10-K
1
f10k_031521p.htm
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
For the fiscal year ended December 31, 2020.
or
For the transition period from to .
Commission File Number 001-33672
SENECA BIOPHARMA, INC.
(Exact name of registrant as specified in its charter)
(Address of principal executive offices) (Zip Code)
(301)
366-4841
(Registrant’s
telephone number, including area code)
Securities registered
pursuant to Section 12(b) of the Act:
Title of Class Trading Symbol Name of Each Exchange on Which Registered
Common Stock, $0.01 par value SNCA Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes
☐ No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging Growth Company ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report
on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its
audit report. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No
The aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the Company’s common equity was last sold as of the last
business day of the registrant’s most recently completed second fiscal quarter based upon the closing price of the common
stock as reported by NASDAQ on such date, was $12,444,149.
The number of shares outstanding of Registrant’s common stock,
$0.01 par value at February 28, 2021 was 17,295,703.
DOCUMENTS INCORPORATED BY REFERENCE
None.
SENECA BIOPHARMA, INC
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2020
INDEX
Page
PART I
Item 1. Business 4
Item 1A. Risk Factors 11
Item 1B. Unresolved Staff Comments 22
Item 2. Properties 22
Item 3. Legal Proceedings 23
Item 4. Mine Safety Disclosure 23
PART II
Item 6. Selected Financial Data 25
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 30
Item 8. Financial Statements and Supplementary Data 31
Item 9A. Controls and Procedures 51
Item 9B. Other Information 52
PART III
Item 10. Directors, Executive Officers and Corporate Governance 52
Item 11. Executive Compensation 57
Item 14. Principal Accounting Fees and Services 70
PART IV
Item 15. Exhibits, Financial Statement Schedules 71
PART I
We urge you to read this entire Annual Report on Form
10-K, including the “Risk Factors” section, the consolidated financial statements and the related notes included therein.
As used in this Annual Report, unless context otherwise requires, the words “we,” “us,” “our,”
“the Company,” “Neuralstem,” “Seneca” and “Registrant” refer to Seneca Biopharma,
Inc. and its subsidiary. Also, any reference to “common share” or “common stock,” refers to our $.01 par
value common stock. Additionally, any reference to our “Series A Preferred Stock” refers to our Series A 4.5% Convertible
Preferred Stock.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this annual report that are not strictly historical
are forward-looking statements made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform
Act of 1995 and include statements about products in development, results and analyses of pre-clinical studies, clinical trials
and studies, future research and development expenses, anticipated cash expenditures, regulatory applications and approvals, and
third-party relationships, among other matters. You can identify these forward-looking statements because they involve our expectations,
intentions, beliefs, plans, projections, anticipations, or other characterizations of future events or circumstances and may often
be identified by words such as “expect,” “anticipate,” “intend,” “plan,” “believe,”
“seek” or “will.” These forward-looking statements are not guarantees of future performance and are subject
to substantial risks and uncertainties that may cause actual results to differ materially from those described in the forward-looking
statements These Forward-looking statements by their nature address matters that are uncertain. Specific risks and uncertainties
that could cause our actual results to differ materially from those expressed in our forward-looking statements include risks inherent
in our ability to consummate the proposed merger with Leading BioSciences, Inc, identify and in-license compounds and/or assets,
conduct and obtain successful results from our clinical trials, retain management and operate our business, commercialize our technology,
obtain regulatory approval for our product candidates, contract with third parties to adequately test and manufacture our proposed
products, protect our intellectual property rights and obtain additional financing to continue our development efforts and execute
on our business plans. These forward-looking statements are based on current expectations and assumptions that are subject to risks
and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not limited to those discussed in this Annual Report,
and in particular, the risks discussed under the caption “Risk Factors” in Item 1A and those discussed in other documents
we file with the Securities and Exchange Commission (SEC). We undertake no obligation to revise or publicly release the results
of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are
cautioned not to place undue reliance on such forward-looking statements.
The
information contained herein is current as of the date of this Annual Report (December 31, 2020), unless another date is specified.
