraindications, warnings, or precautions be included in the product labeling, including a boxed warning, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess a product’s safety and efficacy after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms under a REMS which can materially affect the potential market and profitability of the product. The FDA may also not approve label statements that are necessary for successful commercialization and marketing.
After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims, are subject to further testing requirements and FDA review and approval. The FDA may also withdraw the product approval if compliance with the pre- and post-marketing regulatory standards are not maintained or if problems occur after the product reaches the marketplace. Further, should new safety information arise, additional testing, product labeling, or FDA notification may be required.
505(b)(2) New Drug Applications, Abbreviated New Drug Applications, and the Hatch-Waxman Act
Section 505 of the FDCA describes three types of marketing applications that may be submitted to the FDA to request marketing authorization for a new drug. A Section 505(b)(1) NDA is an application that contains full reports of investigations of safety and efficacy. A 505(b)(2) NDA is an application that contains full reports of investigations of safety and efficacy but where at least some of the information required for approval comes from investigations that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. This regulatory pathway enables the applicant to rely, in part, on the FDA’s prior findings of safety and efficacy for an existing product, or published literature, in support of its application.
Section 505(j) establishes an abbreviated approval process for a generic version of approved drug products through the submission of an Abbreviated New Drug Application, or ANDA. An ANDA provides for marketing of a generic drug product that has the same active ingredients, dosage form, strength, route of administration, labeling, performance characteristics and intended use, among other things, to a previously approved product. ANDAs are termed “abbreviated” because they are generally not required to include preclinical (animal) and clinical (human) data to establish safety and efficacy. Instead, generic applicants must scientifically demonstrate that their product is bioequivalent to, or performs in the same manner as, the innovator drug through in vitro, in vivo, or other testing. The generic version must deliver the same amount of active ingredients to the site of action in the same amount of time as the innovator drug and can often be substituted by pharmacists under prescriptions written for the reference listed drug.
In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent with claims that cover the applicant’s drug or a method of using the drug. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA’s list of Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential competitors in support of approval of an ANDA or 505(b)(2) NDA.
Upon submission of an ANDA or a 505(b)(2) NDA, an applicant must certify to the FDA that (1) no patent information has been submitted to the FDA; (2) such patent has expired; (3) the date on which such patent expires; or (4) such patent is invalid or will not be infringed upon by the manufacture, use or sale of the drug product for which the application is submitted. Generally, the ANDA or 505(b)(2) NDA cannot be approved until all listed patents have expired, except where the ANDA or 505(b)(2) NDA applicant challenges a listed patent through the last type of certification, also known as a paragraph IV certification. If the applicant does not challenge the listed patents or does not indicate that it is not seeking approval of a patented method of use, the ANDA or 505(b)(2) NDA application approval will not be made effective until all of the listed patents claiming the referenced product have expired.
If the ANDA or 505(b)(2) NDA applicant has provided a paragraph IV certification to the FDA, the applicant must send notice of the certification to the NDA and patent holders. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the paragraph IV certification, in which case the FDA may not make an approval effective until the earlier of 30 months from the patent or application owner’s receipt of the notice of the paragraph IV certification, the expiration of the patent, when the infringement case concerning each such patent is favorably decided in the applicant’s favor or settled, or such shorter or longer period as may be ordered by a court. This prohibition is generally referred to as the 30-month stay. In instances where an ANDA or 505(b)(2) NDA applicant files a paragraph IV certification, the NDA holder or patent owner(s) regularly take action to trigger the 30-month stay. Thus, approval of an ANDA or 505(b)(2) NDA could be delayed for a significant period of time depending on the patent certification the applicant makes and the reference drug sponsor’s decision to initiate patent litigation.
The Hatch-Waxman Act establishes periods of regulatory exclusivity for certain approved drug products, during which the FDA cannot accept an ANDA or 505(b)(2) application or make an approval of such a product effective. For example, the holder of an NDA, including a 505(b)(2) NDA, may obtain five years of exclusivity upon approval of a new drug containing new chemical entities, or NCEs, that have not been previously approved by the FDA. A drug is a new chemical entity if the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the therapeutic activity of the drug substance. During the exclusivity period, the FDA may not accept for review an ANDA or a 505(b)(2) NDA submitted by another company that contains the previously approved active moiety. However, an ANDA or 505(b)(2) NDA may be submitted after four years if it contains a certification of patent invalidity or non-infringement.
The Hatch-Waxman Act also provides three years of marketing exclusivity to the holder of an NDA (including a 505(b)(2) NDA) for a particular condition of approval, or change to a marketed product, such as a new indication or formulation for a previously approved product, if one or more new clinical studies (other than bioavailability or bioequivalence studies) was essential to the approval of the application and was conducted/sponsored by the applicant. This three-year exclusivity period protects against the FDA making an ANDA and 505(b)(2) NDA approval effective for the condition of the new drug’s approval. As a general matter, the three-year exclusivity does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for generic or modified versions of the original, unmodified drug product. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and efficacy.
Recently, Congress, the Administration, and administrative agencies have taken certain measures to increase drug competition and thus, decrease drug prices. By example, in 2019 FDA introduced a proposed rule and draft guidance to facilitate drug importation. Congress also passed a bill requiring sponsors of NDA approved products to provide sufficient quantities of drug product on commercially reasonable market based terms to entities developing generic and 505(b)(2) products. This bill also included provisions on shared and individual REMS for generic drug products.
Orphan Products
The Orphan Drug Act provides incentives for the development of products for rare diseases or conditions. Specifically, sponsors may apply for and receive orphan drug designation if a product candidate is intended to treat rare diseases or conditions, which generally are diseases or conditions affecting less than 200,000 individuals annually in the United States, or affecting more than 200,000 in the United States and for which there is no reasonable expectation that the cost of developing and making the product available in the United States will be recovered from United States sales. Additionally, sponsors must present a plausible hypothesis for clinical superiority to obtain orphan drug designation if there is a product already approved by the FDA that that is considered by the FDA to be the same as the already approved product and is intended for the same indication. This hypothesis must be demonstrated to obtain orphan exclusivity. If granted, prior to product approval, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical study costs, tax advantages, and certain user-fee waivers. The tax advantages, however, were limited in the 2017 Tax Cuts and Jobs Act. In addition, if a product candidate receives FDA approval for the indication for which it has orphan drug designation, the product is generally entitled to orphan exclusivity, which means the FDA may not approve any other application to market the same product for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan exclusivity.
Patent Term Restoration
If approved, drug products may also be eligible for periods of U.S. patent term restoration. If granted, patent term restoration extends the patent life of a single unexpired patent, that has not previously been extended, for a maximum of five years. The total patent life of the product with the extension also cannot exceed fourteen years from the product’ approval date. Subject to the prior limitations, the period of the extension is calculated by adding half of the time from the effective date of an IND to the initial submission of a marketing application, and all of the time between the submission of the marketing application and its approval. This period may also be reduced by any time that the applicant did not act with due diligence in seeking FDA approval of the product during the regulatory review period.
Post-approval Requirements for Drugs
Any drug products manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements related to manufacturing, recordkeeping, and reporting, including adverse experience reporting, deviation reporting, shortage reporting, and periodic reporting, supply chain security, product sampling and distribution, advertising, marketing, promotion, certain electronic records and signatures, and post-approval obligations imposed as a condition of approval, such as Phase 4 clinical trials, REMS, and surveillance to assess safety and effectiveness after commercialization.
After approval, most changes to the approved product, such as adding new indications or other labeling claims are subject to prior FDA review and approval. There also are continuing annual program user fee requirements for approved products, excluding orphan products. In addition, manufacturers and other entities involved in the manufacture and distribution of approved therapeutics are required to register their establishments with the FDA and certain state agencies, list their products, and are subject to periodic announced and unannounced inspections by the FDA and these state agencies for compliance with cGMP and other requirements, which impose certain procedural and documentation requirements upon the company and third-party manufacturers. Regulatory authorities may withdraw product approvals, require label modifications, or request product recalls, among other actions, if a company fails to comply with regulatory standards, if it encounters problems following initial marketing, or if previously unrecognized problems are subsequently discovered.
Changes to the manufacturing process are strictly regulated and often require prior FDA approval or notification before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and specifications, and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.
The FDA also strictly regulates marketing, labeling, advertising, and promotion of products that are placed on the market. A company can make only those claims relating to a product that are consistent with the FDA-approved product label. Physicians, in their independent professional medical judgment, may prescribe legally available products for unapproved indications that are not described in the product’s labeling and that differ from those tested and approved by the FDA. Pharmaceutical companies, however, are required to promote their products only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability, including, but not limited to, criminal and civil penalties under the FDCA and False Claims Act, exclusion from participation in federal healthcare programs, mandatory compliance programs under corporate integrity agreements, suspension and debarment from government contracts, and refusal of orders under existing government contracts.
In addition, the distribution of prescription pharmaceutical samples is subject to the Prescription Drug Marketing Act, or PDMA, which regulates the distribution of samples at the federal level. Certain reporting related to samples is also required. Free trial or starter prescriptions provided through pharmacies are also subject to regulations under the Medicaid Drug Rebate Program and potential liability under anti-kickback and false claims laws. State laws also limit the distribution of pharmaceutical products and may require certain licensing.
Moreover, the Drug Quality and Security Act, or DQSA, imposes obligations on sponsors of pharmaceutical products related to product tracking and tracing. Among the requirements of this legislation, sponsors are required to provide certain information regarding the products to individuals and entities to which product ownership is transferred, are required to label products with a product identifier, and are required to keep certain records regarding the product. The transfer of information to subsequent product owners by sponsors is also required to be done electronically. Sponsors must also verify that purchasers of the sponsors’ products are appropriately licensed. Further, under this legislation, manufactures have product investigation, quarantine, disposition, and notification responsibilities related to counterfeit, diverted, stolen, and intentionally adulterated products that would result in serious adverse health consequences or death to humans, as well as products that are the subject of fraudulent transactions or which are otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or death. Similar requirements additionally are and will be imposed through this legislation on other companies within the pharmaceutical product supply chain, such as distributors and dispensers, as well as certain sponsor licensees and affiliates.
Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in significant regulatory actions. Such actions may include refusal to approve pending applications, license or approval suspension or revocation, imposition of a clinical hold or termination of clinical trials, warning letters, untitled letters, cyber letters, modification of promotional materials or labeling, provision of corrective information, imposition of post-market requirements including the need for additional testing, imposition of distribution or other restrictions under a REMS, product recalls, product seizures or detentions, refusal to allow imports or exports, total or partial suspension of production or distribution, FDA debarment, injunctions, fines, consent decrees, corporate integrity agreements, suspension and debarment from government contracts, and refusal of orders under existing government contracts, exclusion from participation in federal and state healthcare programs, restitution, disgorgement, or civil or criminal penalties, including fines and imprisonment, and adverse publicity, among other adverse consequences.
FDA’s Regulation of Medical Devices – Premarket Requirements
Medical device products are also subject to extensive regulation by the FDA. The medical device requirements imposed by FDA cover all stages of the product life-cycle, including device design and development; pre-clinical and clinical testing; premarket review; product manufacturing, processing, and packaging; testing and release; labeling, promotion, and advertising; post-market surveillance and complaint handling; medical device reporting; recalls, field actions, and related reporting; and medical device imports and exports.
Unless an exemption applies, FDA requires that device manufacturers submit and obtain clearance or approval for a premarket application before marketing a device in the United States. The type of premarket submission required depends on the FDA device classification.
| · | Devices classified by FDA as Class I are considered low risk and are generally exempt from premarket review. |
| · | Devices classified by FDA as Class II are considered moderate risk devices and generally require the submission and FDA clearance of a 510(k) premarket notification. However, some Class II devices are 510(k)-exempt and do not require any premarket review. |
| · | Devices classified by FDA as Class III are the highest risk devices and require the submission and FDA approval of a premarket approval, or PMA, application. Novel device technologies (including some novel device modifications) not previously classified by FDA are considered Class III by default and may qualify for review through the de novo request process if such devices are lower risk. |
The regulatory process for device development and premarket review – including the design and validation of the device, obtaining data to support a premarket submission, preparation of the submission, and FDA’s review process – can be onerous and costly and may take up to several years. The regulatory burden and timeline varies, depending on the type of submission required.
| · | A 510(k) pre-market notification requires the sponsor to demonstrate that the device is as safe and effective as, or “substantially equivalent” to, a legally marketed predicate device. A predicate device is a device that (i) was legally marketed prior to May 28, 1976, (ii) has been reclassified from Class III to Class II or I, or (iii) has been previously reviewed and cleared by FDA via the 510(k) process. Applicants must submit descriptive information and performance data (which may include clinical study data) to establish that the device is substantially equivalent to a predicate device. Although the FDA review goal for a 510(k) is 90 FDA review days, the total review time (including the time it may take the applicant to respond to an FDA request for additional information) for a 510(k) is usually four to six months, but may take longer. |
| · | The de novo pathway is available for novel device technologies, including novel device changes, that have not been previously classified by FDA and for which there is no suitable predicate device. To obtain marketing authorization via the de novo pathway, the applicant must show that the subject device is low to moderate risk, such that it can be reclassified as Class I or Class II. The de novo request pathway usually requires more testing data than a 510(k), and often requires clinical data. Although the FDA review goal for a de novo is 150 FDA review days, the average total review time (including the time it may take the applicant to respond to an FDA request for additional information) for a de novo is around seven to nine months, but may take longer. |
| · | The PMA approval process is the most burdensome FDA premarket review process. The sponsor must demonstrate that the device is safe and effective for its intended use. A PMA generally requires data from at least one prospectively designed, well-controlled clinical study. In addition, a PMA requires extensive data and information related to the device design, materials, bench and animal testing, manufacturing, and quality. FDA also will inspect the device manufacturing and processing facilities as part of the PMA approval process. FDA may also convene an advisory panel to provide input for the PMA application. Although the FDA review goal for a PMA is 180 FDA review days (for non-panel submissions), the average total review time for a PMA (including the time it may take the applicant to respond to an FDA request for additional information) may take a year or longer. |
Device manufacturers may need to perform clinical studies as part of the device development, to support a premarket submission, or to meet post-approval commitments. Such studies are subject to the FDA’s laws and regulations for investigational devices, informed consent, and IRB oversight and approval. For studies that involve significant risk devices, sponsors are also required to obtain approval from the FDA for an Investigational Device Exemption , or IDE, application before initiating the study.
FDA’s Postmarket Requirements for Medical Devices
After obtaining marketing clearance, authorization, or approval for a device, the device manufacturer is required to evaluate all changes made to the device, including changes to the device indications and labeling, to assess whether the change triggers a requirement for a new submission. If such a submission is required, the manufacturer must submit a new application to the FDA and obtain clearance/authorization/approval before marketing the modified device.
Manufacturers of Class I and Class II devices exempt from premarket review also must assess changes made to their devices, including changes the claims and indications, to assess whether the change may cause the device to be subject to premarket review requirements, such that a 510(k) or other submission is required.
Additional post-market obligations include requirements and restrictions related to device labeling, promotion and marketing, good manufacturing practices (as set forth in the Quality System Regulation, or QSR), complaint handling and medical device reporting, reporting of recalls and other field actions, and unique device identification.
Further, all facilities involved in the design, manufacture, processing, packaging or repackaging, labeling or relabeling, complaint handling, and importation of a medical device, including contract manufacturing facilities, are required to register with FDA and submit a listing of each device the facility handles. All registered facilities are subject to periodic FDA inspection to assess compliance with the applicable requirements. Device companies are required to oversee their contract manufacturers and suppliers to ensure such contractors are complying with the applicable FDA requirements and device specifications, including quality specifications. If FDA finds that a device manufacturer (including a contract manufacturer) is not complying with the applicable FDA requirements, or otherwise determines that a device may be hazardous or defective, the FDA has the power to take enforcement action, which may include issuance of a warning letter, untitled letter, or other enforcement letter; seizure of the device; requesting or requiring a recall or other field action; or requiring the repair, replacement, or refund the cost of the medical device. FDA may also delay or refuse to grant marketing authorization for new products; withdraw marketing authorization; pursue an injunction, operating restrictions, or civil or criminal penalties.
Fraud and Abuse, Data Privacy and Security, and Transparency Laws and Regulations
Our business activities, including but not limited to, research, sales, promotion, distribution, medical education, and other activities following product approval are subject to regulation by numerous federal and state regulatory and law enforcement authorities in the United States in addition to the FDA, including potentially the Department of Justice, the Department of Health and Human Services and its various divisions, including the Centers for Medicare and Medicaid Services, or CMS, and the Health Resources and Services Administration, the Department of Veterans Affairs, the Department of Defense, and state and local governments. Our business activities must comply with numerous healthcare laws, including but not limited to, anti-kickback and false claims laws and regulations as well as data privacy and security laws and regulations, which are described below, as well as state and federal consumer protection and unfair competition laws. Moreover, to the extent that we license or sublicense the right to sell our products and product candidates, if approved, to another entity under that entity’s labeler code, the licensee would have regulatory responsibilities, including healthcare, reimbursement, pricing, and reporting regulatory responsibilities.
The federal Anti-Kickback Statute, which regulates, among other things, marketing practices, educational programs, pricing policies, and relationships with healthcare providers or other entities, prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting, or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering, or arranging for or recommending the purchase, lease, or order, or the referral to another for the furnishing or arranging for the furnishing of any item or service reimbursable under Medicare, Medicaid, or other federal healthcare programs, in whole or in part. The term “remuneration” has been interpreted broadly to include anything of value. The Anti-Kickback Statute has been interpreted to apply to arrangements between suppliers of drugs and devices on one hand and prescribers, purchasers, formulary managers, and beneficiaries on the other. There are certain statutory exceptions and regulatory safe harbors protecting some common activities from prosecution. The exceptions and safe harbors are drawn narrowly, and practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases, or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, including purchases of products paid by federal healthcare programs, the statute has been violated. The Patient Protection and Affordable Care Act, or ACA, of 2010, as amended, modified the intent requirement under the Anti-Kickback Statute to a stricter standard, such that a person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the ACA also provided that a violation of the federal Anti-Kickback Statute is grounds for the government or a whistleblower to assert that a claim for payment of items or services resulting from such violation constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.
The federal civil False Claims Act, or FCA, prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment to, or approval by, the federal government, knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government, or avoiding, decreasing, or concealing an obligation to pay money to the federal government. FCA actions can also be based on alleged false certification of compliance with regulations material to payment by a government program. A claim includes “any request or demand” for money or property presented to the U.S. government. The civil False Claims Act has been used to assert liability on the basis of kickbacks and other improper referrals, improperly reported government pricing metrics such as Most Favored Customer, Best Price or Average Manufacturer Price, improper use of Medicare provider or supplier numbers when detailing a provider of services, improper promotion of off-label uses not expressly approved by the FDA in a product’s label, and allegations as to misrepresentations with respect to products, contract requirements, and services rendered. In addition, private payers have been filing follow-on lawsuits alleging fraudulent misrepresentation, although establishing liability and damages in these cases is more difficult than under the FCA. Intent to deceive is not required to establish liability under the civil False Claims Act. Civil False Claims Act actions may be brought by the government or may be brought by private individuals on behalf of the government, called “qui tam” actions. If the government decides to intervene in a qui tam action and prevails in the lawsuit, the individual will share in the proceeds from any fines or settlement funds. If the government declines to intervene, the individual may pursue the case alone. The civil FCA provides for treble damages and a civil penalty for each false claim, such as an invoice or pharmacy claim for reimbursement, which can aggregate into millions of dollars. For these reasons, since 2004, False Claims Act lawsuits have increased significantly in volume and breadth, leading to several substantial civil and criminal settlements, as much as $3.0 billion, regarding certain sales practices and promoting off label uses. Civil False Claims act liability may further be imposed for known Medicare or Medicaid overpayments, for example, overpayments caused by understated rebate amounts that are not refunded within 60 days of discovering the overpayment, even if the overpayment was not caused by a false or fraudulent act. In addition, conviction or civil judgment for violating the FCA may result in exclusion from federal health care programs, and suspension and debarment from government contracts, and refusal of orders under existing government contracts.
The government may further prosecute conduct constituting a false claim under the criminal False Claims Act. The criminal False Claims Act prohibits the making or presenting of a claim to the government knowing such claim to be false, fictitious, or fraudulent and, unlike the civil False Claims Act, requires proof of intent to submit a false claim.
The civil monetary penalties statute is another potential statute under which pharmaceutical and device companies may be subject to enforcement. Among other things, the civil monetary penalties statue imposes fines against any person who is determined to have knowingly presented, or caused to be presented, claims to a federal healthcare program that the person knows, or should know, is for an item or service that was not provided as claimed or is false or fraudulent.
Payment or reimbursement of prescription therapeutics by Medicaid requires sponsors to submit certified pricing information to CMS. The Medicaid Drug Rebate statute requires sponsors to calculate and report price points, which are used to determine Medicaid rebate payments shared between the states and the federal government and Medicaid payment rates for certain therapeutics. In addition, therapeutics covered by Medicaid are subject to an additional inflation penalty which can substantially increase rebate payments. For products approved under an NDA, the Veterans Health Care Act, or VHCA, requires, as a condition of payment by the VA and DoD, that sponsors calculate and report to the Veterans Administration, or VA, a different price called the Non-Federal Average Manufacturing Price, which is used to determine the maximum price that can be charged to certain federal agencies, referred to as the Federal Ceiling Price, or FCP. Like the Medicaid rebate amount, the FCP includes an inflation penalty. A Department of Defense regulation requires sponsors to provide this discount on therapeutics dispensed by retail pharmacies when paid by the TRICARE Program. All of these price reporting requirements create risk of submitting false information to the government, and potential FCA liability.
The VHCA also requires sponsors of covered therapeutics participating in the Medicaid program, or seeking payment by the VA or DoD, to enter into Federal Supply Schedule contracts with the VA through which their covered therapeutics must be sold to certain federal agencies at FCP. This necessitates compliance with applicable federal procurement laws and regulations, including submission of commercial sales and pricing information, and subjects us to contractual remedies as well as administrative, civil, and criminal sanctions. Medical devices are not subject to the VHCA; however, suppliers of medical devices who wish to offer them to the government through a Federal Supply Schedule contract must comply with the same procurement rules applicable to FSS contracts. Sponsors of covered therapeutics may choose not to participate in the Medicaid drug rebate program; however, if they do, the VHCA requires participating sponsors to agree to provide different mandatory discounts to certain Public Health Service grantees and other safety net hospitals and clinics under the 340B program based on the sponsor’s reported Medicaid pricing information. The 340B program has its own regulatory authority to impose sanctions for non-compliance and adjudicate overcharge claims against sponsors by the purchasing entities.
The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, also created federal criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, by means of false or fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody or control of, a healthcare benefit program, regardless of whether the payor is public or private, in connection with the delivery or payment for health care benefits, knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal investigation of a health care offense and knowingly and willfully falsifying, concealing, or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items, or services relating to healthcare matters. Additionally, the ACA amended the intent requirement of certain of these criminal statutes under HIPAA so that a person or entity no longer needs to have actual knowledge of the statute, or the specific intent to violate it, to have committed a violation.
The ACA further created new federal requirements for reporting, by applicable manufacturers of covered therapeutics, devices, and medical supplies of certain payments and other transfers of value, such as payments and transfers of value to physicians and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members.
Further, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and its respective implementing regulations imposes certain requirements on covered entities relating to the privacy, security, and transmission of certain individually identifiable health information, known as protected health information. Among other things, HITECH, through its implementing regulations, makes HIPAA’s security standards and certain privacy standards directly applicable to business associates, defined as a person or organization, other than a member of a covered entity’s workforce, that creates, receives, maintains, or transmits protected health information on behalf of a covered entity for a function or activity regulated by HIPAA. HITECH also strengthened the civil and criminal penalties that may be imposed against covered entities, business associates, and individuals, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, other federal and state laws, such as the California Consumer Privacy Act, may govern the privacy and security of health and other information in certain circumstances, many of which differ from each other in significant ways and may not be preempted by HIPAA, thus complicating compliance efforts.
Many states have also adopted laws similar to each of the above federal laws, which may be broader in scope and apply to items or services reimbursed by any third-party payor, including commercial insurers. Certain state laws also regulate sponsors’ use of prescriber-identifiable data. Certain states also require implementation of commercial compliance programs and compliance with industry voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government, or otherwise restrict payments or the provision of other items of value that may be made to healthcare providers and other potential referral sources; impose restrictions on marketing practices; or require sponsors to track and report information related to payments, gifts, and other items of value to physicians and other healthcare providers. Recently, states have enacted or are considering legislation intended to make drug prices more transparent and deter significant price increases, typically as consumer protection laws. These laws may affect our future sales, marketing, and other promotional activities by imposing administrative and compliance burdens.
If our operations are found to be in violation of any of the laws or regulations described above or any other laws that apply to us, we may be subject penalties or other enforcement actions, including criminal and significant civil monetary penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare programs, corporate integrity agreements, suspension and debarment from government contracts, and refusal of orders under existing government contracts, reputational harm, diminished profits and future earnings, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. Enforcement actions can be brought by federal or state governments, or as “qui tam” actions brought by individual whistleblowers in the name of the government under the civil False Claims Act if the violations are alleged to have caused the government to pay a false or fraudulent claim.
To the extent that any of our products are sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.
Coverage and Reimbursement Generally
The commercial success of our products and our ability to commercialize any approved products successfully will depend in part on the extent to which governmental payor programs at the federal and state levels, including Medicare and Medicaid, private health insurers, and other third-party payors provide coverage for and establish adequate reimbursement levels. Government authorities, private health insurers, and other organizations generally decide which therapeutics they will pay for and establish reimbursement levels for healthcare. Medicare is a federally funded program managed by CMS through local fiscal intermediaries and carriers that administer coverage and reimbursement for certain healthcare items and services furnished to the elderly and disabled. Medicaid is an insurance program for certain categories of patients whose income and assets fall below state defined levels and who are otherwise uninsured that is both federally and state funded and managed by each state. The federal government sets general guidelines for Medicaid and each state creates specific regulations that govern its individual program, including supplemental rebate programs that restrict coverage to therapeutics on the state Preferred Drug List. Drugs that are not considered medically necessary are not covered by Medicare or Medicaid. Similarly, government laws and regulations establish the parameters for coverage of prescription therapeutics by health plans participating in state exchanges and Tricare, the health care program for military personnel, retirees, and related beneficiaries. Some states have also created pharmacy assistance programs for individuals who do not qualify for federal programs. In the United States, private health insurers and other third-party payors often provide reimbursement for products and services based on the level at which the government provides reimbursement through the Medicare or Medicaid programs for such products and services.
In the United States and other potentially significant markets for our products, government authorities and third-party payors are increasingly attempting to limit or regulate the price of medical products and services, particularly for new and innovative products and therapies, which often has resulted in average selling prices lower than they would otherwise be and sometimes at or below the provider’s acquisition cost. In the United States, it is also common for government and private health plans to use coverage determinations to leverage rebates from sponsors in order to reduce the plans’ net costs. These restrictions and limitations influence the purchase of healthcare services and products and lower the realization on sponsors’ sales of prescription therapeutics. Third-party payors are developing increasingly sophisticated methods of controlling healthcare costs. Third-party payors may limit coverage to specific therapeutic products on an approved list, or formulary, which might not include all of the FDA-approved products for a particular indication, might include only generic alternatives in a class, or might impose high copayment amounts to influence patient choice. Third-party payors also control costs by requiring prior authorization or imposing other dispensing restrictions before covering certain products and by broadening therapeutic classes to increase competition. Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. Absent clinical differentiators, third-party payors may treat products as therapeutically equivalent and base formulary decisions on net cost. To lower the prescription cost, sponsors frequently rebate a portion of the prescription price to the third-party payors. Recently, purchasers and third-party payors have begun to focus on value of new therapeutics and sought agreements in which price is based on achievement of performance metrics.
Federal programs also impose price controls through mandatory ceiling prices on purchases by federal agencies and federally funded hospitals and clinics and mandatory rebates on retail pharmacy prescriptions paid by Medicaid and Tricare. These restrictions and limitations influence the purchase of healthcare services and products. Legislative proposals to reform healthcare or reduce costs under government programs may result in lower reimbursement for our products or exclusion of our products from coverage. In addition, government programs like Medicaid include substantial penalties for increasing commercial prices over the rate of inflation, which can affect realization and return on investment.
Private payors often rely on the lead of the governmental payors in rendering coverage and reimbursement determinations. Therefore, achieving favorable CMS coverage and reimbursement is usually a significant gating issue for successful introduction of a new product. In addition, many government programs as a condition of participation mandate fixed discounts or rebates from sponsors regardless of formulary position or utilization, and then rely on competition in the market to attain further price reductions, which can greatly reduce realization on the sale.
Further, the increased emphasis on managed healthcare in the United States will put additional pressure on product pricing, reimbursement, and utilization, which may adversely affect our future product sales and results of operations. These pressures can arise from rules and practices of managed care groups, competition within therapeutic classes, judicial decisions and governmental laws and regulations related to Medicare, Medicaid, and healthcare reform, pharmaceutical coverage and reimbursement policies, and pricing in general. Patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Sales of our products therefore depend substantially on the extent to which the costs of our products will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, such as Medicare and Medicaid, private health insurers, and other third-party payors.
As a result of the above, we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to the costs required to obtain the FDA approvals. Our product candidates may not be considered medically necessary or cost-effective, or the rebate percentages required to secure coverage may not yield an adequate margin over cost. Additionally, companies are increasingly finding it necessary to establish bridge programs to assist patients access new therapies during protracted initial coverage determination periods.
Moreover, a payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved or that significant price concessions will not be required to avoid restrictive conditions. High health plan co-payment requirements may result in patients refusing prescriptions or seeking alternative therapies. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in therapeutic development. Legislative proposals to reform healthcare or reduce costs under government insurance programs may result in lower reimbursement for our products or exclusion of our products from coverage. The cost containment measures that healthcare payors and providers are instituting and any healthcare reform could significantly reduce our revenues from the sale of any approved product. We cannot provide any assurances that we will be able to obtain and maintain third-party coverage or adequate reimbursement for our products in whole or in part.
Healthcare Reform Measures
The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals designed to change the healthcare system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality, and expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives.
For example, the American Recovery and Reinvestment Act of 2009 established funding for the federal government to compare the effectiveness of different treatments for the same illness. The Agency for Healthcare Research and Quality among other things, conducts patient-centered outcome research, develops evidence-based tools and resources on medication therapies, maintains databases of health care related data and standards, and issues periodic reports on specific studies. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for public or private payors, it is not clear what effect, if any, the organization’s research has had or will have on the sales of any product, if any such product or the condition that it is intended to treat is the subject of a study. It is also possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect the sales of our products. If third-party payors do not consider our products to be cost-effective compared to other available therapies, they may not cover our products as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products on a profitable basis.
Moreover, the ACA broadened access to health insurance, attempts to reduce or constrain the growth of healthcare spending, enhanced remedies against fraud and abuse, added new transparency requirements for healthcare and health insurance industries, imposed new taxes and fees on the health care industry, and imposed additional health policy reforms. The law expanded the eligibility criteria and mandatory eligibility categories for Medicaid programs, thereby potentially increasing both the volume of sales and sponsors’ Medicaid rebate liability. The law also expanded the 340B discount program that mandates discounts to certain hospitals, community centers, and other qualifying providers, by expanding the categories of entities eligible to purchase under the program, although, with the exception of children’s hospitals, these newly eligible entities are ineligible to receive discounted 340B pricing on orphan therapeutics used to treat an orphan disease or condition. The ACA revised the definition of “average manufacturer price (AMP)” for reporting purposes, which generally increased the amount of Medicaid rebates to states. The law additionally extended sponsor’s Medicaid rebate liability to covered therapeutics dispensed to patients enrolled in Medicaid managed care organizations and increased the statutory minimum rebates a sponsor must pay under the Medicaid Drug Rebate program. The revisions to the AMP definition and Medicaid rebate formula can have the further effect of increasing the required 340B discounts. Further, the ACA requires sponsors of therapeutics, to pay 50% of the pharmacy charge to Medicare Part D patients while they are in the coverage gap, and this percentage was increased to 70% by the Bipartisan Budget Act of 2018. Finally, the ACA imposes a significant annual fee on companies that manufacture or import branded prescription therapeutic products. Substantial new provisions affecting compliance have also been enacted through the ACA and otherwise, including the reporting of therapeutic sample distribution. Although the ACA was amended in 2017 to repeal the individual insurance mandate, and efforts to repeal and replace portions of the law may continue, it is likely that pressure on pharmaceutical pricing, especially under the Medicare program, will continue, and may also increase our regulatory burdens and operating costs. Moreover, in the coming years, additional changes could be made to governmental healthcare programs that could significantly impact the success of our product candidates.
The cost of pharmaceuticals continues to generate substantial governmental and third-party payor interest. We expect that the pharmaceutical industry will experience pricing pressures due to the trend toward managed healthcare, the increasing influence of managed care organizations and additional legislative proposals. Our results of operations could be adversely affected by current and future healthcare reforms.
Some third-party payors also require pre-approval of coverage for new or innovative devices or therapies before they will reimburse healthcare providers that use such therapies. While we cannot predict whether any proposed cost-containment measures will be adopted or otherwise implemented in the future, the announcement or adoption of these proposals could have a material adverse effect on our ability to obtain adequate prices for our product candidates and operate profitably.
In addition, other legislative and regulatory changes have been proposed and adopted since the ACA was enacted. The Budget Control Act of 2011, as amended, created the Joint Select Committee on Deficit Reduction to recommend proposals in spending reductions to Congress. The Joint Select Committee on Deficit Reduction did not achieve its targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering the legislation’s automatic reductions to several government programs. These reductions include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year. The Bipartisan Budget Act of 2018 retained the federal budget “sequestration” Medicare payment reductions of 2%, and extended it through 2027 unless congressional action is taken, and also increased sponsor responsibility for prescription costs in the Medicare Part D coverage gap. The American Taxpayer Relief Act of 2012, further reduced Medicare payments to several categories of healthcare providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. These and other healthcare reform initiatives may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our financial operations. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could further limit the prices we are able to charge, or the amounts of reimbursement available, for our product candidates once they are approved.
In 2016, CMS issued a final rule regarding the Medicaid drug rebate program. The final rule, among other things, extended sponsor rebate obligations to U.S. territories (effective April 1, 2022), revised the manner in which the “average manufacturer price” is to be calculated by sponsors participating in the program, and implements certain amendments to the Medicaid rebate statute created under the ACA. In 2017, CMS issued a final Medicare rule limiting Part B payment for outpatient drugs purchased by hospitals under the 340B program. At the state level, legislatures are increasingly passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing. The full impact of these laws, as well as other new laws and reform measures that may be proposed and adopted in the future remains uncertain, but may result in additional reductions in Medicare and other health care funding, or higher production costs which could have a material adverse effect on our customers and, accordingly, our financial operations.
There have been several recent U.S. Congressional inquiries and proposed and adopted federal and state legislation designed to, among other things, bring more transparency to drug pricing and deter price increases, review the relationship between pricing and sponsor patient programs, and reform government program reimbursement methodologies for drugs. Further, Congress has proposed policy changes and further drug price control measures that could be enacted in future legislation, including, for example, imposition of an inflation penalty on drugs paid by Medicare and measures to permit Medicare Part D plans to negotiate the price of certain drugs. While any proposed measures will require authorization through additional legislation to become effective, Congress and the current U.S. Presidential administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs.
The Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party, or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. Activities that violate the FCPA, even if they occur wholly outside the United States, can result in criminal and civil fines, imprisonment, disgorgement, oversight, and suspension and debarment from government contracts, and refusal of orders under existing government contracts.
Facilities
Metuchen’s executive offices are located in approximately 5,650 square feet of office space at 200 U.S. Highway 9, Suite 500, Manalapan, NJ 07726, which its occupies under a five year lease agreement at approximately $9,000 per month.
Metuchen anticipates no difficulty in extending the leases of its facilities, or obtaining comparable facilities in suitable locations, as needed. Metuchen considers its facilities to be adequate for its current needs.
Pos-T-Vac's manufacturing facility is located in approximately 7,600 square feet of warehouse space at 2111 Wyatt Earp Boulevard, Dodge City, KS 67801 which it occupies under a ten-year lease agreement at approximately $6,000 per month. The lease expires on December 31, 2026.
Company Information
Metuchen’s executive offices are located at 200 U.S. Highway 9, Suite 500 Manalapan, New Jersey, 07726. Its telephone number at such office is 848-233-5568. Its website address is metuchenpharma.com. Information contained on its website is not incorporated by reference or to be deemed part of this report.
Legal Proceedings
On January 18, 2019, a Class Action Petition was filed against Timm in the Circuit Court of St. Louis County, Missouri. The Complaint alleges that on June 2, 2015, Timm sent an unsolicited facsimile advertisement on behalf of Pos-T-Vac Medical to the plaintiff in violation of the Telephone Consumer Protection Act (the “TCPA”). On March 27, 2019, the plaintiff filed a First Amended Class Action Complaint solely against Pos-T-Vac, LLC alleging claims for violation of the TCPA and for conversion. On June 10, 2019, Pos-T-Vac filed an Answer and Affirmative Defenses. Pos-T-Vac has insurance coverage for the matter and plans to vigorously defend.
Except as described above, as of the date hereof, Metuchen is not a party to any material legal or administrative proceedings. There are no proceedings in which any of Metuchen’s directors, executive officers, affiliates, or any registered or beneficial stockholder is an adverse party or has a material interest adverse to its interest. Metuchen may, from time to time, be subject to various legal or administrative claims and proceedings arising in the ordinary course of business. Litigation, or any other legal or administrative proceeding, regardless of the outcome, may result in substantial cost and diversion of Metuchen’s resources, including its management’s time and attention.
Exhibit 99.3
METUCHEN’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of Metuchen’s financial condition and results of operations together with Metuchen’s financial statements and the notes thereto appearing elsewhere in this proxy statement/prospectus. This discussion contains forward-looking statements reflecting Metuchen’s current expectations, whose actual outcomes involve risks and uncertainties. Actual results and the timing of events may differ materially from those stated in or implied by these forward-looking statements due to a number of factors, including those discussed in the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” in this proxy statement/prospectus. References in this section to “we,” “us,” or “the Company” refer to Metuchen.
Overview
Metuchen is a pharmaceutical company focused on men’s health therapeutics. On September 30, 2016, Metuchen acquired from Vivus, Inc. (“the Vivus Transaction”), all of the rights to license, develop, market, sell, and distribute the drug avanafil (Stendra®) in the United States, Canada, South America, and India. Stendra® is an FDA approved PDE-5 inhibitor prescription medication for the treatment of erectile dysfunction (“ED”) and is the only patent protected PDE-5 inhibitor on the market. Stendra® offers the ED therapeutic landscape a valuable addition as an oral ED therapy that may be taken as early as approximately 15 minutes prior to sexual engagement, with or without food when using the 100mg or 200mg dosing (does not apply to 50mg dosing).
Metuchen was founded by Joseph J. Krivulka, an experienced pharmaceutical executive who held several key leadership positions at leading pharmaceutical companies such as Mylan Laboratories Inc. and its subsidiary Bertek Inc., and was also the co-founder of Reliant Pharmaceuticals which was sold to GlaxoSmithKline in 2007 for $1.65 billion. During the period from Metuchen’s inception in 2016 through 2018, the founder became ill and decided to outsource the sales and marketing function to an affiliated contractor. The level of performance expected from this affiliated contractor was not realized. In 2018, the founder passed away which caused significant disruption to the business. Metuchen terminated this affiliate contractor and in 2019, Metuchen was forced to establish its own internal sales, marketing, and trade distribution functions for Stendra®. In 2019 Metuchen deployed a specialized key account sales model augmented by a national non-personal promotion campaign reaching nearly 30,000 healthcare professionals. Metuchen also enhanced its digital campaigns designed to create awareness among patients and its partners. Additionally, Metuchen engaged in a wide array of specialty medical conferences including presentations at educational product theaters and launched a national savings coupon for enhanced product access. Metuchen believes that these activities have established a framework for continued growth into 2020 and beyond. Following a year of internal management over marketing, sales and trade distribution functions, we believe the Company is well-positioned for a strong, multi-channel sales and marketing campaign as it enters the second half of 2020, beginning in June during Men’s Health Month.
In addition to ED products, Metuchen is committed to identifying and developing other pharmaceuticals to advance men’s health. In March 2020, Metuchen acquired an exclusive global license to H100™ from Hybrid Medical LLC (“Hybrid”). H100™ is a novel and patented topical formulation candidate for the treatment of acute Peyronie’s disease. Peyronie’s disease is a condition that occurs upon penile tissue disruption often caused by sexual activity or injury, healing into collagen-based scars that may ultimately harden and cause penile deformity.
Impact of COVID-19
In January 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. As a result of the COVID-19 pandemic, which continues to rapidly evolve, “shelter in place” orders and other public health guidance measures have been implemented across much of the United States, Europe and Asia, including in the locations of our offices, key vendors and partners. The extent to which the outbreak impacts our business, results of operations, preclinical studies and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. During the first quarter of 2020 and the second quarter to date, government regulations and the voluntary business practices of Metuchen and prescribing physicians have prevented in-person visits by sales representatives to physicians’ offices. Metuchen has taken steps to mitigate the negative impact on its businesses of such restrictions. In March 2020, we reduced our sales representative head count to reflect the lack of in-person visits. We have maintained a core sales team which continues to contact physicians via telephone and videoconference as well as continuing to have webinars provided by our KOL’s to other physicians and pharmacists. We anticipate rehiring and/or assigning representatives to cover sales territories as states reopen and physician access resumes new normal levels. Nevertheless, the extent of the impact of COVID-19 on our businesses cannot be predicted at this time.
In light of the COVID-19 outbreak, the FDA has issued a number of new guidance documents. Specifically, as a result of the potential effect of the COVID-19 outbreak on many clinical trial programs in the US and globally, the FDA issued guidance concerning potential impacts on clinical trial programs, changes that may be necessary to such programs if they proceed, considerations regarding trial suspensions and discontinuations, the potential need to consult with or make submissions to relevant ethics committees, IRBs, and the FDA, the use of alternative drug delivery methods, and considerations with respect the outbreak’s impacts on endpoints, data collection, study procedures, and analysis. Such developments may result in delays in our development of H100.
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. We continue to examine the impact of the CARES Act. Currently, we are unable to determine the impact that the CARES Act will have on our business, financial condition or results of operations.
Nature of Operations and Basis of Presentation
Metuchen was formed as a limited liability company pursuant to a certificate of formation filed with the Secretary of State of Delaware on July 22, 2016. Metuchen was organized for the purpose of (i) acquiring the U.S., Canadian, South American, and Indian marketing authorization rights to Stendra®, (ii) owning the purchased assets, (iii) entering into a manufacturing and supply agreement, (iv) entering into a distribution agreement, and (v) engaging in any other lawful act or activity that is ancillary or incidental to the foregoing.
On December 10, 2018, (“Acquisition Date”) JCP III CI AIV, L.P. (“JCP”), an affiliate of Juggernaut Capital Partners (the “JCP Investor”), acquired from Krivulka Family LLC (“Krivulka”) all of Krivulka’s ownership interest in Metuchen Therapeutics, LLC (“MT”), a holding company that owns 55% of Metuchen, giving JCP a controlling interest in Metuchen (such transaction, the “JCP Acquisition”). This transaction was accounted for as a business combination and has been pushed down to the consolidated financial statements of the Company in accordance with the guidance for business combinations found in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 805: Business Combinations.
Prior to this transaction, Krivulka owned 68% of MT. As of December 31, 2019, investment funds affiliated with the JCP Investor owned, either directly or indirectly, approximately 82% of the outstanding membership interests in Metuchen. On the Acquisition Date, Metuchen purchased all the equity interests of Timm Medical and PTV, collectively referred to as “Medical Device Business”, from entities related to Krivulka. Upon acquisition, the Medical Device Business became wholly owned subsidiaries of Metuchen.
Subsequent to the acquisition of the Medical Device Business, the Company manages its operations through two segments. The Company’s two segments, Prescription Medications and Medical Devices, focus on the treatment of male ED. The Prescription Medications segment consists primarily of Stendra®, which is sold generally in the United States. Expenses related to the development of H100™, which is in the early stages of development and has not yet sought FDA approval to begin Phase 1 clinical trials, will be within the Prescription Medications segment. The Medical Devices segment consists primarily of vacuum erection devices, which are sold domestically and internationally. Prior to the acquisition of the Medical Device Business, the Company managed its operation as a single segment for the purposes of assessing performance and making operating decisions.
Metuchen International, LLC (“Metuchen International”) was formed as a limited liability company pursuant to a certificate of formation filed with the Secretary of State of Delaware on July 22, 2016. Metuchen International is a wholly owned subsidiary of Metuchen included in the consolidated financial statements and has had no activity to date.
References in this section to “Successor” refer to the Company after the Acquisition Date. References to “Predecessor” refer to the Company prior to the Acquisition Date. The consolidated financial statements as of December 31, 2019, December 31, 2018, for the year ended December 31, 2019, and for the period from December 10, 2018 through December 31, 2018 (such portion of 2018, the “Successor Period”) represent the Successor’s financial position and results of operations, including the results of the Medical Device Business. The consolidated financial statements for the period from January 1, 2018 through December 9, 2018 represents the Predecessor’s results of operations (the “Predecessor Period”). The Successor Period reflects the assets and liabilities at fair value as of the Acquisition Date. Accordingly, the consolidated financial statements for the Predecessor Period are not comparable to the consolidated financial statements for the Successor Period. In addition, operating results for the Successor Period and Predecessor Period are not necessarily indicative of the results to be expected for a full fiscal year or future periods.
Licensing and Distribution
The Company acquired the rights to Stendra® avanafil on September 30, 2016 when it entered into the License Agreement with Vivus to purchase and receive the license for the commercialization and exploitation of Stendra® avanafil for a one-time fee of $70 million. The License Agreement gives Metuchen the exclusive right to sell avanafil in the U.S. and its territories, as well as Canada, South America, and India. In December 2000, Vivus originally was granted the license from Mitsubishi Tanabe Pharma Corporation (“MTPC”) to develop, market, and manufacture Stendra®. Stendra® was approved by the FDA in April 2012 to treat male ED.
Metuchen will pay MTPC a royalty of 5% on the first $500 million of net sales and 6% of net sales thereafter until the expiration of the applicable patent in a particular country. The last scheduled patent expiration is in April 2025. In consideration for the trademark assignment and the use of the trademarks associated with Stendra® and the Vivus technology, Metuchen shall (a) during the first, second, and third years following the expiration of the royalty period in a particular country in Metuchen’s territory, pay to Vivus a royalty equal to 2% of the net sales of Stendra® in such territory; and (b) following the fourth and fifth years following the end of the royalty period in such territory, pay to Vivus a royalty equal to 1% of the net sales of Stendra® in such territory. After the royalty period, no further royalties shall be owed with respect to net sales of Stendra® in such territory. In addition, Metuchen will be responsible for a pro-rata portion of a one-time $6 million milestone payment to be paid once $250 million in sales has been reached on the separate revenue stream of Stendra® during any calendar year.
In connection with the License Agreement, Metuchen and Vivus have also entered into the Vivus Supply Agreement on the effective date of the License Agreement. As part of the License Agreement, Metuchen also acquired Vivus’ Stendra® avanafil product and sample inventories as of September 30, 2016, for an additional $0.8 million. The Vivus Supply Agreement provided that Vivus would test, supply and provide the product to Metuchen or its designee, directly or through one or more third parties until September 30, 2021. During the term of the Vivus Supply Agreement, Metuchen is required to purchase minimum annual quantities from Vivus. Vivus, in turn, procures the product from a third-party manufacturer.
Until November 30, 2018, Metuchen was party to agreements with related parties relating to the distribution of avanafil in the U.S. pursuant to which Metuchen received a portion of net sales per calendar quarter and a fee per prescription written in such territory.
On March 27, 2018, Metuchen entered into a Sublicense Agreement with Acerus whereby Metuchen granted to Acerus an exclusive sublicense in Canada for, among other things, the development and commercialization of Stendra® avanafil for a one-time fee of $100,000. Metuchen is entitled to receive an additional fee of $400,000 if Stendra® is approved by Canadian regulators, as well as commercial milestone payments and royalty fees of 12% of net sales. The agreement remains in effect. In August 2018, Metuchen entered into the Acerus Supply Agreement, pursuant to which Acerus will purchase the product from Metuchen so long as the Acerus Sublicense Agreement remains in effect.
As of December 31, 2019, the JCP Investor owned, either directly or indirectly, approximately 82% of the outstanding membership interests in Metuchen.
In March 2020, Metuchen entered into an exclusive license and development agreement with Hybrid for H100™. Under the terms of the license agreement Metuchen has the exclusive right, including the right to sublicense, to use, sell, market and commercialize H100™ globally. The agreement provides that Metuchen’s exclusive right extends to any new indications or field uses for H100™ beyond the already identified use for Peyronie’s disease.
Critical Accounting Policies and Estimates
We consider certain accounting policies related to revenue recognition, including variable consideration, impairment of long-lived assets, including fair values used for assessment of impairment, realization of inventories and income taxes to be critical accounting policies that require the use of significant judgments and estimates relating to matters that are inherently uncertain and may result in materially different results under different assumptions and conditions. The preparation of financial statements in conformity with United States generally accepted accounting principles (“GAAP”) requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes to the consolidated financial statements. These estimates include useful lives for property and equipment and related depreciation calculations, and assumptions for valuing options, warrants and other stock-based compensation. Our actual results could differ from these estimates.
While Metuchen’s significant accounting policies are described in more detail in the notes to its consolidated financial statements appearing elsewhere in this prospectus/proxy statement/information statement, Metuchen believes the following accounting policies to be most critical to the significant judgments and estimates used in the preparation of its consolidated financial statements.
Revenue Recognition
Effective January 1, 2018, the Company adopted the FASB’s Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“Topic 606”).
Prescription Medication Sales
The Company’s prescription medication sales consist of sales of Stendra® in the U.S. for the treatment of male ED. Under Topic 606, the Company recognizes revenue from prescription medication sales when its performance obligations with its customers have been satisfied. In the contracts with its customers, the Company has identified a single performance obligation to provide Stendra® upon receipt of a customer order. The performance obligation is satisfied at a point in time when the Company’s customers obtain control of Stendra®, which is typically upon delivery. The Company invoices its customers after Stendra® has been delivered and invoice payments are generally due within 30 to 75 days of invoice date. In determining the transaction price, a significant financing component does not exist since the timing from when the Company delivers Stendra® to when the customers pay for the product is typically less than one year. The Company records prescription medication sales net of any variable consideration, including but not limited to discounts, rebates, returns, chargebacks and distribution fees. The Company uses the most likely amount method when estimating its variable consideration, unless terms are specified within contracts. The identified variable consideration is recorded as a reduction of revenue at the time revenues from sales of Stendra® are recognized. The Company recognizes revenue to the extent that it is probable that a significant revenue reversal will not occur in a future period. These estimates may differ from actual consideration received. The Company evaluates these estimates each reporting period to reflect known changes.
Consistent with industry practice, the Company maintains a return policy that generally allows its customers to return Stendra® and receive credit for product within six months prior to expiration date and up to one year after expiration date. The provision for returns is based upon the Company’s estimates for future Stendra® returns and historical experience. The provision for returns is part of the variable consideration recorded at the time revenue is recognized.
In relation to customer contracts, the Company incurs costs to fulfill a contract but does not incur costs to obtain a contract. These costs to fulfill a contract do not meet the criteria for capitalization and are expensed as incurred. As such, the Company did not have any contract assets at December 31, 2019 and December 31, 2018.
Medical Device Sales
The Medical Device Business sales consist of domestic and international sales of men’s health products for the treatment of ED. The men’s health products do not require a prescription and include VEDs, PreBoost, VenoSeal, penile injections (Rx), and urinary tract infection tests. Under Topic 606, the Company recognizes revenue from medical device sales when its performance obligations with its customers have been satisfied. In the contracts with its customers, the Company has identified a single performance obligation to provide medical devices upon receipt of a customer order. The performance obligation is satisfied at a point in time when the Company’s customers obtain control of the medical device, which is typically upon shipment. The Company invoices its customers after the medical devices have been shipped and invoice payments are generally due within 30 days of invoice date for domestic customers and 90 days for international customers. In determining the transaction price, a significant financing component does not exist since the timing from when the Company delivers the medical devices to when the customers pay for the product is typically less than one year.
The Company records medical device sales net of any variable consideration, including but not limited to returns. The Company uses the most likely amount method when estimating its variable consideration. The identified variable consideration is recorded as a reduction of revenue at the time revenues from the medical device sales are recognized. The Company recognizes revenue to the extent that it is probable that a significant revenue reversal will not occur in a future period. These estimates may differ from actual consideration received. The Company evaluates these estimates each reporting period to reflect known changes.
Consistent with industry practice, the Company maintains a return policy that generally allows its customers to return medical devices and receive credit for products within 90 days of the sale. The provision for returns is based upon the Company’s estimates for future product returns and historical experience. The Company has not made significant changes to the judgments made in applying Topic 606.
Accounts Receivable, net
The Company extends credit to its customers in the normal course of business. Accounts receivable are recorded at the invoiced amount, net of chargebacks, distribution service fees, rebates, and cash discounts. Management determines each allowance based on historical experience along with the present knowledge of potentially uncollectible accounts.
Inventories
Inventories consist of finished goods held for sale and raw materials. Inventories are stated at the lower of cost or net realizable value, with cost determined using the first-in, firstout method. Inventories are adjusted for excess and obsolescence. Evaluation of excess inventory includes such factors as expiry date, inventory turnover, and management’s assessment of current product demand.
Intangible Assets
The Company accounts for recognized intangible assets at cost. Intangible assets with finite useful lives are amortized over the useful life which the assets are expected to contribute directly or indirectly to future cash flows. Intangible assets are amortized using an accelerated method based on the pattern in which the economic benefits of the assets are consumed. The Company reviews the carrying value and useful lives of its intangible assets with definite lives whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable or the period over which they should be amortized has changed. When indicators of impairment exist, the Company determines whether the estimated undiscounted sum of the future cash flows of such assets is less than their carrying amounts. If less, an impairment loss is recognized in the amount, if any, by which the carrying amount of such assets exceeds their respective fair values. The Company evaluates the remaining useful life of each intangible asset that is being amortized during each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization. If the estimate of the intangible asset’s remaining useful life has changed, the remaining carrying amount of the intangible asset is amortized prospectively over that revised remaining useful life.
The Company did not record any impairments of intangible assets for the Successor Period or for the year ended December 31, 2019. The Company incurred an intangible asset impairment loss of $17,947,275 during the Predecessor Period.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. The Company evaluates the carrying value of goodwill annually in December of each year in connection with the annual budgeting and forecast process and also between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit to which goodwill was allocated to below its carrying amount. Such circumstances could include, but are not limited to: (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. When evaluating goodwill for impairment, we may first perform an assessment qualitatively whether it is more likely than not that a reporting unit’s carrying amount exceeds its fair value, referred to as a “step zero” approach. Subsequently (if necessary after step zero), an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. This quantitative impairment test uses a combination of the income method and guideline public company comparable companies. The income method is based on a discounted future cash flow approach that uses significant assumptions of projected revenue, projected operational profit, terminal growth rates and the cost of capital. Under ASU No. 2017-04, Intangibles, Goodwill and Other: Simplifying the Test for Goodwill Impairment (“Topic 350”), goodwill impairment is measured as the excess of the carrying amount of the reporting unit over its fair value. The Company incurred a goodwill impairment loss of $2,443,930 during the year ended December 31, 2019, related to the prescription medications segment.
Leases
Effective January 1, 2019, the Company adopted ASU No. 2016-02, Leases (“Topic 842”), along with other amendments issued in 2017 and 2018. Topic 842 supersedes the lease accounting requirements in ASC Topic 840, Leases (“Topic 840”). Topic 842 requires organizations to recognize leased assets and liabilities on the consolidated balance sheets. The standard also requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases.
The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. The Company has lease agreements which include lease and non-lease components, which the Company accounts for as a single lease component for all leases.
Operating lease right-of-use (“ROU”) assets are included in other assets whereas operating lease liabilities are included in other current liabilities and other long-term liabilities on the Company’s consolidated balance sheets. Operating lease ROU assets and operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The operating lease payments are recognized as lease expense on a straight-line basis over the lease term. Lease payments included in the measurement of the lease liability are comprised of fixed payments.
Variable lease payments associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments are presented in the Company’s consolidated statements of operations in the same line item as expense arising from fixed lease payments for operating leases.
Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets and the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company applies this policy to all underlying asset categories.
Topic 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor.
The information presented for periods prior to January 1, 2019 has not been adjusted and is reported under Topic 840.
Income Taxes
Metuchen is a limited liability company (“LLC”) for federal income tax purposes and has elected to be treated as a Partnership for state income tax purposes. PTV is a disregarded entity for deferral income tax purposes. As such, all income tax consequences resulting from the operations of Metuchen and PTV are reported on the members’ income tax returns.
Timm Medical is a C corporation, which accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, Timm Medical determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
Timm Medical recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, Timm Medical considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If Timm Medical determines that it would be able to realize deferred tax assets in the future in excess of its net recorded amount, Timm Medical would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The Company records uncertain tax positions in accordance with Topic 740 on the basis of a two-step process in which (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statements of operations. As of December 31, 2019 and 2018, no accrued interest or penalties are recorded in the consolidated balance sheets.
Recent Accounting Pronouncements
Recently Adopted
In February 2016, the FASB issued Topic 842. This guidance revises existing practice related to accounting for leases under Topic 840 for both lessees and lessors. The new guidance in Topic 842, requires lessees to recognize a right-of-use asset and a lease liability for nearly all leases (other than leases that meet the definition of a short-term lease). The lease liability will be equal to the present value of lease payments and the right-of-use asset will be based on the lease liability, subject to adjustment such as for initial direct costs. For income statement purposes, the new standard retains a dual model similar to Topic 840, requiring leases to be classified as either operating leases or capital leases. For lessees, operating leases will result in straight-line expense (similar to current accounting by lessees for operating leases under ASC 840) while capital leases will result in a front-loaded expense pattern (similar to current accounting by lessees for capital leases under ASC 840). The new standard is effective for annual reporting periods beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020 for private entities. Public entities must adopt for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted Topic 842 on January 1, 2019 using the effective date transition method. Prior period results continue to be presented under Topic 840 based on the accounting standards originally in effect for such periods.
The Company has elected certain practical expedients permitted under the transition guidance within Topic 842 to leases that commenced before January 1, 2019, including the package of practical expedients. The election of the package of practical expedients resulted in the Company not reassessing prior conclusions under Topic 840 related to lease identification, lease classification and initial direct costs for existing leases at January 1, 2019.
Upon adoption, the Company recorded an operating lease liability with a corresponding operating lease ROU asset of $0.3 million. The Company also reclassified the unfavorable leasehold interest to the operating ROU asset upon adoption of Topic 842. The adoption did not have a material impact on the consolidated results of operations and cash flows for the year ended December 31, 2019.
On January 1, 2018, the Company adopted Topic 606 using the modified retrospective approach and applied this approach only to contracts that were not completed as of January 1, 2018. The Company calculated a one-time transition adjustment of $1,938,831, which was recorded on January 1, 2018 to the opening balance of accumulated deficit, related to the product sales of Stendra®. The Topic 606 transition adjustment recorded for Stendra® resulted in sales being recognized earlier than under Topic 605, as the deferred revenue recognition model (sell-through) is not permitted under Topic 606. The one-time adjustment consisted of $8,528,628 in deferred revenue offset by deferred inventory of $186,313 and $6,403,484 of variable consideration included in accrued expenses in the Company’s consolidated balance sheets.
Pending Adoption as of December 31, 2019
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). Subsequently, in November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses (“ASU 2018-19”). ASU 2016-13 changes the impairment model for most financial assets including trade receivables and certain other instruments that are not measured at fair value through net income. ASU 2016-13 will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. ASU 2016-13 also simplifies the accounting model for purchased credit-impaired debt securities and loans. Private entities will apply the standard’s provisions as a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. ASU 2016-13 and ASU 2018-19 are effective for the annual periods beginning after December 15, 2021. Public entities that have reporting obligations pursuant to the Securities Exchange Act of 1934, as amended, must adopt for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is evaluating the impact of this new guidance on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). ASU 2018-13 modifies the disclosure requirements on fair value measurements by requiring that Level 3 fair value disclosures include the range and weighted average of significant unobservable inputs used to develop those fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. The guidance is effective for the Company for the annual periods and interim periods within annual periods beginning after December 15, 2019 for both private and public entities. Early adoption is permitted. The Company is evaluating the impact of this new guidance on its consolidated financial statements.
Results of Operations
Year ended December 31, 2019, Successor Period from December 10, 2018 through December 31, 2018 and Predecessor Period from January 1, 2018 through December 9, 2018
The following table sets forth a summary of our statement of operations for the year ended December 31, 2019, the Successor Period from December 10, 2018 through December 31, 2018 and the Predecessor Period from January 1, 2018 through December 9, 2018:
| Year Ended December 31, 2019 | Successor Period from December 10, 2018 through December 31, 2018 | Predecessor Period from January 1, 2018 through December 9, 2018 | |
| NET SALES | $ 15,577,166 | $ 838,926 | $ 13,212,317 |
| COST OF SALES | 7,427,111 | 282,542 | 2,133,283 |
| GROSS PROFIT |
____________________
8,150,055
|
____________________
556,384
|
____________________
11,079,034
|
| OPERATING EXPENSES: | |||
| General and administrative | 19,727,223 | 887,170 | 10,374,672 |
| Depreciation and Amortization expense | 5,291,107 | 289,458 | 7,775,536 |
| Impairment loss | 2,443,930 | __ | 17,947,275 |
| TOTAL OPERATING EXPENSES |
_____________________
27,462,260
|
_____________________
1,176,628
|
_____________________
36,097,483
|
| LOSS FROM OPERATIONS |
_____________________
(19,312,205)
|
_____________________
(620,244)
|
_____________________
(25,018,449)
|
| Life insurance settlement | __ | __ | 5,009,467 |
| Interest expense, senior debt | (2,428,264) | (184,047) | (4,286,922) |
| Interest expense, related party term loans | (11,416,697) | (890,343) | (6,495,535) |
| LOSS BEFORE INCOME TAXES |
_____________________
(33,157,166)
|
_____________________
(1,694,634)
|
_____________________
(30,791,439)
|
| Income tax benefit | (645,866) | (13,365) | __ |
| NET LOSS | (32,511,300) | (1,681,269) | (30,791,439) |
Net Sales
Net sales for the year ended December 31, 2019 were $15,577,166, composed of $11,110,660 of net sales from Prescription Medicines and net sales of $4,466,506 from Medical Devices.
Net sales for the Successor Period from December 10, 2018 through December 31, 2018 were $838,926, composed of $513,878 of net sales from Prescription Medicines and net sales of $325,048 from Medical Devices.
Net sales for the Predecessor Period from January 1, 2018 through December 9, 2018 were $13,212,317.
For the year ended December 31, 2019, gross sales from customers representing 10% or more of the Company’s total gross sales included one customer which represented approximately 86% of total gross sales.
For the Successor Period for the period from December 10, 2018 through December 31, 2018, gross sales from customers representing 10% or more of the Company’s total gross sales included one customer which represented approximately 83% of total gross sales.
For the Predecessor Period from January 1, 2018 through December 9, 2018, gross sales from customers representing 10% or more of the Company’s total gross sales included the Company’s top three customers, with gross sales equal to approximately 31%, 29%, and 25%.
Prescription Medicines sales consist of sales of Stendra® in the U.S. for the treatment of male ED. Stendra® is primarily sold directly to the one customer described above and resold through three main wholesalers, which collectively accounted for 91% of Stendra® net sales in 2019. Individually, the three main wholesalers accounted for 33%, 32% and 26% of Stendra® net sales in 2019.
Medical Device sales consist of domestic and international sales of men’s health products for the treatment of ED. The men’s health products do not require a prescription and include Vacuum Erection Devices (VEDs), PreBoost, VenoSeal, penile injections (Rx), and urinary tract infection tests. Timm discontinued various co-promotion activities in 2019 and is currently selling only VEDs and VenoSeal. The VEDs represent almost 100% of sales.
Cost of Sales
Cost of sales for the year ended December 31, 2019 were $7,427,111, composed of $6,057,977 of cost of sales for our Prescription Medicines segment and $1,369,134 for our Medical Devices segment.
Cost of sales for the Successor Period from December 10, 2018 through December 31, 2018 were $282,542, composed of $216,181 of cost of sales for our Prescription Medicines segment and $66,361 for our Medical Devices segment.
Cost of sales for the Predecessor Period from January 1, 2018 through December 9, 2018 were $2,133,283.
Cost of sales for the Prescription Medicine segment for 2019 consisted of 39% third-party product cost of sales, 49% inventory obsolescence reserves, 9% royalty expenses and 3% other cost of sales.
Cost of sales for the Medical Device segment for 2019 consisted of 80% raw materials, 15% production labor and 5% other cost of sales.
Cost of sales were higher as a percentage of 2019 sales than in either period of 2018. The increase was primarily driven by write-offs of inventory relating to step-ups and obsolescence.
Gross Profit
Gross profit for the year ended December 31, 2019 was $8,150,055, composed of $5,052,683 of gross profit from Prescription Medicines and $3,097,372 from Medical Devices. Our gross profit was the result of net sales for each segment, partially offset by the cost of sales for each segment, each of which is described above.
Gross profit for the Successor Period from December 10, 2018 through December 31, 2018 was $556,384, composed of $297,697 of gross profit from Prescription Medicines and $258,687 from Medical Devices. Our gross profit was the result of net sales for each segment, partially offset by the cost of sales for each segment, each of which is described above.
Gross profit for the Predecessor Period from January 1, 2018 through December 9, 2018 was $11,079,034. Our gross profit was the result of net sales, partially offset by the cost of sales, each of which is described above.
Gross profit margins on a percentage basis were 52% in 2019, which was lower than in either period in 2018. The decrease in gross profit margins percentage is primarily because of the change in the mix of sales by segment and the write-off of inventory.
Operating Expenses
General and administrative
General and administrative expenses for the year ended December 31, 2019 were $19,727,223, composed of $13,873,200 of General and administrative expenses of our Prescription Medicines segment, $2,735,390 of General and administrative expenses of our Medical Devices segment and $3,118,633 of general corporate expenses.
General and administrative expenses for the Successor Period from December 10, 2018 through December 31, 2018 were $887,170, composed of $496,352 of General and administrative expenses of our Prescription Medicines segment, $264,088 of General and administrative expenses of our Medical Devices segment and $126,730 of general corporate expenses.
General and administrative expenses for the Predecessor Period from January 1, 2018 through December 9, 2018 were $10,374,672.
General and administrative expenses for both segments include selling, marketing and regulatory expenses. Unallocated general corporate expenses include costs that were not specific to a particular segment but are general to the group, including expenses incurred for administrative and accounting staff, general liability and other insurance, professional fees and other similar corporate expenses.
General and Administrative expenses were higher in 2019 than in either period of 2018, primarily driven byhigher payroll expense related to formation of a Sales, Marketing and administrative staffing and the added expenses related to conducting operations internally without reliance on outsourcing.
Depreciation and Amortization
Depreciation and Amortization expenses for the year ended December 31, 2019 were $5,291,107, composed of $4,145,833 of Depreciation and Amortization expenses of our Prescription Medicines segment and $1,145,274 of Depreciation and Amortization expenses of our Medical Devices segment.
Depreciation and Amortization expenses for the Successor Period from December 10, 2018 through December 31, 2018 were $289,458, composed of $226,112 of Depreciation and Amortization expenses of our Prescription Medicines segment and $63,346 of Depreciation and Amortization expenses of our Medical Devices segment.
Depreciation and Amortization expenses for the Predecessor Period from January 1, 2018 through December 9, 2018 were $7,775,536.
Prescription Medicines Depreciation and Amortization consists primarily of the amortization of the intangible assets related to Stendra® over its estimated useful life of 10 years. Medical Devices Depreciation and Amortization primarily consists of the amortization of the intangible assets related to Timm Medical and PTV over their estimated useful life of 12 years.
Depreciation and Amortization was lower in 2019 than in the Predecessor Period, despite the difference in length of periods, primarily as a result of the reduction of intangible assets.
Impairment loss
Impairment loss on goodwill for the Successor Period for the year ended December 31, 2019 was $2,443,930 and was the result of the Company’s annual assessment of goodwill using assumptions to derive the fair value of the reporting unit to reflect current projections as compared to the projections used at the date of the purchase price allocation on the Acquisition Date of December 10, 2018.
Impairment loss on intangible asset for the Predecessor Period from January 1, 2018 through December 9, 2018 was $17,947,275. Metuchen had an existing intangible asset on its consolidated balance sheets related to the licensing rights of Stendra® it obtained from Vivus prior to the Acquisition Date of December 10, 2018. The impairment loss was the result of the carrying value of this existing Stendra® licensing right adjusted to reflect its fair value on the Acquisition Date.
Total Operating Expenses
Total Operating Expenses for the year ended December 31, 2019 were $27,462,260, composed of $20,462,963 of operating expenses of our Prescription Medicines segment, $3,880,664 of operating expenses of our Medical Devices segment and $3,118,633 of general corporate expenses. Such expenses consisted of the general and administrative expenses and Depreciation and Amortization expenses described above.
Total Operating Expenses for the Successor Period from December 10, 2018 through December 31, 2018 were $1,176,628, composed of $722,464 of operating expenses of our Prescription Medicines segment, $327,434 of operating expenses of our Medical Devices segment and $126,730 of general corporate expenses. Such expenses consisted of the general and administrative expenses and Depreciation and Amortization expenses described above.
Total Operating Expenses for the Predecessor Period from January 1, 2018 through December 9, 2018 were $36,097,483. Such expenses consisted of the general and administrative expenses, Depreciation and Amortization expenses and impairment loss described above.
Loss from Operations
Loss from Operations for the year ended December 31, 2019 was $19,312,205, including a loss from operations of $15,410,280 for our Prescription Medicines segment and a loss from operations of $783,292 for our Medical Devices segment, for the reasons described above. The remainder of the loss related to unallocated general corporate expenses.
Loss from Operations for the Successor Period from December 10, 2018 through December 31, 2018 was $620,244, including a loss from operations of $424,767 for our Prescription Medicines segment and a loss from operations of $68,747 for our Medical Devices segment, for the reasons described above. The remainder of the loss related to unallocated general corporate expenses.
Loss from Operations for the Predecessor Period from January 1, 2018 through December 9, 2018 was $25,018,449 for the reasons described above.
Life insurance settlement
Life insurance settlement for the Predecessor Period from January 1, 2018 through December 9, 2018 was $5,009,467. Such settlement related to a $5 million keyman life insurance policy on behalf of Metuchen’s previous managing member, who passed away in February 2018. In May 2018, Metuchen received such payment, including interest.
Interest expense, senior debt
Interest expense, senior debt for the year ended December 31, 2019 was $2,428,264, consisting of interest payments on our senior debt, with a weighted average balance of $15,514,168 and a weighted average interest rate of 14.1%.
Interest expense, senior debt for the Successor Period from December 10, 2018 through December 31, 2018 was $184,047, consisting of interest payments on our senior debt, with a weighted average balance of $18,591,889 and a weighted average interest rate of 14.4%.
Interest expense, senior debt for the Predecessor Period from January 1, 2018 through December 9, 2018 was $4,286,922, consisting of interest payments on our senior debt, with a weighted average balance of $22,156,526 and a weighted average interest rate of 13.6%.
Interest expense, related party term loans
Interest expense, related party term loans for the year ended December 31, 2019 was $11,416,697, consisting of Paid-in-Kind (“PIK”) interest of $6,747,313 and amortization of debt discount of $4,669,384. As described under “Liquidity and Capital Resources—Debt—Subordinated Related Party Loans” below, the related party term loans were extinguished in an exchange transaction on September 16, 2019. Accordingly, as of December 31, 2019, there was no outstanding principal balance for the subordinated related term loans.
Interest expense, related party term loans for the Successor Period from December 10, 2018 through December 31, 2018 was $890,343, including PIK interest of $539,800 and amortization of debt discount of $350,543. As described under “Liquidity and Capital Resources—Debt—Subordinated Related Party Loans” below, on December 10, 2018, as part of the acquisition accounting for the JCP Acquisition, the outstanding related party term loans were determined to have a fair value that was less than its carrying value. A debt discount of $15,506,463 was recognized and is being amortized to interest expense over the term of the debt using the effective interest method.
Interest expense, related party term loans for the Predecessor Period from January 1, 2018 through December 9, 2018 was $6,495,535, consisting entirely of PIK interest on the subordinated related party term loans.
Loss before Income Taxes
Loss before Income Taxes for the year ended December 31, 2019 was $33,157,166, consisting of Loss from Operations, Interest expense and Other Non-operating Expenses, as described above.
Loss before Income Taxes for the Successor Period from December 10, 2018 through December 31, 2018 was $1,694,634, consisting of Loss from Operations, Interest expense and Other Non-operating Expenses, as described above.
Loss before Income Taxes for the Predecessor Period from January 1, 2018 through December 9, 2018 was $30,791,439, consisting of Loss from Operations and Interest expense, partially offset by the life insurance settlement, as described above.
Income tax benefit
Income tax benefit for the year ended December 31, 2019 was $645,866. The tax benefit is primarily attributed to the operations of the Medical Device segment.
Income tax benefit for the Successor Period from December 10, 2018 through December 31, 2018 was $13,365. The tax benefit is primarily attributed to the operations of the Medical Device segment. The Company did not have any income tax benefit for the Predecessor Period from December 1, 2018 through December 9, 2018.
Net Loss
Net Loss for the year ended December 31, 2019 was $32,511,300, consisting of Loss before Income Taxes of $33,157,166, partially offset by Income tax benefit of $645,866.
Net Loss for the Successor Period from December 10, 2018 through December 31, 2018 was $1,681,269, consisting of Loss before Income Taxes of $1,694,634, partially offset by Income tax benefit of $13,365.
Net Loss for the Predecessor Period from January 1, 2018 through December 9, 2018 was $30,791,439, consisting of Loss before Income Taxes. The Company did not incur any income tax expenses or benefit for the Predecessor Period.
Liquidity and Capital Resources
General
Cash totaled $2,145,812 at December 31, 2019, compared to $2,794,125 at December 31, 2018.
We have experienced net losses and negative cash flows from operations since our inception. As of December 31, 2019, we had cash of $2,145,812, negative working capital of approximately $29.9 million, and sustained cumulative losses attributable to common stockholders of $41,996,733. These conditions raise substantial doubt about our ability to continue as a going concern. We are exploring additional ways to raise capital. While we are optimistic that will be successful in our efforts to raise additional capital, there can be no assurances that we will be successful in doing so. The financial statements do not contain any additional adjustments that might result from the resolution of any of the above uncertainties. We plan to continue raising additional funds to meet our operational goals until profitable.
To date, our principal sources of capital used to fund our operations have been the net proceeds we received from private sales of equity securities and proceeds received from the issuance of convertible debt, as described below.
We rely on McKesson Corporation (“McKesson”) to distribute our products to our customers. As of December 31, 2019, we had $4,347,070 in Gross Accounts Receivable due from McKesson, partially offset by $2,357,854 in accrued chargebacks, cash discounts and distribution service fees. We also owed McKesson $4,388,600 in accrued returns expenses. Net amounts Metuchen owed to McKesson was $2,399,593 as of December 31, 2019 and $2,072,750 as of March 31, 2020. Metuchen continues to pay McKesson invoices when due. On March 27, 2020, Metuchen received notice of termination from McKesson. Such notice was withdrawn on April 3, 2020, following Metuchen’s payment of $1,915,144.
Our principal expenditures include payment for inventory of Stendra® from our key supplier, Vivus, including purchases of inventory accrued in current periods, but for which payment is due in future periods. We have significant unpaid balances owed to Vivus and are currently in discussions with Vivus with respect to contested amounts alleged to be owed. We had an aggregate accrued unpaid balance owed to Vivus of $15,809,920 as of December 31, 2019 and March 31, 2020. Metuchen is in discussions with Vivus to convert a portion of the amounts owed into a subordinated note.
In March 2020, Metuchen acquired the exclusive license to H100™ from Hybrid. H100™ is a topical candidate with at least one active ingredient and potentially a combination of ingredients responsible for the improvement of penile curvature during the acute phase of Peyronie’s disease. We paid an initial license fee of $100,000, with an additional $900,000 payment due upon obtainment of orphan indication for H100 and termination of Hybrid’s existing agreement with a compounding pharmacy, and additional annual payments of $125,000, $150,000 and $200,000 due on each of the first, second and third anniversaries of the license agreement and $250,000 annual payments due thereafter. Metuchen is also required to make a $1,000,000 payment upon first commercial sale and a sliding scale of percentage payments on net sales in the low single digits. Annual anniversary payments will not be required after commercialization. Metuchen is also obligated to make royalty payments between 3-6% of any net sales. Metuchen also expects to incur approximately $14 million of research and development expenses relating to H100 over the estimated four to six year period of clinical development prior to FDA approval, including approximately $10 million for clinical trials and $4 million of other expenses.
We expect to continue to incur substantial expenditures in the foreseeable future at rates consistent with expenditures incurred during fiscal year 2019. We will require additional financing to further develop and market our products, fund operations, and otherwise implement our business strategy at amounts relatively consistent with Fiscal 2019 expenditure levels disclosed above. Our current financial condition raises substantial doubt about our ability to continue as a going concern. We intend to renegotiate our financial covenants in order to address our covenant violation and are exploring additional ways to raise capital, but we cannot assure you that we will be able to renegotiate such covenants or raise capital. Our failure to renegotiate our covenants or raise capital as and when needed would have a material adverse impact on our financial condition, our ability to meet our obligations, and our ability to pursue our business strategies. We will seek funds through additional equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing.
We are focused on expanding our service offering through internal development, collaborations, and through strategic acquisitions. We are continually evaluating potential asset acquisitions and business combinations. To finance such acquisitions, we might raise additional equity capital, incur additional debt, or both.
Debt
Senior Debt
On September 30, 2016, the Company entered into a loan agreement (the “Loan Agreement”) with Hercules Capital, Inc. (“Hercules”), for a $35 million term loan with a stated interest rate of the greater of either (i) Prime (as defined in the Loan Agreement) plus 7.25% or (ii) 10.75%. The interest rate was 12.00% at December 31, 2019. The Loan Agreement includes an additional PIK interest that increases the outstanding principal on a monthly basis at an annual rate of 1.35% and a $787,500 end of term charge. We refer to the credit facility with Hercules as Senior Debt.
On November 22, 2017, the Company entered into Amendment Number 1 to the Loan Agreement (the “First Amendment”). A covenant was added, in which the Company must achieve a certain minimum EBITDA, as defined in the First Amendment, target for the trailing twelve-month period, ending June 30, 2018. The end of term charge was increased from $787,500 to $1,068,750. The minimum EBITDA for each of the trailing six months and the fixed charge coverage ratio were reduced from 1:1 to 0.9:1. The Company was also required to prepay $10,000,000 in principal.
Monthly principal payments, including interest, commenced November 1, 2018 with the outstanding balance under the Loan Agreement, as amended, due in full on November 1, 2020. The end of term charge is being recognized as interest expense and accreted over the term of the Loan Agreement, as amended, using the effective interest method.
On August 13, 2019, the Company entered into a forbearance agreement with Hercules under which Hercules agreed to forbear exercising any remedies under the loan for events of default through the earlier of September 30, 2019 or the occurrence of an event of default under the Loan Agreement, as amended.
Effective April 13, 2020, the Company and Hercules amended the Loan Agreement, as previously amended, to extend the maturity date thereof to April 1, 2021, subject to further extension to December 1, 2021 if the Company raises at least $20 million through an equity or debt financing or other transaction. The amendment is subject to the Company’s receipt of at least $2 million of equity or debt financing prior to the effectiveness of the amendment. The amendment will remove the minimum EBITDA and fixed charge coverage ratio covenants and replace them with a covenant to raise at least $3 million of equity or debt financing by April 30, 2020 and minimum cash covenants, the required levels of which are dependent upon the Company’s achievement of certain revenue, EBITDA and capital raising milestones. Each of the $2 million minimum financing requirement prior to closing of the amendment and the $3 million financing requirement prior to April 30, 2020 were satisfied through the issuance of the $3 million April 2020 Subordinated Promissory Note described in “—Subordinated Related Party Loans” below. All previously accrued PIK interest will be added to accrued principal. No further PIK interest will accrue. The cash interest would accrue at a rate of the greater of (i) the prime rate reported in the Wall Street Journal plus 11.50% minus 4.25% and (ii) 11.50%. The end of term charge of $1,068,750 will be partially extended with $534,375 due on October 1, 2020 and $534,375 due on February 1, 2020. The Company incurred a $50,000 amendment fee upon closing of the amendment.
Subordinated Related Party Loans
On September 30, 2016, the Company executed a Subordination Agreement relating to subordinated debt (“Sub Debt”) with several related parties, including the JCP Investor (herein referred to collectively as “the Related Holders”). On November 22, 2017, the Company and the Related Holders entered into an Amended and Restated Subordination Agreement (the “Amended Agreement”). Under the terms of the Amended Agreement, the principal balance was increased to $30,579,496. The cash interest rate of the amended sub debt is 12%. Additional PIK interest is 8% payable on the maturity date.
On December 10, 2018, as part of the acquisition accounting for the JCP Acquisition, the outstanding Sub Debt was determined to have a fair value that was less than its carrying value. The fair value of the subordinated related party term loans was $22,250,746 at December 10, 2018. A debt discount of $15,506,463 was recognized and is being amortized to interest expense over the term of the debt using the effective interest method.
On December 10, 2018, the Company signed a subordinated promissory note for an additional $4,750,000 of Sub Debt from JCP. The proceeds were used for the acquisition of the Medical Device Business. The principal, along with PIK interest at an annual rate of 25%, is due on April 2, 2021.
On September 16, 2019, Metuchen entered into an Exchange Agreement (“Exchange Agreement”) with JCP III SM AIV, L.P. and L. Mazur Associates, JV to exchange Preferred and Common Units for the Company’s subordinated related party term loans. Upon consummation of the exchange, the Preferred and Common Units issued were for the full satisfaction of the subordinated related party term loan. As of December 31, 2019, there was no outstanding principal balance or accrued interest for the subordinated related term loans. The following chart summarizes the instruments exchanged in the transaction as of September 16, 2019:
| Instrument | Amount | |||
| Common Units, at fair value (2,434,551.28 Units) | $ | 29,117,232 | ||
| Preferred Units, at fair value (1,373,820.51 Units) | 17,500,000 | |||
| Total fair value of Preferred and Common Units exchanged | 46,617,232 | |||
| Sub Debt principal balance | 33,250,000 | |||
| Add: PIK Interest | 16,544,318 | |||
| Less: Debt Discount | 10,486,536 | |||
| Total carrying value of Sub Debt exchanged | 39,307,782 | |||
| Excess of fair value of Preferred and Common Units exchanged over the carrying value of Sub Debt | $ | (7,309,450 | ) | |
Based on ASC 470, the Company accounted for the exchange between related parties as a capital transaction. The carrying value of the subordinated related party term loans, including any accrued interest, on the date of the exchange was $39.3 million and the fair value of Preferred and Common Units was $46.6 million. As a capital transaction between related parties, the Company did not record an extinguishment loss. Instead, the Company recorded the $7.3 million difference between the carrying value of the subordinated related party term loans and the fair value of the Preferred and Common Units to members’ capital.
Subordinated Promissory Notes
From January 31, 2020 through April 22, 2020, the Company entered into Subordinated Promissory Notes with JCP III SM AIV, L.P., a related party, in the aggregate principal amount of $10.0 million (“Subordinated Promissory Notes”). The maturity date of each Subordinated Promissory Note is April 2, 2021. Each Subordinated Promissory Note bears PIK interest at an annual rate of 20%.
Private Placement
On September 16, 2019, Metuchen consummated a Private Placement (“Private Placement”) with V4 Capital Partners, LLC (“Lead Investor”) and other accredited investors (collectively “Investors”). In connection with the Private Placement, the Company agreed to issue and sell up to $3.5 million of the Company’s preferred units. Each preferred unit had an offering price of $12.7382 per unit. The Company issued 245,933 preferred units related to the Private Placement and received aggregate net proceeds from the Private Placement was $2.7 million.
The preferred units contain a 5% non-cumulative quarterly dividend, include one vote per unit on all matters to be voted upon by common unit holders and require a mandatory conversion upon the closing of a qualified public offering, with the conversion price being subject to adjustment if the price per share in the qualified public offering is less than $15.92275 per preferred unit. Subject to adjustment, each preferred unit can be converted into one common unit.
In connection with the Private Placement, the Lead Investor received warrants (“Lead Investor Warrants”) to purchase an aggregate of 615,838.50 shares of the Company’s preferred units. The Lead Investor Warrants expire on September 16, 2020 and have an exercise price of $0.01 per preferred unit. The Lead Investor Warrants are only exercisable upon a qualified public offering being consummated within one year of the date of the Private Placement. The fair value of the Lead Investor Warrants was estimated to be $2.1 million. To record the issuance of the Lead Investor Warrants, the Company allocated the proceeds of $250,000 received from the Lead Investor for the Preferred Units between the Lead Investor Warrants and the beneficial conversion feature for the embedded conversion option. Of the proceeds received, the relative fair value allocated to the Lead Investor Warrants was $223,500 and was included in additional paid-in capital.
Also, in connection with the Private Placement, the placement agent received warrants (“Placement Agent Warrants”) to purchase an aggregate of 21,139.10 shares of the Company’s preferred units. The Placement Agent Warrants expire on September 16, 2024 and have an exercise price of $12.7382 per preferred unit. The Placement Agent Warrants can be exercised any time on or after September 16, 2019. The fair value of the Placement Agent Warrants was estimated to be $135,800 and was included in additional paid-in capital. The Placement Agent Warrants did not meet the criteria for liability classification and will be classified within equity as they are indexed to the Company’s stock.
Cash Flows
The following table summarizes our cash flows for the year ended December 31, 2019 and for the Successor Period from December 10, 2018 through December 31, 2018 and for the Predecessor Period from January 1, 2018 through December 9, 2018:
| For the year ended December 31, 2019 | For the period from December 10, 2018 through December 31, 2018 | For the period from January 1, 2018 through December 9, 2018 | |
| Net cash provided by (used in) operating activities | $ 2,532,479 | $ (80,215) | $ 8,100,981 |
| Net cash used in investing activities | (71,540) | (1,875,660) | __ |
| Net cash provided by (used in) financing activities | (3,109,252) | 4,750,000 | (7,297,763) |
| Net increase (decrease) in cash | $ (648,313) | $ 2,794,125 | $ 803,218 |
Cash Flows from Operating Activities
Net cash provided by operating activities for the year ended December 31, 2019 was $2,532,479, which primarily reflected our net loss of $32,511,300, net of adjustments to reconcile net loss to net cash used in operating activities of $35,043,779, which included $10,365,132 of accounts payable and accrued expenses, comprised primarily of the minimum purchase obligation with Vivus and accrual due to McKesson for its services as the third-party logistics provider, $6,959,236 of non-cash PIK interest on our Sub Debt, $5,291,107 of depreciation and amortization, $4,669,384 of amortization of deferred financing costs and debt discount, and $2,443,930 of goodwill impairment, partially offset by $2,558,067 of inventory expense.