ITEM 1. BUSINESS
Overview
Historically, we have been primarily focused
on the research and development of nervous system therapies based on our proprietary human neural stem cells and our small molecule
compounds with the ultimate goal of gaining approval from the “FDA”, and its international counterparts, to market
and commercialize such therapies. In early 2019, we commenced a strategic assessment of our clinical programs to determinate how
to maximize shareholder value. As a result, Seneca subsequently initiated an:
In-licensing and Acquisition Strategy
In early 2019, we engaged Hibiscus Bioventures
(“Hibiscus”) and initiated an in-licensing and/or acquisition strategy to expand our product pipeline. Our in-licensing
strategy consists of evaluating novel therapeutics that could be synergistic to us with the goal of developing such candidates
for commercialization. We believe that this element of our corporate strategy could provide new opportunities for product development
and diversify risks inherent in focusing on a limited product portfolio and therapeutic areas, thus potentially increasing its
probability of commercial success. In December 2019, we further expanded this initiative and engaged Solebury Capital LLC (“Solebury”)
to help explore available strategic alternatives, including possible mergers and business combinations, a sale of part or all of
our assets, and collaboration and licensing arrangements.
Out-Licensing and Sales Strategy
Based on our review of existing clinical programs,
including required capital and time to market, we have initiated an out-licensing and sales strategy to find partners or interested
parties to acquire or license NSI-566 (neural stem cell) and NSI-189 (small molecule) and their respective clinical and pre-clinical
programs and development. As part of this strategy, we begun winding down our ongoing development efforts, pre-clinical and clinical
stage studies.
In December of 2020, we licensed certain patents
and technologies, including a sublicense, related to the NSI- 189 small molecule program for $100,000 up front for a three (3)
year period, plus, upon the occurrence of certain events, the licensee has the right to purchase the NSI-189 small molecule program
for $5,000,000 at any time before the three (3) year period expires.
Our Present Focus
After conducting a strategic alternatives evaluation,
with a goal of maximizing stockholder value, we substantially reduced our workforce and have wound down and suspended our research
and development activities. We continue to: (a) provide support for patients who remain in clinical trials, (b) conduct our day-to-day
business operations including the limited remaining activities required to wrap up our trial (c) support our intellectual property
portfolio with a goal of maximizing stockholder value and (d) undertake our out-licensing and in-licensing acquisition initiatives.
Following our assessment, we commenced a process
of evaluating strategic alternatives to maximize stockholder value with the assistance of Hibiscus and Solebury. After conducting
a diligent and extensive process of evaluating strategic alternatives and identifying and reviewing potential candidates for a
strategic acquisition or other transaction, which included the receipt of 15 non-binding indications of interest from interested
parties and careful evaluation and consideration of those proposals, and following extensive negotiation with a number of possible
candidates, on December 17, 2020, Seneca and Leading BioSciences, Inc. (“LBS”) announced the signing of a merger agreement
(“Merger Agreement”). Upon the terms and subject to the satisfaction of the conditions described in the Merger Agreement,
including approval of the transaction by our stockholders, a wholly-owned subsidiary of Seneca will be merged with and into LBS,
with LBS being the surviving entity and a wholly-owned subsidiary of Seneca (“Merger”).
Although we have entered into the Merger Agreement
and intend to consummate the transaction, there is no assurance that we will be able to successfully consummate the proposed merger
on a timely basis, or at all. If, for any reason, the merger is not completed, we will reconsider our strategic alternatives and
could pursue one or more of the following courses of action:
· Pursue another strategic transaction like the proposed merger.
Seneca’s Proprietary Technology Platform
Our patented technology platform has three core components:
1. Over
300 lines of human, regionally specific neural stem cells, some of which have the potential to be used to treat serious or life-threatening
diseases through direct transplantation into the central nervous system;
2. Proprietary
screening capability – Seneca’s ability to generate human neural stem cell lines provides a platform for chemical screening
and discovery of novel compounds against nervous system disorders; and
3. Small
molecules that resulted from Seneca’s neurogenesis screening platform that may have the potential to treat a wide variety
of nervous system conditions.
To date, our technology platform has produced
two lead assets: our NSI-566 stem cell therapy program and our NSI-189 small molecule program. A component of our strategy is seeking
an asset sale, out-license, or global development partnerships to further development of NSI-566 and NSI-189. We have recently
initiated a formal initiative aimed at securing partners to advance the clinical development of these two programs.