Net cash used in operating activities for the Successor Period from December 10, 2018 through December 31, 2018 was $80,215, which primarily reflected our net loss of $1,681,269, net of adjustments to reconcile net loss to net cash used in operating activities of $1,601,054, which included $4,642,623 of inventory expense, $645,761 of deposits and $555,990 of non-cash PIK interest on our Sub Debt, partially offset by $4,700,303 of other current liabilities, comprised primarily of the minimum purchase obligation with Vivus.
Net cash provided by operating activities for the Predecessor Period from January 1, 2018 through December 9, 2018 was $8,100,981, which primarily reflected our net loss of $30,791,439, net of adjustments to reconcile net loss to net cash provided by operating activities of $38,892,420, which included $17,947,275 of impairment loss for intangible assets, $11,080,793 of accrued expenses, $7,775,536 of depreciation and amortization, $6,778,033 of non-cash PIK interest on our Sub Debt and $4,147,552 of other current liabilities, comprised primarily of the minimum purchase obligation with Vivus, partially offset by $8,528,622 of deferred revenue, $4,546,044 of inventory and $1,356,349 of accounts payable.
Cash Flows from Investing Activities
Net cash used in investing activities was $71,540 for the year ended December 31, 2019. Net cash used in investing activities was $1,875,660 for the Successor Period from December 10, 2018 through December 31, 2018. In each case, such case related to the acquisition of fixed assets. No net cash was used in or provided by investing activities for the Predecessor Period.
Cash Flows from Financing Activities
Net cash used in financing activities was $3,109,252 for the year ended December 31, 2019, consisting of payments on the senior debt of $6,013,257, partially offset by net proceeds of a private placement of $2,904,005. Net cash provided by financing activities was $4,750,000 for the Successor Period from December 10, 2018 through December 31, 2018, consisting of the net proceeds received from the issuance of Sub Debt. Net cash used in financing activities was $7,297,763 for the Predecessor Period from January 1, 2018 through December 9, 2018, consisting of payments on the senior debt.
Off-Balance Sheet Commitments and Arrangements
We have not entered into any off-balance sheet financial guarantees or other off-balance sheet commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity or that are not reflected in our financial statements included elsewhere in this proxy statement/prospectus. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risks related to interest rates.
Interest Rate Risk
Our Loan Agreement, as amended, bears interest on outstanding borrowings thereunder at variable interest rates equal to the greater of either (i) Prime plus 7.25% or (ii) 10.75%. The rate in effect at December 31, 2019 was 12.00% per annum. At December 31, 2019, we had an aggregate principal balance of $12,790,554 thereunder. Increases in market interest rates would cause interest expense to increase and earnings before income taxes to decrease.
The change in interest expense and earnings before income taxes resulting from a change in market interest rates would be dependent upon the weighted average outstanding borrowings during the reporting period following an increase in market interest rates. An increase in applicable interest rates of 1% for the year ended December 31, 2019 would result in an increase in interest expense of $127,906.
Foreign Currency Risk
All of our sales are in U.S. Dollars and we do not have foreign currency risk.
Contingencies
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company’s management, in consultation with its legal counsel as appropriate, assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company, in consultation with legal counsel, evaluates the perceived merits of any legal proceedings or unasserted claims, as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates a potentially material loss contingency is not probable, but is reasonably possible, or is probable, but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss, if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.
Reconciliation of Non-GAAP Financial Measures
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure commonly used in Metuchen’s industry and should not be construed as an alternative to net income as an indicator of operating performance (as determined in accordance with GAAP). Metuchen’s presentation of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies. Metuchen has presented Adjusted EBITDA because it believes this measure provides management and investors with additional information to measure its performance, estimate its value and evaluate its ability to service debt.
Adjusted EBITDA is adjusted to exclude certain items that affect comparability. The adjustments are itemized in the tables below. You are encouraged to evaluate these adjustments and the reason Metuchen considers them appropriate for supplemental analysis. In evaluating adjustments, you should be aware that in the future Metuchen may incur expenses that are the same as or similar to some of the adjustments set forth below. The presentation of these adjustments should not be construed as an inference that future results will be unaffected by unusual or recurring items.
Metuchen defines Adjusted EBITDA as net income (loss) adjusted to exclude (i) interest expense, net, (ii) depreciation and amortization and (iii) income taxes, as further adjusted to eliminate the impact of certain items that the Company does not consider indicative of its ongoing operating performance. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of Metuchen’s results as reported under GAAP. For example, Adjusted EBITDA:
| • | does not reflect Metuchen’s capital expenditures, future requirements for capital expenditures or contractual commitments; |
| • | does not reflect changes in, or cash requirements for, Metuchen’s working capital needs; |
| • | does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on Metuchen’s debt; and |
| • | does not reflect payments related to income taxes. |
| Year Ended December 31, 2019 | Successor Period from December 10, 2018 through December 31, 2018 | Predecessor Period from January 1, 2018 through December 9, 2018 | |
| NET INCOME (LOSS) | $ (32,511,300) | $ (1,681,269) | $ (30,791,439) |
| Interest expense, senior debt | 2,428,264 | 184,047 | 4,286,922 |
| Interest expense, related party term loans | 11,416,697 | 890,343 | 6,495,535 |
| Income tax benefit | (645,866) | (13,365) | __ |
| Depreciation and Amortization expense | 5,291,107 | 289,458 | 7,775,536 |
| EBITDA | $ (14,021,098) | $ (330,786) | $ (12,233,446) |
| Impairment loss (a) | 2,443,930 | __ | 17,947,275 |
| Life insurance settlement (b) | __ | __ | (5,009,467) |
| Inventory reserve (c) | 1,174,428 | __ | __ |
| ADJUSTED EBITDA | $ (10,402,740) | $ (330,786) | $ 704,362 |
(a) The Company incurred a goodwill impairment loss of $2,443,930 during the Successor Period for the year ended December 31, 2019, related to the prescription medicines segment. The Company incurred an intangible asset impairment loss of $17,947,275 during the Predecessor Period for the period from January 1, 2018 through December 9, 2018.
(b) In May 2018, Metuchen received $5,009,467, which includes interest as proceeds from a keyman life insurance policy on behalf of its managing member, Joseph Krivulka, who passed away in February 2018.
(c) During the year ended December 31, 2019, the Company recorded a reserve of $1,174,428 to reduce the cost of its API asset to its net realizable value.
Gross Sales
Gross sales is a non-GAAP financial measure commonly used in Metuchen’s industry and should not be construed as an alternative to net sales as an indicator of operating performance (as determined in accordance with GAAP). Metuchen’s presentation of gross sales may not be comparable to similarly titled measures reported by other companies. Metuchen has presented gross sales because it believes this measure provides management and investors with additional information to measure its performance, estimate its value and evaluate its ability to service debt.
Gross sales is adjusted to exclude certain items that affect comparability. The adjustments are itemized in the tables below. You are encouraged to evaluate these adjustments and the reason Metuchen considers them appropriate for supplemental analysis. In evaluating adjustments, you should be aware that in the future Metuchen may incur expenses that are the same as or similar to some of the adjustments set forth below. The presentation of these adjustments should not be construed as an inference that future results will be unaffected by unusual or recurring items.
Metuchen defines gross sales as the amount of its aggregate sales billed to customers at standard prices before the application of certain adjustments that reduce the net amount received from customers, including product returns, certain rebates and coupon redemptions, discounts and fees. Gross sales has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of Metuchen’s results as reported under GAAP.
| Year Ended December 31, 2019 | Successor Period from December 10, 2018 through December 31, 2018 | Predecessor Period from January 1, 2018 through December 9, 2018 | |
| Net Sales | $15,577,166 | $838,926 | $13,212,317 |
| Product Returns | 8,726,460 | 225,312 | 5,544,938 |
| Medicaid/Medicare Rebates | 900 | __ | (104,452) |
| Contract Rebates | 4,328,588 | 352,228 | 2,339,213 |
| Chargebacks | 161,730 | 179,946 | 2,388,773 |
| Cash Discounts | 442,378 | 31,293 | 574,075 |
| Distribution Service Fees | 3,035,272 | 166,872 | 2,897,144 |
| Coupon Redemptions | 2,189,756 | 95,140 | 2,266,172 |
| Gross Sales | $34,462,250 | $1,889,717 | $29,118,180 |
Exhibit 99.4
RISK FACTORS
In deciding how and whether to vote, Neurotrope stockholders should carefully consider the material risks described below and all of the information contained in or incorporated by reference into this proxy statement/prospectus, including but not limited to the matters described in the section of this proxy statement/prospectus titled “Forward-Looking Statements” and the matters discussed under “Item 1A. Risk Factors” in Neurotrope’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as updated by subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Please see the section titled “Where You Can Find More Information” in this proxy statement/prospectus/information statement.
Risks Related to Metuchen’s Business, Industry and Operations
Metuchen has incurred significant losses, and may continue to experience losses in the future.
Metuchen reported a net loss of $32.5 million and a negative $10.4 million in Adjusted EBITDA and during the year ended December 31, 2019 compared to a net loss of $32.5 million and a positive $0.4 million in Adjusted EBITDA and during the year ended December 31, 2018 (including both the predecessor and successor periods reflecting the acquisition of a majority ownership interest in the business by JCP Investor), respectively. As of December 31, 2019, Metuchen had an accumulated deficit of $41.1 million. Metuchen cannot predict if it will achieve profitability soon or at all. Metuchen expects to continue to expend substantial financial and other resources on, among other things:
| · | sales and marketing |
| · | investments in hiring key personnel; |
| · | development, regulatory approval and commercialization of H100™ for the treatment of Peyronie’s disease; |
| · | general administration, including legal, accounting and other expenses related to the Mergers. |
Metuchen may not generate sufficient revenue to offset such costs to achieve or sustain profitability in the future. Metuchen expects to continue to invest in its operations and product and business development to maintain and grow its current market position and to meet its expanded reporting and compliance obligations as a public company.
Metuchen expects its operating losses to continue in the near term in order to carry out its strategic objectives. Metuchen considers historical operating results, capital resources and financial position, and current projections and estimates as part of its plan to fund operations over a reasonable period of time.
There is substantial doubt as to Metuchen’s ability to continue as a going concern.
Metuchen’s audited financial statements included in this prospectus/proxy statement/information statement have been prepared assuming that Metuchen will continue as a going concern and does not include any adjustments that might result if it ceases to continue as a going concern. There is substantial doubt about Metuchen’s ability to continue as a going concern, based on Metuchen’s recurring losses from operations and working capital deficiency. The inclusion of a “going concern” explanatory paragraph in future reports of Metuchen’s independent auditors may make it more difficult for Metuchen to secure additional financing or enter into strategic relationships on terms acceptable to Metuchen, if at all, and may materially and adversely affect the terms of any financing that it might obtain.
Metuchen is dependent on a single distributor for Stendra®.
Although Metuchen has agreements with the three largest pharmaceutical distributors, it currently depends on McKesson Corporation (“McKesson”) to service those agreements. McKesson, on an exclusive basis, provides distribution of Stendra® to its own retail pharmacies and handles Metuchen’s distribution to Cardinal Health and AmerisourceBergen. McKesson’s contract with us contains a provision that allows McKesson to terminate the contract for convenience upon one hundred eighty (180) days prior notice. If McKesson terminates its contract with Metuchen, or is otherwise unable or unwilling to perform under its contract, Metuchen’s business and revenues will be adversely affected unless and until it can identify a suitable replacement.
| 1 |
Metuchen recorded revenues of approximately $11.1 million from sales of Stendra® in 2019, which accounted for 71.3 % of our total revenues in 2019.
The success of Metuchen’s business currently depends on the successful continued commercialization of its main product, Stendra®, which is marketed, distributed and sold under a license agreement from Vivus, Inc. (“Vivus”). Metuchen may not be successful in commercializing Stendra® beyond its current level. Additionally, if Stendra® were to become subject to problems such as loss of patent protection, changes in prescription growth rates, material product liability litigation, unexpected side effects, regulatory proceedings, publicity affecting doctor or patient confidence, pressure from existing competitive products, changes in labeling, pricing and access pressures, supply shortages or, if a new, more effective treatment should be introduced, there would be an adverse impact on Metuchen’s revenues, which could be significant.
Metuchen’s license agreement for Stendra® is a sublicense that is dependent on Vivus’s license agreement with a third party.
Revenues from Stendra® represent a significant percentage of Metuchen’s overall revenues. Metuchen’s rights to market, distribute and sell avanafil (the active ingredient in Stendra®) are granted under a license agreement that it entered into with Vivus on September 30, 2016 (the “Vivus License”), which is a sublicense under Vivus’s license agreement with the owner of the Stendra® patent, Mitsubishi Tanabe Pharma Corporation (“MTPC”). The license agreement between MTPC and Vivus (the “MTPC License”) contains certain termination rights that would allow MTPC to terminate the agreement if Vivus were to breach any of the terms of the MTPC License or become insolvent or bankrupt.
In the event that MTPC terminates the MTPC License with Vivus because of any contractual breach Metuchen has step-in rights with MTPC which would allow Metuchen to continue to sell Stendra®.
Metuchen is subject to the terms of a commercial supply agreement with Vivus and may be subject to substantial payment obligations thereunder.
In addition to the Vivus License, Metuchen entered into a commercial supply agreement with Vivus for Stendra® on September 30, 2016 (the “Supply Agreement”), which requires Metuchen to purchase certain minimum quantities of Stendra® in each year of the Supply Agreement term. In connection with the Supply Agreement, Vivus has claimed a shortfall of approximately $9.3 million with respect to Metuchen’s minimum purchase requirements in 2018 and 2019. Vivus also claims that Metuchen is responsible for the costs owed by Vivus to CVS Pharmacy in connection with returns of Stendra® in the amount of approximately $6.5 million that were delivered to CVS Pharmacy and later returned. Metuchen is currently in negotiations to determine the amounts ultimately owed to Vivus, but it may be responsible for payments of approximately $15.8 million. If required to pay these amounts to Vivus, this may adversely affect the financial condition of Metuchen.
Vivus has granted a license to Hetero USA, Inc. and Hetero Labs Limited to manufacture and commercialize the generic version of Stendra® in the United States once it comes off patent.
On January 3, 2017, Vivus granted Hetero USA, Inc. and Hetero Labs Limited (collectively, “Hetero”) a license to manufacture and commercialize the generic version of Stendra® described in its abbreviated new drug application (“ANDA”) filing in the United States as of the date that is the later of (a) October 29, 2024, which is 180 days prior to the expiration of the last to expire of the patents-in-suit, or (b) the date that Hetero obtains final approval from FDA of the Hetero ANDA.
Future competition from generic versions could negatively impact the sales volume of Stendra®, and prices for pharmaceutical products typically decline following generic or entry. The date on which generic competition with Stendra® begins may be different from the date that the patent or regulatory exclusivity expires but upon the loss or expiration of patent protection, or upon the “at-risk” launch (despite pending patent infringement litigation against the generic product) by a generic manufacturer of a generic version of Stendra®, Metuchen could lose a significant portion of revenues for Stendra® which can adversely affect its business.
| 2 |
Metuchen relies on a combination of several different channels to promote its products to physicians and patients in the United States and internationally.
Metuchen currently relies on a variety of channels to market and sell its products, including:
| · | sales representatives who promote Stendra® directly to high-volume physician prescribers of ED therapies and target physicians at trade associations; |
| · | online digital strategies, including search engine optimization and targeted advertisements, target physicians and consumers; |
| · | targeting of managed care organizations to deliver value-based contracts and improve placement for Stendra® on approved drug lists; |
| · | collaboration with specialty pharmacies that provide personalized service to physicians and patients, including discreet shipping to patients’ homes; and |
| · | direct marketing of our medical devices to urology offices domestically and internationally. |
Metuchen will continue to depend on these strategies, partners and distribution channels in order to promote and sell its products. Metuchen cannot assure you that these strategies will enable it to successfully market and sell its products. Failure to successfully market and sell its products would have a material adverse effect on Metuchen’s business, financial condition and results of operations.
Metuchen is substantially dependent on a limited number of commercial products. Any difficulties or delays in product manufacturing, regulatory compliance, sales or marketing could affect Metuchen’s future results.
Metuchen’s ability to achieve its business objectives is directly dependent on its ability to get its products to market, and any delays or difficulties in manufacturing, regulatory compliance, sales or marketing could have an adverse impact, including but not limited to the following types of events:
| · | failure to predict market demand for, or to gain market acceptance of, approved products; |
| · | failure to comply with applicable regulatory requirements, which could result in costly and disruptive enforcement actions, or otherwise require costly and disruptive corrective actions; |
| · | delays, unavailability, or undetected defects with respect to product manufacturing materials; |
| · | failure to maintain appropriate quality standards throughout the internal and external supply network or comply with current good manufacturing practices (“cGMPs”) or other regulations; |
| · | failure to establishment and maintain of adequate healthcare coverage and reimbursement; |
| · | failure to establish and maintain market demand and acceptance for Metuchen’s products through marketing and sales activities, and any other arrangements to promote these products; |
| · | failure to adequately train sales and marketing personnel regarding regulatory compliance matters and any exposure that Metuchen may face due to noncompliance of such personnel; |
| · | failure to establish and maintain agreements with wholesalers, distributors, and group purchasing organizations on commercially reasonable terms; |
| 3 |
| · | failure to manufacture products in sufficient quantities and at acceptable quality and manufacturing cost to meet commercial demand; |
| · | failure to effectively compete with other products on the market; |
| · | failure to maintain a continued acceptable product safety and efficacy profile; |
| · | interruptions to supply chain continuity or commercial operations as a result of man-made or natural disasters; and |
| · | failure to maintain supply chain integrity against intentional and criminal acts. |
The FDA may determine that Metuchen’s products or product candidates have undesirable side effects that could result in regulatory action, impede commercialization, or delay or prevent their regulatory approval.
Undesirable side effects caused by Metuchen’s products or product candidates could adversely and materially harm the business. Undesirable side effects could limit Metuchen’s ability to commercialize the products, could result in product liability suits, and could result in regulatory actions, such as, but not limited to withdrawal of the products from the market, withdrawal of marketing approvals, safety communications or warnings, revisions to product labeling to add warnings or other precautions, or prompt regulators to require that Metuchen implement risk mitigation steps, such as post-approval studies, REMS, and/or other strategies. Undesirable side effects could impact the ability of the Metuchen to complete product development, may require that development be limited to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective, could cause Metuchen, IRBs, and other reviewing entities or regulatory authorities to interrupt, delay, or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. Undesirable side effects caused by or any unexpected characteristics for product candidates could also result in denial of regulatory approval by the FDA or other comparable foreign authorities for any or all targeted indications or the inclusion of unfavorable information in product labeling, such as limitations on the indicated uses or populations for which the products may be marketed or distributed, a label with significant safety warnings, including boxed warnings, contraindications, and precautions, a label without statements necessary or desirable for successful commercialization, or may result in requirements for costly post-marketing testing and surveillance, or other requirements, including REMS, to monitor the safety or efficacy of the products. Should any of the foregoing occur, Metuchen’s business may be materially harmed.
Metuchen relies on third-party contract manufacturers to produce commercial quantities of its products.
Metuchen currently only has facilities to assemble its VED products, and therefore must rely on qualified third-party contract manufactures with appropriate facilities and equipment to contract manufacture commercial quantities of products. Metuchen also relies on contract manufacturers to produce quantities of its product candidates to support its development programs. Metuchen expects to pursue additional contract manufacturing for certain of its products in the future. Any performance failure on the part of its contract manufacturers could delay production or delivery of any approved products and could delay product candidate development programs, depriving Metuchen of potential product revenue and resulting in development programs taking longer than planned. Failure by Metuchen’s contract manufacturers to achieve and maintain high manufacturing standards could result in patient injury or death, product recalls or withdrawals, delays or failures in testing or delivery, delays in development programs, withdrawals of marketing approvals, refusal of regulatory authorities to approve new marketing applications or supplements, cost overruns or other problems that could materially adversely affect its business. Contract manufacturers may encounter difficulties involving production yields, quality control and quality assurance.
These third-party contract manufacturers are also subject to cGMP and/or QSR regulations, which impose extensive procedural and documentation requirements. The FDA and corresponding state and foreign agencies perform ongoing periodic unannounced inspections to ensure strict compliance with cGMP/QSR and other applicable government regulations. Prior to approving a marketing application, manufacturers will also need to validate their manufacturing process. FDA will also inspect the proposed manufacturing facilities to confirm that they can produce products meeting FDA’s regulatory standards. Failure to comply with these requirements may subject Metuchen to possible legal or regulatory actions, such as warning letters, suspension of manufacturing, seizure of product, injunctions, debarment, voluntary recall of a product or failure to secure product approvals, any of which could have a material adverse effect on Metuchen’s business, financial condition and results of operations. Beyond contractual remedies that may be available to it, Metuchen does not have control over third-party manufacturers’ compliance with these regulations and standards.
| 4 |
If for any reason Metuchen’s contract manufacturers cannot perform as agreed, it may be required to replace them. Although Metuchen believes there are a number of potential replacements, it may incur added costs and delays in identifying and qualifying any such replacements. Metuchen may compete with other companies for access to manufacturing facilities that can produce products in accordance with FDA’s regulatory standards. If third party manufacturers should cease to continue to provide manufacturing services for any reason, Metuchen likely would experience delays in obtaining sufficient quantities of its products and product candidates to meet commercial demand or advance its development programs. Third-party facilities may also be affected by natural disasters, such as floods or fire, health pandemics or outbreaks, or such facilities could face manufacturing issues, such as contamination or regulatory findings following a regulatory inspection of such facility. In such instances, Metuchen may need to locate an appropriate replacement third-party relationship, which may not be readily available or on acceptable terms, which would cause additional delay and increased expense. The addition of a new or alternative manufacturer may also require FDA approvals and may have a material adverse effect on our business.
The inability of a manufacturer to ship orders of our products in a timely manner or to meet quality standards could cause Metuchen to miss the delivery date requirements of its customers for those items, which could result in cancellation of orders, refusal to accept deliveries or a reduction in purchase prices, any of which could have a material adverse effect as Metuchen’s revenue would decrease and it would incur net losses as a result of sales of the product, if any sales could be made.
Metuchen relies on third parties for the supply of the raw materials necessary to develop and manufacture its products.
Metuchen is dependent on third parties for the supply of the raw materials necessary to develop and manufacture its products, including the active and inactive pharmaceutical ingredients used in its products. Metuchen is required to identify the supplier of all the raw materials for all FDA-approved products that it acquires from others. If raw materials for a particular product become unavailable from an approved supplier specified in a drug application, Metuchen would be required to qualify a substitute supplier with the FDA and, depending on the supplier, provide FDA with notice or receive FDA approval for the supplier, which would likely delay or interrupt manufacturing of the affected product. Failure of suppliers to meet the applicable regulatory standards could also result in enforcement actions against such suppliers or Metuchen.
Shortages in the raw materials would potentially delay Metuchen’s development programs or result in insufficient product quantities to meet commercial demand. Third-party manufacturers’ failure to obtain the raw materials necessary to manufacture sufficient quantities of products and product candidates may have a material adverse effect on Metuchen’s business.
These third parties include foreign suppliers. Arrangements with international raw material suppliers are subject to, among other things, FDA regulation, various import duties, foreign currency risk and other government clearances. Acts of governments outside and within the United States may affect the price or availability of raw materials needed for the development or manufacture of Metuchen’s products. In addition, any changes in patent laws in jurisdictions outside the United States may make it increasingly difficult to obtain raw materials for research and development prior to the expiration of the applicable U.S. or foreign patents.
Changes in product or product candidate manufacturing or formulation may result in additional costs or delay.
Any changes to product or product candidate manufacturing or formulation may materially impact Metuchen’s business. For approved products, manufacturing changes may require reporting to and/or approval from the applicable regulatory authorities, including FDA. Regulatory authorities may require substantial, time consuming, and costly manufacturing work as well as studies to support such changes. Any such changes may also not accomplish the intended outcome. Additionally, changes to product candidate manufacturing during product development may also adversely impact the development program. Changes could cause product candidates to perform differently and affect the results of future studies. Such changes may also require additional testing, studies, FDA notification, or FDA approval.
| 5 |
Regulatory approval is limited by the FDA to those specific indications and conditions for which approval has been granted. Metuchen we may be subject to fines, penalties, injunctions, or other enforcement actions if regulatory authorities determine that it is promoting any products for unapproved or “off-label” uses, resulting in reputational and business damage.
Metuchen must comply with requirements concerning advertising and promotion of FDA regulated products. Promotional communications with respect to therapeutics are subject to a variety of legal and regulatory restrictions and continuing review by the FDA, Department of Justice, Department of Health and Human Services’ Office of Inspector General, state attorneys general, members of Congress, and the public. When the FDA or comparable foreign regulatory authorities issue regulatory approval, the approval is limited to those specific uses and indications for which a product is approved. Companies may not market or promote products for those indications and uses, for which the product has not received approval. For 510(k)-exempt devices, such as Metuchen’s VED devices, FDA requires that companies promote such products consistent with the relevant device classification. Claims outside the scope of the 510(k)-exempt classification would be considered “off-label” and trigger the requirement for a new 510(k) or other premarket submission to FDA. Companies must also be able to sufficiently substantiate any product claims and must abide by the FDA’s strict requirements regarding the content of promotion and advertising.
While physicians may choose to prescribe products for uses that are not described in the product’s labeling and for uses that differ from those tested in clinical studies and approved by the regulatory authorities, Companies are prohibited from marketing and promoting the products for indications and uses that are not specifically approved by the FDA or, for 510(k)-exempt devices, are outside the scope of the relevant device classification. If the Company is found to have impermissibly promoted any product, it may become subject to significant liability and government fines. The FDA and other agencies actively enforce the laws and regulations regarding product promotion, particularly those prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted a product may be subject to significant sanctions. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees of permanent injunctions under which specified promotional conduct is changed or curtailed.
In the United States, engaging in the impermissible promotion of products for off-label uses can also subject a company to false claims and other litigation under federal and state statutes, including fraud and abuse and consumer protection laws. Such litigation can lead to civil and criminal penalties and fines, agreements with governmental authorities that materially restrict a company’s business through, for example, corporate integrity agreements, suspension or exclusion from participation in federal and state healthcare programs, suspension and debarment from government contracts, and refusal of orders under existing government contracts. These false claims statutes include the federal civil False Claims Act, which allows any individual to bring a lawsuit against a company on behalf of the federal government alleging submission of false or fraudulent claims, or causing others to present such false or fraudulent claims, for payment by a federal program such as Medicare or Medicaid. If the government decides to intervene and prevails in the lawsuit, the individual will share in the proceeds from any fines or settlement funds. If the government declines to intervene, the individual may pursue the case alone. These False Claims Act lawsuits have increased significantly in volume and breadth, leading to several substantial civil and criminal settlements, up to $3.0 billion, pertaining to certain sales practices and promoting off-label uses. In addition, False Claims Act lawsuits may expose sponsors to follow-on claims by private payers based on fraudulent marketing practices. This growth in litigation has increased the risk that companies will have to defend a false claim action, and pay settlements fines or restitution, as well as criminal and civil penalties, agree to comply with burdensome reporting and compliance obligations, and be excluded from Medicare, Medicaid, or other federal and state healthcare programs.
In the United States, the distribution of drug product samples to physicians must further comply with the requirements of the U.S. Prescription Drug Marketing Act, and the promotion of pharmaceutical products are subject to additional FDA requirements and restrictions on promotional statements. If the FDA determines that promotional activities violate its regulations and policies pertaining to product promotion, it could request the modification of promotional materials or could subject a company to regulatory or other enforcement actions, including issuance of warning letters or untitled letters, suspension or withdrawal of an approved product from the market, requests for recalls, payment of civil fines, disgorgement of money, imposition of operating restrictions, injunctions or criminal prosecution, and other enforcement actions.
To the extent that any of the Company’s product candidates may be eligible, Metuchen may seek orphan drug designation from FDA. However, there is no guarantee that the Company will be able to maintain this designation, receive this designation, or receive or maintain any corresponding benefits, including periods of exclusivity.
To the extent eligible, Metuchen may seek orphan drug designation for its product candidates. While orphan drug designation would provide the Company with certain advantages, it neither shortens the development time or regulatory review time of a product candidate nor gives the product candidate any advantage in the regulatory review or approval process.
Generally, if a product candidate with orphan drug designation subsequently receives marketing approval before another product considered by the FDA to be the same, for the same orphan indication, the product is entitled to a period of marketing exclusivity, which precludes the FDA from approving another marketing application for the same drug for the same indication for seven years.
The Company may not be able to obtain any future orphan drug designations, orphan drug designations do not guarantee that the Company will be able to successfully develop its product candidates, and there is no guarantee that the Company will be able to maintain any orphan drug designations. For instance, orphan drug designations may be revoked if the FDA finds that the request for designation contained an untrue statement of material fact or omitted material information, or if the FDA finds that the product candidate was not eligible for designation at the time of the submission of the request.
| 6 |
Moreover, even if the Company is able to receive and maintain orphan drug designations, it may ultimately not receive any period of regulatory exclusivity if the product candidate is approved. For instance, the Company may not receive orphan product regulatory exclusivity if the indication for which the Company receives FDA approval is broader than the orphan drug designation. Orphan exclusivity may also be lost for the same reasons that orphan drug designation may be lost. Orphan exclusivity may further be lost if the Company is unable to assure a sufficient quantity of the product to meet the needs of patients with the rare disease or condition.
Even if the Company obtains orphan exclusivity, that exclusivity may not effectively protect the product from competition as different products can be approved for the same condition or products that are the same can be approved for different conditions. Even after an orphan product is approved, the FDA can also subsequently approve a product containing the same principal molecular features for the same condition if the FDA concludes that the later product is clinically superior. The FDA may further grant orphan drug designation to multiple sponsors for the same compound or active molecule and for the same indication. If another sponsor receives FDA approval for such product before the Company does, the Company would be prevented from launching its product in the United States for the orphan indication for a period of at least seven years unless it can demonstrate clinical superiority. Moreover, third-party payors may reimburse for products off-label even if not indicated for the orphan condition.
Metuchen may experience pricing pressure on the price of our products due to social or political pressure to lower the cost of drugs, which would reduce our revenue and future profitability, if achieved.
Federal and state health care programs are increasingly focused on the price of prescription drugs and medical devices, including the expanded use of mandatory rebates and discounts and measures that penalize or prohibit price increases over inflation rates. Public and private third-party payers also may not consider Stendra® or our other products to be medically necessary when prescribed for ED and may decline to cover it. Recent events have resulted in increased public and governmental scrutiny of the cost of drugs, especially in connection with price increases following companies’ acquisitions of the rights to certain drug products. In particular, U.S. federal prosecutors recently issued subpoenas to a pharmaceutical company seeking information about its drug pricing practices, among other issues, and members of the U.S. Congress have sought information from certain pharmaceutical companies relating to post-acquisition drug-price increases. Metuchen’s revenue and future profitability, if achieved, could be negatively affected if these inquiries were to result in legislative or regulatory proposals that limit its ability to increase the prices of its products.
Pressure from social activist groups and future government regulations may also put downward pressure on the price of drugs, which could result in downward pressure on the prices of Metuchen’s products in the future.
Private third-party payers and other managed care entities, such as pharmacy benefit managers, continue to take action to manage the utilization of drugs and control the cost of drugs and medical devices.
Consolidation among managed care organizations (“MCOs”) has increased the negotiating power of MCOs and other private third-party payers. Private third-party payers increasingly employ formularies to control costs by taking into account discounts in connection with decisions about formulary inclusion or favorable formulary placement. Failure to obtain or maintain timely adequate pricing or favorable formulary placement for our products, or failure to obtain such formulary placement at favorable pricing, could adversely impact revenue. Private third-party payers, including self-insured employers, often implement formularies with copayment tiers to encourage utilization of certain drugs and have also been raising co-payments required from beneficiaries, particularly for branded pharmaceuticals and biotechnology products Managed care also establishes formularies to control the cost of medical supplies. Payers may limit the number of drugs covered in the therapeutic class or sources in supply categories, cover only generic alternatives to drugs in the class, or impose restrictions on reimbursement of a particular drug or drugs in a class or a particular medical device.
Private third-party payers are also implementing new initiatives like so-called “copay accumulators” (policies that provide that the value of copay assistance does not count as out-of-pocket costs that are applied toward deductibles) that can shift more of the cost burden to manufacturers and patients. This cost shifting has increased consumer interest and input in medication choices, as they pay for a larger portion of their prescription costs and may cause consumers to favor lower cost generic alternatives to branded pharmaceuticals. As the U.S. payer market consolidates further and as more drugs become available in generic form, biopharmaceutical companies may face greater pricing pressure from private third-party payers, who will continue to drive more of their patients to use lower cost generic alternatives.
Products may face competition from generic drug products and other similar drug products.
If the FDA or comparable foreign regulatory authorities approve generic or similar versions of any of Metuchen’s products, the sales of Metuchen’s products could be adversely affected. Once the Stendra® NDA was approved, the product will become the “reference listed drug” in the FDA’s Orange Book. Other applicants may then seek approval of generic versions of the product through submission of ANDAs in the United States. In support of an ANDA, a generic applicant would not need to conduct full clinical studies. Rather, the applicant generally must show that its product has the same active ingredient(s), dosage form, strength, route of administration, conditions of use and labeling, among other commonalities, as the reference listed drug and that the generic version is bioequivalent to the reference listed drug, meaning it is available at the site of action at the same rate and to the same extent as the reference listed drug. Generic products may be significantly less costly to bring to market than the reference listed drug and companies that produce generic products are generally able to offer them at lower prices, and are generally preferred by third party payors. As a result, the FDA, the administration and Congress have taken steps to encourage increased generic drug competition in the market in an effort to bring down drug costs.
| 7 |
Following the introduction of a generic drug, a significant percentage of the sales of any branded product or reference listed drug is typically lost to the generic product. Moreover, in addition to generic competition, Metuchen could face competition from other companies seeking approval of drug products that are similar to the Company’s drug products using the 505(b)(2) regulatory pathway. Such applicants may be able to rely on Metuchen’s products, other approved drug products or published literature to develop drug products that are similar to Metuchen’s. The introduction of similar drug products could expose products to increased competition.
Any ANDA or 505(b)(2) applicants would need to submit patent certification statements with their applications for patents that are listed in the FDA’s Orange Book. There are detailed rules and requirements regarding the patents that may be submitted to the FDA for listing in the Orange Book. Metuchen may be unable to obtain patents covering its products that contain one or more claims that satisfy the requirements for listing in the Orange Book. Patents not listed in the Orange Book would not receive the protections provided by the Hatch Waxman Act.
Moreover, if an ANDA or 505(b)(2) applicant files a paragraph IV challenge to any patents that Metuchen may list in the FDA’s Orange Book and the Company does not file a patent infringement lawsuit within 45 days of receiving notice of a paragraph IV certification, the ANDA or 505(b)(2) applicant would not be subject to a 30-month stay. Litigation or other proceedings to enforce or defend intellectual property rights, however, would likely be complex in nature, may be expensive and time consuming, may divert management’s attention, and may result in unfavorable results
Moreover, if any product candidate does not receive any anticipated periods of regulatory exclusivity, that product candidate may face generic or 505(b)(2) product competition sooner than anticipated, which could materially and adversely impact Metuchen’s business. Finally, there are already generic versions of other erectile dysfunction drugs on the market against which the Metuchen drug product competes. As generic products, these products are priced below Metuchen’s, presenting the risk that patients and their physicians will opt for those products instead of the Metuchen brand product.
The business that Metuchen conducts outside the United States may be adversely affected by international risk and uncertainties.
Although Metuchen’s operations are based in the United States, it conducts certain business outside the U.S. and expects to continue to do so in the future. Currently, Metuchen possesses the rights to license, develop, market, sell and distribute Stendra® in Canada, South America, and India, and its VED products are also marketed internationally. The active pharmaceutical ingredient for Stendra® is produced in France and shipped to the United States in tablet form for packaging. One of the manufacturers of our medical devices is based in China, and Metuchen expects to expand contract manufacturing for certain of its products in Europe, the Middle East, and Northern Africa in the future. Any business that it conducts outside the United States will be subject to additional risks that may materially adversely affect its ability to conduct business in international markets, including:
| · | The ability to receive any required regulatory authorizations to commercialize products internationally and the ability to comply with international regulatory requirements; |
| · | Potentially reduced protection for intellectual property rights in certain other countries; |
| · | Unexpected changes in tariffs, trade barriers and regulatory requirements; |
| · | Economic weakness, including inflation or political instability, in particular foreign economies and markets; |
| 8 |
| · | Workforce uncertainty in countries where labor unrest is more common than in the United States; |
| · | Production shortages resulting from any events affecting a product candidate and/or finished drug product supply or manufacturing capabilities abroad; |
| · | Business interruptions resulting from geo-political actions, including war and terrorism or natural disasters, including earthquakes, hurricanes, typhoons, floods and fires; and |
| · | Failure to comply with Office of Foreign Asset Control rules and regulations and the Foreign Corrupt Practices Act (“FCPA”). |
These factors or any combination of these factors may adversely affect our revenue or our overall financial performance.
Metuchen will need to expand its operations and increase its size, and it may experience difficulties in managing growth.
As Metuchen increases the number of products it owns or has the right to sell, it may need to increase personnel headcounts with respect to sales, marketing, product development, scientific, or administrative departments. In addition, to meet its obligations as a public company, it will need to increase its general and administrative capabilities. The management, personnel and systems currently in place may not be adequate to support this future growth. The need to effectively manage its operations, growth and various projects requires that it:
| · | Successfully attract and recruit new employees with the required expertise and experience; |
| · | Successfully grow marketing, distribution and sales infrastructure; and |
| · | Continue to improve operational, manufacturing, financial and management controls, reporting systems and procedures. |
If Metuchen is unable to manage this growth and increased complexity of operations, its business may be adversely affected.
Metuchen’s debt facility contains financial and operating restrictions that may limit its access to credit. In addition, Metuchen’s debt facility expires on April 1, 2021 (subject to extension until December 1, 2021 upon the achievement of certain financial milestones), and Metuchen may not be able to renew, extend or replace the expiring facility. If Metuchen fail to comply with covenants in its debt facility or if facility is terminated, Metuchen may be required to repay its indebtedness thereunder, which would have an adverse effect on its liquidity.
Provisions governing Metuchen’s debt facility impose restrictions on its ability to operate, including, for some of the agreements and instruments, but not for others, its ability to:
| • | incur capital expenditures; |
| • | incur additional debt; |
| • | pay dividends and make distributions; |
| • | redeem or repurchase capital stock; |
| • | create liens; |
| • | enter into transactions with affiliates; and |
| • | merge or consolidate with or into other entities. |
| 9 |
Metuchen’s debt facility also contains other financial and non-financial covenants. Metuchen may not be able to comply with these covenants in the future. Metuchen’s failure to comply with these covenants may result in the declaration of an event of default, which, if not cured or waived, may result in the acceleration of the maturity of indebtedness outstanding under the debt facility, and require Metuchen to pay all amounts outstanding. Such an event may also lead Metuchen’s lender to exercise its security interest in its assets. If an event of default occurs, Metuchen may not be able to cure it within any applicable cure period, if at all. If the maturity of Metuchen’s indebtedness is accelerated, it may not have sufficient funds available for repayment or it may not have the ability to borrow or obtain sufficient funds to replace the accelerated indebtedness on terms acceptable to Metuchen, or at all.
Risks Related to Metuchen Personnel
Because Metuchen is a small pharmaceutical company with limited resources, it may be unable to attract qualified personnel.
Because of the specialized nature of its business, Metuchen’s ability to develop products and to compete with its current and future competitors largely depends upon its ability to attract, retain and motivate highly-qualified managerial, marketing, consulting and scientific personnel. Metuchen faces intense competition for qualified employees and consultants from biopharmaceutical companies, research organizations and academic institutions. Attracting, retaining or replacing these personnel on acceptable terms may be difficult and time-consuming given the high demand in its industry for similar personnel. There is intense competition for qualified personnel in this business sector, and we cannot assure you that Metuchen will be able to attract the qualified personnel necessary for the development of its business.
Metuchen may be adversely affected by any misconduct or improper activities on the part of its individual employees, principal investigators or consultants.
Metuchen is exposed to the risk that any of its employees, principal investigators and consultants may engage in fraudulent conduct or other illegal activity. Although Metuchen has adopted a code of conduct applicable to all of its employees, it is not always possible to identify and deter misconduct by employees and other third parties, and the precautions it takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting it from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. Misconduct by these parties could include intentional, reckless and/or negligent conduct or other unauthorized activities that violate the regulations of the FDA and other regulatory authorities, including those laws requiring the reporting of true, complete and accurate information to such authorities; healthcare fraud and abuse laws and regulations in the United States and abroad; or laws that require the reporting of financial information or data accurately. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. These laws also involve the improper use of information obtained in the course of clinical trials or creating fraudulent data in Metuchen’s nonclinical studies or clinical trials, which could result in regulatory sanctions and cause serious harm to Metuchen’s reputation.
Additionally, Metuchen is subject to the risk that a person could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against Metuchen, and it is not successful in defending itself or asserting its rights, those actions could have a significant impact on its business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of Metuchen’s operations, any of which could adversely affect its ability to operate its business and results of operations.
| 10 |
Risks Related to Government Regulation and Legal Proceedings for Metuchen
Metuchen’s approved drug products are subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. Additionally, drug products could be subject to labeling and other restrictions and market withdrawal, and Metuchen may be subject to penalties if it fails to comply with regulatory requirements or experiences unanticipated product problems.
Drug products approved by the applicable regulatory authorities for commercialization are subject to extensive and ongoing requirements of and review by the FDA and other regulatory authorities, including requirements related to the manufacturing processes, post-approval clinical data, labeling, packaging, distribution, adverse event reporting, storage, recordkeeping, export, import, advertising, marketing, and promotional activities for such product. These requirements further include submissions of safety and other post-marketing information, including manufacturing deviations and reports, registration and listing requirements, the payment of annual fees, continued compliance with cGMPs relating to manufacturing, quality control, quality assurance, and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and GCPs for any clinical trials conducted following approval.
Product sponsors and their collaborators, including contract manufacturer, could be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance with cGMPs and other FDA regulatory requirements. Later discovery of previously unknown adverse events or that the product is less effective than previously thought or other problems with products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements both before and after approval, may yield various results, including:
| · | restrictions on manufacturing or distribution, or marketing of such products; |
| · | restrictions on the labeling, including restrictions on the indication or approved patient population, and required additional warnings, such as black box warnings, contraindications, and precautions; |
| · | modifications to promotional pieces; |
| · | issuance of corrective information; |
| · | requirements to conduct post-marketing studies or other clinical trials; |
| · | clinical holds or termination of clinical trials; |
| · | requirements to establish or modify a REMS or a similar strategy; |
| · | changes to the way the product is administered; |
| · | liability for harm caused to patients or subjects; |
| · | reputational harm; |
| · | the product becoming less competitive; |
| · | warning, untitled, or cyber letters; |
| · | suspension of marketing or withdrawal of the products from the market; |
| · | regulatory authority issuance of safety alerts, Dear Healthcare Provider letters, press releases, or other communications containing warnings or other safety information about the product; |
| · | refusal to approve pending applications or supplements to approved applications; |
| · | recalls of products; |
| · | fines, restitution or disgorgement of profits or revenues; |
| · | suspension or withdrawal of marketing approvals; |
| · | refusal to permit the import or export of products; |
| · | product seizure or detention; |
| · | FDA debarment, suspension and debarment from government contracts, and refusal of orders under existing government contracts, exclusion from federal healthcare programs, consent decrees, or corporate integrity agreements; or |
| · | injunctions or the imposition of civil or criminal penalties, including imprisonment. |
Any of these events could prevent Metuchen from achieving or maintaining market acceptance of its products or could substantially increase the costs and expenses of developing and commercializing products. Any of these events could further have other material and adverse effects on Metuchen’s operations and business.
| 11 |
The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of product candidates, that could limit the marketability of products, or that could impose additional regulatory obligations on Metuchen.
Metuchen’s medical devices are subject to stringent regulatory oversight and any adverse regulatory action may adversely affect our financial condition and business operations
Medical device products, development activities and manufacturing processes are subject to extensive and rigorous regulation by numerous government agencies, including the FDA and comparable foreign agencies. To varying degrees, each of these agencies monitors and enforces our compliance with laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of medical devices.
Although Metuchen’s devices are exempt from 510(k) clearance requirements, they were originally approved with under a 510(k) clearance. However, in 2004, the FDA no longer requires a 510(k) submission for Class II external rigidity devices. The process of obtaining marketing approval, authorization, or clearance from the FDA and comparable foreign regulatory agencies for new products, or for enhancements or modifications to existing products, could take a significant amount of time, require the expenditure of substantial financial and other resources, and require rigorous and expensive pre-clinical and clinical testing. Additionally, FDA could impose limitations on the indications for use of our products. Should Metuchen pursue FDA clearance, authorization, or approval for a new device or device modification, it cannot be certain that it will receive required clearance, authorization, or approval from the FDA and foreign regulatory agencies for new products or modifications to existing products on a timely basis or at all. The failure to receive clearance, authorization, or approval for significant new products or modifications to existing products on a timely basis or at all could have a material, adverse effect on Metuchen’s financial condition and results of operations.
Both before and after a medical device product is commercially released, Metuchen has ongoing responsibilities under FDA and foreign regulations. For example, Metuchen is required to comply with the FDA’s Quality System Regulation, which sets forth the good manufacturing requirements for medical devices. These include requirements related to design controls, production and process controls, process validation, purchasing controls, supplier oversight, complaint handling and investigation, corrective and preventative actions, and record-keeping. In addition, FDA’s medical device reporting regulation requires companies to provide information to the FDA whenever they become aware of evidence that reasonably suggests that a device may have caused or contributed to a death or serious injury or, that a malfunction occurred which would be likely to cause or contribute to a death or serious injury upon recurrence.
Compliance with applicable regulatory requirements is subject to continual review and is monitored rigorously through periodic inspections by the FDA, which may result in observations on Form 483, and in some cases warning letters, that require corrective action. If the FDA or equivalent foreign agency were to conclude that Metuchen is not in compliance with applicable laws or regulations, or that any of its medical devices may be hazardous or defective, the FDA or equivalent foreign agency could take enforcement action, which may include issuance of a warning letter, untitled letter, or other enforcement letter; seizure of the device; requesting or requiring a recall or other field action; or requiring the repair, replacement, or refund the cost of the medical device. The FDA may also impose manufacturing and other operating restrictions; enjoin and restrain certain violations of applicable law pertaining to medical devices; or assess civil or criminal penalties against Metuchen or its officers or employees. In addition, FDA could recommend prosecution to the Department of Justice. Any adverse regulatory action, depending on its magnitude, may restrict Metuchen from effectively manufacturing, marketing, and selling products and could have a material, adverse effect on Metuchen’s financial condition and results of operations. In addition, negative publicity and product liability claims resulting from any adverse regulatory action could have a material, adverse effect on Metuchen’s financial condition and results of operations.
FDA also regulates the promotion and marketing of medical devices, and requires that manufacturers only make promotional claims or statements that are consistent with the indications and labeling cleared, authorized, or approved by FDA. For 510(k)-exempt devices, such as the Metuchen’s VED devices, FDA requires that Metuchen promote such products consistent with the relevant device classification. Claims outside the scope of the 510(k)-exempt classification would be considered “off-label” and trigger the requirement for a new 510(k) or other premarket submission to FDA. FDA may take enforcement action against Metuchen (as described above), should FDA determine it has engaged in “off-label” promotion or other violative marketing activities.
| 12 |
Metuchen currently plans to submit a 505(b)(2) NDA to FDA for H100™ for treatment of Peyronie’s disease, which will allow Metuchen to rely, in part, on published scientific literature and/or the FDA’s prior findings regarding the safety and efficacy of approved drug products. If Metuchen is not able to pursue this strategy, it will need to conduct additional development activities beyond what is currently planned, development costs will increase, and Metuchen may be delayed in receiving regulatory authority approval. The submission of 505(b)(2) NDAs may also subject Metuchen to the risk of patent infringement lawsuits or regulatory actions that would delay or prevent submission of a marketing application to the FDA, or the FDA’s marketing application review and approval.
The Hatch-Waxman Act added Section 505(b)(2) to the FDCA, permitting the filing of a NDA, where at least some of the information required for approval comes from investigations that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. The FDA interprets Section 505(b)(2) of the FDCA, for purposes of approving an NDA, to permit the applicant to rely, in part, upon published literature and/or the FDA’s previous findings of safety and efficacy for an approved product. The FDA also requires companies to perform additional clinical trials or measurements to support any deviation from the previously approved product and to support the reliance on the applicable published literature or referenced product, referred to as bridging. The FDA may then approve the new product candidate for all or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant, if such approval is supported by study data. The label, however, may require all or some of the limitations, contraindications, warnings or precautions included in the reference product’s label, including a black box warning, or may require additional limitations, contraindications, warnings or precautions.
Metuchen currently plans to submit a 505(b)(2) NDA to FDA for H100™ for treatment of Peyronie’s disease. If the FDA disagrees with the appropriateness of reliance on a reference listed drug or published literature or if Metuchen is not otherwise able to bridge to the reference listed drug or published literature, the Company may need to conduct additional clinical trials or other studies, which could lead to unanticipated costs and delays or to the termination of the development program. If Metuchen is unable to obtain approval through the 505(b)(2) NDA process, it may be required to pursue the more expensive and time consuming 505(b)(1) approval process, which consists of full reports of investigations of safety and effectiveness conducted by or for the applicant.
There may also be circumstances under which the FDA would not allow Metuchen to pursue a 505(b)(2) application. For instance, should the FDA approve a pharmaceutically equivalent product to H100™, it is the FDA’s policy that the appropriate submission would be an ANDA for a generic version of the approved product. Metuchen may, however, not be able to immediately submit an ANDA or have an ANDA approval made effective, as the application could be blocked by others’ periods of patent and regulatory exclusivity protection.
Notwithstanding the approval of a number of products by the FDA under Section 505(b)(2), pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA’s interpretation of Section 505(b)(2) is successfully challenged, the FDA may change its policies and practices with respect to Section 505(b)(2) regulatory approvals. It is also not uncommon for a sponsor of an approved product to file a citizen petition with the FDA seeking to delay approval of, or impose additional approval requirements for, pending competing products. If successful, such petitions can significantly delay, or even prevent, the approval of the new product. However, even if the FDA ultimately denies such a petition, the FDA may substantially delay approval while it considers and responds to the petition. Any inability to pursue a 505(b)(2) application could result in new competitive products reaching the market more quickly than Metuchen’s, which could hurt the Company’s competitive position and business prospects.
The 505(b)(2) regulatory pathway may also subject Metuchen to the risk of patent infringement lawsuits or other regulatory actions that could prevent submission of a marketing application or prevent the FDA making the approval of a marketing application effective. Applicants submitting NDAs under Section 505(b)(2) of the FDCA must provide a patent certification for the patents listed in FDA’s list of Approved Drug Products with Therapeutic Equivalence Evaluations, commonly referred to as the Orange Book, for all reference listed drugs and for all brand name products identified in published literature upon which the 505(b)(2) application relies. The possible certifications are that (1) no patent information has been submitted to the FDA; (2) such patent has expired; (3) the date on which such patent expires; or (4) such patent is invalid or will not be infringed upon by the manufacture, use or sale of the drug product for which the application is submitted. If there are any applicable listed patents, the FDA may not approve the 505(b)(2) application until all listed patents have expired, unless the applicant challenges the listed patents through the last type of certification, also known as a paragraph IV certification, or otherwise indicates that it is not seeking approval of a patented method of use.
| 13 |
If Metuchen does challenge a listed patent through a paragraph IV certification, under the Hatch Waxman Act, the holder of the patents or NDAs that the 505(b)(2) application references may file a patent infringement lawsuit. Filing of a patent infringement lawsuit triggers a one time, automatic, 30-month stay of the FDA’s ability to make the 505(b)(2) NDA approval effective. In such a case, the FDA may not make the 505(b)(2) NDA approval effective until the earlier of 30 months from the receipt of the notice of the paragraph IV certification, the expiration of the patent, when the infringement case concerning each such patent is favorably decided in the applicant’s favor or settled, or such shorter or longer period as may be ordered by a court. Accordingly, Metuchen may invest a significant amount of time and expense in the development of one or more product candidates only to be subject to significant delay and patent litigation before such product candidates may be commercialized, if at all. In addition, a 505(b)(2) application approval may, in some cases, not be submitted, or may, in other cases, not be made effective until any existing non-patent regulatory exclusivities have expired or, if possible, are carved out from the label.
If Metuchen is unable to advance its product candidates, including H100, in clinical development, obtain regulatory approval and ultimately commercialize its product candidates, or experience significant delays in doing so, its business may be materially harmed.
Metuchen is not permitted to market or promote any of its product candidates before it receives regulatory approval from the FDA or comparable foreign regulatory authorities, and it may never receive such regulatory approval. Metuchen may only receive approval in a limited patient population, it may experience delays in receiving such regulatory approval, or it may not receive regulatory approval for new indications or for H100. Even if Metuchen successfully commercializes H100, it may not be successful in developing and commercializing any other product candidates, and its commercial opportunities may be limited.
Metuchen cannot be certain that any of its product candidates will be successful in clinical and preclinical trials or receive regulatory approval. Further, its product candidates may not receive regulatory approval even if they are successful in clinical trials and Metuchen submits the required marketing applications seeking regulatory authorization for their use.
For each product candidate, Metuchen must demonstrate safety and efficacy in humans, obtain regulatory approval in one or more jurisdictions, obtain manufacturing supply capacity and expertise, and substantially invest in marketing efforts before it is able to generate any revenue from such product candidate. The success of Metuchen’s product candidates, and H100 in particular, will depend on several factors, including the following:
| · | approval of H100 or other products by the FDA; |
| · | successful enrollment in, and completion of, clinical trials, the design and implementation of which are agreed to by the applicable regulatory authorities, and the conduct of clinical trials by contract research organizations, or CROs, to successfully conduct such trials within Metuchen’s planned budget and timing parameters and without materially adversely impacting its trials; |
| · | successful data from its clinical and preclinical programs that support an acceptable risk-benefit profile of its product candidates in the intended populations to the satisfaction of the applicable regulatory authorities; |
| · | timely receipt, if at all, of regulatory approvals from applicable regulatory authorities; |
| · | establishment of arrangements with third-party manufacturers, as applicable, for continued clinical supply and commercial manufacturing; |
| · | successful development of Metuchen’s manufacturing processes and transfer to new third-party facilities to support future development activities and commercialization that are operated by contract manufacturing organizations, or CMOs, in a manner compliant with all regulatory requirements; |
| · | establishment and maintenance of patent and trade secret protection or regulatory exclusivity for Metuchen’s product candidates; |
| · | successful commercial launch of Metuchen’s other product candidates, if and when approved; |
| 14 |
| · | acceptance of Metuchen’s products, if and when approved, by patients, the relevant medical communities and third-party payors; |
| · | effective competition with other therapies; |
| · | establishment and maintenance of adequate healthcare coverage and reimbursement; |
| · | Metuchen’s ability to avoid infringing upon the patent and other intellectual property rights of third parties; |
| · | enforcement and defense of intellectual property rights and claims; |
| · | continued compliance with any post-marketing requirements imposed by regulatory authorities, including any required post-marketing clinical trials or the elements of any post-marketing Risk Evaluation and Mitigation Strategy, or REMS, that may be required by the FDA or comparable requirements in other jurisdictions to ensure the benefits of the product outweigh its risks; and |
| · | maintenance of a continued acceptable safety profile of the product candidates following approval. |
If Metuchen is unsuccessful with respect to these factors, it could experience significant delays or barriers to the successful commercialization of its product candidates, which may materially harm Metuchen’s business. Even if Metuchen successfully obtains regulatory approvals to manufacture and market its product candidates, its revenues will be dependent, in part, upon the size of the markets in the territories for which it gains regulatory approval and have commercial rights. If the markets for patient subsets that Metuchen is targeting are not as significant as it estimates, it may not generate significant revenues from sales of its approved products.
Metuchen plans to seek regulatory approval to commercialize its product candidates in the United States and in foreign countries. While the scope of regulatory approval is similar in many countries, in order to obtain separate regulatory approval in multiple countries Metuchen must comply with numerous and varying regulatory requirements of each such country or jurisdiction regarding safety and efficacy and governing, among other things, clinical trials and commercial sales, pricing and distribution. Metuchen cannot predict success in any such jurisdictions, and the time required to obtain approval in foreign countries may differ substantially from that required to obtain FDA approval.
Clinical drug development involves a lengthy and expensive process, with an uncertain outcome. Metuchen may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of Metuchen’s product candidates.
The risk of failure in drug and product development is high. Before obtaining marketing approval from regulatory authorities for the sale of H100 or other unapproved product candidates, Metuchen must complete nonclinical development and conduct extensive clinical trials to demonstrate the safety and efficacy of Metuchen’s product candidates in humans. Clinical trials are expensive, difficult to design and implement and can take many years to complete, and their outcomes are inherently uncertain. Failure can occur at any time during the clinical trial process. Nonclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in nonclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. It is impossible to predict when or if Metuchen’s unapproved product candidates will prove to be effective or safe in humans or will receive marketing approval.
Metuchen may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates. Clinical trials may be delayed, suspended or prematurely terminated because costs are greater than we anticipate or for a variety of other reasons, such as:
| · | delay or failure in reaching agreement with the FDA or a comparable foreign regulatory authority on a trial design that Metuchen is able to execute; |
| · | delay or failure in obtaining authorization to commence a trial, including approval from the appropriate Institutional Review Board (“IRB”), to conduct testing of a candidate on human subjects, or inability to comply with conditions imposed by a regulatory authority regarding the scope or design of a clinical trial; |
| 15 |
| · | delays in reaching, or failure to reach, agreement on acceptable terms with prospective trial sites and prospective CROs, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; |
| · | inability, delay or failure in identifying and maintaining a sufficient number of trial sites, many of which may already be engaged in other clinical programs; |
| · | delay or failure in recruiting and enrolling suitable subjects to participate in a trial; |
| · | delay or failure in having subjects complete a trial or return for post-treatment follow-up; |
| · | clinical sites and investigators deviating from the clinical protocol, failing to conduct the trial in accordance with regulatory requirements, or dropping out of a trial; |
| · | lack of adequate funding to continue a clinical trial, including unforeseen costs due to enrollment delays, requirements to conduct additional clinical trials and increased expenses associated with the services of Metuchen’s CROs and other third parties; |
| · | clinical trials of Metuchen’s product candidates may produce negative or inconclusive results, and it may decide, or regulators may require Metuchen, to conduct additional nonclinical studies, clinical trials or abandon product development programs; |
| · | Metuchen’s third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to Metuchen in a timely manner, or at all; |
| · | the supply or quality of Metuchen’s product candidates or other materials necessary to conduct clinical trials of its product candidates may be insufficient; |
| · | the FDA or comparable foreign regulatory authorities may require Metuchen to submit additional data or impose other requirements before permitting it to initiate a clinical trial; or |
| · | changes in governmental regulations or administrative actions. |
Many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of marketing approval for Metuchen’s product candidates. Further, the FDA or comparable foreign regulatory authorities may disagree with Metuchen’s clinical trial design and its interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for Metuchen’s clinical trials.
Metuchen cannot be certain as to what type and how many clinical trials the FDA or comparable foreign regulatory authorities will require Metuchen to conduct before it may successfully gain approval to market H100. Prior to approving a new product, the FDA generally requires that the efficacy of the product be demonstrated in two adequate and well-controlled clinical trials.
Metuchen’s product development costs will also increase if it experience delays in nonclinical and clinical development or receiving the requisite marketing approvals. Metuchen does not know whether any of its nonclinical studies or clinical trials will need to be restructured or will be completed on schedule, or at all, which may harm our business and results of operations.
If Metuchen experiences delays or difficulties in the enrollment of patients in clinical trials, development of its product candidates may be delayed or prevented, which would have a material adverse effect on its business.
Metuchen may not be able to initiate clinical trials for H100 or its other product candidates if it is unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or comparable foreign regulatory authorities. Patient enrollment is a significant factor in the timing of clinical trials.
Patient enrollment may be affected if Metuchen’s competitors have ongoing clinical trials for product candidates that are under development for the same indications as Metuchen’s product candidates, and patients who would otherwise be eligible for its clinical trials instead enroll in clinical trials of its competitors’ product candidates. Patient enrollment may also be affected by other factors, including:
| · | size and nature of the patient population; |
| · | severity of the condition under investigation; |
| · | patient eligibility criteria for the trial in question; |
| · | nature of the trial protocol; |
| · | Metuchen’s ability to recruit clinical trial investigators with the appropriate competencies and experience; |
| 16 |
| · | perceived risks and benefits of the product candidate under study; |
| · | the occurrence of adverse events attributable to Metuchen’s product candidates; |
| · | efforts to facilitate timely enrollment in clinical trials; |
| · | the number and nature of competing products or product candidates and ongoing clinical trials of competing product candidates for the same indication; |
| · | patient referral practices of physicians; |
| · | the ability to monitor patients adequately during and after treatment; |
| · | proximity and availability of clinical trial sites for prospective patients; and |
| · | continued enrollment of prospective patients by clinical trial sites. |
If Metuchen experiences delays or difficulties in the enrollment of patients in clinical trials, its clinical trials may be delayed or terminated. Any delays in completing Metuchen’s clinical trials will increase its costs, delay or prevent its product candidate development and approval process and jeopardize Metuchen’s ability to commence product sales and generate additional revenue. Any of these occurrences may harm our business, financial condition and prospects significantly.
Metuchen relies on third parties to conduct, supervise, and monitor preclinical studies and clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials or failing to comply with regulatory requirements.
Metuchen may use third parties, contract research organizations, or CROs, study sites, and others to conduct, supervise, and monitor preclinical and clinical trials for product candidates. While Metuchen has agreements governing the activities of such third parties, it has limited influence and control over their actual performance and activities. Third-party service providers are not Metuchen’s employees, and except for remedies available under agreements with such third parties, Metuchen cannot control whether or not they devote sufficient time and resources to its development programs. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct studies in accordance with regulatory requirements or the study plans, if they need to be replaced or if the quality or accuracy of the data they obtain is compromised, studies may need to be repeated, extended, delayed, or terminated, Metuchen may not be able to obtain, or may be delayed in obtaining, marketing approvals for product candidates, Metuchen may not be able to or may be delayed in commercializing product candidates, or Metuchen or the third party service providers may be subject to regulatory enforcement actions. As a result, results of operations and the commercial prospects for product candidates would be harmed, costs could increase and the Company’s ability to generate revenues could be delayed. Third-party service providers may also have relationships with other entities, including Metuchen competitors, for whom they may also be conducting development activities that could harm Metuchen’s competitive position.
Reliance on third-parties for development activities will reduce the Company’s control over these activities. Nevertheless, Metuchen is responsible for ensuring that its studies are conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards. Regulatory authorities enforce their requirements through periodic inspections of trial sponsors, clinical and preclinical investigators, and trial sites. Any failure to comply with the applicable regulatory requirements, may subject Metuchen or its third party service providers to enforcement or other legal actions, the data generated in trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require the performance of additional studies.
Agreements with third parties conducting or otherwise assisting with studies might terminate for a variety of reasons, including a failure to perform by the third parties. If any of these relationships terminate, Metuchen may not be able to enter into arrangements with alternative providers or to do so on commercially reasonable terms. Switching or adding additional third parties involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new third party commences work. As a result, alternative arrangements, it could delay product development activities and adversely affect Metuchen’s business.
| 17 |
Metuchen’s relationships with prescribers, purchasers, third-party payors and patients are subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, any violation of which could expose it to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
Metuchen is subject to healthcare statutory and regulatory requirements and oversight by federal and state governments, as well as foreign governments in the jurisdictions in which it conducts its business. Physicians, other healthcare providers and third-party payors will play a primary role in the recommendation, prescription and use of any product candidates for which Metuchen has, or in the future obtains, marketing approval. Metuchen’s arrangements with such third parties are subject to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain its business or financial arrangements and relationships through which it markets, sell and distributes any products for which it may obtain marketing approval, including potential exclusion from federal healthcare programs and debarment from federal government contracts. Restrictions under applicable domestic and foreign healthcare laws and regulations include the following:
| · | the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under a federal healthcare program such as Medicare and Medicaid; a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; |
| · | U.S. federal false claims, false statements and civil monetary penalties laws, including the U.S. False Claims Act, which impose criminal and civil penalties against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent, including false statements regarding compliance with regulations material to payment by government programs for drugs and medical supplies, or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government; actions may be brought by the government or a whistleblower and may include an assertion that a claim for payment by federal healthcare programs for items and services which results from a violation of the federal Anti-Kickback Statue constitutes a false or fraudulent claim for purposes of the False Claims Act; |
| · | the U.S. federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, that imposes liability for executing a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services; similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; |
| · | analogous state and foreign laws and regulations relating to healthcare fraud and abuse, such as state anti-kickback and false claims laws, that may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers; |
| · | the U.S. federal physician payment transparency requirements, sometimes referred to as the “Sunshine Act,” which requires manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare or Medicaid, to report to the Centers for Medicare & Medicaid Services, or CMS, information related to certain payments and other transfers of value, such as payments and transfers of value to physicians and teaching hospitals (and, beginning in 2021, for transfers of value to other healthcare providers), as well as the ownership and investment interests of physicians and their immediate family members; |
| · | analogous state and foreign laws that require companies to track, report and disclose to the government and/or the public information related to payments, gifts, and other transfers of value or remuneration to physicians and other healthcare providers, marketing activities or expenditures, or product pricing or transparency information, or that require companies to implement compliance programs that meet certain standards or to restrict or limit interactions between manufacturers and members of the healthcare industry; |
| · | the U.S. federal laws that require manufacturers to report certain calculated product prices to the government or provide certain discounts or rebates to government authorities or private entities, often as a condition of reimbursement under federal healthcare programs; |
| · | HIPAA, which imposes obligations on certain covered entity healthcare providers, health plans, and healthcare clearinghouses as well as their business associates that perform certain services involving the use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information; and |
| 18 |
| · | state and foreign laws that govern the privacy and security of health information in certain circumstances, including state security breach notification laws, state health information privacy laws and federal and state consumer protection laws, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts. |
These and additional laws are also further described in the government regulation section of this filing. Efforts to ensure that Metuchen’s business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. If governmental authorities conclude that Metuchen’s business practices do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations, then government enforcement actions are possible.
Metuchen’s marketing and advertising are regulated by the FDA, Federal Trade Commission and State and County Attorneys General, and it may face enforcement and litigation specifically related to the nature and sales channels of its products.
Metuchen may face product liability litigation and/or other litigation from certain regulatory agencies such as the FDA (as describe elsewhere in this filing), FTC, Attorney General, Better Business Bureau, among others owing to the manner that it markets and sells certain of its products such as through nationwide newspaper advertisements, direct mailing or other direct to consumer campaigns.
With respect to Federal Trade Commission (“FTC”) matters, if the FTC has reason to believe the law is being violated (e.g. failure to possess adequate substantiation for product claims), it can initiate an enforcement action through a variety of judicial and administrative processes and remedies. Any action against us by the FTC could materially and adversely affect Metuchen’s ability to successfully market its products.
In addition, Metuchen’s marketing and advertising is regulated by regulations, administrative actions and legal proceeding of various state and county attorneys general across the United States. Any regulation, administrative actions or legal proceeding against Metuchen by any of these entities could materially and adversely affect its ability to successfully market its products.
Metuchen may be subject to potential product liability and other claims, creating risks and expense.
Metuchen is also exposed to potential product liability risks inherent in the development, testing, manufacturing, marketing and sale of human therapeutic products. Product liability insurance for the pharmaceutical industry is extremely expensive, difficult to obtain and may not be available on acceptable terms, if at all. Metuchen cannot guarantee that the coverage limits of such insurance policies will be adequate. A successful claim against Metuchen in excess of its insurance coverage could have a material adverse effect upon it and on its financial condition.
In addition to direct expenditures for damages, settlement and defense costs, there is a possibility of adverse publicity and loss of revenues as a result of product liability claims. Product liability claims can also result in regulatory consequences, such as the withdrawal of clinical trial participants, termination of clinical trials or programs, governmental authority investigations and enforcement actions, product recalls and withdrawals of approval, as well as labeling revisions. Product liability is a significant commercial risk for Metuchen. Plaintiffs have received substantial damage awards in some jurisdictions against pharmaceutical companies based upon claims for injuries allegedly caused by the use of their products. In addition, in the age of social media, plaintiffs’ counsel now has a wide variety of tools to advertise their services and solicit new clients for litigation. Thus, any significant product liability litigation or mass tort in which Metuchen is a defendant may have a larger number of plaintiffs than such actions have seen historically because of the increasing use of widespread and media-varied advertising.
Government regulations that mandate price controls and limitations on patient access to its products or establish prices paid by government entities or programs for such products may impact Metuchen’s business, and future results could be adversely affected by changes in such regulations or policies.
| 19 |
Pharmaceutical product pricing is subject to enhanced government and public scrutiny and calls for reform. Some states have implemented, and other states are considering implementing, pharmaceutical price controls or patient access constraints under the Medicaid program, and some states are considering price-control regimes that would apply to broader segments of their populations that are not Medicaid-eligible. There have also been recent state legislative efforts to address drug costs, which generally have focused on increasing transparency around drug costs or limiting drug prices. If implemented, efforts by government officials or legislators to implement measures to regulate prices or payments for pharmaceutical products, including legislation on drug importation, could adversely affect Metuchen’s business.
Changes in laws and accounting standards could negatively impact Metuchen’s business.
Metuchen’s future results could be adversely affected by changes in interpretations of existing laws and regulations, or changes in laws and regulations, including, among others, changes in accounting standards, taxation requirements, competition laws, privacy laws and environmental laws in the United States and other countries.
Risks Related to Metuchen’s Intellectual Property
If Metuchen fails to protect its intellectual property rights, its ability to pursue the development of its products would be negatively affected.
Metuchen’s long-term success largely depends on its ability to market technologically competitive products. Metuchen relies and expects to continue to rely on a combination of intellectual property, including patent, trademark, trade dress, copyright, trade secret and domain name protection laws, as well as confidentiality and license agreements, to protect its intellectual property and proprietary rights. If Metuchen fails to obtain and maintain adequate intellectual property protection, it may not be able to prevent third parties from launching generic or biosimilar versions of its branded products using its proprietary technologies or from marketing products that are very similar or identical to those of Metuchen. In addition, the patents Metuchen has licensed may not contain claims sufficiently broad to protect it against third parties with similar technologies or products or provide Metuchen with any competitive advantage, including exclusivity in a particular product area. Metuchen may be subject to challenges by third parties regarding its intellectual property, including, among others, claims regarding validity, enforceability, scope and effective term.
Metuchen’s ability to enforce its patents also depends on the laws of individual countries and each country’s practice with respect to enforcement of intellectual property rights, and the extent to which certain sovereigns may seek to engage in policies or practices that may weaken its intellectual property framework (e.g., a policy of routine compulsory licensing (or threat of compulsory licensing) of pharmaceutical intellectual property). Some foreign countries lack rules and methods for defending intellectual property rights and do not protect proprietary rights to the same extent as the United States. As such, Metuchen may have difficulty protecting its proprietary rights in these foreign countries.
In addition to patents, Metuchen relies on a combination of trade secrets, confidentiality, nondisclosure and other contractual provisions and security measures to protect its confidential and proprietary information. These measures do not guarantee protection of its trade secrets or other proprietary information. There is risk that third parties could use Metuchen’s technology and it could lose any competitive advantage it may have. In addition, others may independently develop similar proprietary information or techniques or otherwise gain access to Metuchen’s trade secrets, which could impair any competitive advantage it may have.
Metuchen may be involved in lawsuits to protect or enforce its patents, which could be expensive and time consuming.
The pharmaceutical industry has been characterized by extensive litigation regarding patents and other intellectual property rights, and companies have employed intellectual property litigation to gain a competitive advantage. Metuchen may become subject to infringement claims or litigation arising out of patents and pending applications of its competitors or additional interference proceedings declared by the United States Patent and Trade Office to determine the priority of inventions. The defense and prosecution of intellectual property suits, United States Patent and Trade Office proceedings and related legal and administrative proceedings are costly and time-consuming to pursue, and their outcome is uncertain. Litigation may be necessary to enforce Metuchen’s licensed patents, to protect its trade secrets and know-how, or to determine the enforceability, scope and validity of the proprietary rights of others. An adverse determination in litigation or interference proceedings to which Metuchen may become a party could subject it to significant liabilities, require it to obtain licenses from third parties or restrict or prevent it from selling its products in certain markets. Although patent and intellectual property disputes might be settled through licensing or similar arrangements, the costs associated with such arrangements may be substantial and could include paying large fixed payments and ongoing royalties. Furthermore, the necessary licenses may not be available on satisfactory terms or at all.
| 20 |
Competitors may infringe Metuchen’s licensed patents and Metuchen may file infringement claims to counter infringement or unauthorized use. This can be expensive, particularly for a company of Metuchen’s size, and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent Metuchen has licensed is not valid or is unenforceable or may refuse to stop the other party from using the technology at issue on the grounds that Metuchen’s patents do not cover the other party’s technology. An adverse determination of any litigation or defense proceedings could put one or more of Metuchen’s patents at risk of being invalidated or interpreted narrowly.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or interference proceedings, there is a risk that some of Metuchen’s confidential information could be compromised by disclosure. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments.
If Metuchen infringes the rights of third parties, it could be prevented from selling products and forced to pay damages and defend against litigation.
If Metuchen’s products, methods, processes and other technologies infringe the proprietary rights of other parties, it could incur substantial costs and may have to: obtain licenses, which may not be available on commercially reasonable terms, if at all; abandon an infringing product candidate; redesign its products or processes to avoid infringement; stop using the subject matter claimed in the patents held by others; pay damages; and/or defend litigation or administrative proceedings which may be costly whether Metuchen wins or loses, and which could result in a substantial diversion of its financial and management resources.
Metuchen may be subject to claims that its employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.
Metuchen may employ individuals who were previously employed at other biotechnology or pharmaceutical companies. It may be subject to claims that it or its employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of our employees’ former employers or other third parties. Metuchen may also be subject to claims that former employers or other third parties have an ownership interest in its patents. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and if Metuchen does not prevail, it could be required to pay substantial damages and could lose rights to important intellectual property. Even if Metuchen is successful, litigation could result in substantial cost and be a distraction to its management and other employees.
Risks Related to Metuchen’s Products
Changes in trends in the pharmaceutical and medical device industries, including changes to market conditions, could adversely affect Metuchen’s operating results.
The pharmaceutical and medical device industries generally, and drug discovery and development companies more specifically, are subject to increasingly rapid technological changes. Metuchen’s competitors might develop technologies or products that are more effective or commercially attractive than Metuchen’s current or future technologies, or that render its technologies or products less competitive or obsolete. If competitors introduce superior technologies or products and Metuchen cannot make enhancements to its technologies or products to remain competitive, its competitive position and, in turn, its business, revenue and financial condition, may be materially and adversely affected.
| 21 |
Risks Related to Metuchen’s Strategic Transactions
Metuchen may fail to realize the anticipated benefits from its strategic acquisitions.
Concurrently with the acquisition of a majority interest in Metuchen by the JCP Investor (as defined herein) on December 10, 2018, Metuchen purchased all of the equity interests of Timm Medical, Inc. and Pos-T-Vac, LLC. The success of these or any future strategic acquisitions will depend, in large part, on Metuchen’s ability to realize anticipated benefits. It may fail to achieve cost savings anticipated with certain of these acquisitions, or such cost savings within the expected time frame. Similarly, the accretive impact anticipated from certain of these acquisitions may not be realized or may be delayed. Integration of these businesses may result in the loss of key employees, the disruption of ongoing business, including third-party relationships, or inconsistencies in standards, controls, procedures and policies.
Acquisitions involve risks that could result in a reduction of our operating results, cash flows and liquidity.
Metuchen has made, and in the future may continue to make, strategic acquisitions including licenses of third-party products. However, it may not be able to identify suitable acquisition and licensing opportunities. It may pay for acquisitions and licenses with equity or with convertible securities. In addition, acquisitions or licenses may expose Metuchen to operational challenges and risks, including:
| · | The ability to profitably manage acquired businesses or successfully integrate the acquired business’ operations and financial reporting and accounting control systems into our business; |
| · | Increased indebtedness and contingent purchase price obligations associated with an acquisition; |
| · | The ability to fund cash flow shortages that may occur if anticipated revenue is not realized or is delayed, whether by general economic or market conditions or unforeseen internal difficulties; |
| · | The availability of funding sufficient to meet increased capital needs; |
| · | Diversion of management’s attention; and |
| · | The ability to retain or hire qualified personnel required for expanded operations. |
In addition, acquired companies may have liabilities or risks that we fail, or are unable, to discover in the course of performing due diligence investigations. Metuchen cannot guarantee that the indemnification granted to it by sellers of acquired companies will be sufficient in amount, scope or duration to fully offset the possible liabilities associated with businesses or properties that are assumed upon consummation of an acquisition. Metuchen may learn additional information about acquired businesses that materially adversely affect it, such as unknown or contingent liabilities and liabilities related to compliance with applicable laws. Any such liabilities, individually or in the aggregate, could have a material adverse effect on its business.
Failure to successfully manage the operational challenges and risks associated with, or resulting from, acquisitions could adversely affect Metuchen’s results of operations, cash flows and liquidity. Borrowings or issuance of convertible securities associated with any acquisitions may also result in higher levels of indebtedness, which could impact its ability to service its debt within the scheduled repayment terms.
Other Risks Related to Metuchen’s Business and Operations
We have concluded that there are material weaknesses in our internal control over financial reporting, which if not remediated, could materially adversely affect our ability to timely and accurately report our results of operations and financial condition. The accuracy of Metuchen’s financial reporting depends on the effectiveness of its internal controls over financial reporting.
Internal controls over financial reporting can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements and may not prevent or detect misstatements. Failure to maintain effective internal controls over financial reporting, or lapses in disclosure controls and procedures, could undermine the ability to provide accurate disclosure (including with respect to financial information) on a timely basis, which could cause investors to lose confidence in Metuchen’s disclosures (including with respect to financial information), require significant resources to remediate the lapse or deficiency, and expose it to legal or regulatory proceedings.
| 22 |
In connection with the audit of its December 31, 2019 financial statements, Metuchen’s management identified the following deficiencies which it considers to be “material weaknesses,” which, individually or in the aggregate, could reasonably result in a material misstatement in the company’s financial statements:
| · | Metuchen currently has limited resources and an insufficient level of monitoring and oversight, which restricts the ability to gather, analyze and report information relative to the financial statements in a timely manner, including insufficient documentation and review of the selection and application of generally accepted accounting principles to significant non-routine transactions; |
| · | The size of Metuchen’s accounting department makes it impracticable to achieve an appropriate segregation of duties; |
| · | The lack of a formalized process and firm timeline for closing the books and records at the end of each reporting period; |
| · | There is no formal process in place to ensure timely and adequate review of schedules and analysis used in the financial close process. Any reviews done during the close are performed on an ad hoc basis; and |
| · | Metuchen is still establishing a formal process for estimating gross to net obligations that relate to current sales, which could result in a misstatement of accounts receivable and revenue. The current process is manual in nature with the Vice President of Finance and Chief Financial Officer working collaboratively to determine the estimates. |
Metuchen’s remediation efforts are ongoing and it will continue its initiatives to implement and document policies, procedures, and internal controls. Remediation of the identified material weaknesses and strengthening the internal control environment will require a substantial effort throughout 2020 and beyond, as necessary, and Metuchen will test the ongoing operating effectiveness of the new and existing controls in future periods. The material weaknesses cannot be considered completely remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Metuchen cannot guarantee that it will be successful in remediating the material weaknesses it identified or that its internal control over financial reporting, as modified, will enable it to identify or avoid material weaknesses in the future.
Metuchen cannot guarantee that its management will be successful in identifying and retaining appropriate personnel; that newly engaged staff or outside consultants will be successful in identifying material weaknesses in the future; or that appropriate personnel will be identified and retained prior to these deficiencies resulting in material and adverse effects on Metuchen’s business.
Metuchen’s consolidated balance sheet contains significant amounts of intangible assets, including goodwill.
For goodwill, all reporting units can confront events and circumstances that can lead to a goodwill impairment charge (such as, among other things, unanticipated competition, an adverse action or assessment by a regulator, a significant adverse change in legal matters or in the business climate and/or a failure to replace the contributions of products that lose exclusivity). Any such charge may be significant. Metuchen’s other intangible assets, including developed technology rights and brands, face similar risks for impairment and charges related to such assets may be significant as well. In the year ended December 31, 2019, Metuchen incurred a goodwill impairment loss of $2,443,930.
The preparation of Metuchen’s financial statements involves the use of good faith estimates, judgments and assumptions, and such financial statements may be materially affected if such good faith estimates, judgments or good faith assumptions prove to be inaccurate.
| 23 |
Financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) typically require the use of good faith estimates, judgments and assumptions that affect the reported amounts. Often, different estimates, judgments and assumptions could reasonably be used that would have a material effect on such financial statements, and changes in these estimates, judgments and assumptions may occur from period to period over time. Significant areas of accounting requiring the application of management’s judgment include, but are not limited to, determining the fair value of assets, variable consideration for revenue and the timing and amount of cash flows from assets. These estimates, judgments and assumptions are inherently uncertain and, if Metuchen’s estimates are wrong, it would face the risk that charges to income or other financial statement changes or adjustments would be required. Any such charges or changes would require a restatement of its financial statements and could harm its business, including its financial condition and results of operations and the price of our securities. See “Metuchen Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of the accounting estimates, judgments and assumptions that we believe are the most critical to an understanding of our financial statements and our business.
The impact of the COVID-19 outbreak on Metuchen’s operations, and the operations of its partners, suppliers and logistics providers, could significantly disrupt its operations and may materially and adversely affect its business and financial conditions.
Metuchen’s business could be adversely impacted by the effects of the coronavirus or other epidemics. In December 2019, a novel strain of the coronavirus emerged in China and the virus has since spread to other countries, including the United States and Canada, and infections have been reported globally. Metuchen expect a decrease in medical visits for non-acute issues during the periods of recommended social distancing or government “stay at home” orders. Demand for Metuchen’s products may decrease as a result of COVID-19 because its medical device products are marketed through urologist offices and Stendra® requires a prescription. The COVID-19 pandemic may also result in supply chain disruptions with respect to the Company’s products, product candidates, or their components, which may result in product shortages.
The outbreak and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. In response to the COVID-19 outbreak, “shelter in place” orders and other public health guidance measures have been implemented across much of the United States, Europe and Asia, including in the locations of Metuchen’s offices, key vendors and partners. Further, due to “shelter in place” orders and other public health guidance measures, Metuchen has implemented a work-from-home policy for all staff members excluding those necessary to maintain minimum basic operations. This increased reliance on personnel working from home may negatively impact productivity, or disrupt, delay or otherwise adversely impact Metuchen’s business.
Additionally, Metuchen expects that COVID-19 will continue to adversely impact the status and progress of our development programs, including any clinical and preclinical trials for H100 or any other product candidates. Delays or other difficulties in completing clinical and preclinical trials could result in a longer period of time to obtain product regulatory approval, to commercialize our products, if approved, and realize any resulting revenue in the future.
The COVID-19 pandemic and the government and public health response continues to rapidly evolve. In light of the COVID-19 outbreak, the FDA has issued a number of new guidance documents. Additionally, in March 2020, the US Congress passed the Coronavirus Aid, Relief, and Economic Security Act, which, for certain critical drugs, includes strengthened provisions regarding required FDA drug shortage reporting requirements, as well as provisions regarding supply chain security, such as risk management plan requirements, and the promotion of supply chain redundancy and domestic manufacturing.
Metuchen is actively assessing and responding where possible to the potential impact of the COVID-19 outbreak. The extent to which the COVID-19 impacts its business, including its operations, will depend on future developments, which are highly uncertain and cannot be predicted at this time, and include the duration, severity and scope of the outbreak and the actions taken to contain or treat the coronavirus outbreak. The continued spread of the coronavirus globally could materially and adversely impact Metuchen’s business including without limitation, supply chain and manufacturing matters, employee health, workforce productivity, increased insurance premiums, limitations on travel, the availability of industry advisers and personnel, and other factors that will depend on future developments beyond its control, which may have a material and adverse effect on its business, financial condition and results of operations.
| 24 |
Risks Related to the Mergers
If the proposed Mergers are not consummated, Neurotrope’s business could suffer materially and Neurotrope’s stock price could decline.
The consummation of the proposed Mergers are subject to a number of closing conditions, including the approval by Neurotrope’s stockholders, approval by Nasdaq of Neurotrope’s application for initial listing of Neurotrope’s common stock in connection with the Mergers, and other customary closing conditions. Neurotrope is targeting a closing of the transaction during the third quarter of 2020.
If the proposed Mergers are not consummated, Neurotrope may be subject to a number of material risks, and its business and stock price could be adversely affected, as follows:
| · | Neurotrope has incurred and expects to continue to incur significant expenses related to the proposed Mergers even if the Mergers are not consummated. |
| · | the Merger Agreement contains covenants relating to Neurotrope’s solicitation of competing acquisition proposals and the conduct of Neurotrope’s business between the date of signing the Merger Agreement and the closing of the Mergers. As a result, significant business decisions and transactions before the closing of the Mergers require the consent of Metuchen. Accordingly, Neurotrope may be unable to pursue business opportunities that would otherwise be in its best interest as a standalone company. If the s Agreement is terminated after Neurotrope has invested significant time and resources in the transaction process, Neurotrope will have a limited ability to continue its current operations without obtaining additional financing to fund its operations. |
| · | Neurotrope could be obligated to pay Metuchen a $1,000,000 termination fee plus third party expenses incurred by Metuchen in connection with the termination of the Merger Agreement, depending on the reason for the termination. |
| · | Neurotrope’s customers, prospective customers, collaborators and other business partners and investors in general may view the failure to consummate the Mergers as a poor reflection on its business or prospects. |
| · | some of Neurotrope’s suppliers, distributors, collaborators and other business partners may seek to change or terminate their relationships with Neurotrope as a result of the proposed Mergers. |
| · | as a result of the proposed Mergers, current and prospective employees could experience uncertainty about their future roles within the combined company. This uncertainty may adversely affect Neurotrope’s ability to retain its key employees, who may seek other employment opportunities. |
| · | Neurotrope’s management team may be distracted from day to day operations as a result of the proposed Mergers. |
| · | the market price of Neurotrope’s common stock may decline to the extent that the current market price reflects a market assumption that the proposed Mergers will be completed. |
In addition, if the Merger Agreement is terminated and Neurotrope’s board of directors determines to seek another business combination, it may not be able to find a third party willing to provide equivalent or more attractive consideration than the consideration to be provided by each party in the Mergers. In such circumstances, Neurotrope’s board of directors may elect to, among other things, divest all or a portion of Neurotrope’s business, or take the steps necessary to liquidate all of Neurotrope’s business and assets, and in either such case, the consideration that Neurotrope receives may be less attractive than the consideration to be received by Neurotrope pursuant to the Merger Agreement.
| 25 |
The exchange ratios are not adjustable based on the market price of Neurotrope common stock so the merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed.