We believe our technology, in partnership with
an established biopharmaceutical company with the appropriate development expertise and financial resources, could facilitate the
development and commercialization of products for use in the treatment of a wide array of nervous system disorders including neurodegenerative
conditions and regenerative repair of acute and chronic disease.
Clinical Programs
Historically, we have devoted our efforts and
financial resources primarily to the pre-clinical and clinical development of our small molecule compounds and our stem cell therapeutics.
Based on our cash position, we have refocused
our efforts primarily on maintaining the cell lines, patents, clinical material and data, and relevant licenses associated with
these clinical programs as we seek partners for further development.
Below is a description of our clinical programs,
their intended indication and current stage of development:
NSI - 566 (Stem Cells)
The human central nervous system (CNS) has
limited capacity for regeneration following injury or the onset of disease. Traditional therapies have mainly focused on minimizing
the progression or symptoms of CNS disease or injury but have not been effective at repairing the underlying cause of such disease.
The goal of our cell therapy initiatives has been the regeneration of neural function which has been lost to disease or injury.
We believe that neuroprotection, neuroregeneration, and/or bridging of damaged neural circuitry may be accomplished by implantation
of NSI-566 at the injury site.
Clinical Experience with NSI-566
Chronic Spinal Cord Injury
In 2013, we received authorization from the
FDA to commence a Phase 1 clinical trial to treat chronic spinal cord injury. The trial, which took place at The University of
California, San Diego or UCSD, commenced in 2014 and the first subject was treated in October 2014. The study enrolled four AIS
A classification thoracic spinal cord injury subjects (motor and sensory complete), one to two years’ post-injury at the
time of stem cell treatment. In January of 2016 we reported six-month follow-up data on all four subjects. The stem cell treatment
was found to be safe and well-tolerated by the subjects enrolled and there were no serious adverse events. In April of 2018 we
enrolled the first subject in the second cohort of the trial, which included patients with AIS-A complete, quadriplegic, cervical
injuries involving C5-C7 of their spinal cord. The final patient of this cohort was enrolled in March 2019.
In June 2018, the study investigators published
the results of the first cohort in the journal Cell Stem Cell. The results support the potential of transplanted NSI-566 to benefit
patients with cSCI. At 18 months to 27 months after surgery, the analysis of motor and sensory function and electrophysiology showed
changes in three of the four patients after NSI-566 transplantation. There was no evidence of serious adverse events, suggesting
the procedure is well-tolerated.
In January 2021, we announced preliminary,
top-line results of the Company's placebo controlled Phase 2 stroke study (non-GCP) that was conducted in Beijing, China. The trial
was designed to evaluate the relative safety of our human neural stem cell therapy, NSI-566, in patients with stable deficits in
motor function resulting from ischemic stroke. Patients were eligible for the trial if they had documented history of ischemic
stroke at least four months, but no more than 24 months, before surgery.
The study enrolled 23 patients who were randomly
assigned to treatment or placebo arms. Patients in the treatment arm received intracerebral injection of 72 million stem cells,
whereas those in the placebo group underwent a sham surgery procedure. Secondary objectives to evaluate efficacy were performed
by qualified assessors who were blinded to treatment assignment, and included the Fugl-Meyer Motor Score (FMMS), an assessment
of upper and lower motor function that comprises a 100-point scale and is widely used following stroke.
Patients enrolled in the treatment and placebo
arms had similar baseline FMMS scores before surgery (mean ± SD: 36.80 ± 8.59 and 35.80 ± 4.66, respectively).
While most participants showed some improvement in FMMS from pre-surgery scores, the mean improvement after one year was greater
in those participants receiving NSI-566 (n=10, mean ± SD: 12.20 ± 14.15) compared to placebo (n=10, 6.30 ±
5.14), though the difference between groups did not reach statistical significance using the approximate Student's t-test (MMRM)
(p=0.231). Two participants in the treatment arm showed clinically important improvements of 32 and 44 points on the FMMS following
treatment with NSI-566, whereas the largest improvement observed in the placebo group was 17 points. Participants in the treatment
arm experienced a total of three serious adverse events (SAE) that were considered by the investigator to be probably or possibly
related to treatment, whereas no patients in the placebo arm experienced SAEs. Treatment-related SAEs were resolved with standard
medical care and were limited to impaired healing at the incision site and wound dehiscence in one patient, and impaired hepatic
function in another.
NSI-189 (Small Molecule Pharmaceutical Compound)
NSI-189 represents a new chemical entity that
works through what appears to be a novel mechanism of action to stimulate neurogenesis of stem cells in the hippocampus, as well
as generation of new synapses. Because impaired hippocampal neurogenesis has been linked with depression, we conducted clinical
trials to evaluate the safety and effectiveness of NSI-189 in patients suffering from Major Depressive Disorder or MDD.
Out-license of NSI-189
In December 2020, we licensed certain patents
and technologies, including a sublicense, related to the NSI- 189 small molecule program for $100,000 up front for a three (3)
year period, plus, upon the occurrence of certain events, the licensee has the right to purchase the NSI-189 small molecule program
for $5,000,000 at any time before the three (3) year period expires.
Seneca’s Technologies
Stem Cells
From a therapeutic perspective, our stem cell-based
technology enables the isolation and large-scale expansion of regionally specific, human neural stem cells from all areas of the
developing human brain and spinal cord thus enabling the generation of physiologically relevant human neurons of different types.
We believe that our stem cell technology will enable the replacement or supplementation
of malfunctioning or dead cells thereby creating a neurotrophic environment that offers protection to neural tissue as a way to
treat disease and injury. Many significant and currently untreatable human diseases arise from the loss or malfunction of specific
cell types in the body. Our focus is the development of effective methods to generate
replacement cells from neural stem cells. We believe that creating a neurotrophic
environment by replacing damaged, malfunctioning or dead neural cells with fully functional ones may be a useful therapeutic strategy
in treating many diseases and conditions of the central nervous system.
Intellectual Property
We have developed and maintain a portfolio
of patents and patent applications that form the proprietary base for our research and development efforts. We own or exclusively
license 17 United States issued and pending patents and over 77 foreign issued and pending patents in the field of regenerative
medicine, related to our stem cell technologies as well as our small molecule compounds. Our issued patents have expiration dates
ranging from 2023 through 2038.
When appropriate, we seek patent protection
for inventions in our core technologies and in ancillary technologies that support our core technologies or which we otherwise
believe will provide us with a competitive advantage. We accomplish this by filing patent applications for discoveries we make,
either alone or in collaboration with scientific collaborators and strategic partners. Typically, although not always, we file
patent applications both in the United States and in select international markets. In addition, we plan to obtain licenses or options
to acquire licenses to patent filings from other individuals and organizations that we anticipate could be useful in advancing
our research, development and commercialization initiatives and our strategic business interests.
In addition to patenting our technologies,
we also rely on confidential and proprietary information and take active measures to control access to that information, including
the use of confidentiality agreements with our employees, consultants and certain of our contractors.
Our policy is to require our employees, consultants
and significant scientific collaborators and sponsored researchers to execute confidentiality and assignment of invention agreements
upon the commencement of an employment or consulting relationship with us. These agreements generally provide that all confidential
information developed or made known to the individual by us during the course of the individual’s or entity’s relationship
with us, is to be kept confidential and not disclosed to third parties except in specific circumstances. In the case of employees
and consultants, the agreements generally provide that all inventions conceived by the individual or entity in the course of rendering
services to us shall be our exclusive property.
Competition
The pharmaceutical and biotechnology industries
are characterized by rapidly evolving technology and intense competition. Our competitors include major multinational pharmaceutical
companies, specialty biotechnology companies and chemical and medical products companies. Many of these companies are well-established
and possess greater resources for technical, research, development, financial, sales and marketing initiatives than we do. Other,
less well-established companies have formed or may form strategic collaborations, partnerships and other types of joint ventures
with larger, well established industry competitors that may provide research and development and commercialization advantages to
these competitors. Academic institutions, governmental agencies and other public and private research organizations are also conducting
and financing research activities which may produce products directly competitive to those we are developing. Moreover, many of
these competitors may be able obtain patent protection, or FDA and other regulatory approvals that may impede on our freedom to
develop and commercialize our proposed products.