The Merger Agreement has set the exchange ratio formula for Metuchen Capital Units, and the exchange ratio applicable to Metuchen Units is adjustable upward or downward based on changes in the outstanding Metuchen Capital Units, prior to completion of the Mergers as described in the section titled “The Mergers—Merger Consideration and Adjustment” in this proxy statement/prospectus/information statement. Any changes in the market price of Neurotrope Common Stock before the completion of the Mergers will not affect the number of shares Metuchen Unitholders will be entitled to receive pursuant to the Merger Agreement. Therefore, if before the completion of the Mergers, the market price of Neurotrope Common Stock declines from the market price on the date of the Merger Agreement, then Metuchen Unitholders could receive merger consideration with substantially lower value. Similarly, if before the completion of the Mergers, the market price of Neurotrope Common Stock increases from the market price on the date of the Merger Agreement, then Metuchen Unitholders could receive merger consideration with substantially more value for their shares of Metuchen Capital Units than the parties had negotiated in the establishment of the applicable exchange ratio. The Merger Agreement does not include a price-based termination right. Because the applicable exchange ratios do not adjust as a result of changes in the value of Neurotrope Common Stock, for each one percentage point that the market value of Neurotrope Common Stock rises or declines, there is a corresponding one percentage point rise or decline, respectively, in the value of the total merger consideration issued to Metuchen Unitholders.
Failure to complete the Mergers may result in Neurotrope and Metuchen paying a termination fee or expenses to the other party, and could harm the price of Neurotrope Common Stock and the future business and operations of each company.
If the Mergers are not completed, Neurotrope and Metuchen are subject to the following risks:
| · | if the Merger Agreement is terminated in certain specified circumstances, either party may be Neurotrope may be required to pay Metuchen the other party a termination fee of $1.0 million plus third party expenses incurred by the terminating party; |
| · | the price of Neurotrope Common Stock may decline and remain volatile; and |
| · | costs related to the Mergers, such as legal and accounting fees which Neurotrope and Metuchen estimate will total approximately $2 million in the aggregate, some of which must be paid even if the Mergers are not completed. |
In addition, if the Merger Agreement is terminated and the board of directors of Neurotrope determines to seek another business combination, there can be no assurance that either Neurotrope will be able to find a partner willing to provide equivalent or more attractive consideration than the consideration to be provided by Metuchen.
The Mergers may be completed even though material adverse changes may result from the announcement of the Mergers, industry-wide changes and other causes.
In general, either Neurotrope or Metuchen can refuse to complete the Mergers if there is a material adverse change affecting the other party between the date of the Merger Agreement, and the Closing. However, certain types of changes do not permit either party to refuse to complete the Mergers, even if such change could be said to have a material adverse effect on Neurotrope or Metuchen, to the extent they resulted from the following and do not have a materially disproportionate effect on Neurotrope or Metuchen, as the case may be:
| 26 |
| · | changes in general economic, business, financial or market conditions; |
| · | changes or events affecting the industries or industry sectors in which the parties operate generally; |
| · | changes in generally accepted accounting principles; |
| · | changes in laws, rules, regulations, decrees, rulings, ordinances, codes or requirements issued, enacted, adopted or otherwise put into effect by or under the authority of any governmental body; |
| · | changes caused by any action taken by either party with the prior written consent of the other party; |
| · | changes caused by any act of terrorism, sabotage, military action or war, epidemic, pandemic or disease outbreak (including the COVID-19 virus) or any escalation or worsening thereof; or |
| · | with respect to Neurotrope, a decline in Neurotrope’s stock price or trading volume. |
If adverse changes occur but Neurotrope and Metuchen must still complete the Mergers, the combined company’s stock price may suffer.
Some of Neurotrope’s officers and directors have conflicts of interest that may influence them to support or approve the Mergers.
Certain officers and directors of Neurotrope and Metuchen participate in arrangements that provide them with interests in the Mergers that are different from yours, including, among others, the continued service as an officer or director of the combined organization, severance benefits, the acceleration of stock option vesting, continued indemnification and the potential ability to sell an increased number of shares of common stock of the combined organization in accordance with Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”). For example, the Chief Executive Officer of Neurotrope will continue as the Chief Executive Officer of Petros and four directors of Neurotrope will become directors of Petros. The Closing will also result in the acceleration of vesting of a portion of the stock awards, including options to purchase approximately 1.9 million shares of Neurotrope Common Stock held by the Neurotrope executive officers and directors, whether or not there is a covered termination of such officer’s employment. For more information concerning the treatment of Neurotrope options in connection with the Mergers, see the section titled “The Merger Agreement—Treatment of Neurotrope Options” in the proxy statement/prospectus/information statement related to the Mergers to be filed by Petros. In addition, and for example, certain of Metuchen’s directors and executive officers are expected to become directors and executive officers of Neurotrope upon the Closing; and all of Metuchen’s directors and executive officers are entitled to certain indemnification and liability insurance coverage pursuant to the terms of the Merger Agreement. These interests, among others, may influence the officers and directors of Neurotrope and Metuchen to support or approve the Mergers. For more information concerning the interests of Neurotrope and Metuchen executive officers and directors, see the sections titled “The Mergers—Interests of the Neurotrope Directors and Executive Officers in the Mergers” and “The Mergers—Interests of the Metuchen Directors and Executive Officers in the Mergers” in the proxy statement/prospectus/information statement related to the Mergers to be filed by Neurotrope.
The market price of Petros Common Stock following the Mergers may decline as a result of the Mergers.
The market price of Petros Common Stock may decline as a result of the Mergers for a number of reasons if:
| 27 |
| · | investors react negatively to the prospects of the combined organization’s business and prospects from the Mergers; |
| · | the effect of the Mergers on the combined organization’s business and prospects is not consistent with the expectations of financial or industry analysts; or |
| · | the combined organization does not achieve the perceived benefits of the Mergers as rapidly or to the extent anticipated by financial or industry analysts. |
If the Mergers are consummated, the business operations, strategies and focus of Neurotrope will fundamentally change, and these changes may not result in an improvement in the value of its common stock.
Pending the consummation of the Mergers, it is currently anticipated that the combined company would focus its resources on executing Metuchen’s current business plan. Accordingly, substantially simultaneously with the Mergers, the combined company has agreed to spin-off Neurotrope’s legacy business in the Spin-off and, as such, the stockholders of Neurotrope will participate in the business that is associated with Neurotrope’s legacy business in a separate public company.
Following the Mergers, it is expected that the combined company’s primary products will be Metuchen’s current and prospective products. Consequently, if the Mergers are consummated, an investment in Neurotrope common stock will primarily represent an investment in the business operations, strategies and focus of Metuchen. There is no assurance that the combined company’s business operations, strategies or focus will be successful following the Mergers, and the merger could depress the value of the combined company’s common stock.
Neurotrope’s stockholders may not realize a benefit from the Mergers commensurate with the ownership dilution they will experience in connection with the Mergers.
If the combined company is unable to realize the strategic and financial benefits currently anticipated from the Mergers, Neurotrope’s stockholders will have experienced substantial dilution of their ownership interest without receiving any commensurate benefit. Significant management attention and resources will be required to integrate the two companies. Delays in this process could adversely affect the combined company’s business, financial results, financial condition and stock price following the Mergers. Even if the combined company were able to integrate the business operations successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies, innovation and operational efficiencies that may be possible from this integration and that these benefits will be achieved within a reasonable period of time.
During the pendency of the Mergers, Neurotrope may not be able to enter into a business combination with another party and will be subject to contractual limitations on certain actions because of restrictions in the Merger Agreement.
Covenants in the Merger Agreement impede the ability of Neurotrope or Metuchen to make acquisitions or complete other transactions that are not in the ordinary course of business pending completion of the Mergers. As a result, if the Mergers are not completed, the parties may be at a disadvantage to their competitors. In addition, while the Merger Agreement is in effect and subject to limited exceptions, each party is prohibited from soliciting, initiating, encouraging or taking actions designed to facilitate any inquiries or the making of any proposal or offer that could lead to the entering into certain extraordinary transactions with any third party, such as a sale of assets, an acquisition of Neurotrope’s common stock, a tender offer for Neurotrope’s common stock, a merger or other business combination outside the ordinary course of business. Any such transactions could be favorable to such party’s stockholders.
Neurotrope Stockholders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined organization following the completion of the Mergers as compared to their current ownership and voting interests in the respective companies.
| 28 |
After the completion of the Mergers, the current Neurotrope Stockholders will own a smaller percentage of the combined organization than their ownership percentage prior to the Mergers. As of the date of the execution of the Merger Agreement, it was determined that immediately after the consummation of the Mergers, Metuchen Unitholders would own approximately 80% of the Petros common stock , and Neurotrope Stockholders would own approximately 20% of the Petros common stock, subject to adjustment pursuant to the terms of the Merger Agreement.
As a result of the Metuchen Merger, each outstanding common unit or preferred unit of Metuchen will be exchanged for a number of shares of Petros common stock equal to the quotient resulting from the formula of (i) 95,908,502 divided by (ii) the number of fully-diluted units of Metuchen outstanding immediately prior to the effective time of the Mergers. Immediately prior to the Effective Times, each share of Metuchen preferred units will be converted into Metuchen Common Units. As a result of the Neurotrope Merger, each outstanding share of Neurotrope common stock will be exchanged for one share of Petros common stock and each outstanding share of Neurotrope preferred stock will be exchanged for one share of Petros preferred stock. In addition, each outstanding option to purchase Neurotrope common stock or outstanding warrant to purchase common stock that has not previously been exercised prior to the closing of the Mergers will be converted into equivalent options and warrants to purchase shares of Petros common stock and will be adjusted to give effect to the exchange ratios set forth in the Merger Agreement.
Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.
The terms of the Merger Agreement prohibit each of Neurotrope and Metuchen from soliciting alternative takeover proposals or cooperating with persons making unsolicited takeover proposals, except in limited circumstances when such party’s board of directors determines in good faith that an unsolicited alternative takeover proposal is or is reasonably likely to be inconsistent with the board’s fiduciary duties. Moreover, even if a party receives what the party’s board of directors determine is a superior proposal, the Merger Agreement does not permit either party to terminate the Merger Agreement to enter into a superior proposal.
Because the lack of a public market for Metuchen Capital Units makes it difficult to evaluate the value of Metuchen Capital Units, the Metuchen Unitholders may receive shares of Petros Common Stock in the Mergers that have a value that is less than, or greater than, the fair market value of Metuchen Capital Units.
The outstanding Metuchen Capital Units are privately held and are not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of Metuchen Capital Units. Because the percentage of Petros equity to be issued to Metuchen Unitholders was determined based on negotiations between the parties, it is possible that the value of Petros common stock to be received by Metuchen Unitholders will be less than the fair market value of Metuchen Capital Units, or Neurotrope may pay more than the aggregate fair market value of Metuchen Capital Units.
If the conditions of the Mergers are not met, the Mergers will not occur.
Even if the Mergers are approved by Neurotrope Stockholders and Metuchen Unitholders, specified conditions must be satisfied or waived to complete the Mergers. These conditions are set forth in the Merger Agreement and described in the section titled “The Merger Agreement—Conditions to Completion of the Mergers” in proxy statement/prospectus/information statement to be filed by Neurotrope. Neurotrope and Metuchen cannot assure you that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the Mergers will not occur or will be delayed, and Neurotrope and Metuchen each may lose some or all of the intended benefits of the Mergers.
| 29 |
Failure of the Mergers to qualify as a reorganization within the meaning of Section 351(a) of the Code could harm the combined company.
The parties intend for the Mergers to qualify as a reorganization within the meaning of Section 351(a) of the Code, as amended. For a full description of the tax consequences of the Mergers, see “The Mergers — Material U.S. Federal Income Tax Consequences of the Mergers” of the registration statement/proxy statement related to the Mergers to be filed by Neurotrope. To comply with the requirements for a Section 351(a) reorganization, certain structural and other requirements for the transaction must be met; if not satisfied, the Metuchen Unitholders could be subject to tax liability.
The Mergers are expected to result in a limitation on Neurotrope’s ability to utilize its net operating loss carryforwards.
Under Section 382 of the Code, use of Neurotrope’s net operating loss carryforwards (“NOLs”) will be limited if Neurotrope experiences a cumulative change in ownership of greater than 50% in a moving three year period. Neurotrope will experience an ownership change as a result of the Mergers and therefore its ability to utilize its NOLs and certain credit carryforwards remaining at the Effective Time will be limited. The limitation will be determined by the fair market value of Neurotrope’s common stock outstanding prior to the ownership change, multiplied by the applicable federal rate. Limitations imposed on Neurotrope’s ability to utilize NOLs could cause U.S. federal and state income taxes to be paid earlier than would be paid if such limitations were not in effect and could cause such NOLs to expire unused, in each case reducing or eliminating the benefit of such NOLs.
The combined organization may become involved in securities class action litigation that could divert management’s attention and harm the combined organization’s business and insurance coverage may not be sufficient to cover all costs and damages.
In the past, securities class action or shareholder derivative litigation often followed certain significant business transactions, such as the sale of a business division or announcement of a merger. The combined organization may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect the combined organization’s business.
Following the Mergers, Neurotrope will be controlled by the JCP Investor, whose interests may be different than the interests of other holders of our securities.
Upon the completion of the Mergers, the JCP Investor will own approximately 59% of the combined company’s outstanding common stock, and will, for the foreseeable future, have significant influence over its reporting and corporate management and affairs, and will be able to control virtually all matters requiring stockholder approval. For so long as the JCP Investor has the ability to elect a majority of the combined company’s board of directors, the directors elected by the JCP Investor are expected to constitute a majority of each committee of the combined company’s board of directors, other than the Audit Committee, and the chairman of each of the committees, other than the Audit Committee, is expected to be a director serving on such committee who is elected by the JCP Investor; provided that, at such time as we are no longer a “controlled company” under the Nasdaq corporate governance standards, the combined company’s committee membership will comply with all applicable requirements of those standards and a majority of the combined company’s board of directors will be “independent directors,” as defined under the rules of Nasdaq.
| 30 |
The interests of the JCP Investor may be materially different than the interests of the combined company’s other stockholders. In addition, the JCP Investor may have an interest in pursuing acquisitions, divestitures and other transactions that, in their judgment, could enhance its investment, even though such transactions might involve risks to you. For example, the JCP Investor may cause the combined company to take actions or pursue strategies that could cause a change of control. The JCP Investor is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with the combined company. The combined company’s amended and restated certificate of incorporation will provide that none of the JCP Investor, any of its affiliates or any director who is not employed by the combined company (including any non-employee director who serves as one of the combined company’s officers in both his director and officer capacities) or his or her affiliates will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which the combined company operates. Additionally, the JCP Investor also may pursue acquisition opportunities that may be complementary to the combined company’s business, and, as a result, those acquisition opportunities may not be available to the combined company.
So long as the JCP Investor continues to own a significant amount of the combined company’s outstanding common stock, even if such amount is less than 50%, it will continue to be able to strongly influence or effectively control the combined company’s decisions and, so long as the JCP Investor continues to own shares of the combined company’s outstanding common stock, nominate individuals to the combined company’s board of directors. In addition, JCP Investor will be able to determine the outcome of all matters requiring stockholder approval and will be able to cause or prevent a change of control of the combined company’s company or a change in the composition of the combined company’s board of directors and could preclude any unsolicited acquisition of the combined company’. The concentration of ownership could deprive you of an opportunity to receive a premium for your shares of common stock as part of a sale of the combined company and ultimately might affect the market price of the combined company’s common stock.
The combined company will be a “controlled company” within the meaning of the Nasdaq rules and the rules of the SEC. As a result, it will qualify for, and intend to rely on, exemptions from certain corporate governance requirements that provide protection to stockholders of other companies.
After completion of the Mergers, the JCP Investor will own a majority of the combined company’s outstanding common stock. As a result, the combined company will be a “controlled company” within the meaning of the corporate governance standards of Nasdaq. Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:
| · | the requirement that a majority of the combined company’s board of directors consist of “independent directors” as defined under the rules of Nasdaq; |
| · | the requirement that the combined company have a compensation committee that is composed entirely of directors who meet the Nasdaq independence standards for compensation committee members with a written charter addressing the committee’s purpose and responsibilities; and |
| · | the requirement that the combined company’s director nominations be made, or recommended to the combined company’s full board of directors, by its independent directors or by a nominations committee that consists entirely of independent directors and that the combined company adopt a written charter or board resolution addressing the nominations process. |
Following this offering, the combined company intend to utilize these exemptions. As a result, the combined company will not have a majority of independent directors, its nominating/corporate governance committee, if any, and compensation committee will not consist entirely of independent directors and such committees will not be subject to annual performance evaluations. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of Nasdaq.
| 31 |
Risks Related to Petros (the “Combined Organization”)
After completion of the Mergers, the holders of Metuchen’s Securities will maintain the ability to control or significantly influence all matters submitted to the combined organization's stockholders for approval.
Upon the completion of the Mergers, based on the current estimates, holders of Metuchen’s securities would, in the aggregate, own approximately 80% of the Petros common stock following the closing. As a result, if these stockholders were to choose to act together, they would be able to control or significantly influence all matters submitted to the combined organization's stockholders for approval, as well as the combined organization's management and affairs. For example, these persons, if they choose to act together, would control or significantly influence the election of directors and approval of any merger, consolidation or sale of all or substantially all of the combined organization's assets. This concentration of voting power could delay or prevent an acquisition of the combined organization on terms that other stockholders may desire.
The combined organization's stock price is expected to be volatile, and the market price of its common stock may drop following the Mergers.
The market price of the combined organization's common stock following the Mergers could be subject to significant fluctuations following the Mergers. Market prices for securities of life sciences companies have historically been particularly volatile. Some of the factors that may cause the market price of the combined organization's common stock to fluctuate include:
| · | any delay in the commencement, enrollment and ultimate completion of clinical trials; |
| · | variations in the combined organization's financial results or those of companies that are perceived to be similar to the combined organization; |
| · | regulatory or legal developments in the United States or other countries; |
| · | the success of competitive therapies; |
| · | announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by the combined organization or the combined organization's competitors; |
| · | significant lawsuits, including patent or stockholder litigation; |
| · | additions or departures of key scientific or management personnel; |
| · | general economic, industry and market conditions; and |
| · | failure to maintain compliance with listing requirements of The Nasdaq Capital Market. |
Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of the combined organization's common stock.
In the past, following periods of volatility in the market price of a company's securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm the combined organization's profitability and reputation.
The combined organization will incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies.
| 32 |
The combined organization will incur significant legal, accounting and other expenses that Metuchen did not incur as a private company, including costs associated with public company reporting requirements. The combined organization will also incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well as rules implemented by the SEC and Nasdaq. These rules and regulations are expected to increase the combined organization's legal and financial compliance costs and to make some activities more time consuming and costly. For example, the combined organization's management team will consist of certain executive officers of Metuchen prior to the Mergers. These executive officers and other personnel will need to devote substantial time regarding operations as a public company and compliance with applicable laws and regulations. These rules and regulations may also make it difficult and expensive for the combined organization to obtain directors' and officers' liability insurance. As a result, it may be more difficult for the combined organization to attract and retain qualified individuals to serve on the combined organization's board of directors or as executive officers of the combined organization, which may adversely affect investor confidence in the combined organization and could cause the combined organization's business or stock price to suffer.
Metuchen’s management has limited experience with compliance with public company obligations and the combined organization’s resources may not be sufficient to fulfill its public company obligations.
Following the completion of the Mergers, the combined organization will be subject to various regulatory requirements, including those of the SEC and Nasdaq. These requirements include record keeping, financial reporting and corporate governance rules and regulations. The combined organization's management team will consist of certain executive officers of Metuchen prior to the Mergers. Such executive officers have limited experience with compliance with public company obligations and, historically, Metuchen has not had the resources typically found in a public company. The combined organization’s internal infrastructure may not be adequate to support its reporting obligations, and the combined organization may be unable to hire, train or retain necessary staff and may initially be reliant on engaging outside consultants or professionals to overcome its lack of experience. The combined organization’s business could be adversely affected if its internal infrastructure is inadequate, it is unable to engage outside consultants, or is otherwise unable to fulfill its public company obligations.
Anti-takeover provisions in the combined organization charter documents and under Nevada law could make an acquisition of the combined organization more difficult and may prevent attempts by the combined organization stockholders to replace or remove the combined organization management.
Provisions in the combined organization's articles of incorporation and bylaws may delay or prevent an acquisition or a change in management. These provisions include a classified board of directors, a prohibition on actions by written consent of the combined organization's stockholders and the ability of the board of directors to issue preferred stock without stockholder approval. In addition, because the combined organization will be incorporated in Nevada, it is governed by the provisions of Section 78.438 of the Nevada Revised Statutes, which prohibits a Nevada corporation from engaging in a business combination with an interested stockholder, generally a person which together with its affiliates owns, or within the last two years has owned, 10% of the corporation’s voting stock, for a period of two years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. Although Neurotrope and Metuchen believe these provisions collectively will provide for an opportunity to receive higher bids by requiring potential acquirors to negotiate with the combined organization's board of directors, they would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by the combined organization's stockholders to replace or remove then current management by making it more difficult for stockholders to replace members of the board of directors, which is responsible for appointing the members of management.
The combined organization may not be able to timely and effectively implement controls and procedures required by Section 404 of the Sarbanes-Oxley Act of 2002 that will be applicable to the combined organization after the Mergers.
Metuchen is not currently subject to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404. However, following the Mergers, the combined organization will be subject to Section 404. The standards required for a public company under Section 404 are significantly more stringent than those required of Metuchen as a privately held company. Management may not be able to effectively and timely implement controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements that will be applicable to the combined organization after the Mergers. If management is not able to implement the additional requirements of Section 404 in a timely manner or with adequate compliance, it may not be able to assess whether its internal control over financial reporting is effective, which may subject the combined organization to adverse regulatory consequences and could harm investor confidence and the market price of the combined organization's common stock.
If securities analysts do not publish research or reports about the combined organization's business or if they publish negative evaluations of the combined organization's stock, the price of the combined organization's stock could decline.
The trading market for the combined organization's common stock will rely, in part, on the research and reports that industry or financial analysts publish about the combined organization or the combined organization's business. Equity research analysts may elect not to provide research coverage of the combined organization's common stock after the completion of the Mergers, and such lack of research coverage may adversely affect the market price of its common stock. In the event it does have equity research analyst coverage, the combined organization will not have any control over the analysts or the content and opinions included in their reports. The price of the combined organization's common stock could decline if one or more equity research analysts downgrade its stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of the combined organization or fails to publish reports on it regularly, demand for its common stock could decrease, which in turn could cause its stock price or trading volume to decline.
| 33 |
Neurotrope and Metuchen do not anticipate that the combined organization will pay any cash dividends in the foreseeable future.
The current expectation is that the combined organization will retain its future earnings to fund the development and growth of the combined organization's business. In addition, the terms of Metuchen's existing and any future debt agreements may preclude Metuchen from paying dividends. As a result, capital appreciation, if any, of the common stock of the combined organization will be your sole source of gain, if any, for the foreseeable future.
The pro forma financial statements included in the Current Report on Form 8-K are presented for illustrative purposes only and may not be an indication of the combined organization's financial condition or results of operations following the completion of the Mergers and Spin-Off.
The pro forma financial statements are presented for illustrative purposes only and may not be an indication of the combined organization's financial condition or results of operations following the Mergers for several reasons. The pro forma financial statements have been derived from the historical financial statements of Neurotrope and Metuchen and certain adjustments and assumptions have been made regarding the combined organization after giving effect to the Mergers and Spin-Off. The information upon which these adjustments and assumptions have been made is preliminary, and these kinds of adjustments and assumptions are difficult to make with accuracy. Moreover, the pro forma financial statements do not reflect all costs that are expected to be incurred by the combined organization in connection with the Mergers. For example, the impact of any incremental costs incurred in integrating the two companies is not reflected in the pro forma financial statements. As a result, the actual financial condition of the combined organization following the Mergers may not be consistent with, or evident from, these pro forma financial statements. The assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect the combined organization's financial condition following the Mergers.
Future sales of shares by existing stockholders could cause the combined organization stock price to decline.
If existing Neurotrope Stockholders and Metuchen Unitholders sell, or indicate an intention to sell, substantial amounts of the combined organization's common stock in the public market after the lock-up and other legal restrictions on resale, the trading price of the common stock of the combined organization could decline. Based on the current estimate of the applicable exchange ratios, upon completion of the Mergers, it is expected that approximately 33% of the shares of Petros common stock will be freely tradable.
The lock-up agreements entered into by certain Neurotrope Stockholders and Metuchen Unitholders provide that the shares of Neurotrope Common Stock, including, as applicable, shares received in the Mergers and issuable upon exercise of certain options, subject to the lock-up restrictions will be released from such restrictions nine months after the Closing. Based on the current estimate of the applicable exchange ratios, upon expiration of such lockup restrictions, the remaining shares of Petros common stock will be eligible for sale in the public market, approximately 59% of which will be held by directors, executive officers of the combined organization and other affiliates and will be subject to volume limitations under Rule 144 under the Securities Act, and various vesting agreements. If these additional shares are sold, or if it is perceived that they will be sold, in the public market, the trading price of the combined organization common stock could decline.
| 34 |
The combined organization's bylaws designate the state and federal courts within the State of Nevada as the exclusive forum for certain types of actions and proceedings that the combined organization's stockholders may initiate, which could limit the combined organization's stockholders' ability to obtain a favorable judicial forum for disputes with the combined organization or the combined organization's directors, officers or employees.
The combined organization's bylaws provide that, subject to limited exceptions, the state and federal courts within the State of Nevada will be exclusive forums for any:
| · | derivative action or proceeding brought on the combined organization's behalf; |
| · | action asserting a claim of breach of a fiduciary duty owed by any of the combined organization's directors, officers or other employees to the combined organization or the combined organization's stockholders; |
| · | action asserting a claim against the combined organization arising pursuant to any provision of the Nevada Revised Statutes; or |
| · | any action asserting a claim against the combined organization that is governed by the internal affairs doctrine. |
Any person or entity purchasing or otherwise acquiring any interest in shares of the combined organization's capital stock shall be deemed to have notice of and to have consented to the provisions of the combined organization's bylaws described above. These choice of forum provisions may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with the combined organization or the combined organization's directors, officers or other employees, which may discourage such lawsuits against the combined organization and the combined organization's directors, officers and employees. Alternatively, if a court were to find these provisions of its bylaws inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, the combined organization may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect the combined organization's business and financial condition.
Risks Related to the Spin-off
The consummation of the Spin-Off will occur immediately following, and is expressly conditioned upon, the closing of the Mergers. All of those risk factors with respect to Neurotrope stated above are applicable to the shares of stock of Neurotrope SpinCo to be distributed further to the Spin-Off. If any of those risks and uncertainties develops into actual events, these events could have a material adverse effect on Neurotrope SpinCo’s businesses, financial conditions or results of operations.
The Spin-Off may not deliver its intended results.
There are several risks and uncertainties related to the Spin-Off, including but not limited to:
| • | whether Neurotrope will be able to effect the Separation Agreement; |
| • | whether Neurotrope will be able to obtain the required regulatory approvals for the Spin-Off or the timing of such approvals; |
| • | whether Neurotrope SpinCo may be able to conduct and expand its business following the Spin-Off; |
| • | whether there could be legal or other challenges to the Spin-Off, including changes in legal, regulatory, market and other circumstances that could lead to the Spin-Off not being pursued; and |
Any one or more of these risks and uncertainties, or any other complexity or aspect of the Spin-Off or its implementation, may cause the Spin-Off to fail or prevent the Spin-Off from being able to be completed. If the Spin-Off is not completed, the Mergers may fail to close.
| 35 |
The Spin-Off could give rise to disputes or other unfavorable effects, which could materially and adversely affect our business, financial position or results of operations.
The Spin-Off may lead to increased operating and other expenses, of both a nonrecurring and a recurring nature, and to changes to certain operations. Disputes with third parties could also arise out of these transactions. These increased expenses, changes to operations, disputes with third parties, or other effects could materially and adversely affect our business, financial position or results of operations.
Neurotrope’s historical financial information may not be representative of the results SpinCo may not be a reliable indicator of our future results.
Neurotrope’s historical financial information included in this proxy statement/prospectus/information statement have been derived from Neurotrope’s accounting records and may not reflect what the Neurotrope SpinCo’s financial position, results of operations or cash flows will be in the future.
The Spin-Off may expose us to potential liabilities arising out of state and federal fraudulent conveyance laws.
A court could deem the Spin-Off or certain internal restructuring transactions undertaken by Neurotrope in connection therewith to be a fraudulent conveyance or transfer. Fraudulent conveyances or transfers are defined to include transfers made or obligations incurred with the actual intent to hinder, delay or defraud current or future creditors or transfers made or obligations incurred for less than reasonably equivalent value when the debtor was insolvent, or that rendered the debtor insolvent, inadequately capitalized or unable to pay its debts as they become due. In such circumstances, a court could void the transactions or impose substantial liabilities upon us, which could adversely affect our financial condition and our results of operations. Whether a transaction is a fraudulent conveyance or transfer will vary depending upon the jurisdiction whose law is being applied.
| 36 |
Exhibit 99.5
Opinion of Neurotrope’s Valuation Advisor
Pursuant to an engagement letter dated March 16, 2020, Neurotrope retained Gemini Valuation Services, LLC (“GVS”) to act as a financial advisor in connection with the merger and to render an opinion to the Neurotrope board of directors as to the fairness, from a financial point of view, of the contribution made and consideration received by the holders of Neurotrope Common Stock pursuant to the Merger Agreement. On May 11, 2020, GVS rendered its oral opinion to Neurotrope’s board of directors (which was subsequently confirmed in writing as of May 15, 2020), that, as of that date and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations set forth in the GVS Opinion and described below, the contribution made and consideration received by the holders of Neurotrope Common Stock pursuant to the Merger Agreement was fair to the holders of Neurotrope Common Stock from a financial point of view. The written opinion of GVS is included as Annex A hereto.
GVS provided its opinion for the information and assistance of Neurotrope’s board of directors in connection with its consideration of the Merger. The GVS Opinion addressed solely the fairness, from a financial point of view, of the consideration received by the holders of Neurotrope Common Stock pursuant to the Merger Agreement to the holders of Neurotrope Common Stock and does not address any other aspect or implication of the Merger. The GVS Opinion is not a recommendation to Neurotrope’s board of directors or any shareholder of Neurotrope as to how to vote or to take any other action in connection with the Merger.
In the course of performing its review and analyses for rendering its opinion, GVS:
| (i) | reviewed the financial terms contained in a draft copy of the Merger Agreement, dated as of May 12, 2020, which was the most recent draft made available to GVS (the “Draft Merger Agreement”); |
| (ii) | reviewed certain publicly available financial and other information concerning Neurotrope and Metuchen and the industries in which they each operate; |
| (iii) | reviewed certain internal financial analyses and forecasts prepared by and provided to GVS by the management of Neurotrope relating to Metuchen’s business, separately for each of its products; Stendra (including Timm) (“Stendra Projections”) and H-100 (development stage formulation for Peyronie’s disease) (“H-100 Projections” and collectively with “Stendra Projections”, the “Metuchen Projections”); |
| (iv) | conducted discussions with members of senior management and representatives of each of Neurotrope and Metuchen concerning the matters described in clauses (ii)-(iii) above; |
| (v) | compared the financial and operating performance of each of Neurotrope and Metuchen with publicly available information concerning other publicly traded companies and reviewed the current and historical market prices of Neurotrope Common Stock, the common stock of Metuchen and certain publicly traded securities of such other companies, in each case, that GVS deemed relevant; |
| (vi) | reviewed and analyzed, based on Metuchen Projections, the projected cash flows to be generated by Metuchen, to determine the present value of each of Metuchen’s products discounted cash flows; |
| (vii) | reviewed the historical financial statements for fiscal years 2017, 2018 and 2019, and pro forma financial statements for the quarter ended March 31, 2020 for each of Metuchen and Neurotrope; and |
| (viii) | performed such other financial studies, analyses and investigations and considered such other information as we deemed appropriate for the purposes of the opinion set forth below. |
In arriving at its opinion, GVS assumed and relied upon, without assuming liability or responsibility for independent verification, the accuracy and completeness of all of the financial, pro-forma financial statements, legal, regulatory, tax, accounting and other information that was publicly available or was provided to, discussed with or reviewed by GVS, and upon the assurances of the managements of Neurotrope and Metuchen that they were not aware of any material relevant developments or matters related to the Neurotrope or Metuchen or that may affect the Merger that were omitted or that were not disclosed to GVS. The GVS Opinion did not address any legal, regulatory, tax, accounting or financial reporting matters, as to which GVS understood that Neurotrope has obtained such advice as it deemed necessary from other advisors, and GVS relied with the consent of Neurotrope’s board of directors on any assessments made by such other advisors to Neurotrope with respect to such matters. Without limiting the foregoing, GVS did not consider any tax effects of the Merger or the transaction structure on any person or entity. GVS did not conduct any independent verification of the Projections and expressed no view as to the Projections or the assumptions upon which they were based and assumed no responsibility for the accuracy or completeness thereof. Without limiting the generality of the foregoing, with respect to the Projections, GVS assumed, with the consent of Neurotrope’s board of directors and based upon discussions with Neurotrope’s management and Metuchen’s management, as applicable, that the Projections were reasonably prepared in good faith and that the Metuchen Projections, including any estimates of certain potential benefits of the Merger prepared by the management of Neurotrope and the timing to achieve such benefits, reflected the best currently available estimates and judgments of the management of Neurotrope and the management of Metuchen, as applicable, of the future results of operations and financial performance of Neurotrope and Metuchen.
In arriving at its opinion, GVS did not make any analysis of, and did not express any opinion as to, the adequacy of the reserves of Neurotrope or Metuchen and relied upon information supplied to GVS by Neurotrope and Metuchen as to such adequacy. In addition, GVS did not make any independent evaluations or appraisals of the assets or liabilities (including any contingent derivatives or off-balance-sheet assets or liabilities) of Neurotrope, Metuchen or any of their respective subsidiaries, and GVS was not furnished with any such evaluations or appraisals, nor did GVS evaluate the solvency of Neurotrope, Metuchen or any other entity under any state or federal law relating to bankruptcy, insolvency or similar matters either before or after the Merger. The analyses performed by GVS in connection with its opinion were going concern analyses. GVS expressed no opinion regarding the liquidation value of Neurotrope, Metuchen or any other entity. GVS assumed that there had been no material change in the assets, financial condition, business or prospects of Neurotrope or Metuchen since the date of the most recent relevant financial statements made available to GVS. Without limiting the generality of the foregoing, GVS undertook no independent analysis of any pending or threatened litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which Neurotrope, Metuchen or any of their respective affiliates is a party or may be subject, and, at the direction of Neurotrope and with its consent, GVS’ opinion made no assumption concerning, and therefore did not consider, the possible claims, outcomes or damages arising out of any such matters. With regard to any ongoing litigation in which Metuchen is involved, at the direction of Neurotrope and with its consent, GVS assumed for the purpose of its analysis that it would not have a material adverse effect on the financial condition, operations or prospects of Metuchen. GVS also assumed that neither Neurotrope nor Metuchen is party to any material pending transaction that had not been disclosed to GVS, including, without limitation, any financing, recapitalization, acquisition or merger, and the Merger. GVS did not consider any potential legislative or regulatory changes currently being considered or that may be adopted by any governmental or regulatory bodies or any potential changes in accounting methods or generally accepted accounting principles that may be adopted.
GVS assumed that the representations and warranties of each party contained in the Merger Agreement and in all other related documents and instruments that are referred to therein are and will be true and correct as of the date or the dates made or deemed made, that each party thereto will fully and timely perform all of the covenants and agreements required to be performed by it under the Merger Agreement, the Voting Agreements and any other agreement contemplated by any such agreement, and that the transactions contemplated by the Merger Agreement, including, without limitation, the Metuchen Merger, will be consummated in accordance with the terms of the Merger Agreement without waiver, modification or amendment of any term, condition or agreement thereof. GVS assumed that the final form of the Merger Agreement will be in all respects relevant to its analysis identical to the Draft Merger Agreement. GVS also assumed that any governmental, regulatory and other consents and approvals contemplated in connection with the Merger will be obtained and that, in the course of obtaining any of those consents and approvals, no restrictions will be imposed or waivers made that would have an adverse effect on Neurotrope, Metuchen or the benefits contemplated to be realized as a result of the Merger. GVS further assumed that the Merger will be consummated in a manner that complies with the applicable provisions of the Securities Act, the Exchange Act and all other applicable federal, state, local and foreign laws, rules and regulations.
The GVS Opinion was necessarily based on economic, market, financial and other conditions as they existed, and on the information made available to GVS, as of the date of its opinion. It should be understood that, although subsequent developments may affect the conclusion reached in such opinion, GVS did not assume any obligation to update, revise or reaffirm its opinion.
The GVS Opinion addresses solely the fairness, from a financial point of view and as of the date thereof, of the consideration received by the holders of Neurotrope Common Stock pursuant to the Merger Agreement and does not address any other terms in the Merger Agreement or any other agreement contemplated by the Merger Agreement or relating to the Merger or any other aspect or implication of the Merger, including, without limitation, the form or structure of the Merger, any consequences of the Merger on Neurotrope, its stockholders, creditors or any other constituency, or any terms, aspects or implications of any voting, support, stockholder or other agreements, arrangements or understandings contemplated or entered into in connection with the Merger Agreement or otherwise. The GVS Opinion does not address Neurotrope’s underlying business decision to proceed with the Merger or the relative merits of the Merger compared to other alternatives available to Neurotrope. GVS expressed no opinion as to the prices or ranges of prices at which shares or other securities of any person, including shares of Neurotrope Common Stock or Metuchen Common Stock, will trade at any time, including following the announcement or consummation of the Merger. GVS was not requested to opine as to, and the GVS Opinion does not in any manner address, the amount or nature of compensation to any of the officers, directors or employees of any party to the Merger, or any class of such persons, relative to the compensation to be paid to the stockholders of Neurotrope in connection with the Merger or with respect to the fairness of any such compensation.
In accordance with customary valuation advisory practice, GVS employed generally accepted valuation methods in reaching its opinion. The GVS Opinion was reviewed and approved by a fairness committee of GVS.
Summary of Financial Analysis
GVS performed a variety of financial analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not susceptible to partial analysis or summary description. In arriving at its opinion, GVS considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor considered. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. The overall conclusions GVS reached were based on all the analyses and factors presented, taken as a whole, and also on application of GVS’ own experience and judgment. Such conclusions may involve significant elements of subjective judgment and qualitative analysis.
GVS therefore gave no opinion as to the value or merit standing alone of any one or more parts of the analyses. Furthermore, GVS believes that the summary provided and the analyses described below must be considered as a whole and that selecting any portion of the analyses, without considering all of them, would create an incomplete view of the process underlying GVS’ analysis and opinion. As a result, the ranges of valuations resulting from any particular analysis or combination of analyses described below should not be taken to be the view of GVS with respect to the actual value of Neurotrope, Metuchen or shares of Neurotrope Common Stock or Metuchen Common Stock.
Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of the corresponding summaries and are alone not a complete description of the financial analyses performed by GVS. Considering the data in the tables below without considering the corresponding full narrative descriptions of the financial analyses, including the methodologies and assumptions underlying such analyses, could create a misleading or incomplete view of the financial analyses performed by GVS.
In performing its analyses, GVS made numerous assumptions with respect to industry performance, general business, regulatory and economic conditions and other matters, all of which are beyond GVS’ control and many of which are beyond the control of Neurotrope and/or Metuchen. Any estimates used by GVS in its analysis are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.
GVS performed standalone valuation analyses of both Neurotrope and Metuchen using a variety of valuation methodologies, as described below. GVS then performed a relative valuation analysis in order to compare the contribution made and consideration received by the holders of Neurotrope Common Stock pursuant to the Merger Agreement Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before May 11, 2020, and is not necessarily indicative of current market conditions.
Metuchen Valuation Analysis
As Metuchen has one active commercial product (Stendra) and one more product in development stages (H-100, Peyronie’s disease focused formulation), GVS utilized a Sum-of-the-Parts valuation method where value of each product was determined separately and then added together to arrive at the value of Metuchen. GVS analyzed the valuation of Metuchen using two different methodologies: Income approach (discounted cash flow analysis) and Market approach (public trading comparable companies analysis and comparable transactions analysis). The results of each of these analyses are summarized below. The table below summarized the Metuchen Projections:
| Metuchen Income Statement | FY2020E | FY2021E | FY2022E | FY2023E | FY2024E | |||||||||||||||
| Stendra & Timm | ||||||||||||||||||||
| Gross Revenue | $ | 40,100,000 | $ | 69,860,520 | $ | 102,390,779 | $ | 141,427,091 | $ | 182,415,219 | ||||||||||
| Discounts & Returns | $ | 19,715,050 | $ | 33,929,061 | $ | 50,893,591 | $ | 71,251,028 | $ | 92,626,337 | ||||||||||
| Stendra Net Revenue | $ | 20,384,950 | $ | 35,931,459 | $ | 51,497,188 | $ | 70,176,063 | $ | 89,788,882 | ||||||||||
| H-100 Net Revenue | $ | 9,792,890 | $ | 46,039,260 | ||||||||||||||||
| Total Net Sales | $ | 20,384,950 | $ | 35,931,459 | $ | 51,497,188 | $ | 79,968,953 | $ | 135,828,142 | ||||||||||
| Cos: Stendra & Timm | $ | 2,811,951 | $ | 2,384,110 | $ | 4,274,267 | $ | 5,824,613 | $ | 7,452,477 | ||||||||||
| Cos: H-100 | $ | 3,917,156 | $ | 18,415,704 | ||||||||||||||||
| Cost of Goods Sold | $ | 2,811,951 | $ | 2,384,110 | $ | 4,274,267 | $ | 9,741,769 | $ | 25,868,181 | ||||||||||
| Gross Margin | $ | 17,572,999 | $ | 33,547,348 | $ | 47,222,921 | $ | 70,227,184 | $ | 109,959,961 | ||||||||||
| Operating Expenses: Stenda & Timm | $ | 15,908,154 | $ | 17,908,154 | $ | 20,099,932 | $ | 20,099,932 | $ | 20,099,932 | ||||||||||
| Operation Expenses: H-100 | $ | 1,391,787 | $ | 5,072,965 | ||||||||||||||||
| Total Operating Expenses | $ | 15,908,154 | $ | 17,908,154 | $ | 20,099,932 | $ | 21,491,719 | $ | 25,172,897 | ||||||||||
| EBITDA | $ | 1,664,845 | $ | 15,639,194 | $ | 27,122,989 | $ | 48,735,464 | $ | 84,787,064 | ||||||||||
| Depreciation & Amortization | $ | 6,650,218 | $ | 6,867,771 | $ | 6,191,740 | $ | 5,445,729 | $ | 4,699,718 | ||||||||||
| EBIT | $ | (4,985,373 | ) | $ | 8,771,423 | $ | 20,931,249 | $ | 43,289,735 | $ | 80,087,346 | |||||||||
Metuchen Discounted Cash Flow Analysis – Overview
Stendra Discounted Cash Flow Analysis
GVS performed discounted cash flow analyses of Stendra by calculating, based on the Standra Projections, the estimated present value of Stendra’s discounted cash flows and terminal value.
GVS discounted to present value as of May 11, 2020, (i) estimates of the Unlevered Free Cash Flow that Stendra will generate during the period beginning on April 1, 2020 through December 31, 2024, calculated by GVS based on the Stendra Projections, and (ii) a terminal enterprise value at December 31, 2024 by applying a Gordon Growth Model. Stendra’s terminal year cash flow was calculated using Stendra’s projected 2024 Unlevered Cash Flows. The sum of (i) and (ii) resulted in Stendra’s implied enterprise value.