The diseases and medical conditions we are
targeting have a demographic in which there are large numbers of patients who do not respond to current therapies or have limited
therapies available. Nevertheless, we expect that our technologies and product candidates, if or when approved, will compete with
a variety of therapeutic products and procedures offered by other pharmaceutical and biotechnology companies. Many pharmaceutical
and biotechnology companies are investigating new drugs and therapeutic approaches for the same or similar indications. These companies’
efforts may achieve new efficacy profiles, extend the therapeutic window for such products, alter the prognosis of these diseases,
or prevent their onset. We believe that our products, if or when approved, will attempt to compete with these products principally
on the basis of improved and extended efficacy and safety and their overall economic benefit to the health care system. Competition
to our products may be in the form of existing and new drugs, other forms of cell transplantation, surgical procedures, gene therapy
or other proprietary technology and expertise. We expect that all of these products will compete with our product candidates, if
or when approved, based on efficacy, safety, cost and intellectual property positions. We cannot be certain that other entities
have not filed patents that block our freedom to commercialize our programs and we may be required to seek licenses from these
entities in order to commercialize certain of our proposed products, and such licenses may not be granted or be extremely expensive
to obtain.
Government Regulation
Regulation by governmental authorities in the
United States and other countries is a significant factor in our research and development and will be a significant factor in the
manufacture and marketing of our proposed products. The nature and extent to which such regulation applies to our products will
vary depending on the nature of any products we may develop. Governmental authorities, including the FDA and comparable regulatory
authorities in other countries, regulate the design, development, testing, manufacturing, safety, efficacy, labeling, storage,
record-keeping, advertising, promotion and marketing of pharmaceutical products, including drugs and biologics, under the Federal
Food, Drug, and Cosmetic Act, or FDCA, and its implementing regulations, and, for biologics, under the Public Health Service Act,
or PHSA, and its implementing regulations. Non-compliance with applicable requirements can result in fines and other judicially
imposed sanctions, including product seizures, import restrictions, injunctive actions and criminal prosecutions of both companies
and individuals. In addition, administrative remedies can involve requests to recall violative products; the refusal of the government
to enter into supply contracts; or the refusal to approve pending product approval applications until manufacturing or other alleged
deficiencies are brought into compliance. The FDA also has the authority to cause the withdrawal of approval of a marketed product
or to impose labeling restrictions. The process of obtaining approvals and the subsequent compliance with appropriate statutes
and regulations require the expenditure of substantial time and money, and there can be no guarantee that approvals will be granted.
During all phases of clinical development,
regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data, and clinical trial investigators.
Annual progress reports detailing the results of the clinical trials must be submitted to the FDA. Clinical trials may not be completed
successfully within any specified period, if at all. The FDA or the sponsor or its data safety monitoring board may suspend or
terminate a clinical trial at any time on various grounds, including a finding that the research patients are being exposed to
an unacceptable health risk, including risks inferred from other unrelated similar trials. Similarly, an institutional review board,
or IRB, can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in
accordance with the IRB’s requirements or if the product has been associated with unexpected serious harm to patients.
Human
cell-based therapies in the field of regenerative medicine are relatively novel. Because this is a relatively new and expanding
area of novel therapeutic interventions, there can be no assurance as to the length of the trial period, the number of patients
the FDA will require to be enrolled in the trials in order to establish the safety, efficacy, purity and potency of such products,
or that the data generated in these trials will be acceptable to the FDA to support marketing approval.
United States Review and Approval Process
After the completion of clinical trials of
a product candidate, FDA approval of a BLA or NDA must be obtained before commercial marketing of the product. The BLA or NDA must
include results of product development, laboratory and animal studies, human trials, information on the manufacture and composition
of the product, proposed labeling and other relevant information as well as a significant user fee. The FDA may grant deferrals
for submission of data, or full or partial waivers. The testing and approval processes require substantial time and effort and
there can be no assurance that the FDA will accept the BLA or NDA for filing and, even if filed, that any approval will be granted
on a timely basis, if at all.
The FDA may refuse to file any BLA or NDA that
it deems incomplete or not properly reviewable at the time of submission, and may request additional information. Once the submission
is accepted for filing, the FDA reviews the BLA or NDA to determine, among other things, whether the proposed product is safe,
potent, and/or effective for its intended use, and has an acceptable purity profile, and whether the product is safe and effective
for its intended use, and in each case, whether the product is being manufactured in accordance with cGMP or GTP, if applicable.
During the product approval process, the FDA also will determine whether a Risk Evaluation and Mitigation Strategy, or REMS, is
necessary to assure the safe use of the product. If the FDA concludes a REMS is needed, the sponsor of the BLA or NDA must submit
a proposed REMS. The FDA will not approve a BLA or NDA without a REMS, if required.
Notwithstanding the submission of relevant
data and information, the FDA may ultimately decide that the BLA or NDA does not satisfy its regulatory criteria for approval and
deny approval via a letter detailing such deficiencies. Data obtained from clinical trials are not always conclusive and the FDA
may interpret data differently than we interpret the same data. If the FDA denies an application, the applicant may either resubmit
the BLA or NDA, addressing all of the deficiencies identified by the FDA, or withdraw the application.
United States Post-Approval Requirements
Any products for which we receive FDA approvals
are subject to continuing regulation by the FDA, including, among other things, record-keeping requirements, reporting of adverse
experiences with the product, providing the FDA with updated safety and efficacy information, product sampling and distribution
requirements, and complying with FDA promotion and advertising requirements, which include, among others, standards for direct-to-consumer
advertising, restrictions on promoting products for uses or in patient populations that are not described in the product’s
approved uses, known as off-label use, limitations on industry-sponsored scientific and educational activities and requirements
for promotional activities involving the internet.
In addition, quality control and manufacturing
procedures must continue to conform to applicable manufacturing requirements after approval to ensure the long-term stability of
the product. We rely, and expect to continue to rely, on third parties for the production of some, or all, clinical and commercial
quantities of our products in accordance with cGMP and GTP regulations, as applicable. Manufacturers and other entities involved
in the manufacture and distribution of approved products are required to register their establishments with the FDA and certain
state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP,
GTP and other laws.
The FDA also may require post-marketing testing,
known as Phase 4 testing, and surveillance to monitor the effects of an approved product. Discovery of previously unknown problems
with a product or the failure to comply with applicable FDA requirements can have negative consequences, including adverse publicity,
judicial or administrative enforcement, warning letters from the FDA, mandated corrective advertising or communications with doctors,
and civil or criminal penalties, among others. Also, new government requirements, including those resulting from new legislation,
may be established, or the FDA’s policies may change, which could delay or prevent regulatory approval of our product candidates
under development.
European, China and Other Regulatory Review and Approval
Whether or not FDA approval has been obtained,
approval of a product by comparable regulatory authorities in Europe, China and other countries will be necessary prior to commencement
of marketing the product in such countries. The regulatory authorities in each country may impose their own requirements and may
refuse to grant an approval, or may require additional data before granting it, even though the relevant product has been approved
by the FDA or another authority. As with the FDA, the regulatory authorities in the European Union, China and other developed countries
have lengthy approval processes for biological and pharmaceutical products. The process for gaining approval in particular countries
varies, but generally follows a similar sequence to that described for FDA approval.
Other Health Care Laws
In the event any of our proposed products are
ever approved for marketing, we may also be subject to healthcare regulation and enforcement by the federal government and the
states and foreign governments where we may market our product candidates, if approved. These laws include, without limitation,
state and federal anti-kickback, fraud and abuse, false claims, physician sunshine and privacy and security laws and regulations.
Other Regulations
We are also subject to various U.S. federal,
state, local and international laws, regulations and recommendations relating to safe working conditions, laboratory and manufacturing
practices and the use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious
disease agents, used in connection with our business. We cannot accurately predict the extent of government regulation which might
result from future legislation or administrative action.
Employees
As of December 31, 2020, we had seven (7) full-time
employees. We anticipate that upon the consummation of the merger with Leading BioSciences, Inc., we will terminate our current
employees and consultants. We also use the services of several outside consultants in business and scientific matters. Historically,
we have not implemented measures or objectives to address the development, attraction and retention of personnel and have instead
hired employees and utilized the services of outside consultants as needed to run our operations.
Facilities
We currently operate one facility located in
the United States and one facility located in China. Our corporate offices and primary research facilities are located in Germantown,
Maryland, where we lease approximately 1,500 square feet. This lease provides for monthly payments of approximately $5,600 per
month and expires on December 31, 2021.