GVS sensitized a range of terminal growth rates and weighted average cost of capital. This analysis resulted in a range of implied enterprise values of Standra, of between $109.4 million and $115.7 million.
H-100 Discounted Cash Flow Analysis
Based on the fact that H-100 is still in its development stage, GVS performed a risk adjusted discounted cash flow analyses of H-100 by calculating, based on the H-100, the estimated present value of H-100’s risk adjusted discounted cash flows and terminal value. Regarded as one of the popular methods of valuing a development stage drug formulation, the cash flows estimates for the drug are typically risk adjusted for clinical and regulatory hurdles that need to be overcome for a drug to begin generating revenues. Based on the above, GVS adjusted H-100 Projections with a combination of management estimates and industry average phase probabilities of success to arrive at risk adjusted cash flows for H-100.
GVS discounted to present value as of April 1, 2020, (i) estimates of the risk adjusted Unlevered Free Cash Flow that H-100 will generate during the period beginning on April 1, 2020 through 10 years of commercialization, calculated by GVS based on the H-100 Projections, and (ii) a terminal enterprise value at the end of the forecast period by applying a Gordon Growth Model. The sum of (i) and (ii) resulted in H-100’s implied enterprise value.
GVS sensitized a range of terminal growth rates and weighted average cost of capital. This analysis resulted in a range of implied enterprise values of H-100, of between $33.1 million and $40.5 million.
Public Trading Comparable Companies Analysis
GVS reviewed and compared the projected operating performance of Metuchen, based on the Metuchen Projections, with publicly available information concerning other publicly traded companies. GVS selected the following pharmaceutical companies that are focused on sexual health for men/women:
| • | Boston Scientific Corporation |
| • | Arvinas, Inc. |
| • | Endo International plc |
| • | Radius Health, Inc. |
| • | Urovant Sciences Ltd. |
| • | Evofem Biosciences, Inc. |
| • | AIM ImmunoTech Inc. |
| • | Futura Medical plc |
| • | Adamis Pharmaceuticals Corporation |
| • | Lipocine Inc. |
| • | ProPhase Labs, Inc. |
Although none of the selected companies is directly comparable to Metuchen, GVS included these companies in its analysis because they are publicly traded companies with certain characteristics that, for purposes of analysis, may be considered similar to certain characteristics of Metuchen.
GVS calculated the following metrics for each of the selected comparable companies, using consensus equity research estimates as of May 11, 2020 for such companies:
| • | EV |
| • | EV/Last Twelve Months (LTM) Revenue |
| • | EV/Next Twelve Months (NTM) Revenue |
For purposes of this analysis, the EV/Revenue of more than 100x were considered outliers and were not considered in the analysis.
GVS derived a low and high enterprise valuation range, as well as a low and high multiple range for EV/LTM Revenue and EV/NTM Revenue, based on the minimum and maximum enterprise values and multiples, respectively, of the comparable companies.
Standra Public Trading Comparable Companies Analysis
GVS derived a low and high enterprise valuation range, as well as a low and high multiple range for EV/LTM Revenue and EV/NTM Revenue, based on the minimum and maximum enterprise values and multiples, respectively, of the comparable companies. Subsequently, GVS applied a range of multiples closer to the median multiple from the comparable companies to arrive at the enterprise value of Standra
The table below notes the low and high ranges and implied enterprise value of Stendra:
| Metric | Stendra NTM Revenue ($mm) | Metric Range | Implied Enterprise Value of Stendra ($mm) | |||||
| EV/NTM Revenue | $ | 24.3 | 5.0x – 6.0x | $121.6 –$145.9 | ||||
As H-100 is currently in development stage and does not generate revenue nor is expected to generate any commercial revenues over the next 1-2 years, this approach of valuation was not considered for H-100.
Comparable Transaction Analysis
GVS considered certain financial data and the financial terms of the following business transactions GVS deemed relevant for Metuchen. The financial data reviewed included the enterprise value (calculated based on the consideration to be paid in the relevant transaction) and the selected transactions were:
| Target | Acquiror | Implied EV (in $mm) | EV /Revenue | |||||||
| Endo International (Men's Health Business) | Boston Scientific | 1,600.0 | 4.0 | x | ||||||
| Auxilium Pharmaceuticals, LLC | Endo International plc | 2,970.4 | 7.3 | x | ||||||
| MedPointe, Inc. | Meda AB | 792.9 | 3.2 | x | ||||||
| ICOS Corporation | Eli Lilly and Company | 2,459.5 | 32.1 | x | ||||||
| Actient Pharmaceuticals, LLC | Auxilium Pharmaceuticals, LLC | 635.0 | 5.5 | x | ||||||
| Guilford Pharmaceuticals Inc. | MGI Pharma, Inc. | 259.2 | 5.1 | x | ||||||
| American Medical Systems Holdings Inc. | Endo International plc | 2,715.1 | 5.0 | x | ||||||
For each of the selected transactions, GVS analyzed transaction value as obtained from publicly available sources.
Standra Comaprable Transactions Analysis
Based on the median and mean quartile transaction values of the selected transactions, GVS calculated a range of enterprise value for Stendra as shown in the table below:
| Metric | Stendra NTM Revenue ($mm) | Metric Range | Implied Enterprise Value of Stendra ($mm) | |||||
| EV/Revenue | $ | 24.3 | 4.5x – 5.5x | $109.4 – $133.7 | ||||
As H-100 is currently in development stage and does not generate revenue nor is expected to generate any commercial revenues over the next 1-2 years, this approach of valuation was not considered for H-100.
Sum-of-The-Parts Valuation Analysis
GVS combined the calculated average enterprise value for each of Standard and H-100 based on the applied valuation methods to arrive at the enterprise value for Metuchen and was further adjusted for net debt to arrive at the equity value of Metuchen that ranged between $120.0 million and $145.7 million.
Neurotrope Valuation Analysis (Neurotrope’s contribution to the Merger)
GVS analyzed the value of Neurotrope’s contribution to the Merger utilizing an internal valuation method. As part of the Merger, Neurotrope is allocating $20 million of cash to the merged entity through its exchange listed public company.
GVS analyzed certain past reverse merger transactions in the pharmaceuticals/biotech industry for small cap companies and also gathered market quotes for shell companies that are readily available for acquisition to benchmark the value of Neurotrope exchange listed publicly traded company with respect to the transaction to arrive at a range of $2.0 million and $5.0 million for the value of the Neutrotrope exchange listed public company.
This analysis resulted in a range of implied values for Neurotrope’s contribution the Merger, of between $22.0 million and $25.0 million.
Relative Valuation Analysis
GVS compared the above calculated implied value of Neurotrope’s contribution to the Merger against the value of consideration received by Neurotrope’s shareholders post-Merger below.
GVS calculated the post-Merger value of the merged entity by utilizing the average enterprise value ranges of Metuchen and adjusting them by the pro forma net cash of the post-Merger entity. The implied equity value post-Merger ranges between $140.0 million and $165.7 million, resulting in an implied post-Merger value of between $28.0 million and $33.1 million for current shareholders of Neurotrope.
Based on the above analyses, GVS noted that, the implied contribution made by the holders of Neurotrope Common Stock is lower than the consideration received by the holders of Neurotrope Common Stock pursuant to the Merger Agreement.
Certain Financial Projections
The Metuchen Projections were not prepared with a view towards public disclosure or in compliance with the guidelines of the SEC or the American Institute of Certified Accountants. The Metuchen Projections are based on a number of assumptions and subject to numerous uncertainties and risks, including, without limitation, those contained in the Risk Factors and including a number of matters outside the control of Metuchen and Neurotrope. None of Metuchen, Neurotrope or GVS makes any representation that the projections will be achieved and the differences between actual results and the projections may be substantial. Neither Neurotrope’s independent public accounting firm, nor Metuchen’s independent accounting firm, nor any other independent accountants, has compiled, examined or performed any procedures with respect to the Metuchen Projections, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the Metuchen Projections.
Miscellaneous
The preparation of a fairness opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a fairness opinion is not readily susceptible to summary description. In arriving at its opinion, GVS did not draw, in isolation, conclusions from or with regard to any factor or analysis that it considered. Rather, GVS made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of the analyses.
The GVS Opinion was one of the many factors taken into consideration by Neurotrope’s board of directors in making its determination to approve the Merger Agreement. Consequently, the analyses as described above should not be viewed as determinative of the opinion of Neurotrope’s board of directors with respect to the contribution made/consideration received for the shares of Neurotrope Common Stock in the Merger or of whether Neurotrope’s board of directors would have been willing to agree to different exchange ratio. The contribution made/consideration received for the shares of Neurotrope Common Stock in the Merger was determined through arm’s- length negotiations between Neurotrope and Metuchen and was approved by Neurotrope’s board of directors. Neither GVS nor any of its affiliates recommended any specific exchange ratio to Neurotrope or Neurotrope’s board of directors or that any specific exchange ratio constituted the only appropriate exchange ratio for the Merger. GVS noted that Metuchen will bear the dilution of any currently outstanding warrants of Neurotrope being exercised, however the current Neurotrope holders will receive 20% of any cash proceeds that are received from such exercise. GVS did not separately value the underlying Neurotrope business. However, the spinoff of the business along with the remaining cash is believed to be adding value to the Neurotrope stockholders.
GVS has consented to the use of the GVS Opinion in this Current Report on Form 8-K; however, GVS has not assumed any responsibility for the form or content of this Current Report on Form 8-K, other than the GVS Opinion itself.
As part of its financial advisory business, GVS regularly is engaged in the evaluation of businesses and their securities in connection with mergers, acquisitions, corporate restructurings, private placements and other purposes. GVS is a recognized advisory firm that has substantial experience in providing financial advice in connection with proposed mergers, acquisitions, sales of companies, businesses and other assets and other transactions.
During the two years preceding the date of the GVS Opinion, neither GVS nor its affiliates was engaged by, performed services for, or received any compensation from, Neurotrope (other than the engagements and any amounts that were paid under the engagement letter described in this Current Report on Form 8-K) or Metuchen.
Annex A
 |
1100
Glendon Ave, 905 Los Angeles, CA 90024 | T: 310-696-4001 F: 310-696-4007 |
Strictly Confidential
May 15, 2020
The Board of Directors
Neurotrope, Inc.
1185 Avenue of the Americas, 3rd Floor
New York, NY 10036
The Board of Directors:
You have requested the opinion (the “Opinion”) of Gemini Valuation Services, LLC (“GVS” and, for the avoidance of doubt, all references to pronouns such as “we” and “our”), as to the fairness from a financial point of view, of the contemplated Transaction (defined below) to the common stock holders of the company (the “Shareholders”) without giving effect to any impact of the Transaction on any particular shareholder other than in its capacity as a shareholder of Neurotrope, Inc. (the “Company” or “NTRP”).
As per a draft Agreement and Plan of Merger (the “Merger Agreement”) between, NTRP, Petros Pharmaceuticals, Inc., a Delaware corporation (“Petros”), PM Merger Sub 1, LLC, a Delaware limited liability company and a wholly-owned subsidiary of Petros (“Merger Sub 1”), PN Merger Sub 2, Inc., a Nevada corporation and a wholly-owned subsidiary of Petros (“Merger Sub 2”), and Metuchen Pharmaceuticals LLC, a Delaware limited liability company (“Metuchen”), entered into an Agreement and Plan of Merger (the “Merger Agreement”).
| • | Merger Sub 1 is merging with and into Metuchen, with Metuchen surviving as a wholly-owned subsidiary of Petros (the “Metuchen Merger”) and |
| • | Merger Sub 2 is merging with and into NTRP, with NTRP surviving as a wholly-owned subsidiary of Petros (the “Neurotrope Merger” and together with the Metuchen Merger, the “Transaction”). |
Upon the closing of the Transaction, on a pro forma basis, current Neurotrope shareholders will own approximately 20.0% of the combined company and current Metuchen investors will own approximately 80.0% of the combined company.
In connection with the Transaction, NTRP plans to spin-off (the “Spin-Off”) its wholly-owned subsidiary, Neurotrope Biosciences, Inc. Substantially all of the consolidated operations of NTRP were conducted through such subsidiary and substantially all of the consolidated operating assets and liabilities of NTRP reside in such subsidiary. However, this Opinion does not address the Spin-Off or any matter related to the Spin-Off.
Our Opinion does not address the Company’s underlying business decision to effect the Transaction or the relative merits of the Transaction as compared to any alternative business strategies or transactions that might be available to the Company and does not constitute a recommendation to any shareholder of the Company as to how such shareholder should vote
with respect to the Transaction or any other matter. At your direction, we have not been asked to, nor do we, offer any opinion as to (i) the material terms of the Agreement or the form of the Transaction or any other contractual arrangement that the parties may enter into in connection with the Transaction or (ii) the fairness of the Transaction to, or any consideration that may be received in connection therewith by, the individual shareholders, nor do we offer any Opinion as to the relative fairness of the Consideration and the consideration to be received by different shareholders.
We have assumed, with your consent, that the representations and warranties of all parties to the Agreement are true and correct, that each party to the Agreement will perform all of the covenants and agreements required to be performed by such party, that all conditions to the consummation of the Transaction will be satisfied without waiver thereof, and that the Transaction will be consummated in a timely manner in accordance with the terms described in the Agreement, without any modifications or amendments thereto or any adjustment to the Consideration. In rendering this Opinion, we have also assumed, with your consent, that the final executed form of the Agreement does not differ in any material respect from the draft that we have examined along with the discussion on the draft. We have not been authorized to and have not solicited indications of interest in a possible transaction with the Company from any party.
In arriving at our Opinion, we have, among other things: (i) reviewed the financial statements for fiscal 2017 through 2019 and pro-forma financials through March 31, 2020 of both NTRP and Metuchen; (ii) reviewed certain internal information relating to the business, earnings, cash flow, assets, liabilities and prospects of the Target and the Company furnished to us by the Company; (iii) conducted discussions with members of senior management and representatives of the Company concerning the matters described in clauses (i) and (ii) of this paragraph, as well as the business and prospects of the Target generally; (iv) reviewed publicly available financial and stock market data, including valuation multiples, for certain other companies in lines of businesses of both the Company and the Target that we deemed relevant; (v) reviewed a draft of the Agreement, dated May 12, 2020; and (vi) conducted such other financial studies and analyses and took into account such other information as we deemed appropriate.
In connection with our review, we have not assumed any responsibility for independent verification of any of the financial, legal, regulatory, tax accounting and other information supplied to, discussed with, or reviewed by us for the purpose of this Opinion and have, with your consent, relied on such information being complete and accurate in all material respects. In addition, at your direction we have not made any independent evaluation or appraisal of any of the assets or liabilities (contingent, derivative, off-balance-sheet, or otherwise) of the Company or Metuchen, nor have we furnished with any such evaluation or appraisal. You have directed us to use the assumptions provided by management of Metuchen and the Company for the purposes of our analysis and this Opinion.
Our Opinion is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to us as of, the date hereof.
In addition, you have not asked us to address, and this Opinion does not address, the fairness to, or any other consideration of, any class of creditors or other constituencies of the
Company, other than the shareholders of the Company. We also do not express any Opinion as to the fairness of the amount or nature of any compensation to be received by any of the Company’s officers, directors or employees, or any class of such persons, relative to the Consideration or otherwise.
This Opinion is for the use and benefit of the Board of Directors of the Company in the evaluation of the Transaction.
Based upon and subject to the foregoing, it is our opinion that, as the date hereof, the consideration for the shareholders of the Company in the Transaction is fair from a financial point of view to the Company.
| Very truly yours, | |
| GEMINI VALUATION SERVICES | |
| /s/ Nathan Johnson | |
| By: Nathan Johnson | |
| Its: Managing Director | |
| Date: 05/15/2020 |
Exhibit 99.6
Metuchen Pharmaceuticals, LLC and
Subsidiaries
Consolidated Financial Report
For the year ended December 31, 2019 (Successor), the periods
December 10,
2018 through December 31, 2018 (Successor) and January 1, 2018 through
December 9, 2018 (Predecessor)
Metuchen Pharmaceuticals, LLC and Subsidiaries
Consolidated Financial Statements
Table of Contents
| Report of Independent Registered Public Accounting Firm | 1-2 |
| Consolidated balance sheets as of December 31, 2019 (Successor) and December 31, 2018 (Successor) | 3 |
Consolidated statements of operations for the year ended December 31, 2019 (Successor), the periods December 10, 2018 through December 31, 2018 (Successor) and January 1, 2018 through December 9, 2018 (Predecessor) |
4 |
Consolidated Statements of Changes in Members’ Capital (Deficit) for the year ended December 31 2019 (Successor), the periods December 10, 2018 through December 31, 2018 (Successor) and January 1, 2018 through December 9, 2018 (Predecessor) |
5 |
Consolidated Statements of Cash Flows for the year ended December 31, 2019 (Successor), the periods December 10, 2018 through December 31, 2018 (Successor) and January 1, 2018 through December 9, 2018 (Predecessor) |
6 |
| Notes to Consolidated Financial Statements | 7-43 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members of
Metuchen Pharmaceuticals, LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Metuchen Pharmaceuticals and Subsidiaries (the “Company”) as of December 31, 2019 (Successor) and December 31, 2018 (Successor), and the related consolidated statements of operations, changes in members’ capital (deficit), and cash flows for the year ended December 31, 2019 (Successor), and for each of the periods December 10, 2018 through December 31, 2018 (Successor), and January 1, 2018 through December 9, 2018 (Predecessor), and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2019 (Successor) and December 31, 2018 (Successor), and the consolidated results of their operations and their cash flows for the year ended December 31, 2019 (Successor), and each of the periods December 10, 2018 through December 31, 2018 (Successor), and January 1, 2018 through December 9, 2018 (Predecessor) in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred losses, has a working capital deficit and used cash in operations since inception. These factors raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
1
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
| /s/ EisnerAmper LLP |
We have served as the Company’s auditor since 2016.
EISNERAMPER LLP
Iselin, New Jersey
May 16, 2020
2
Metuchen Pharmaceuticals, LLC and Subsidiaries
Consolidated Balance Sheets
| Successor | ||||||||
| December 31, | December 31, | |||||||
| 2019 | 2018 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | 2,145,812 | $ | 2,794,125 | ||||
| Accounts receivable, net | 2,605,130 | 3,512,074 | ||||||
| Inventories | 2,204,428 | 6,490,235 | ||||||
| Deposits with related party | 2,325 | 1,407,084 | ||||||
| Prepaid expenses and other current assets | 5,129,820 | 1,604,489 | ||||||
| Total current assets | 12,087,515 | 15,808,007 | ||||||
| Goodwill | - | 2,443,930 | ||||||
| Fixed assets, net | 69,837 | - | ||||||
| Intangible assets, net | 38,811,137 | 44,100,542 | ||||||
| Other assets | 7,397,804 | 4,533,641 | ||||||
| Total assets | $ | 58,366,293 | $ | 66,886,120 | ||||
| Liabilities and Members' Capital (Deficit) | ||||||||
| Current liabilities: | ||||||||
| Current portion of senior debt, net | $ | 6,681,936 | $ | 19,299,827 | ||||
| Accounts payable | 3,776,443 | 1,752,195 | ||||||
| Accrued expenses | 20,887,262 | 12,546,377 | ||||||
| Due to related parties | - | 41,151 | ||||||
| Accrued inventory purchases | 9,305,594 | 4,529,657 | ||||||
| Other current liabilities | 453,092 | 371,657 | ||||||
| Total current liabilities | 41,104,327 | 38,540,864 | ||||||
| Long-term portion of senior debt | 7,061,034 | - | ||||||
| Deferred tax liability | 1,432,167 | 2,078,032 | ||||||
| Unfavorable leasehold interest | - | 57,403 | ||||||
| Subordinated related party term loans | - | 27,891,089 | ||||||
| Other long-term liabilities | 749,546 | - | ||||||
| Total liabilities | 50,347,074 | 68,567,388 | ||||||
| Member's Capital (Deficit): | ||||||||
| Preferred units (1,619,754 units issued and outstanding as of December 31, 2019 and 0 units issued and outstanding as of December 31, 2018) | 20,018,205 | - | ||||||
| Common units (3,434,551 units issued and outstanding as of December 31, 2019 and 0 units issued and outstanding as of December 31, 2018) | 29,117,233 | - | ||||||
| Class A units (0 units issued and outstanding as of December 31, 2019 and 1,000,000 units issued and outstanding as of December 31, 2018) | - | 1 | ||||||
| Accumulated deficit | (41,116,219 | ) | (1,681,269 | ) | ||||
| Total members' capital (deficit) | 8,019,219 | (1,681,268 | ) | |||||
| Total liabilities and member's capital (deficit) | $ | 58,366,293 | $ | 66,886,120 | ||||
See accompanying notes to the consolidated financial statements.
3
Metuchen Pharmaceuticals, LLC and Subsidiaries
Consolidated Statements of Operations
| Successor | Predecessor | |||||||||||
| For
the Year Ended December 31, 2019 | For the period December 10, 2018 through December 31, 2018 | For the period January 1, 2018 through December 9, 2018 | ||||||||||
| Net sales | $ | 15,577,166 | $ | 838,926 | $ | 13,212,317 | ||||||
| Cost of goods sold | 7,427,111 | 282,542 | 2,133,283 | |||||||||
| Gross profit | 8,150,055 | 556,384 | 11,079,034 | |||||||||
| Operating expenses: | ||||||||||||
| General and administrative | 19,727,223 | 887,170 | 10,374,672 | |||||||||
| Depreciation and amortization expense | 5,291,107 | 289,458 | 7,775,536 | |||||||||
| Impairment loss | 2,443,930 | - | 17,947,275 | |||||||||
| Total operating expenses | 27,462,260 | 1,176,628 | 36,097,483 | |||||||||
| Loss from operations | (19,312,205 | ) | (620,244 | ) | (25,018,449 | ) | ||||||
| Life insurance settlement | - | - | 5,009,467 | |||||||||
| Interest expense, senior debt | (2,428,264 | ) | (184,047 | ) | (4,286,922 | ) | ||||||
| Interest expense, related party term loans | (11,416,697 | ) | (890,343 | ) | (6,495,535 | ) | ||||||
| Loss before income taxes | (33,157,166 | ) | (1,694,634 | ) | (30,791,439 | ) | ||||||
| Income tax benefit | (645,866 | ) | (13,365 | ) | - | |||||||
| Net loss | $ | (32,511,300 | ) | $ | (1,681,269 | ) | $ | (30,791,439 | ) | |||
| Net loss per common unit | ||||||||||||
| Basic and Diluted | $ | (19.05 | ) | $ | (1.68 | ) | $ | (30.79 | ) | |||
| Weighted average common units outstanding | ||||||||||||
| Basic and Diluted | 1,707,020 | 1,000,000 | 1,000,000 | |||||||||
See accompanying notes to the consolidated financial statements.
4
Metuchen Pharmaceuticals, LLC and Subsidiaries
Consolidated Statements of Changes in Members’ Capital (Deficit)
For
the year ended December 31, 2019 (Successor), the periods December 10, 2018
through December 31, 2018 (Successor) and January
1, 2018 through
December 9, 2018 (Predecessor)
| Class
A Units Shares | Class
A Units Amount | Preferred Units Shares | Preferred Units Amount | Common Units Shares | Common Units Amount | Additional Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||||||||||||||
| Balance, December 31,2017, Predecessor | 100 | $ | 28,000,000 | - | $ | - | - | $ | - | $ | - | $ | (23,564,549 | ) | $ | 4,435,451 | ||||||||||||||||||||
| Cumulative effect of adoption of new accounting standard | - | - | - | - | - | - | - | 1,938,831 | 1,938,831 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (30,791,439 | ) | (30,791,439 | ) | |||||||||||||||||||||||||
| Balance, December 9, 2018, Predecessor | 100 | $ | 28,000,000 | - | $ | - | - | $ | - | $ | - | $ | (52,417,157 | ) | $ | (24,417,157 | ) | |||||||||||||||||||
| Balance, December 10, 2018, Successor | 100 | $ | - | - | $ | - | - | $ | - | $ | - | $ | - | $ | - | |||||||||||||||||||||
| Contributions | - | 1 | - | - | - | - | - | - | 1 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (1,681,269 | ) | (1,681,269 | ) | |||||||||||||||||||||||||
| Balance, December 31, 2018 | 100 | $ | 1 | - | $ | - | - | $ | - | $ | - | $ | (1,681,269 | ) | $ | (1,681,268 | ) | |||||||||||||||||||
| Exchange of Class A Units for Common Units | (100 | ) | (1 | ) | - | - | 1,000,000 | 1 | - | - | - | |||||||||||||||||||||||||
| Net proceeds from private placement offering | - | - | 245,933 | 2,904,005 | - | - | - | - | 2,904,005 | |||||||||||||||||||||||||||
| Issuance of lead investor warrants | - | - | - | (250,000 | ) | - | - | 250,000 | - | - | ||||||||||||||||||||||||||
| Issuance of placement agent warrants | - | - | - | (135,800 | ) | - | - | 135,800 | - | - | ||||||||||||||||||||||||||
| Conversion of related party debt into preferred and common units | - | - | 1,373,821 | 17,500,000 | 2,434,551 | 29,117,232 | (385,800 | ) | (6,923,650 | ) | 39,307,782 | |||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | (32,511,300 | ) | (32,511,300 | ) | |||||||||||||||||||||||||
| Balance, December 31, 2019 | - | $ | - | 1,619,754 | $ | 20,018,205 | 3,434,551 | $ | 29,117,233 | $ | - | $ | (41,116,219 | ) | $ | 8,019,219 | ||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
5
Metuchen Pharmaceuticals, LLC and Subsidiaries
Consolidated Statements of Cash Flows
| Successor | Predecessor | |||||||||||
| For the Year Ended December 31, 2019 | For the period December 10, 2018 through December 31, 2018 | For the period January 1, 2018 through December 9, 2018 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net loss | $ | (32,511,300 | ) | $ | (1,681,269 | ) | $ | (30,791,439 | ) | |||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||||||
| Depreciation and amortization | 5,291,107 | 289,458 | 7,775,536 | |||||||||
| Inventory and sample inventory reserve | 2,987,606 | 77,599 | 303,529 | |||||||||
| Non-cash paid-in-kind interest | 6,959,236 | 555,990 | 6,778,033 | |||||||||
| Amortization of deferred financing costs and debt discount | 4,669,384 | 350,543 | 1,471,975 | |||||||||
| Accretion for end of term fee | 244,477 | 16,787 | - | |||||||||
| Amortization of unfavorable leasehold interest | - | 508 | - | |||||||||
| Deferred tax benefit | (645,866 | ) | (6,940 | ) | - | |||||||
| Lease expense | 25,881 | - | - | |||||||||
| Impairment loss | 2,443,930 | - | 17,947,275 | |||||||||
| Changes in operating assets and liabilities, net of effect from acquisitions: | ||||||||||||
| Accounts receivable | 906,944 | (494,142 | ) | 2,445,764 | ||||||||
| Right of use asset | - | - | - | |||||||||
| Inventories | 2,558,067 | 4,642,623 | (4,546,044 | ) | ||||||||
| Deposits | 1,404,758 | 645,761 | 788,229 | |||||||||
| Prepaid expenses and other current assets | (2,201,178 | ) | 31,636 | 393,226 | ||||||||
| Accounts payable | 2,024,247 | 391,306 | (1,356,349 | ) | ||||||||
| Accrued expenses | 8,340,885 | (49,400 | ) | 11,080,793 | ||||||||
| Due to related parties | (41,152 | ) | (150,372 | ) | 191,523 | |||||||
| Deferred revenue | - | - | (8,528,622 | ) | ||||||||
| Accrued inventory purchases | - | - | - | |||||||||
| Other current liabilities | 81,435 | (4,700,303 | ) | 4,147,552 | ||||||||
| Current portion of long-term liabilities | (5,982 | ) | - | - | ||||||||
| Net cash provided by (used in) operating activities | 2,532,479 | (80,215 | ) | 8,100,981 | ||||||||
| Cash flows from investing activities: | ||||||||||||
| Acquisition of fixed assets | (71,540 | ) | (1,875,660 | ) | - | |||||||
| Net cash used in investing activities | (71,540 | ) | (1,875,660 | ) | - | |||||||
| Cash flows from financing activities: | ||||||||||||
| Payment of senior debt | (6,013,257 | ) | - | (7,297,763 | ) | |||||||
| Proceeds from issuance of subordinated related party term loans | - | 4,750,000 | - | |||||||||
| Net proceeds from private placement | 2,904,005 | - | - | |||||||||
| Net cash provided by (used in) financing activities | (3,109,252 | ) | 4,750,000 | (7,297,763 | ) | |||||||
| Net (decrease) increase in cash | (648,313 | ) | 2,794,125 | 803,218 | ||||||||
| Cash, beginning of period | 2,794,125 | - | 1,659,712 | |||||||||
| Cash, end of period | $ | 2,145,812 | $ | 2,794,125 | $ | 2,462,930 | ||||||
| Supplemental cash flow information: | ||||||||||||
| Cash paid for interest during the period | $ | 2,040,965 | $ | - | $ | 2,738,419 | ||||||
| Noncash Items: | ||||||||||||
| Issuance of lead investor warrants | $ | 250,000 | $ | - | $ | - | ||||||
| Issuance of placement agent warrants | $ | 135,000 | $ | - | $ | - | ||||||
| Increase in preferred and common units from conversion of related party debt | $ | (46,617,232 | ) | $ | - | $ | - | |||||
| Decrease in related party debt from conversion into preferred and common units | $ | 39,307,782 | $ | - | $ | - | ||||||
| Noncash increase in API Inventory (other assets) | $ | 4,775,937 | $ | 4,529,657 | $ | - | ||||||
See accompanying notes to the consolidated financial statements.
6
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements
| 1) | Nature of Operations, Basis of Presentation, and Going Concern |
Nature of Operations and Basis of Presentation
Metuchen Pharmaceuticals, LLC (“Metuchen”) was formed as a limited liability company pursuant to a certificate of formation filed with the Secretary of State of Delaware on July 22, 2016. Metuchen was organized for the purpose of (i) acquiring the United States (“U.S.”), Canadian, South American, and Indian marketing authorization rights to Stendra, PDE5 inhibitor pharmaceutical product indicated for the treatment of male erectile dysfunction, (ii) owning the purchased assets, (iii) entering into a manufacturing and supply agreement, (iv) entering into a distribution agreement, and (v) engaging in any other lawful act or activity that is ancillary or incidental to the foregoing.
On December 10, 2018, (“Acquisition Date”) JCP II CI AIV, L.P. (“JCP”) acquired from Krivulka Family LLC (“Krivulka’) all Krivulka’s ownership interest in Metuchen Therapeutics, LLC (“MT”) giving JCP a controlling interest in Metuchen. This transaction was accounted for as a business combination and has been pushed down to the consolidated financial statements of the Company in accordance with the guidance for business combinations found in Accounting Standards Codification (“ASC”) 805.
Prior to this transaction, Krivulka owned 68% of MT. After the transaction JCP owns or controls 82% of the outstanding equity interests in the Company.
On December 10, 2018, Metuchen purchased all the equity interests of Timm Medical Technologies, Inc. (“Timm”) and Pos-T-Vac, LLC (“Pos-T-Vac”), collectively referred to as “Medical Device Business”, entities related to Krivulka. Upon acquisition, the Medical Device Business became wholly owned subsidiaries of Metuchen.
Metuchen International, LLC (“Metuchen International”) was formed as a limited liability company pursuant to a certificate of formation filed with the Secretary of State of Delaware on July 22, 2016. Metuchen International is a wholly owned subsidiary of Metuchen included in these consolidated financial statements and has had no activity to date.
All transactions between the consolidated entities have been eliminated in consolidation. Metuchen, Metuchen International, and Timm and Post-T-Vac, after their acquisition on December 10, 2018, are referred to collectively as the “Company” herein.
References in this report to “Successor” refer to the Company after the Acquisition Date. References to “Predecessor” refer to the Company prior to the Acquisition Date. The consolidated financial statements as of December 31, 2019, December 31, 2018, for the year ended December 31, 2019, and for the period from December 10, 2018 through December 31, 2018 represent the Successor’s financial position and results of operations (the “Successor Period”). The consolidated financial statements for the period from January 1, 2018 through December 9, 2018 represents the Predecessor’s results of operations (the “Predecessor Period”). The Successor Period reflects the assets and liabilities at fair value as of the Acquisition Date. Accordingly, the consolidated financial statements for the Predecessor Period are not comparable to the consolidated financial statements for the Successor Period. In addition, operating results for the Successor Period and Predecessor Period are not necessarily indicative of the results to be expected for a full fiscal year.
7
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
For the period from January 1, 2018 through December 9, 2018, Metuchen was owned and controlled by the same individuals and entities who own and control Akrimax Pharmaceuticals, LLC (“Akrimax”), Mist Pharmaceuticals, LLC (“Mist”), Timm, and Cranford Pharmaceuticals, LLC (“Cranford”). As such, all transactions during this period between the Company and Akrimax, Mist, Timm, and Cranford as well as any other operations of the individuals who own and control the Company are considered related party transactions (See Note 16, Related Party Transactions).
Going Concern
The Company’s financial statements have been presented on a basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
The Company has incurred losses and used cash in operations since its inception and the Company has a working capital deficit of approximately $29.0 million as of December 31, 2019. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company is exploring additional ways to raise capital. While the Company is optimistic that it will be successful in its efforts to raise additional capital, there can be no assurances that they will be successful in doing so. The financial statements do not contain any additional adjustments that might result from the resolution of any of the above uncertainties. The Company plans to continue raising additional funds to meet its operational goals until profitable.
| 2) | Summary of Significant Accounting Policies |
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires the Company to make estimates and assumptions that affect the assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Such estimates include the adequacy of accounts receivable reserves, return reserves, inventory reserves, and assessment of long-lived assets, including intangible asset impairment, and the allocation of the purchase price in acquisitions. Actual results could differ from these estimates.
8
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Risks and Uncertainties
The Company is subject to risks common to companies in the pharmaceutical industry including, but not limited to, uncertainties related to commercialization of competitor products, regulatory approvals, dependence on key products, dependence on key customers and suppliers, and protection of intellectual property rights.
The Company’s business, results of operations and financial condition may be adversely impacted by economic conditions, including the global health concerns relating to the coronavirus (COVID-19) pandemic. The outbreak and spread of COVID-19 has significantly increased economic uncertainty. Authorities implemented numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and business shutdowns. These measures may remain in place for a significant period of time and could negatively impact business and consumer spending. The extent to which the coronavirus outbreak impacts the Company’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted. The Company does not know yet the full extent of the impact of COVID-19 on its business, operations or the global economy as a whole.
Concentration of Credit Risk
Financial instruments that subject the Company to concentrations of credit risk includes cash. The Company maintains cash on deposit at U.S.-based banks in amounts which, at times, may be in excess of insured limits.
Cash and Cash Equivalents
The Company considers all highly-liquid investments that have maturities of three months or less when acquired to be cash equivalents.
Segment Reporting
On December 10, 2018, the Company acquired the Medical Device Business. The results of Medical Device Business have been included in the consolidated results since the acquisition date. As a result of the acquisition of Medical Device Business, the Company reports its results in two segments, prescription medications and medical devices. See Note 3 for additional information on the Medical Device Business acquisition and Note 18 for segment information.
9
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Operating segments are components of a Company for which separate financial information is available and evaluated regularly by the chief operating decision maker in assessing performance and deciding how to allocate resources. The Company’s two segments, prescription medications and medical devices, focus on the treatment of male erectile dysfunction. The prescription medications consist primarily of Stendra, which is sold generally in the United States. The medical devices consist primarily of vacuum erection devices, which are sold domestically and internationally.
Revenue Recognition
Effective January 1, 2018, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, “Topic 606”, without restating prior period financial statements. Upon adoption, the Company elected the following practical expedients:
| · | Portfolio approach - contracts within the Stendra revenue stream have similar characteristics and the Company believes this approach would not differ materially than if applying Topic 606 to each individual contract. |
| · | Modified retrospective approach - the Company applied Topic 606 only to contracts with customers which were not completed at the date of initial application, January 1, 2018. |
| · | Significant financing component - the Company does not adjust the promised amount of consideration for the effects of a significant financing component as the Company expects, at contract inception, that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. |
| · | Shipping and Handling Activities - the Company considers any shipping and handling costs that are incurred after the customer has obtained control of the product as a cost to fulfill a promise. |
| · | Immaterial Performance Obligations - the Company disregards promises deemed to be immaterial in the context of the contract. |
10
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Prescription Medication Sales
The Company’s prescription medication sales consist of sales of Stendra in the U.S. for the treatment of male erectile dysfunction. Under Topic 606, the Company recognizes revenue from prescription medication sales when its performance obligations with its customers have been satisfied. In the contracts with its customers, the Company has identified a single performance obligation to provide Stendra upon receipt of a customer order. The performance obligation is satisfied at a point in time when the Company’s customers obtain control of Stendra, which is typically upon delivery. The Company invoices its customers after Stendra has been delivered and invoice payments are generally due within 30 to 75 days of invoice date. In determining the transaction price, a significant financing component does not exist since the timing from when the Company delivers Stendra to when the customers pay for the product is typically less than one year. The Company records prescription medication sales net of any variable consideration, including but not limited to discounts, rebates, returns, chargebacks and distribution fees. The Company uses the most likely amount method when estimating its variable consideration, unless terms are specified within contracts. The identified variable consideration is recorded as a reduction of revenue at the time revenues from sales of Stendra are recognized. The Company recognizes revenue to the extent that it is probable that a significant revenue reversal will not occur in a future period. These estimates may differ from actual consideration received. The Company evaluates these estimates each reporting period to reflect known changes.
Consistent with industry practice, the Company maintains a return policy that generally allows its customers to return Stendra and receive credit for product within six months prior to expiration date and up to one year after expiration date. The provision for returns is based upon the Company’s estimates for future Stendra returns and historical experience. The provision of returns is part of the variable consideration recorded at the time revenue is recognized.
In relation to customer contracts, the Company incurs costs to fulfill a contract but does not incur costs to obtain a contract. These costs to fulfill a contract do not meet the criteria for capitalization and are expensed as incurred. As such, the Company did not have any contract assets at December 31, 2019 and 2018.
Medical Device Sales
The Company’s medical device sales consist of domestic and international sales of men’s health products for the treatment of erectile dysfunction. The men’s health products do not require a prescription and include Vacuum Erection Devices, PreBoost, VenoSeal, penile injections (Rx), and urinary tract infection tests. Under Topic 606, the Company recognizes revenue from medical device sales when its performance obligations with its customers have been satisfied. In the contracts with its customers, the Company has identified a single performance obligation to provide medical devices upon receipt of a customer order. The performance obligation is satisfied at a point in time when the Company’s customers obtain control of the medical device, which is typically upon shipment. The Company invoices its customers after the medical devices have been shipped and invoice payments are generally due within 30 days of invoice date for domestic customers and 90 days for international customers. In determining the transaction price, a significant financing component does not exist since the timing from when the Company delivers the medical devices to when the customers pay for the product is typically less than one year.
11
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The Company records medical device sales net of any variable consideration, including but not limited to returns. The Company uses the most likely amount method when estimating its variable consideration. The identified variable consideration is recorded as a reduction of revenue at the time revenues from the medical device sales are recognized. The Company recognizes revenue to the extent that it is probable that a significant revenue reversal will not occur in a future period. These estimates may differ from actual consideration received. The Company evaluates these estimates each reporting period to reflect known changes.
Consistent with industry practice, the Company maintains a return policy that generally allows its customers to return medical devices and receive credit for products within 90 days of the sale. The provision for returns is based upon the Company’s estimates for future product returns and historical experience. The Company has not made significant changes to the judgments made in applying Topic 606.
12
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Accounts Receivable, net
The Company extends credit to its customers in the normal course of business. Accounts receivable are recorded at the invoiced amount, net of chargebacks, distribution service fees, and cash discounts. Management determines each allowance based on historical experience along with the present knowledge of potentially uncollectible accounts. See Note 4.
Inventories
Inventories consist of finished goods held for sale and raw materials. Inventories are stated at the lower of cost or net realizable value, with cost determined using the first-in, first-out method. Inventories are adjusted for excess and obsolescence. Evaluation of excess inventory includes such factors as expiry date, inventory turnover, and management’s assessment of current product demand. See Note 5.
Intangible Assets
The Company accounts for recognized intangible assets at cost. Intangible assets with finite useful lives are amortized over the useful life which the assets are expected to contribute directly or indirectly to future cash flows. Intangible assets are amortized using an accelerated method based on the pattern in which the economic benefits of the assets are consumed. The Company reviews the carrying value and useful lives of its intangible assets with definite lives whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable or the period over which they should be amortized has changed. When indicators of impairment exist, the Company determines whether the estimated undiscounted sum of the future cash flows of such assets is less than their carrying amounts. If less, an impairment loss is recognized in the amount, if any, by which the carrying amount of such assets exceeds their respective fair values. The Company evaluates the remaining useful life of each intangible asset that is being amortized during each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization. If the estimate of the intangible asset’s remaining useful life has changed, the remaining carrying amount of the intangible asset is amortized prospectively over that revised remaining useful life.
The Company did not record any impairments of intangible assets for the Successor Periods for the year ended December 31, 2019 or for the period from December 10, 2018 through December 31, 2018. The Company incurred an intangible asset impairment loss of $17,947,275 during the Predecessor Period.
13
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. The Company evaluates the carrying value of goodwill annually in December of each year in connection with the annual budgeting and forecast process and also between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit to which goodwill was allocated to below its carrying amount. Such circumstances could include, but are not limited to: (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. When evaluating goodwill for impairment, we may first perform an assessment qualitatively whether it is more likely than not that a reporting unit’s carrying amount exceeds its fair value, referred to as a “step zero” approach. Subsequently (if necessary after step zero), an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. This quantitative impairment test uses a combination of the income method and guideline public company comparable companies. The income method is based on a discounted future cash flow approach that uses significant assumptions of projected revenue, projected operational profit, terminal growth rates and the cost of capital. Under Topic 350, goodwill impairment is measured as the excess of the carrying amount of the reporting unit over its fair value. The Company incurred a goodwill impairment loss of $2,443,930 during the Successor Period for the year ended December 31, 2019, related to the prescription medications segment.
| Balance, December 31, 2018, Successor | 2,443,930 | |||
| Impairment loss | (2,443,930 | ) | ||
| Balance at December 31, 2019, Successor | $ | - |
Fixed Assets
Fixed assets consist of furniture and fixtures. Furniture and fixtures are recorded at cost, less accumulated depreciation, and are depreciated on a straight-line basis over its estimated useful life. The Company uses an estimated useful life of 3-5 years for furniture and fixtures. Depreciation expense for the year ended December 31, 2019 was $1,703.
14
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Leases
Effective January 1, 2019, the Company adopted FASB ASU No. 2016-02, Leases, “Topic 842” along with other amendments issued in 2017 and 2018. Topic 842 supersedes the lease accounting requirements in Accounting Standards Codification Topic 840, Leases, “Topic 840”. Topic 842 requires organizations to recognize leased assets and liabilities on the balance sheet. The standard also requires disclosures to help investors and other financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases.
15
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The Company determines if an arrangement is a lease at inception. This determination generally depends on whether the arrangement conveys to the Company the right to control the use of an explicitly or implicitly identified fixed asset for a period of time in exchange for consideration. Control of an underlying asset is conveyed to the Company if the Company obtains the rights to direct the use of and to obtain substantially all of the economic benefits from using the underlying asset. The Company has lease agreements which include lease and non-lease components, which the Company accounts for as a single lease component for all leases.