We also lease approximately 11,300 square feet
of research facility in the People’s Republic of China. This lease commenced in September 2019, provides for minimum lease
payments of approximately $4,400 per month, expires in September 2024 and provides us with a future first right of refusal for
extending the lease beyond its expiration.
Our Corporate Information
We were incorporated in Delaware in 2001 under
the name Neuralstem, Inc. On October 28, 2019, we changed our name from Neuralstem, Inc. to Seneca Biopharma, Inc. Our principal
executive offices are located at 20271 Goldenrod Lane, Germantown, Maryland 20876, and our telephone number is (301) 366-4841.
Our website is located at www.senecabio.com.
We have not incorporated by reference into
this report the information in, or that can be accessed through, our website and you should not consider it to be a part of this
report.
Where to Find More Information
We make our public filings with the SEC, including our Annual Report
on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all exhibits and amendments to these
reports. Also, our executive officers, directors and holders of more than 10% of our common stock, file reports with the SEC on
Forms 3, 4 and 5 regarding their ownership of our securities. These materials are available on the SEC’s web site, http://www.sec.gov.
You may also read or copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street,
N.E., Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Alternatively, you may obtain copies of these filings, including exhibits, by writing or telephoning us at:
SENECA BIOPHARMA, INC
20271 Goldenrod Lane
Germantown, Maryland 20876
Attn: Investor Relations
Tel: (301) 366-4841
ITEM 1A. RISK FACTORS
Investing
in our common stock involves a high degree of risk. We have described below a number of uncertainties and risks which, in addition
to uncertainties and risks presented elsewhere in this Quarterly Report, may adversely affect our business, operating results and
financial condition. The uncertainties and risks enumerated below as well as those presented elsewhere in this Quarterly
Report should be considered carefully when evaluating our company, business and the value of our securities.
Risks Related to the Merger
The Exchange Ratio is adjustable based on our net cash at
closing and LBS’s Pre-Merger Financing, so the consideration at the closing of the Merger may have a greater or lesser value
than at the time the Merger Agreement was signed.
The relative proportion of the combined company
that our stockholders will own when the Merger closes will be based on the valuations of Seneca and LBS as negotiated by the parties
and as specified in the Merger Agreement. Assuming a $22.5 million investment in LBS prior to the consummation of the Merger (“Pre-Merger
Financing”), the outstanding equity of Seneca, as calculated on an adjusted fully diluted treasury stock method basis and
after giving effect to such financing, is expected to be held as follows: equity holders of former LBS capital stock (prior to
the Pre-Merger Financing) will hold approximately 25.2%; the investor in the Pre-Merger Financing will hold approximately 16.2%;
pre-Merger Seneca equity holders will hold approximately 26.2%; and approximately 32.4% of the shares will be held in escrow to
be distributed to the investor in the Pre-Merger Financing, or to be distributed to LBS Pre-Merger Financing equity holders. These
estimates are based on the anticipated Exchange Ratio and are subject to adjustment as provided in the Merger Agreement. Prior
to the consummation of the Merger, the Exchange Ratio at the closing of the Merger may be subject to either an upward or downward
adjustment based on: (i) Seneca’s net cash, or (ii) the proceeds of the Pre-Merger Financing.
Failure to complete the Merger may result in us paying a termination
fee to LBS and could harm our common stock price and our future business and operations.
If the Merger is not completed, each of Seneca
and LBS is subject to the following risks:
In addition, if the Merger Agreement is terminated
and our board of directors determines to seek another business combination, there can be no assurance that we will be able to find
a partner willing to provide equivalent or more attractive consideration than the consideration to be provided in the Merger.
If the conditions to the closing of the Merger are not met,
the Merger may not occur.
Even if the change of control and related share
issuance are approved by our stockholders, specified conditions must be satisfied or waived to complete the Merger. We cannot assure
you that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the Merger may not occur
or will be delayed, we may lose some or all the intended benefits of the Merger.
The Merger may be completed even though material adverse changes
may result from the announcement of the Merger, industry-wide changes and/or other causes.