Operating lease right-of-use (“ROU”) assets are included in other assets whereas operating lease liabilities are included in other current liabilities and other long-term liabilities on the Company’s consolidated balance sheets. Operating lease ROU assets and operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The operating lease payments are recognized as lease expense on a straight-line basis over the lease term. Lease payments included in the measurement of the lease liability are comprised of fixed payments.
Variable lease payments associated with the Company’s leases are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Variable lease payments are presented in the Company’s consolidated statements of operations in the same line item as expense arising from fixed lease payments for operating leases.
Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet and the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company applies this policy to all underlying asset categories.
Topic 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
The lease term for all of the Company’s leases includes the non-cancellable period of the lease plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor.
16
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
See Note 2 Summary of Significant Accounting Policies-Recently Adopted and Note 14 Commitments and Contingencies for additional information. The information presented for periods prior to January 1, 2019 has not been adjusted and is reported under Topic 840.
17
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Fair Value of Financial Instruments
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market.
Level 3 – Unobservable inputs which are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
Financial instruments recognized at historical amounts in the consolidated balance sheets consist of cash, accounts receivable, other current assets, accounts payable, accrued expenses, other current liabilities and senior debt. The Company believes that the carrying value of cash, accounts receivable, other current assets, accounts payable, accrued expenses, other current liabilities approximates their fair values due to the short-term nature of these instruments.
The carrying value of senior debt as of December 31, 2019 approximated fair value. The fair value of the senior debt was estimated by discounting to present value the scheduled coupon payments and principal repayment, using an appropriate fair market yield and is considered Level 3 in the fair value hierarchy.
Deferred Financing Costs
Costs incurred to issue debt are deferred and presented in the consolidated balance sheets as a direct reduction from the carrying amount of the debt liability, consistent with debt discounts.
18
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Related amortization expense is recorded as a component of interest expense over the term of the related debt using the effective interest rate method.
Costs of Equity Transactions
Incremental direct costs incurred to issue shares of the Company’s Preferred and Common Units are recorded as a reduction of the related proceeds.
Income Taxes
Metuchen is a limited liability company (“LLC’s”) for federal income tax purposes and has elected to be treated as a Partnership for state income tax purposes. PTV is a disregarded entity for federal income tax purposes. As such, all income tax consequences resulting from the operations of Metuchen and PTV are reported on the members’ income tax returns.
Timm is a C corporation, which accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, Timm determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
Timm recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, Timm considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If Timm determines that it would be able to realize deferred tax assets in the future in excess of its net recorded amount, Timm would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
19
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying consolidated statement of operations. As of December 31, 2019 and 2018, no accrued interest or penalties are recorded in the consolidated balance sheets.
Contingencies
The Company may be subject to various patent challenges, product liability claims, government investigations and other legal proceedings in the ordinary course of business. Legal fees and other expenses related to litigation are expensed as incurred and included in general and administrative expenses in the consolidated statements of operations.
Shipping Costs
The Company records the costs of shipping related to prescription medication sales in general and administrative expense in its consolidated statements of operations. There were no shipping costs for the Successor Periods for the year ended December 31, 2019 and for the period from December 10, 2018 through December 31, 2018. Shipping costs for the Predecessor Period from January 1, 2018 through December 9, 2018 was $6,092.
Shipping costs related to medical devices are recorded as revenue and subsequently deducted as a component of cost of goods sold in the consolidated statements of operations. Shipping costs for the Successor Periods for the year ended December 31, 2019 and for the period from December 10, 2018 through December 31, 2018 were $130,242 and $13,648, respectively. No shipping costs related to medical devices sales were incurred in the Predecessor Period from January 1, 2018 through December 9, 2018.
Basic and Diluted Net Loss per Common Unit
The Company computes basic net loss per common unit by dividing net loss applicable to common unitholders by the weighted average number of common units outstanding during the period, excluding the dilutive effects of warrants to purchase common units. The Company computes diluted net loss per common unit by dividing the net loss applicable to common unitholders by the sum of the weighted-average number of common units outstanding during the period plus the potential dilutive effects of its convertible preferred units and warrants to purchase common and preferred units, but such items are excluded if their effect is anti-dilutive. Because the impact of these items is anti-dilutive during periods of net loss, there was no difference between the Company’s basic and diluted net loss per share of common stock for the year ended December 31, 2019 and for the Successor Period from December 10, 2018 through December 31, 2018 and for the Predecessor Period from January 1, 2018 through December 9, 2018. See Note 12.
20
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Recent Accounting Pronouncements
Recently Adopted
In February 2016, the FASB issued ASU No. 2016-02, as amended, Leases (Topic 842) ("ASU 2016-02”). This guidance revises existing practice related to accounting for leases under Topic 840 for both lessees and lessors. The new guidance in Topic 842, requires lessees to recognize a right-of-use asset and a lease liability for nearly all leases (other than leases that meet the definition of a short-term lease). The lease liability will be equal to the present value of lease payments and the right-of-use asset will be based on the lease liability, subject to adjustment such as for initial direct costs. For income statement purposes, the new standard retains a dual model similar to Topic 840, requiring leases to be classified as either operating leases or capital leases. For lessees, operating leases will result in straight-line expense (similar to current accounting by lessees for operating leases under ASC 840) while capital leases will result in a front-loaded expense pattern (similar to current accounting by lessees for capital leases under ASC 840). The Company adopted Topic 842 on January 1, 2019 using the effective date transition method. Prior period results continue to be presented under Topic 840 based on the accounting standards originally in effect for such periods.
The Company has elected certain practical expedients permitted under the transition guidance within Topic 842 to leases that commenced before January 1, 2019, including the package of practical expedients. The election of the package of practical expedients resulted in the Company not reassessing prior conclusions under Topic 840 related to lease identification, lease classification and initial direct costs for existing leases at January 1, 2019.
Upon adoption, the Company recorded an operating lease liability with a corresponding operating lease ROU asset of $0.3 million. The Company also reclassified the unfavorable leasehold interest to the operating ROU asset upon adoption of Topic 842. The adoption did not have a material impact on the consolidated results of operations and cash flows for the year ended December 31, 2019.
As discussed further above, on January 1, 2018, the Company adopted Topic 606 using the modified retrospective approach and applied this approach only to contracts that were not completed as of January 1, 2018. The Company calculated a one-time transition adjustment of $1,938,831, which was recorded on January 1, 2018 to the opening balance of accumulated deficit, related to the product sales of Stendra. The Topic 606 transition adjustment recorded for Stendra resulted in sales being recognized earlier than under Topic 605, as the deferred revenue recognition model (sell-through) is not permitted under Topic 606. The one-time adjustment consisted of $8,528,628 in deferred revenue offset by deferred inventory of $186,313 and $6,403,484 of variable consideration included in accrued expenses in the accompanying balance sheet.
21
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, that eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of today’s goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on today’s Step 1). The Company adopted ASU 2017-04 effective December 10, 2018. The early adoption of the standard had no impact on the consolidated financial statements.
Pending Adoption as of December 31, 2019
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Subsequently, in November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses. ASU 2016-13 changes the impairment model for most financial assets including trade receivables and certain other instruments that are not measured at fair value through net income. ASU 2016-13 will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment model. ASU 2016-13 also simplifies the accounting model for purchased credit-impaired debt securities and loans. Private entities will apply the standard’s provisions as a cumulative effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. ASU 2016-13 and ASU 2018-19 are effective for the annual periods beginning after December 15, 2022. Public entities that are SEC filers must adopt for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is evaluating the impact of this new guidance on its consolidated financial statements.
22
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
In August 2018, the FASB issued ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements on fair value measurements by requiring that Level 3 fair value disclosures include the range and weighted average of significant unobservable inputs used to develop those fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. The guidance is effective for the Company for the annual periods and interim periods within annual periods beginning after December 15, 2019 for both private and public entities. Early adoption is permitted. The Company is evaluating the impact of this new guidance on its consolidated financial statements.
| 3) | Acquisitions |
On December 10, 2018, the Company entered into two acquisition transactions with a common related party as discussed below. The Company considers these acquisitions to be a combined transaction for accounting purposes.
On December 10, 2018, JCP obtained majority control of the Company through its purchase of the member interests in Metuchen Therapeutics previously held by KFE, an entity controlled by Krivulka, for $1. JCP also paid $3,250,000 to KFE to acquire KFE’s interest in notes issued by Metuchen.
The Company considered the guidance of ASC 350-30 in ascribing fair value to intangible assets. In accordance with ASC 350-30-35, any intangibles acquired with definitive lives will be amortized over their useful lives while intangibles with indefinite lives will not be amortized.
The Company identified the Stendra product as the only intangible asset acquired and calculated the fair value of the Stendra product using the multiperiod excess earnings method (“MPEEM”) of the income approach.
The Company determined the fair value of its outstanding debt based on a waterfall of the Company’s invested capital using the current value method. Based on the fair value of the invested capital as of December 10, 2018, the senior debt would be paid in full upon liquidation. As such, the carrying value of the senior term debt of $19,266,850 was considered to also be its fair value. The subordinated related party term loans were discounted to the pre-acquisition carrying value of $37,757,209, based on the remaining expected funds from a sale of the enterprise. The fair value of the related party notes was calculated as $22,250,746 which represents a decrease of $15,506,463. The difference was recorded as a debt discount and is being amortized over the remaining term of the related party notes using the effective interest method.
23
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
On December 10, 2018, Metuchen entered into an equity purchase agreement to acquire the issued and outstanding shares of capital stock of Timm and the outstanding equity interests of Pos-T-Vac. Timm and Post-T-Vac are medical device companies that manufacture vacuum therapy systems for the treatment of male erectile dysfunction. Both of these entities were majority owned and controlled by Krivulka.
Under the terms of the transaction, Metuchen paid $4.0 million in cash plus adjustments for the cash on hand, closing indebtedness and interest and seller transaction costs.
The acquisition-date fair value of the consideration transferred is as follows:
| Cash price, including cash on hand and seller expenses | $ | 4,400,222 | ||
| Seller indebtedness paid | 478,355 | |||
| Accounts payabledue to Timm on acquisition date | (159,779 | ) | ||
| Total consideration | $ | 4,718,798 |
Two intangible assets were acquired in this transaction: 1) Timm Product and 2) PTV Product. In accordance with the guidance of ASC 350-30, to calculate the fair values of the Timm Product and PTV Product, the MPEEM of the income approach was used.
24
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition:
| Cash and cash equivalents | $ | 2,843,139 | ||
| Accounts receivable | 3,017,932 | |||
| Inventories | 11,190,001 | |||
| Prepaid expenses | 1,508,578 | |||
| Related party assets | 2,052,845 | |||
| Other current assets | 27,866 | |||
| Other assets | 3,984 | |||
| Intangible assets | 44,390,000 | |||
| Accounts payable | (1,360,891 | ) | ||
| Accrued expenses and other current liabilities | (12,475,640 | ) | ||
| Deferred tax liability | (2,084,972 | ) | ||
| Due to related parties | (31,835 | ) | ||
| Current portion of senior debt, net | (19,266,850 | ) | ||
| Subordinated related party term loans | (22,250,746 | ) | ||
| Other current liabilities | (5,220,543 | ) | ||
| Unfavorable leasehold interest | (68,000 | ) | ||
| Total identifiable net assets | $ | 2,274,868 | ||
| Fair value of consideration transferred | $ | 4,718,798 | ||
| Net assets acquired | 2,274,868 | |||
| Goodwill | $ | 2,443,930 |
As discussed above, these transactions were considered to be a combined transaction for accounting purposes and accounted for as a business combination under the acquisition method of accounting and the Company elected the option to apply pushdown accounting whereby JCP’s basis in the net assets acquired at the acquisition date is reflected in these consolidated financial statements. Accordingly, the tangible assets and identifiable intangible assets acquired, and liabilities assumed were recorded at fair value as of the date of acquisition. Total goodwill of $2,443,930 represents the excess of the purchase price over the net identifiable tangible and intangible assets acquired. The Company believes the goodwill related to the acquisition was a result of the expected synergies to be realized from combining operations and is not deductible for income tax purposes.
Combined transaction costs for the above transactions were $165,253 and were recorded in consolidated statements of operations.
25
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
| 4) | Accounts Receivable, net |
Accounts receivable, net is comprised of the following:
| Successor | ||||||||
| December 31, 2019 | December 31, 2018 | |||||||
| Gross accounts receivables | $ | 4,989,260 | $ | 3,946,463 | ||||
| Distribution service fees | (2,061,481 | ) | (347,619 | ) | ||||
| Chargebacks accruals | (60,507 | ) | - | |||||
| Cash discount allowances | (235,867 | ) | (34,552 | ) | ||||
| Allowance for doubtful accounts | (26,275 | ) | (52,218 | ) | ||||
| Total accounts receivable, net | $ | 2,605,130 | $ | 3,512,074 | ||||
For the Successor Period for the year ended December 31, 2019, gross sales from customers representing 10% or more of the Company’s total gross sales included one customer which represented approximately 86% of total gross sales. For the Successor Period for the period from December 10, 2018 through December 31, 2018, gross sales from customers representing 10% or more of the Company’s total gross sales included one customer which represented approximately 83% of total gross sales.
For the Predecessor Period from January 1, 2018 through December 9, 2018, gross sales from customers representing 10% or more of the Company’s total gross sales included the Company’s top three customers, with gross sales equal to approximately 31%, 29%, and 25%.
Receivables from customers representing 10% or more of the Company’s gross accounts receivable included one customer at December 31, 2019 equal to 88% of the Company’s total gross accounts receivables and one customer at December 31, 2018 equal to 84% of the Company’s total gross accounts receivables.
| 5) | Inventories |
Inventory is comprised of the following:
| Successor | ||||||||
| December 31, 2019 | December 31, 2018 | |||||||
| Raw Materials | $ | 798,161 | $ | 2,690,776 | ||||
| Finished Goods | 1,406,267 | 3,799,459 | ||||||
| $ | 2,204,428 | $ | 6,490,235 | |||||
26
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Finished goods are net of valuation reserves of $220,254 and $429,099 as of December 31, 2019 and 2018, respectively. Raw materials are net of valuation reserves of $2,872,977 and $1,227,097 as of December 31, 2019 and 2018, respectively.
| 6) | Prepaid Expenses and Other Current Assets |
Prepaid expenses and Other current assets are comprised of the following:
| Successor | ||||||||
| December 31, 2019 | December 31, 2018 | |||||||
| Prepaid samples | $ | 391,024 | $ | 89,994 | ||||
| Prepaid insurance | 287,844 | 4,102 | ||||||
| Prepaid FDA fees | 732,204 | 697,309 | ||||||
| Prepaid coupon fees | 71,500 | 550,000 | ||||||
| Rebates receivable | 1,243,120 | - | ||||||
| API purchase commitment asset (see Note 13) | 1,409,592 | - | ||||||
| Other prepaid expenses | 468,226 | 123,612 | ||||||
| Other current assets | 526,310 | 139,472 | ||||||
| Total prepaid expenses and other current assets | $ | 5,129,820 | $ | 1,604,489 | ||||
Prepaid samples, which are presented net of reserves, are expensed when distributed to the sales force. The prepaid samples reserve amount was $145,474 and $1,640,370 at December 31, 2019 and 2018, respectively.
In relation to a transition services agreement with a prior owner of the product rights to Stendra, the prior owner had processed managed care rebates and had not remitted them back to the Company as of December 31, 2019. As of December 31, 2019, the Company has a receivable of $1.2 million related to rebates processed by the prior owner of the product rights to Stendra.
| 7) | Intangible Assets |
| Balance, January 1, 2018, Predecessor | $ | 60,132,811 | ||
| Amortization expense | (7,775,536 | ) | ||
| Intangible Impairment | (17,947,275 | ) | ||
| Balance, December 10, 2018, Predecessor | $ | 34,410,000 | ||
| Balance, December 10, 2018, Successor | $ | - | ||
| Acquisition of intangible assets | 44,390,000 | |||
| Amortization expense | (289,458 | ) | ||
| Balance, December 31, 2018, Successor | 44,100,542 | |||
| Amortization expense | (5,289,405 | ) | ||
| Balance at December 31, 2019, Successor | $ | 38,811,137 |
27
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The future annual amortization related to the Company’s intangible assets is as follows:
| 2020 | $ | 6,650,218 | ||
| 2021 | 6,867,771 | |||
| 2022 | 6,191,740 | |||
| 2023 | 5,445,729 | |||
| 2024 | 4,650,787 | |||
| Thereafter | 9,004,892 | |||
| $ | 38,811,137 |
The intangible assets held by the Company are the Stendra Product, Timm Product, and PTV Product and are being amortized over their estimated useful lives of 10 years, 12 years, and 12 years, respectively. The carrying value of the Stendra Product, Timm Product, and PTV Product as of December 31, 2019 are $30.0 million, $6.9 million and $1.9 million, respectively. The carrying value of the Stendra Product, Timm Product, and PTV Product as of December 31, 2018 are $34.2 million, $7.7 million and $2.2 million, respectively.
| 8) | Other Assets |
Other assets are comprised of the following:
| Successor | ||||||||
| December 31, 2019 | December 31, 2018 | |||||||
| API purchase commitment asset (see Note 13) | $ | 6,721,574 | $ | 4,529,657 | ||||
| Operating lease ROU asset | 672,246 | - | ||||||
| Other assets | 3,984 | 3,984 | ||||||
| Total other assets | $ | 7,397,804 | $ | 4,533,641 | ||||
| 9) | Accrued Expenses |
Accrued expenses are comprised of the following:
| Successor | ||||||||
| December 31, 2019 | December 31, 2018 | |||||||
| Accrued price protection | $ | 1,847,639 | $ | 4,422,463 | ||||
| Accrued product returns | 10,707,807 | 7,664,551 | ||||||
| Accrued contract rebates | 1,368,279 | 39,363 | ||||||
| Due to Vivus (see Note 13) | 2,259,769 | - | ||||||
| Due to third-party logistic provider | 4,388,600 | - | ||||||
| Other accrued expenses | 315,168 | 420,000 | ||||||
| Total accrued expenses | $ | 20,887,262 | $ | 12,546,377 | ||||
As part of its acquisition of Stendra, the Company provides the previous owner with price protection for certain Stendra product returns that are processed by the previous owner. Some customer agreements require that product returns be credited at the current wholesale acquisition cost (“WAC”). If the Company subsequently raises the WAC, the Company will reimburse the previous owner for the difference between the current WAC and the original sale price for returns processed by the previous owner.
28
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
| 10) | Debt |
Senior Debt
The following is a summary of Metuchen’s senior indebtedness at December 31, 2019 and 2018:
| Successor | ||||||||
| December 31, 2019 | December 31, 2018 | |||||||
| Principal balance | $ | 11,688,979 | $ | 19,627,662 | ||||
| Less: Unamortized debt discount | - | (360,812 | ) | |||||
| Plus: Paid In Kind interest | 1,101,575 | 16,190 | ||||||
| Plus: End of term fee | 952,416 | 16,787 | ||||||
| Total senior debt | $ | 13,742,970 | $ | 19,299,827 | ||||
On September 30, 2016, the Company entered into a loan agreement with Hercules, a third party, for a $35 million term loan (“Senior Debt”) with a stated interest rate of the greater of either (i) Prime plus 7.25% or (ii) 10.75%. The interest rate was 12.00% at December 31, 2019. The Senior Debt includes an additional Paid-In-Kind (“PIK”) interest that increases the outstanding principal on a monthly basis at an annual rate of 1.35% and a $787,500 end of term charge.
On November 22, 2017, the Company amended its loan agreement with Hercules (“First Amendment”). A covenant was added, in which the Company must achieve a certain minimum EBITDA, as defined, target for the trailing twelve-month period, ending June 30, 2018. The end of term charge was increased from $787,500 to $1,068,750. The minimum EBITDA for each of the trailing six months and the fixed charge coverage ratio (1:1 to 0.9:1) were reduced. The Company was also required to prepay $10,000,000 in principal. This amendment was accounted for as a modification under ASC 470, Debt. At December 31, 2019, the Company was in violation of certain debt covenants. Based upon the covenant violations, the lender has the right to call the debt at its election.
Monthly principal payments, including interest commenced November 1, 2018 with the outstanding balance of the Senior Debt due in full on November 1, 2020. The end of term charge is being recognized as interest expense and accreted over the term of the Senior Debt using the effective interest method.
29
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The total debt issuance costs paid to the lender associated with the First Amendment to the Senior Debt agreement were approximately $62,600 and have been recorded as a debt discount and were being recognized as interest expense over the term of the debt using the effective interest method. In accordance with ASC 805, the debt including accrued PIK interest and the end of term fee were recorded at fair value on December 10, 2018.
On April 13, 2020, the Company amended its loan agreement with Hercules. The amendment waived all financial covenant defaults for all periods since inception through the period ending March 31, 2020. The debt is now classified in accordance with the payment schedule within the agreement, and $6,681,936 is classified as a current liability with $7,061,034 classified as a noncurrent liability. The amendment also included the following changes:
| · | Removed the Adjusted EBITDA and Fixed Cost Coverage Ratio Covenants. |
| · | Extended the maturity date from October 1, 2020 to April 2021, which can be further extendable to December 1, 2021 upon achieving the Financing Milestone, as defined in the agreement. |
| · | Increased the cash interest rate from the greater of (a) 10.75% or (b) 10.75% plus the US WSJ Prime minus 4.50% to the greater of (a) 11.50% or (b) 11.50% plus the US WSJ Prime minus 4.25%. |
| · | Removed the PIK interest rate. |
| · | Removed the prepayment penalty. |
Interest expense on the Senior Debt is as follows:
| Successor | Predecessor | |||||||||||
| For the Year Ended December 31, 2019 | For the period
December 10, 2018 through December 31, 2018 | For the period
January 1, 2018 through December 9, 2018 | ||||||||||
| Interest expense for term loan | $ | 2,216,341 | $ | 151,070 | $ | 2,532,449 | ||||||
| PIK interest | 211,923 | 16,190 | 282,498 | |||||||||
| Amortization of debt issuance costs | - | - | 866,825 | |||||||||
| End of term fee accretion | - | 16,787 | 605,150 | |||||||||
| $ | 2,428,264 | $ | 184,047 | $ | 4,286,922 | |||||||
Included in accrued expenses in the accompanying consolidated balance sheets as of December 31, 2019 and 2018 is $132,006 and $201,426, respectively, of accrued and unpaid interest.
30
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Subordinated Related Party Term Loans
The Company’s subordinated related party term loans are as follows:
| Successor | ||||||||
| For the Year Ended December 31, 2019 | For the Year Ended December 31, 2018 | |||||||
| Principal balance | $ | - | $ | 42,507,209 | ||||
| Less: Discount on debt | (15,155,920 | ) | (15,506,463 | ) | ||||
| Plus: Paid in kind interest | 16,544,318 | 539,800 | ||||||
| Plus: Discount amortization | 4,669,384 | 350,543 | ||||||
| Plus: Principal balance before conversion of subordinated related party term loan | 33,250,000 | - | ||||||
| Less: Conversion of subordinated related party term loan to equity at September 16, 2019 | (39,307,782 | ) | - | |||||
| Subordinated related party term loans | - | 27,891,089 | ||||||
The Company executed a Subordination Agreement (“Sub Debt”) with several related parties, L. Mazur Associates, JV (“LMA”), KFE and JCP (herein referred to collectively as “the Related Holders”). The Company and the Related Holders entered into an Amended and Restated Subordination Agreement (“Amended Agreement”). Under the terms of the Amended Agreement, the principal balance was $30,579,496. The amount due was divided 20.9%, 20.1%, and 59%, respectively, amongst LMA, KFE, and JCP. The cash interest rate of the amended sub debt was 12%. Additional PIK interest was 8% payable on the maturity date.
On December 10, 2018, as part of the acquisition accounting for JCP Acquisition of a majority ownership interest in Metuchen, the outstanding Sub Debt was determined to have a fair value that was less than its carrying value. The fair value of the subordinated related party term loans was $22,250,746 at December 10, 2018. A debt discount of $15,506,463 was recognized and was being amortized to interest expense over the term of the debt using the effective interest method. The Company recorded interest expense related to the discount of $4,669,384 and $350,543 for the Successor Periods for the year ended December 31, 2019 and for the period from December 10, 2018 through December 31, 2018, respectively.
On December 10, 2018, the Company signed a subordinated promissory note for an additional $4,750,000 of Sub Debt from JCP. The proceeds were used for the acquisition of the Medical Device Business. The principal, along with PIK interest at an annual rate of 25%, was due on April 2, 2021.
On September 16, 2019, Metuchen entered into an Exchange Agreement (“Exchange Agreement”) with JCP III SM AIV, L.P. and L. Mazur Associates, JV to exchange Preferred and Common Units for the Company’s subordinated related party term loans. Upon consummation of the exchange, the Preferred and Common Units issued were for the full satisfaction of the subordinated related party term loan. As of December 31, 2019, there was no outstanding principal balance or accrued interest for the subordinated related term loans. The following chart summarizes the instruments exchanged in the transaction as of September 16, 2019:
31
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
| Common Units, at fair value (2,434,551.28 Units) | $ | 29,117,232 | ||
| Preferred Units, at fair value (1,373,820.51 Units) | 17,500,000 | |||
| Total fair value of Preferred and Common Units exchanged | 46,617,232 | |||
| Sub Debt principal balance | 33,250,000 | |||
| Add: PIK Interest | 16,544,318 | |||
| Less: Debt Discount | 10,486,536 | |||
| Total carrying value of Sub Debt exchanged | 39,307,782 | |||
| Excess of fair value of Preferred and Common Units exchanged over the carrying value of Sub Debt | $ | (7,309,450 | ) |
Based on ASC 470, the Company accounted for the exchange between related parties as a capital transaction. The carrying value of the subordinated related party term loans, including any accrued interest, on the date of the exchange was $39.3 million and the fair value of Preferred and Common Units was $46.6 million. As this is a capital transaction between related parties it is not appropriate to record an extinguishment loss; therefore, the company recorded the $7.3 million difference between the carrying value of the subordinated related party term loans and the fair value of the Preferred and Common Units to members’ capital. See Note 11 Members’ Capital for the determination of fair value of the Preferred and Common Units.
Interest expense on the related party term loans was $11,416,697 and $890,343, including PIK interest of $6,747,313 and $539,800, for the Successor Periods for the year ended December 31, 2019 and for the period from December 10, 2018 through December 31, 2018, respectively. Interest expense on the related party term loans was $6,495,535, including PIK interest of $6,495,535, for the Predecessor Period from January 1, 2018 through December 9, 2018.
| 11) | Members’ Capital |
| (a) | Capitalization |
The Company authorized 100 units of Class A Common Units (the “Class A Units”) to be issued and outstanding. In addition, there were Restricted Member Units (“RMU’s”) that were designated as a class of incentive units (also known as “Class B Units”).
On September 16, 2019, the Company amended and restated its operating agreement creating the rights and preferences relating to the Preferred Units and Common Units mentioned in the Private Placement Offering below.
33
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
| (b) | Preferred Units |
A holder of a Preferred Unit is entitled to vote on any matter requiring the approval of such units. In addition, the Preferred Unit holders are entitled to distributions, after adjustment for specific items, for each fiscal year.
The following actions require the prior consent of the holders of a majority of the outstanding Preferred Units: (a) amend, alter or repeal any provision of the amended and restated operating agreement (if such amendment would adversely affect any of the rights or preferences of the Preferred Units); (b) authorize or create membership interests that have a preference over the Preferred Units as to dividends or liquidation; (c) declare or pay any dividends or distributions; (d) dissolve or liquidate (in whole or in part), consolidate, merge, convey, lease, sell, or transfer all or substantially all of the assets of the Company; or purchase or otherwise acquire (directly or indirectly) all or substantially all of the assets or equity interest issued by another company; or file a petition for bankruptcy or receivership of the Company; (e) repurchase or redeem any Membership Interests; or (f) enter into any agreement, commitment or arrangement to do any of the foregoing. See also Note 12 Section (f) for further discussion of Preferred Units.
| (c) | Common Units (formerly known as Class A Units) |
A holder of a Common Unit is entitled to vote on any matter requiring the approval of such units. In addition, the Common Unit holders are entitled to distributions, after adjustment for specific items, for each fiscal year.
Effective with the amended and restated operating agreement on August 26, 2019, each Class A Unit was exchanged for 10,000 Common Units. There was no change to the ownership percentages as a result of the exchange and the rights and privileges of Common Unit holders is consistent with that of the Class A Unit.
| (d) | Class B Units |
As of September 16, 2019, none of the Class B Units have been issued. Effective with the amended and restated operating agreement on September 16, 2019, the Class B Units are no longer an authorized membership interest of the Company.
| (e) | Liquidation |
Upon liquidation of the Company or upon any Company sale, the Company shall pay, hold, or distribute, or cause to be paid, held or distributed, the proceeds thereof as follows: (a) first, to the holders of Preferred Units, pro rata in proportion to the number of Preferred Units held by such holders, until the holders of such Preferred Units receive in respect of each Preferred Unit held by them, the preferred liquidation preference amount; (b) second, to the holders of Common Units, pro rata in proportion to the number of Common Units held by such holders, the remaining proceeds available for distribution.
34
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
| (f) | Private Placement Offering |
On September 16, 2019, the Company executed a Private Placement offering (“Private Placement”) with V4 Capital Partners, LLC (“Lead Investor”) and other accredited investors (collectively “Investors”). None of the Investors had previously held an interest in the Company. Pursuant to the Private Placement, the Company agreed to issue and sell up to $3.5 million of the Company’s Preferred Units. Each Preferred Unit had an offering price of $12.7382 per unit. The Company issued 245,933 Preferred Units related to the Private Placement and received aggregate net proceeds from the Private Placement of $2.7 million.
The Preferred Units contain a 5% non-cumulative quarterly dividend, include one vote per unit on all matters to be voted upon by Common Unit holders and require a mandatory conversion upon the closing of a qualified public offering, with the conversion price being subject to adjustment if the price per share in the qualified public offering is less than $15.92275 per Preferred Unit. Subject to adjustment, each Preferred Unit can be converted into one Common Unit. The Preferred Units did not meet the criteria for liability classification and are classified within equity. In addition, the embedded conversion feature was considered clearly and closely related to the Preferred Units and did not require bifurcation. However, the embedded conversion feature represents a beneficial conversion feature with a relative fair value of $26,500 and has been recorded to additional paid-in capital, included within the $250,000 proceeds received related to the issuance of the lead investor warrants.
In connection with the Private Placement, the Lead Investor received warrants (“Lead Investor Warrants”) to purchase an aggregate of 615,838.50 shares of the Company’s Preferred Units. The Lead Investor Warrants expire on September 16, 2020 and have an exercise price of $0.01 per Preferred Unit. The Lead Investor Warrants are only exercisable upon a qualified public offering being consummated within one year. The fair value of the Lead Investor Warrants was estimated to be $2.1 million. To record the issuance of the Lead Investor Warrants, the Company allocated the proceeds of $250,000 received from the Lead Investor for the Preferred Units between the Lead Investor Warrants and the beneficial conversion feature for the embedded conversion option. Of the proceeds received, the relative fair value allocated to the Lead Investor Warrants was $223,500 and was included in additional paid-in capital. The Lead Investor Warrants did not meet the criteria for liability classification.
The Company estimated their fair value using Monte Carlo Simulation approach. Significant judgments used in the valuation model included the overall likelihood of a qualified public offering occurring and Management’s estimate for the aggregate equity value, including an estimate for the proceeds from a qualified public offering as well as giving consideration in the event the price per share in a qualified public offering is below 125% of the $12.7382 price per Preferred Unit. Also incorporated in the fair value of the Lead Investor Warrants was a risk-free rate, estimated volatility of equity and an incremental discount for lack of marketability.
35
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Also, in connection with the Private Placement, the placement agent received warrants (“Placement Agent Warrants”) to purchase an aggregate of 21,139.10 shares of the Company’s Preferred Units. The Placement Agent Warrants expire on September 16, 2024 and have an exercise price of $12.7382 per Preferred Unit. The Placement Agent Warrants can be exercised any time on or after September 16, 2019. The fair value of the Placement Agent Warrants was estimated to be $135,800 and was included in additional paid-in capital. The Placement Agent Warrants did not meet the criteria for liability classification.
The Company estimated their fair value using the Black-Scholes valuation model. The inputs used to value the Placement Agent Warrants included the Preferred Unit Price and the Placement Agent Warrant Strike Price (both of which are $12.7382), the expiration date of the Placement Agent Warrants of September 16, 2024, the risk-free rate to the expiration date of 1.73%, and the estimated volatility over the expected term of the Placement Agent Warrants of 90.0%.
As there has been no public market for the Company’s common stock to date, the estimated fair value of its Common Units has been determined by the Board of Directors as of the Private Placement date, with input from management, considering the Company’s most recently available valuations of the aggregate equity value of the Company. In addition to considering the results of these valuations, the Company’s Board of Directors considered various objective and subjective factors to determine the fair value of its Common and Preferred Units as of the private placement date, including the progress of the Company’s products sales, external market conditions affecting and trends within the life sciences industry and the likelihood of achieving a liquidity event. The fair value of the Company’s Common Units as of the Private Placement Date was determined to be the difference between the fair value of the Company’s aggregate equity and the summation of the fair values of the Preferred Units, the Lead Investor Warrants and Placement Agent Warrants.
| 12) | Basic and Diluted Net Loss per Common Unit |
The following is a reconciliation of the weighted average number of Common Units outstanding used in calculating basic and diluted net loss per unit:
36
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
| Successor | Predecessor | |||||||||||
| For the Year Ended December 31, 2019 | For the period December 10, 2018 through December 31, 2018 | For the period January 1, 2018 through December 9, 2018 | ||||||||||
| Numerator | ||||||||||||
| Net loss | $ | (32,511,300 | ) | $ | (1,681,269 | ) | $ | (30,791,439 | ) | |||
| Denominator | ||||||||||||
| Weighted-average common units for basic and diluted net loss per unit | 1,707,020 | 1,000,000 | 1,000,000 | |||||||||
| Basic and diluted net loss per common unit | $ | (19.05 | ) | $ | (1.68 | ) | $ | (30.79 | ) | |||
The following table summarizes the potentially dilutive securities convertible into Common Units that were excluded from the calculation of diluted net loss per unit because their inclusion would have been antidilutive:
| Successor | Predecessor | |||||||||||
| For the period | For the period | |||||||||||
| For
the Year Ended December 31, 2019 | December
10, 2018 through December 31, 2018 | January
1, 2018 through December 9, 2018 | ||||||||||
| Preferred Units | 1,619,754 | - | - | |||||||||
| Lead Investor Warrants | 615,839 | - | - | |||||||||
| Placement Agent Warrants | 21,139 | - | - | |||||||||
| Total | 2,256,732 | - | - | |||||||||
| 13) | Marketing, Licensing and Distribution Agreements |
| (a) | Vivus |
On September 30, 2016, Metuchen entered into an License and Commercialization Agreement (the “License Agreement”) with Vivus, Inc (“Vivus”) to purchase and receive the license for the commercialization and exploitation of Stendra for a one-time fee of $70 million, and for an additional $0.8 million, Metuchen also acquired the current Stendra product and sample inventories as of September 30, 2016 that were owned by Vivus. The License Agreement gives Metuchen the right to sell Stendra in the U.S and its territories, Canada, South America, and India. In December 2000, Vivus originally was granted the license from Mitsubishi Tanabe Pharma Corporation (“MTPC”) to develop, market, and manufacture Stendra. Stendra was approved by the Food and Drug Administration (“FDA”) in April 2012 to treat male erectile dysfunction.
Metuchen will pay MTPC a royalty of 5% on the first $500 million of net sales and 6% of net sales thereafter. In consideration for the trademark assignment and the use of the trademarks associated with the Product and the Vivus technology, Metuchen shall (a) during the first, second, and third years following the expiration of the Royalty Period in a particular country in Metuchen’s territory, pay to Vivus a royalty equal to 2% of the net sales of Products in such territory; and (b) following the fourth and fifth years following the end of the Royalty Period in such territory, pay to Vivus a royalty equal to 1% of the net sales of Products in such territory. Thereafter, no further royalties shall be owed with respect to net sales of Stendra in such territory.
37
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
In addition, Metuchen will be responsible for a pro-rata portion of a $6 million milestone payment to be paid once $250 million in sales has been reached on the separate revenue stream of Stendra. Should the $250 million of sales threshold be reached, the Company will be responsible for $3.2 million of the milestone payment.
In connection with the License Agreement, Metuchen and Vivus also entered into a Supply Agreement on the effective date of the License Agreement. The Supply Agreement states that Vivus will initially manufacture, test, and supply the product to Metuchen or its designee, directly or through one or more third parties. The agreement is effective through September 30, 2021. Metuchen is required to make future minimum annual purchases of Stendra under the Supply Agreement as follows (based on current prices, however, subject to annual price increases).
| Calendar Year | Minimum Purchase Obligation | |||
| 2020 | $ | 4,100,000 | ||
| 2021 | $ | 4,100,000 | ||
Stendra can be purchased by written purchase orders submitted to Vivus at least 125 days in advance of the desired shipment date. For each quarter, the Company is required to submit purchase orders for at least 90% of the quantities in the forecast above. Vivus will have no obligation to supply Stendra in excess of 120% of the quantity specified above but will use reasonable efforts.
As of December 31, 2019, the Company has $9.3 million of accrued inventory purchases related to the Company’s minimum purchase obligations with Vivus for raw material or API inventory. As API inventory is not a finished good, the Company does not have title to the product and classifies API Inventory in either other current assets or other assets, depending on whether the Company expects to take title to the product within one year from the date of the financial statements. As of December 31, 2019 and 2018, there was $1.4 million and $0, respectively, included in other current assets (see Note 6) and $6.7 million and $4.5 million, respectively, included in other assets (see Note 8). The Company reviews its inventory levels and purchase commitments for excess amounts that it is required to purchase but projects it will not be able to sell prior to product expiry. During the year ended December 31, 2019, the Company recorded a reserve of $1.2 million, which is included in cost of goods sold, to reduce the cost of API inventory to its net realizable value.
38
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
During the Successor Periods for the year ended December 31, 2019 and for the period from December 10, 2018 through December 31, 2018, Metuchen incurred royalties to MTPC for Stendra of $550,533 and $20,863, respectively. During the Predecessor Period from January 1, 2018 through December 9, 2018, Metuchen incurred royalties to MTPC for Stendra of $539,265. Royalties incurred were included in cost of goods sold in the consolidated statements of operations. As of December 31, 2019 and 2018, Metuchen had a receivable for royalties for $309,147 and $120,138 which are included in other current assets in prepaid expenses and other current assets in the consolidated balance sheet (see Note 6).
| (b) | Related parties |
See Note 15, Related Party Transactions for a complete description of related party marketing, licensing, and distribution Agreements.
| 14) | Commitments and Contingencies |
| (a) | Employment Agreements |
The Company has employment agreements with certain non-executive officers and key employees that provide for, among other things, salary and performance bonuses.
| (b) | Legal Proceedings |
The Company is not currently involved in any significant claims or legal actions that, in the opinion of management, will have a material adverse impact on the Company’s operations, financial position or cash flows.
| (c) | Milestones and Royalties |
See Note 13, Marketing, License, and Distribution Agreements for a description of future milestone and royalty commitments pursuant to our acquisitions, license and distribution agreements.
39
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
| (d) | Price Protection |
As part of its acquisition of Stendra, the Company provides the previous owner with price protection for certain Stendra product returns that are processed by the previous owner. The Company has accrued $1,847,639 and $4,422,463 for amounts due to the previous owner as of December 31, 2019 and 2018, respectively. See Note 9.
| (e) | Operating Leases |
The Company has commitments under operating leases for office and warehouse space used in its operations. The Company’s leases have remaining lease terms ranging from 4.7 years to 7.0 years.
The components of lease expense were as follows:
| For the Year Ended December 31, 2019 | ||||
| Operating Lease Cost: | ||||
| Fixed lease cost | $ | 88,002 | ||
For the Successor Period from December 10, 2018 through December 31, 2018 and Predecessor Period from January 1, 2018 through December 9, 2018 rent expense was $11,859, and $20,629, respectively.
Supplemental balance sheet information related to leases was as follows:
As of December 31, 2019 | ||||
| Operating lease ROU asset: | ||||
| Other assets | $ | 672,246 | ||
| Operating lease liability: | ||||
| Other current liabilities | $ | 96,104 | ||
| Other long-term liabilities | 639,568 | |||
| Total operating lease liability | $ | 735,672 | ||
40
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Supplemental lease term and discount rate information related to leases was as follows:
As of December 31, 2019 | ||||
| Weighted-average remaining lease terms - operating leases | 5.7 years | |||
| Weighted-average discount rate - operating leases | 12.6 | % | ||
Supplemental cash flow information related to leases was as follows:
| For the Year Ended December 31, 2019 | ||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||
| Operating cash flows from operating leases | $ | 92,068 | ||
| Right-of-use assets obtained in exchange for lease obligations: | ||||
| Operating leases | $ | 698,127 | ||
Future minimum lease payments under non-cancelable leases as of December 31, 2019 were as follows:
41
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
| Lease Liability Maturity Analysis | Operating Leases | |||
| 2020 | $ | 182,639 | ||
| 2021 | 184,239 | |||
| 2022 | 187,739 | |||
| 2023 | 189,374 | |||
| 2024 | 155,242 | |||
| Thereafter | 163,432 | |||
| Total lease payments | 1,062,665 | |||
| Less: Imputed Interest | (326,993 | ) | ||
| Total | $ | 735,672 | ||
As of December 31, 2019, the Company had no operating leases that had not yet commenced.
| 15) | Related Party Transactions |
During the Predecessor Periods, Metuchen conducted business with the following related parties: (i) Mist, (ii) Akrimax, (iii) Timm, (iv) Cranford, and (v) JCP.
In the Successor Period, as result of the JCP acquisition more fully described in Note 3, Mist, Cranford and Akrimax are no longer considered to be related parties and Timm became a subsidiary of Metuchen with all intercompany balances eliminated in consolidation.
A summary of due from (to) related parties is as follows:
| Successor | |||||
| December 31, 2018 | |||||
| Mist | $ | 1,407,084 | (i) | ||
| Akrimax | - | (ii) | |||
| TIMM | - | (iii) | |||
| Cranford | - | (iv) | |||
| JCP | (41,151 | ) | (v) | ||
| $ | 1,365,933 | ||||
42
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The following reflects the related party transactions, which were included in general and administrative expense in the accompanying consolidated statements of operations:
| Successor | Predecessor | ||||||||
| For the period
December 10, 2018 through December 31, 2018 | For the period January 1, 2018 through December 9, 2018 |
||||||||
| Mist | $ | - | $ | 3,477,051 | (i) | ||||
| Akrimax | - | 5,847 | (ii) | ||||||
| TIMM | - | 425,000 | (iii) | ||||||
| Cranford | - | - | (iv) | ||||||
| JCP | 41,151 | - | (v) | ||||||
| Total included in general and administrative expense | $ | 41,151 | $ | 3,907,898 | |||||
| (i) | Mist |
On September 30, 2016, Metuchen and Mist entered into a Sales, Marketing, and Distribution Agreement pursuant to which Mist acquired the U.S. distribution rights to the Stendra asset in exchange for which Mist shall be entitled to be paid an administrative fee annually during the distribution period for providing the distribution services. The Administrative Fee due to Mist from Metuchen shall be paid within forty-five days after the end of each calendar quarter during the distribution period, and shall be an amount equal to (i) 7.0% of the Net Sales made during the relevant calendar quarter plus a sales force fee equal to the number of prescriptions written in the territory multiplied by $13.50 for prescriptions written from July 22, 2016 through September 30, 2017. For the period October 1, 2017 through September 30, 2018 that rate was $12.50 per prescription. Effective November 30, 2018, Metuchen terminated the Sales, Marketing, and Distribution Agreement with Mist and brought all the activities formerly being performed by Mist in house.
During the Predecessor Period from January 1, 2018 through December 9, 2018, the Company was charged $3,477,051 for Mist expenses. The details are as follows:
| Predecessor | ||||
| For
the period January 1, 2018 through December 9, 2018 | ||||
| Mist administrative fees | $ | 382,775 | ||
| Mist sales force fees | 194,344 | |||
| Mist marketing, support, and regulatory fees | 2,899,932 | |||
| Total included in general and administrative expense | $ | 3,477,051 | ||
There were no Mist transactions recorded in the Successor Periods.
43
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
| (ii) | Akrimax |
On September 30, 2016, Metuchen granted Akrimax, the right to sell and market the Product in the Primary Care Physician (“PCP”) market space within the U.S. and its territories. Akrimax will have the right to receive an incentive fee from Metuchen based upon a pro-rata share of the 7% of net sales payable each calendar quarter. Akrimax shall also be entitled to a sales force fee for selling the product. The fee was equal to the number of prescriptions written in the territory multiplied by $13.50 for prescriptions written from July 22, 2016 through September 30, 2017. For the period October 1, 2017 through September 30, 2018 that rate was $12.50 per prescription. The agreement was terminated on January 31, 2018.
During the Predecessor Period from January 1, 2018 through December 9, 2018, the Company incurred $5,847 for Akrimax expenses. The details are as follows:
| Predecessor | ||||
For the period January 1, 2018 through December 9, 2018 | ||||
| Akrimax administrative fees | $ | 5,847 | ||
| Akrimax sales force fees | - | |||
| Total included in general and administrative expense | $ | 5,847 | ||
There were no Akrimax transactions recorded in the Successor Periods.
| (iii) | Timm |
On September 30, 2016, Metuchen granted Timm, the right to sell and market the Stendra Product in the urology market space within the U.S. and its territories. Timm has the right to receive an incentive fee from Metuchen based upon a pro-rata share of the 7% of net sales payable each calendar quarter. Timm is also be entitled to a sales force fee for selling the product. The fee was equal to the number of prescriptions written in the territory multiplied by $13.50 for prescriptions written from July 22, 2016 through September 30, 2017. For the period October 1, 2017 through September 30, 2018 that rate was $12.50 per prescription.
44
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
During the Predecessor Period from January 1, 2018 through December 9, 2018, the Company incurred $425,000 of Timm expenses. The details are as follows:
| Predecessor | ||||
For the period January 1, 2018 through December 9, 2018 | ||||
| TIMM administrative fees | $ | 232,494 | ||
| TIMM sales force fees | 192,506 | |||
| Total included in general and administrative expense | $ | 425,000 | ||
As a result of the Timm Acquisition on December 10, 2018, (see Note 3) all intercompany transactions for the Successor Periods have been eliminated in consolidation.
| (iv) | Cranford |
A $5 million keyman life insurance policy on behalf of Metuchen’s previous managing member was transferred from Cranford to Metuchen during 2017. In May 2018, Metuchen received $5,009,467, which includes interest as proceeds from a keyman life insurance policy on behalf of its managing member, Krivulka, who passed away in February 2018. The proceeds were recorded as other income in the Predecessor’s consolidated statements of operations.
| (v) | JCP |
There were no JCP transactions recorded in the Successor Period for the year ended December 31, 2019. During the Successor Period from December 10, 2018 through December 31, 2018, JCP paid $41,151 in legal expenses on behalf of the Company. This expense is included in general administrative expenses in the Company’s consolidated statements of operations for the Successor Period and Due to related party on the December 31, 2018 consolidated balance sheet.
There were no JCP transactions recorded in the Predecessor Period.
45
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
| 16) | Income Taxes |
The components of the income tax benefit are as follows:
| Successor | Predecessor | |||||||||||
For the Year Ended December 31, 2019 | For the period from December 10, 2018 through December 31, 2018 | For the period from January 1, 2018 through December 9, 2018 | ||||||||||
| Current benefit: | ||||||||||||
| Federal | $ | - | $ | (4,469 | ) | $ | - | |||||
| State | - | (1,956 | ) | - | ||||||||
| Total current benefit | - | (6,425 | ) | - | ||||||||
| Deferred benefit: | ||||||||||||
| Federal | (165,483 | ) | (5,157 | ) | - | |||||||
| State | (480,383 | ) | (1,783 | ) | - | |||||||
| Total deferred benefit | (645,866 | ) | (6,940 | ) | - | |||||||
| Total income tax benefit | $ | (645,866 | ) | $ | (13,365 | ) | $ | - | ||||
A reconciliation of the Company's statutory income tax rate to the Company’s effective income tax rate is as follows:
| Successor | Predecessor | |||||||||||
For the Year Ended December 31, 2019 | For the period from December 10, 2018 through December 31, 2018 | For the period from January 1, 2018 through December 9, 2018 | ||||||||||
| Income at US Statutory Rate | 21.00 | % | 21.00 | % | 21.00 | % | ||||||
| State Taxes, net of Federal benefit | 1.59 | % | -2.53 | % | 0.00 | % | ||||||
| Permanent Differences | -0.02 | % | 0.32 | % | 0.00 | % | ||||||
| Pass through income to members | -21.13 | % | -27.84 | % | -21.00 | % | ||||||
| Other | 0.51 | % | 0.00 | % | 0.00 | % | ||||||
| Effective income tax rate | 1.95 | % | -9.05 | % | 0.00 | % | ||||||
The net deferred income tax liability balance related to the following:
| Successor | Predecessor | |||||||||||
For the Year Ended December 31, 2019 | For the period from December 10, 2018 through December 31, 2018 | For the period from January 1, 2018 through December 9, 2018 | ||||||||||
| Accruals | $ | 5,732 | $ | 14,757 | $ | - | ||||||
| Intangible Assets | (1,438,682 | ) | (2,092,789 | ) | - | |||||||
| Net operating loss carryforwards | 783 | - | - | |||||||||
| Total deferred tax liability | $ | (1,432,167 | ) | $ | (2,078,032 | ) | $ | - | ||||
46
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
| 17) | Defined Contribution Plan |
The Company has a qualified defined contribution plan under Section 401(k) of the Internal Revenue Code covering eligible employees. Eligible employees can contribute to the defined contribution plan, subject to certain limitations, on a pre-tax basis. The Company matches up to 100% of the first 6% of each employee’s contribution and is recognized as expense in general and administrative expenses on the consolidated statement of operations. Employer contributions were $218,361 for the Successor Period for the year ended December 31, 2019. There were no employer contributions for the period from December 10, 2018 through December 31, 2018. Employer contributions were $31,044 for the Predecessor Period from January 1, 2018 through December 9, 2018.
| 18) | Segment Information |
Prior to the acquisition of the Medical Device Business, the Company managed its operation as a single segment for the purposes of assessing performance and making operating decisions.
The Company reorganized its segments to reflect the change in the organizational structure resulting from the acquisition of Medical Device Business Subsequent to the acquisition of Medical Device Business, the Company manages its operations through two segments. The Company’s two segments, prescription medications and medical devices, focus on the treatment of male erectile dysfunction. The prescription medications consist primarily of Stendra, which is sold generally in the United States. The medical devices consist primarily of vacuum erection devices, which are sold domestically and internationally. The Company’s results of operations by reportable segment for the year ended December 31, 2019 are summarized as follows:
| For the year
ended December 31, 2019 | Prescription Medications | Medical
Devices | Corporate | Consolidated | ||||||||||||
| Net sales | $ | 11,110,660 | $ | 4,466,506 | $ | - | $ | 15,577,166 | ||||||||
| Cost of goods sold | 6,057,977 | 1,369,134 | - | 7,427,111 | ||||||||||||
| General and administrative expenses | 13,873,200 | 2,735,390 | 3,118,633 | 19,727,223 | ||||||||||||
| Depreciation and amortization expense | 4,145,833 | 1,145,274 | - | 5,291,107 | ||||||||||||
| Impairment loss | 2,443,930 | - | - | 2,443,930 | ||||||||||||
| Interest expense | - | - | 13,844,961 | 13,844,961 | ||||||||||||
| Income tax benefit | - | 645,866 | - | 645,866 | ||||||||||||
| Net income (loss) | $ | (15,410,280 | ) | $ | (137,426 | ) | $ | (16,963,594 | ) | $ | (32,511,300 | ) | ||||
47
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The Company’s results of operations by reportable segment for the Successor Period from December 10, 2018 through December 31, 2018 are summarized as follows:
| For the period
December 10, 2018 through December 31, 2018 | Prescription Medications | Medical
Devices | Corporate | Consolidated | ||||||||||||
| Net sales | $ | 513,878 | $ | 325,048 | $ | - | $ | 838,926 | ||||||||
| Cost of goods sold | 216,181 | 66,361 | - | 282,542 | ||||||||||||
| General and administrative expenses | 496,352 | 264,088 | 126,730 | 887,170 | ||||||||||||
| Amortization expense | 226,112 | 63,346 | - | 289,458 | ||||||||||||
| Interest expense | - | - | 1,074,390 | 1,074,390 | ||||||||||||
| Other income/(expense) | - | - | - | - | ||||||||||||
| Taxes | - | 13,365 | - | 13,365 | ||||||||||||
| Net income | $ | (424,767 | ) | $ | (55,382 | ) | $ | (1,201,120 | ) | $ | (1,681,269 | ) | ||||
Unallocated operating expenses include costs that were not specific to a particular segment but are general to the group; included are expenses incurred for administrative and accounting staff, general liability and other insurance, professional fees and other similar corporate expenses. Interest and other income (expense), net is also not allocated to the operating segments.
The following table reflects net sales by geographic region for the Successor Periods for the year ended December 31, 2019 and for the period from December 10, 2018 through December 31, 2018:
| Successor | ||||||||
| For the | ||||||||
| period | ||||||||
| For the | December | |||||||
| Year | 10, 2018 | |||||||
| Ended | through | |||||||
| December | December | |||||||
| Net sales | 31, 2019 | 31, 2018 | ||||||
| United States | $ | 14,236,886 | $ | 714,477 | ||||
| International | 1,340,280 | 124,449 | ||||||
| $ | 15,577,166 | $ | 838,926 | |||||
No individual country other than the United States accounted for 10% of total sales for the Successor Periods for the year ended December 31, 2019 and for the period from December 10, 2018 through December 31, 2018.
48
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The Company’s assets by reportable segment and reconciliation of segment assets to consolidated assets as of December 31, 2019 are summarized as follows:
| Prescription Medications | Medical
Devices | Consolidated | ||||||||||
| Intangible assets, net | $ | 30,039,758 | $ | 8,771,379 | $ | 38,811,137 | ||||||
| Total segment assets | 47,455,382 | 10,910,911 | 58,366,293 | |||||||||
The Company’s assets by reportable segment and reconciliation of segment assets to consolidated assets as of December 31, 2018 are summarized as follows:
| Prescription Medications | Medical
Devices | Consolidated | ||||||||||
| Goodwill | $ | 2,005,562 | $ | 438,368 | $ | 2,443,930 | ||||||
| Intangible assets, net | 34,183,888 | 9,916,654 | 44,100,542 | |||||||||
| Total segment assets | 55,549,385 | 11,336,735 | 66,886,120 | |||||||||
| 19) | Subsequent Events |
The Company has evaluated subsequent events through May 16, 2020, the date at which the consolidated financial statements were available to be issued.
On January 31, 2020, the Company entered into a Subordinated Promissory Note with JCP III SM AIV, L.P., a related party, in the principal amount of $3.0 million (“Subordinated Promissory Note”). The maturity date of the Subordinated Promissory Note is April 2, 2021 and has PIK interest that increases the outstanding principal on a monthly basis at an annual rate of 20%.
On April 1, 2020, the Company entered into a Subordinated Promissory Note with JCP III SM AIV, L.P., a related party, in the principal amount of $3.0 million (“Subordinated Promissory Note”). The maturity date of the Subordinated Promissory Note is April 2, 2021 and has PIK interest that increases the outstanding principal on a monthly basis at an annual rate of 20%.
On April 22, 2020, the Company entered into a Subordinated Promissory Note with JCP III SM AIV, L.P., a related party, in the principal amount of $4.0 million (“Subordinated Promissory Note”). The maturity date of the Subordinated Promissory Note is April 2, 2021 and has PIK interest that increases the outstanding principal on a monthly basis at an annual rate of 20%.
On March 24, 2020, Metuchen entered into an exclusive license and development agreement with Hybrid Medical LLC for H100™ (the “Hybrid Medical License Agreement”). Under the terms of the Hybrid Medical License Agreement Metuchen has the exclusive right, including the right to sublicense, to use, sell, market and commercialize H100™ globally. The agreement provides that Metuchen’s exclusive right extends to any new indications or field uses for H100™ beyond the already identified use for Peyronie’s disease.
As discussed in Note 10, the Company refinanced its long-term debt with Hercules on April 13, 2020.
49
Metuchen Pharmaceuticals, LLC and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The Company is in negotiations with a publicly traded company to complete a reverse merger and expects to sign an agreement of merger shortly. Once the merger, which is subject to the approval of the shareholders of the publicly traded company, is complete, the resulting company will be publicly traded. The merger agreement is expected to include, among other provisions, certain termination rights for both parties for which under specified circumstances either party may be required to pay a termination fee of $1.0 million. While there can be no assurances, it is expected that the reverse merger will occur in the second quarter of 2020.
We are closely monitoring the impact of the COVID-19 pandemic on the Company’s business and are unable to predict the impact that the COVID-19 pandemic will have on the Company’s future financial condition, results of operations and cash flows due to numerous uncertainties. These uncertainties include the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, among others. The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly. Further, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, pharmaceutical supply chains, patient access to healthcare as well as other unanticipated consequences remain unknown.
50
Exhibit 99.7
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial data presents the pro forma financial position and results of operations of (1) Neurotrope based on the historical consolidated financial statements of Neurotrope, after giving effect to the proposed spin-off of all of the business, assets and certain liabilities of Neurotrope’s wholly-owned subsidiary, Neurotrope BioSciences, Inc.; and (2) the combined business based on the historical consolidated financial statements of Neurotrope and Metuchen, after giving effect to the Neurotrope spin-off and Mergers.
Metuchen has preliminarily determined that it is the accounting acquirer based on an analysis of the criteria outlined in ASC 805 and the facts and circumstances specific to the Merger, including: (1) Unitholders of Metuchen will own approximately 80% of Neurotrope and Metuchen at closing of the equity securities of the combined company on a fully-diluted basis immediately following the closing of the transaction; (2) a majority of the board of directors of the combined company will be composed of directors designated by Metuchen under the terms of the Mergers; and (3) majority of the existing members of Metuchen’s management will be the management of the combined company.
Because Metuchen has been determined to be the accounting acquirer in the Mergers, but not the legal acquirer, the Mergers are deemed a reverse recapitalization under the guidance of ASC 805. As a result, upon consummation of the Mergers, the historical financial statements of Metuchen will become the historical financial statements of the combined company.
The unaudited pro forma combined financial data is based on the audited financial statements of Neurotrope and Metuchen as of December 31, 2019. The historical financial statements have been adjusted to give pro forma effect to events that are (1) directly attributable to the merger, (2) factually supportable, and (3) with respect to the unaudited pro forma combined statement of operations, expected to have a continuing impact on the combined results of operations of the combined company. Other than as disclosed in the footnotes thereto, the unaudited pro forma combined financial data does not reflect any additional liabilities, off-balance sheet commitments or other obligations that may become payable after the date of such financial data. The unaudited pro forma combined financial information does not give effect to the potential impact of current financial conditions, regulatory matters, operating efficiencies or other savings or expenses that may be associated with the integration of the two companies. The unaudited pro forma combined financial information has been prepared for illustrative purposes only and is not necessarily indicative of the financial position or results of operations in future periods or the results that actually would have been realized had Neurotrope and Metuchen been a combined company during the specified periods
The unaudited pro forma combined financial information, including the notes thereto, should be read in conjunction with the separate historical financial statements of Neurotrope and Metuchen and the “Metuchen’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” filed as Exhibit 99.4 to this Current Report on Form 8-K. Neurotrope’s historical audited consolidated financial statements for the year ended December 31, 2019 are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 13, 2020. Metuchen’s historical audited financial statements for the year ended December 31, 2019 (Successor), the period December 10, 2018 through December 31, 2018 (Successor) and the period January 1, 2018 through December 9, 2018 (Predecessor), are filed as Exhibit 99.6 to this Current Report on Form 8-K.
Unaudited Pro Forma Financial Information For Spin-Co Adjustment
The following unaudited pro forma financial data presents the pro forma financial position and results of operations of Neurotrope based on the historical consolidated financial statements of Neurotrope, after giving effect to the proposed spin-off transaction whereby following the effective date of the Mergers, all of the business, assets and certain of the liabilities of Neurotrope not assumed by Metuchen pursuant to the Merger Agreement will have been acquired by Neurotrope BioSciences.
The unaudited pro forma combined balance sheet data as of December 31, 2019 gives effect to the spin-off transaction as if it took place on December 31, 2019. The unaudited pro forma combined statement of operations data for the year ended December 31, 2019 gives effect to the Spin-Co transaction as if it took place on January 1, 2020.
Because the unaudited pro forma combined balance sheet data reflects the financial information of Neurotrope as of December 31, 2019, it does not reflect any changes to the current assets which have occurred since December 31, 2019 or which may occur following the date of the Current Report on Form 8-K to which this is Exhibit 99.7 and prior to the closing of the spin-off transaction.
Neurotrope, Inc. and Subsidiary
PRO FORMA Condensed Consolidated Balance Sheets
For the Year Ended December 31, 2019
| Pro Forma | ||||||||||||||||||||||||||||
| Neurotrope, Inc. | Pro Forma | Metuchen | Adjustments for | |||||||||||||||||||||||||
| Neurotrope, Inc. (4) | Subsequent Financing (3) |
Adjustments for Disposition (3) |
Pro
Forma As Adjusted |
Pharmaceuticals, Inc. (4) | Metuchen Reverse Merger (3) |
Pro
Forma Results |
||||||||||||||||||||||
| ASSETS: | ||||||||||||||||||||||||||||
| CURRENT ASSETS: | ||||||||||||||||||||||||||||
| Cash | 17,382,038 | 16,519,988 | (A)(B) | (13,902,026 | ) | 20,000,000 | (C) | $ | 2,145,812 | $ | 10,000,000 | (D) | ||||||||||||||||
| (2,656,628 | )(E) | |||||||||||||||||||||||||||
| (4,388,600 | )(E) | |||||||||||||||||||||||||||
| 1,171,313 | (F) | |||||||||||||||||||||||||||
| (1,171,313 | )(F) | 25,100,584 | ||||||||||||||||||||||||||
| Accounts receivable, net | - | 2,605,130 | 2,605,130 | |||||||||||||||||||||||||
| Inventories | - | 2,204,428 | 2,204,428 | |||||||||||||||||||||||||
| Deposits with related parties | - | 2,325 | 2,325 | |||||||||||||||||||||||||
| Prepaid expenses and other current assets | 494,112 | (494,112 | ) | - | 5,129,820 | 5,129,820 | ||||||||||||||||||||||
| Total current assets | 17,876,150 | 16,519,988 | (14,396,138 | ) | 20,000,000 | 12,087,515 | 2,954,772 | 35,042,287 | ||||||||||||||||||||
| Property and equipment, net | 21,671 | (21,671 | ) | - | 69,837 | 69,837 | ||||||||||||||||||||||
| Intangible assets | - | 38,811,137 | 38,811,137 | |||||||||||||||||||||||||
| Other assets | - | 7,397,804 | 7,397,804 | |||||||||||||||||||||||||
| TOTAL ASSETS | $ | 17,897,821 | $ | 16,519,988 | $ | (14,417,809 | ) | $ | 20,000,000 | $ | 58,366,293 | $ | 2,954,772 | $ | 81,321,065 | |||||||||||||
| CURRENT LIABILITIES: | ||||||||||||||||||||||||||||
| Current portion of senior debt, net plus end of term payable | - | 6,681,936 | 6,681,936 | |||||||||||||||||||||||||
| Accounts payable | 413,081 | (413,081 | ) | - | 3,776,443 | (1,171,313 | )(F) | 2,605,130 | ||||||||||||||||||||
| Accrued expenses | 65,975 | (65,975 | ) | - | 20,887,262 | (4,388,600 | )(E) | 16,498,662 | ||||||||||||||||||||
| Accrued inventory purchases | - | 9,305,594 | 9,305,594 | |||||||||||||||||||||||||
| Other current liabilities | - | 453,092 | 453,092 | |||||||||||||||||||||||||
| Total current liabilities | 479,056 | - | (479,056 | ) | - | 41,104,327 | (5,559,913 | ) | 35,544,414 | |||||||||||||||||||
| Long-term debt | - | 7,061,034 | (2,656,628 | )(E) | 4,404,406 | |||||||||||||||||||||||
| Deferred tax liability | - | 1,432,167 | 1,432,167 | |||||||||||||||||||||||||
| Related party debt | - | 10,000,000 | (D) | |||||||||||||||||||||||||
| (10,000,000 | )(G) | - | ||||||||||||||||||||||||||
| Other long-term liabilities | - | - | - | 749,546 | - | 749,546 | ||||||||||||||||||||||
| TOTAL LIABILITIES | 479,056 | - | (479,056 | ) | - | 50,347,074 | (8,216,541 | ) | 42,130,533 | |||||||||||||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||||||||||||||||||||||
| STOCKHOLDERS' EQUITY (DEFICIT): | ||||||||||||||||||||||||||||
| Neurotrope, Inc. Preferred stock | 2 | 2 | 2 | |||||||||||||||||||||||||
| Metuchen Pharmaceuticals, Inc. Preferred units | - | 20,018,205 | (20,018,205 | )(H) | - | |||||||||||||||||||||||
| Neurotrope, Inc. Common stock | 1,307 | 1,307 | - | 9,591 | (M) | 10,898 | ||||||||||||||||||||||
| Metuchen Pharmaceuticals, Inc. Common units | - | 29,117,233 | (29,117,233 | )(I) | - | |||||||||||||||||||||||
| Additional paid-in-capital | 106,234,301 | 16,519,986 | (B) | (122,755,596 | ) | (1,309 | ) | 20,000,000 | (C) | |||||||||||||||||||
| 1,171,313 | (F) | |||||||||||||||||||||||||||
| 10,000,000 | (G) | |||||||||||||||||||||||||||
| 20,018,205 | (H) | |||||||||||||||||||||||||||
| 29,117,233 | (I) | |||||||||||||||||||||||||||
| 2,350,982 | (J) | |||||||||||||||||||||||||||
| (9,591 | )(M) | |||||||||||||||||||||||||||
| (2,350,982 | )(J) | 80,295,851 | ||||||||||||||||||||||||||
| Retained earnings (accumulated deficit) | (88,816,843 | ) | 88,816,843 | - | (41,116,219 | ) | (41,116,219 | ) | ||||||||||||||||||||
| Deemed distribution | 20,000,000 | 20,000,000 | (20,000,000 | )(C) | - | |||||||||||||||||||||||
| TOTAL SHAREHOLDERS' EQUITY (DEFICIT) | 17,418,765 | 16,519,988 | (13,938,753 | ) | 20,000,000 | 8,019,219 | 11,171,313 | 39,190,532 | ||||||||||||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) | $ | 17,897,821 | $ | 16,519,988 | $ | (14,417,809 | ) | $ | 20,000,000 | $ | 58,366,293 | $ | 2,954,772 | $ | 81,321,065 | |||||||||||||
Neurotrope, Inc. and Subsidiary
PRO FORMA Condensed Consolidated Statements of Operations
For the Year Ended December 31, 2019
| Pro Forma | ||||||||||||||||||||||||||||
| Neurotrope, Inc. | Pro Forma | Metuchen | Adjustments for | |||||||||||||||||||||||||
| Subsequent | Adjustments | Pro Forma | Pharmaceuticals, | Metuchen | Pro Forma | |||||||||||||||||||||||
| Neurotrope, Inc. | Financing (K) | for Disposition | As Adjusted | Inc. | Reverse Merger | Results | ||||||||||||||||||||||
| NET REVENUES | $ | - | $ | - | $ | - | $ | - | $ | 15,577,166 | $ | - | $ | 15,577,166 | ||||||||||||||
| COST OF REVENUES | - | - | - | - | 7,427,111 | - | 7,427,111 | |||||||||||||||||||||
| GROSS PROFIT | - | - | - | - | 8,150,055 | - | 8,150,055 | |||||||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||||||
| Research and development expenses | 4,540,947 | - | (4,540,947 | ) | - | - | - | - | ||||||||||||||||||||
| General and administrative expenses | 6,790,510 | - | (6,040,510 | )(L) | 750,000 | 19,727,223 | - | 20,477,223 | ||||||||||||||||||||
| Depreciation and amortization | - | - | - | - | 5,291,107 | - | 5,291,107 | |||||||||||||||||||||
| Impairment loss | - | - | - | - | 2,443,930 | - | 2,443,930 | |||||||||||||||||||||
| Stock-based compensation | 4,182,000 | - | (4,182,000 | ) | - | - | - | - | ||||||||||||||||||||
| TOTAL OPERATING EXPENSES | 15,513,457 | (14,763,457 | ) | 750,000 | 27,462,260 | - | 28,212,260 | |||||||||||||||||||||
| OPERATING INCOME (LOSS) | (15,513,457 | ) | - | 14,763,457 | (750,000 | ) | (19,312,205 | ) | - | (20,062,205 | ) | |||||||||||||||||
| Interest expense, senior debt | - | - | - | - | (2,428,264 | ) | - | (2,428,264 | ) | |||||||||||||||||||
| Interest expense, related party term loans | - | - | - | - | (11,416,697 | ) | - | (11,416,697 | ) | |||||||||||||||||||
| Interest income | 378,707 | - | (378,707 | ) | - | - | - | - | ||||||||||||||||||||
| Net loss before income taxes | (15,134,750 | ) | - | 14,384,750 | (750,000 | ) | (33,157,166 | ) | - | (33,907,166 | ) | |||||||||||||||||
| Income tax benefit | - | - | - | - | 645,866 | - | 645,866 | |||||||||||||||||||||
| NET LOSS | $ | (15,134,750 | ) | $ | - | $ | 14,384,750 | $ | (750,000 | ) | $ | (32,511,300 | ) | $ | - | $ | (33,261,300 | ) | ||||||||||
| NET INCOME (LOSS) PER COMMON SHARE, BASIC AND DILUTED | $ | (1.16 | ) | $ | (19.05 | ) | $ | (0.31 | ) | |||||||||||||||||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING AND EQUIVALENTS, BASIC AND DILUTED | 12,992,900 | 1,707,020 | 108,901,405 | (M) | ||||||||||||||||||||||||
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. Description of Transaction and Basis of Presentation
The unaudited pro forma condensed combined financial statements were prepared in accordance with GAAP and pursuant to the rules and regulations of Article 11 SEC Regulation S-X, and present the pro forma financial position and results of operations of the combined companies based upon the historical data of Neurotrope and Metuchen.
Description of Transaction
On May 17, 2020, Neurotrope, Metuchen, Petros Pharmaceuticals, Inc., a Delaware corporation (“Petros”), PM Merger Sub 1, LLC, a Delaware limited liability company and a wholly-owned subsidiary of Petros (“Merger Sub 1”), and PN Merger Sub 2, Inc., a Nevada corporation and a wholly-owned subsidiary of Petros (“Merger Sub 2”), entered into an Agreement and Plan of Merger (the “Merger Agreement”). Petros Pharmaceuticals, Inc. will be the name of the combined company following consummation of the Mergers (as defined below).
The Merger Agreement provides for (1) the merger of Merger Sub 1, with and into Metuchen, with Metuchen surviving as a wholly-owned subsidiary of Petros (the “Metuchen Merger”) and (2) the merger of Merger Sub 2 with and into Neurotrope, with Neurotrope surviving as a wholly-owned subsidiary of Petros (the “Neurotrope Merger” and together with the Metuchen Merger, the “Mergers”). The Mergers are intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 351 of the Internal Revenue Code of 1986, as amended.
As a result of the Metuchen Merger, each outstanding common unit or preferred unit of Metuchen will be exchanged for a number of shares of Petros common stock equal to the quotient resulting from the formula of (i) 95,908,502 divided by (ii) the number of fully-diluted units of the Company outstanding immediately prior to the effective time of the Mergers. As a result of the Neurotrope Merger, each outstanding share of Neurotrope common stock will be exchanged for one (1) share of Petros common stock and each outstanding share of Neurotrope preferred stock will be exchanged for one (1) share of Petros preferred stock. In addition, each outstanding option to purchase Neurotrope common stock or outstanding warrant to purchase common stock that has not previously been exercised prior to the closing of the Mergers will be converted into equivalent options and warrants to purchase shares of Petros common stock and will be adjusted to give effect to the exchange ratios set forth in the Merger Agreement.
Upon the closing of the Mergers, on a pro forma basis, current Neurotrope shareholders will own approximately 20.0% of the combined company and current Metuchen investors will own approximately 80.0% of the combined company.
In connection with the Mergers, Neurotrope plans to spin-off (the “Spin-Off”) its wholly-owned subsidiary, Neurotrope Biosciences, Inc. Substantially all of the consolidated operations of Neurotrope were conducted through such subsidiary and substantially all of the consolidated operating assets and liabilities of Neurotrope reside in such subsidiary. The Spin-Off is planned to be made as a distribution to Neurotrope’s stakeholders as of a record date prior to the Mergers, but the distribution is currently contemplated to occur after the closing of the Merger. The spun-off entity will be capitalized with all cash in excess of the $20 million to be retained by Metuchen, subject to adjustment for the proceeds from any exercise of Neurotrope’s warrants between signing and closing of the Mergers. The proceeds of any such warrant exercises will be split 80% to Metuchen and 20% to the spun-off entity. The record date for the Spin-Off, the ratio of the Spin-Off shares distributed to the Neurotrope shares held as of the record date and the extent to which other stakeholders of Neurotrope may be entitled to participate in the Spin-Off have not yet been determined.
Basis of Presentation
Neurotrope, Metuchen and Petros have preliminarily concluded that the Mergers represent a reverse recapitalization by a non-public company in which the non-public company is the accounting acquirer. Following the Mergers and Spin-Off, the shareholders of Metuchen will effectively control the combined companies, and as such, Metuchen is deemed to be the accounting acquirer in the Mergers. Neurotrope’s historical financial statements before the Mergers will be replaced with the historical financial statements of Metuchen before the Mergers in future filings with the SEC. The assets and liabilities and the historical operations that will be reflected in the financial statements prior to the Mergers will be those of Metuchen, and will be recorded at the historical cost basis. The consolidated financial statements after completion of the Mergers will include the assets and liabilities of Metuchen, historical operations of Metuchen, and operations of the combined company and its subsidiaries from the closing date of the Mergers.
Each company expects to incur a pre-tax loss in 2020 and incurred a pre-tax loss in 2019 and each company maintains a full valuation allowance on its deferred tax assets. Accordingly, no additional tax effects have been provided for in the pro forma adjustments described in Note 3, “Pro Forma Adjustments.” Metuchen does have an historical tax benefit primarily as a result of book versus tax differences on certain historical acquisitions.
Treatment of Stock Options and Warrants in the Mergers
Prior to the closing of the Mergers, Metuchen does not have any outstanding options and it is anticipated that all outstanding warrants will convert into Petros common stock in the Mergers.
Neurotrope options and warrants issued and outstanding at the time of the Mergers will be converted into equivalent options and warrants to purchase shares of Petros common stock and will be adjusted to give effect to the exchange ratios set forth in the Merger Agreement. The change of control of Neurotrope results in the acceleration of vesting for all outstanding options. For accounting purposes, Neurotrope equity awards will be assumed to have been exchanged for equity awards of Petros, the accounting acquirer. As of December 31, 2019, Neurotrope had 2,366,519 outstanding options to purchase shares of common stock, of which 1,693,512 options were exercisable at a weighted average exercise price per option of $15.49. As of December 31, 2019, Neurotrope had 10,482,158 outstanding warrants to purchase shares of common stock, of which 10,368,158 warrants were exercisable at a weighted average exercise price per warrant of $9.72.
2. Shares Issued in Merger
The number of shares of common stock Petros will issue to Metuchen stockholders, for purposes of these unaudited pro forma condensed combined financial statements, is calculated pursuant to the terms of the Merger Agreement based on the exchange ratio set forth in the Merger Agreement which is based on Neurotrope’s common stock outstanding as of May 15, 2020, as follows:
| Shares of Neurotrope common stock outstanding as of May 15, 2020 | 22,184,695 | |||
| Shares of Neurotrope preferred stock outstanding on an as-converted basis as of May 15, 2020 | 1,792,430 | |||
| Adjusted outstanding shares of Neurotrope common stock | 23,977,125 | |||
| Divided by the assumed percentage of Neurotrope ownership of combined company | 20 | % | ||
| Estimated adjusted total shares of common stock of combined company | 119,885,627 | |||
| Multiplied by the assumed percentage of Metuchen ownership of combined company | 80 | % | ||
| Estimated shares of Petros common stock issued to Metuchen upon closing of Mergers | 95,908,502 |
3. Pro Forma Adjustments
The unaudited pro forma condensed combined financial statements include pro forma adjustments that are (i) directly attributable to the merger, (ii) factually supportable, and (iii) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the results of operations of the combined company.
Based on Metuchen management’s review of Neurotrope’s summary of significant accounting policies, the nature and amount of any adjustments to the historical financial statements of Neurotrope to conform to the accounting policies of Metuchen are not expected to be significant.
| (A) | Includes Neurotrope, Inc. registered direct preferred stock financing on January 22, 2020, gross proceeds $18 million. |
| (B) | Includes registered direct offering expenses of approximately $1.5 million. |
| (C) | Includes $20 million retained by Neurotrope, Inc. after Neurotrope Bioscience, Inc. spin-off. |
| (D) | Subsequent to December 31, 2019, JCP III SM AIV, LP entered into three (3) Subordinate Promissory Notes with Metuchen for a total of $10 million. As discussed in note (G) these notes are required to be converted into common stock of the merged entity upon consummation of the merger transaction. |
| (E) | Represents: Metuchen principal portion of five senior debt principal payments made to Hercules for the period 01/01/2020 - 05/01/2020 of approximately $2.7 million, and; payment made to Metuchen’s logistics distribution provider of approximately $4.4 million, using the proceeds from the $10 million promissory notes discussed in Note D. |
| (F) | Requirement for JCP to fund and backstop an amount equal to the Working Capital Shortfall in the net accounts receivable and accounts payable amounts of Metuchen not to exceed $6.0 million, calculated as $1,171,313 as of December 31, 2019 in the pro forma balance sheet. |
| (G) | Requirement in Merger Agreement for conversion of the JCP $10 million Subordinated Notes into Metuchen common units. |
| (H) | Metuchen Preferred units converted into Metuchen common units at closing. |
| (I) | Metuchen common units exchanged for Petros common stock. |
| (J) | Represents expense relating to accelerated vesting on existing Neurotrope options pursuant to existing change of control provisions within the options agreements. |
| (K) | To reflect Neurotrope, Inc.’s registered direct preferred stock financing on January 22, 2020, and conversion into common shares. |
| (L) | To reflect spin-off of Neurotrope BioScience, Inc. excluding $750,000 in general & administrative expenses related to public companies expenses including salaries, insurance and stock listing fees. |
| (M) | To reflect Petros Pharmaceuticals, Inc. common stock issuance to Metuchen unitholders at the agreed upon exchange ratio pursuant to the Merger Agreement. |
4. Historical Metuchen financial information. See respective historical financial statements included elsewhere in this Current Report on Form 8-K and accompanying notes which are an integral part of those financial statements, including:
See Footnote 9 to the Metuchen, LLC. historical financial statements. Accrued expenses at December 31, 2019 are comprised of the following:
| Accrued price protection | $ | 1,847,639 | ||
| Accrued product returns | 10,707,807 | |||
| Accrued contract rebates | 1,368,279 | |||
| Due to Vivus | 2,259,769 | |||
| Due to third-party logistic provider (Paid in April 2020) | 4,388,600 | |||
| Other accrued expenses | 315,168 | |||
| Total | $ | 20,887,262 |
See Footnotes 6, 8 and 13 to the Metuchen, LLC historical financial statements. Amounts payable to Vivus of $8.1 million for active pharmaceutical ingredient (API) minimum inventory purchases in which $1.4 million is included in prepaid assets and $6.7 million is included in non-current assets.
Exhibit 99.8
May 17, 2020
The Board of Directors
Neurotrope, Inc.
1185 Avenue of the Americas, 3rd Floor
New York, NY 10036
Board of Directors
Members of the Board:
We hereby consent to (i) the inclusion of our opinion letter, dated May 15, 2020 to the Board of Directors of Neurotrope, Inc. (“Neurotrope”) to (A) the Current Report on Form 8-K of Neurotrope (the “8-K”) to be filed on or about May 18, 2020 and (B) the Registration Statements of Neurotrope, Inc. on Form S-3 (Nos. 333-237745, 333-217089, 333-215159 and 333-208502) and Form S-8 (Nos. 333-233464, 333-222274, 333-222273 and 333-200310) and (ii) the references made to our firm and such opinion in Exhibit 99.5 to the 8-K. Notwithstanding the foregoing, in giving such consent, we do not admit and we hereby disclaim that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder, nor do we hereby admit that we are experts with respect to any part of such Registration Statement within the meaning of the term “experts” as used in the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission promulgated thereunder.
Very truly yours,
/s/Nathan Johnson
Gemini Valuation Services
Exhibit 99.9
JCP III SM AIV, L.P.
c/o Juggernaut Capital Partners
5301 Wisconsin Avenue NW, Suite 570, Washington, DC 20015
May 17, 2020
Neurotrope, Inc.
1185 Avenue of the Americas, 3rd Floor
New York, NY 10036
Re: Juggernaut Backstop Agreement
Ladies and Gentlemen:
Reference is made to the Agreement and Plan of Merger, dated May 17, 2020 (the “Merger Agreement”), by and among Petros Pharmaceuticals, Inc., a Delaware corporation (“Parent”), PM Merger Sub 1, LLC, a Delaware limited liability company and direct wholly owned subsidiary of Parent (“Merger Sub 1”), PN Merger Sub 2, Inc., a Delaware corporation and direct wholly owned subsidiary of Parent (“Merger Sub 2”), Neurotrope, Inc., a Nevada corporation (“Neurotrope”), and Metuchen Pharmaceuticals LLC, a Delaware limited liability company (“Metuchen”), and the transactions contemplated thereby subject to the terms and conditions set forth therein (the “Mergers”). Capitalized terms used but not defined in this letter agreement (this “Backstop Agreement”) shall have the meanings ascribed to them in the Merger Agreement. This Backstop Agreement is being delivered to Neurotrope in connection with the execution of the Merger Agreement and to induce Neurotrope to enter into the Merger Agreement.
1. Commitment at Closing. Pursuant to this Backstop Agreement, JCP III SM AIV, L.P. (the “Investor”), subject to the conditions set forth herein and in the Merger Agreement, agrees to contribute to the Company at Closing an amount equal to the Working Capital Shortfall Amount, if any, as determined in accordance with Section 1.8 of the Merger Agreement, up to an aggregate amount not to exceed $6,000,000 (the “Commitment Cap”). The “Post-Closing Commitment” shall mean the Commitment Cap, less the Working Capital Shortfall Amount. The “Anniversary Date” shall be the one (1) year anniversary of the Closing Date.
2. Commitment at the Anniversary Date. The Investor agrees to contribute, or cause an affiliate to contribute, to Parent the Post-Closing Commitment on the Anniversary Date; provided, however, that:
(a) In the event that, at any time between the Closing Date and the Anniversary Date, the closing price per share of Parent Common Stock on the Nasdaq Capital Market or any other securities exchanges on which the Parent Common Stock is then traded equals or exceeds 1.5 times the Base Price (as defined below) for a period of ten (10) consecutive trading days, then the Post-Closing Commitment shall be reduced by fifty percent (50%); and
(b) In the event that, at any time between the Closing Date and the Anniversary Date, the closing price per share of Parent’s Common Stock on the Nasdaq Capital Market or any other securities exchanges on which the Parent Common Stock is then traded equals or exceeds 1.75 times the Base Price (as defined below) for a period of ten (10) consecutive trading days, then the Post-Closing Commitment shall be $0.
Base Trading Price means $1.45. The Base Trading Price shall be appropriately adjusted to reflect any stock split, stock dividend, or reverse split after the date hereof as well as the exchange rate for Neurotrope common stock under the Merger Agreement if it is anything other than one for one.
3. In addition to the Commitment, the Investor agrees to deliver that Note Conversion and Loan Repayment Agreement in the form attached as Exhibit A hereto.
4. Conditions; Termination.
(a) The Investor’s obligation to fund each of the Working Capital Shortfall Amount and the Post-Closing Commitment is subject to the terms of this Backstop Agreement and to the satisfaction of the following conditions: (i) the execution and delivery of the Merger Agreement by all parties thereto, and (ii) the satisfaction or waiver by all parties to the Merger Agreement other than the Company of all of the conditions set forth in Article 7 of the Merger Agreement.
(b) The obligation of the Investor to fund the unfunded portion of the Commitment, to convert indebtedness and other amounts owed into equity will terminate automatically and immediately upon the termination of the Merger Agreement in accordance with its terms
5. Assignment; No Modification; Entire Agreement. This Backstop Agreement and the Investor’s commitment hereunder shall not be assignable to any other person without the prior written consent of the other parties hereto and the Company. Any attempted assignment without such consent shall be null and void and of no force and effect. Notwithstanding anything to the contrary, the Investor may assign its commitments under this Backstop Agreement to an Affiliate of the Investor, provided that the Investor remains liable to perform all of its obligations hereunder. This Backstop Agreement may not be amended, and no provision hereof waived or modified, except by an instrument signed by each of the parties hereto and the Company. This Backstop Agreement, together with the Merger Agreement, constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among or between any of the parties, with respect to the subject matter of those agreements. The Investor acknowledges that the Company has entered into the Merger Agreement in reliance upon, among other things, the commitments set forth in this Backstop Agreement. This Backstop Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person. Any obligation of Investor set forth herein is an obligation of payment only, and shall not be construed as an obligation of performance. Except as set forth herein, Investor shall have no liability under this Backstop Agreement or the Merger Agreement for any liability of the Company, Neurotrope, or Merger Sub.
- 2 -
6. Miscellaneous. This Backstop Agreement may be executed in multiple counterparts. This Backstop Agreement will become effective upon its acceptance by Neurotrope, as evidenced by the delivery to the Investor of a counterpart of this Backstop Agreement executed by Neurotrope. This Backstop Agreement shall be governed by, and construed in accordance, with the Laws of the State of Delaware, regardless of the Laws that might otherwise govern under applicable principles of conflicts of laws.
[Remainder of page intentionally left blank.]
- 3 -
| Very truly yours, | |||
| JCP III SM AIV, L.P. | |||
| By: | |||
| Name: | |||
| Title: | |||
| Agreed and accepted by: | |||
| NEUROTROPE, INC. | |||
| By: | |||
| Name: | |||
| Title: | |||
Backstop Agreement
EXHIBIT A
Form of Note Conversion and Loan Repayment Agreement
(Attached)
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- CIDARA Therapeutics ALERT: Bragar Eagel & Squire, P.C. is Investigating Cidara Therapeutics, Inc. on Behalf of Cidara Therapeutics Stockholders and Encourages Investors to Contact the Firm
- Robbins LLP Reminds IRobot Corporation Shareholders of the Pending May 7, 2024 Lead Plaintiff Deadline
- Perk Labs Announces Closing of Non-Brokered Private Placements
Create E-mail Alert Related Categories
SEC FilingsSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