In general, either Seneca or LBS can refuse
to complete the Merger if there is a material adverse change affecting the other party between the date of the Merger Agreement,
and the closing of the Merger. However, certain types of changes do not permit either party to refuse to complete the Merger, even
if such change could be said to have a material adverse effect on Seneca or LBS, including:
If adverse changes occur and Seneca and LBS
still complete the Merger, the stock price of the combined company following the closing of the Merger may suffer. This in turn
may reduce the value of the Merger to the stockholders of Seneca, LBS or both.
Some executive officers and directors of Seneca and LBS have
interests in the Merger that are different from the respective stockholders of Seneca and LBS and that may influence them to support
or approve the Merger without regard to the interests of the respective stockholders of Seneca and LBS.
Some officers and directors of Seneca and LBS
are parties to arrangements that provide them with interests in the Merger that are different from the respective stockholders
of Seneca and LBS, including, among others, service as an officer or director of the combined company following the closing of
the Merger, severance benefits, the acceleration of equity award vesting, and continued indemnification.
Based on the terms of their respective agreements,
Seneca’s recently terminated executive officers may be entitled to receive a total value of $3,425,613 (collectively, not
individually) in connection with the consummation of the Merger, the associated termination of their employment from Seneca and
the cancelation of their stock options. Additionally, Seneca’s recently terminated senior vice president of research and
development will be entitled to receive a total value of $865,438. In addition, in connection with the Merger, the executive officers
of LBS entered into new employment agreements and are entitled to receive cash bonuses, certain executive officers are entitled
to receive equity grants, and members of the LBS Board are entitled to receive cash bonuses.
The market price of Seneca Common Stock following the Merger
may decline as a result of the Merger.
The market price of Seneca Common Stock may
decline as a result of the Merger for a number of reasons, including if:
LBS and Seneca securityholders will have a reduced ownership
and voting interest in, and will exercise less influence over the management of, the combined company following the closing of
the Merger as compared to their current ownership and voting interest in the respective companies.
After the completion of the Merger, the current
securityholders of LBS and Seneca will own a smaller percentage of the combined company than their ownership in their respective
companies prior to the Merger. Immediately after the Merger, it is currently estimated that the former LBS equity holders immediately
before the Merger (including the investor in the Pre-Merger Financing) are expected to hold approximately 73.8% of the capital
stock of Seneca outstanding immediately following the Merger and the equity holders of Seneca immediately before the Merger are
expected to hold approximately 26.2% of the Seneca capital stock outstanding immediately following the Merger, in each case, as
calculated on an adjusted fully diluted treasury stock method basis and after giving effect to the Pre-Merger Financing, but including
50% of the shares subject to the Equity Warrants. These estimates are based on the anticipated Exchange Ratio and are subject to
adjustment as provided in the Merger Agreement.
During the pendency of the Merger, Seneca and LBS may not
be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement,
which could adversely affect their respective businesses.
Covenants in the Merger Agreement impede the
ability of Seneca and LBS to make acquisitions, subject to specified exceptions relating to fiduciary duties, or complete other
mergers, sales of assets (other than the sale of the Seneca Legacy Technology) or other business combinations that are not in the
ordinary course of business pending completion of the Merger. As a result, if the Merger is not completed, the parties may be at
a disadvantage to their competitors during that period. In addition, while the Merger Agreement is in effect, each party is generally
prohibited from soliciting, initiating, encouraging or entering into specified extraordinary transactions, such as a merger, sale
of assets or other business combination, with any third party, subject to specified exceptions, even if any such transaction could
be favorable to such party’s stockholders.
Certain provisions of the Merger Agreement may discourage
third parties from submitting competing proposals, including proposals that may be superior to the arrangements contemplated by
the Merger Agreement.
The terms of the Merger Agreement prohibit
each of Seneca and LBS from soliciting competing proposals or cooperating with persons making unsolicited takeover proposals, except
in limited circumstances when such party’s board of directors determines in good faith, after consultation with its independent
financial advisor, if any, and outside counsel, that an unsolicited competing proposal constitutes, or would reasonably be expected
to result in, a superior competing proposal and that failure to take such action would result in a breach of the fiduciary duties
of the board of directors. In addition, if Seneca or LBS terminate the Merger Agreement under specified circumstances, including
terminating because of a decision of a board of directors to recommend a superior competing proposal, LBS may be required to pay
Seneca a termination fee of $1.5 million and/or $250,000 in expense reimbursements or Seneca may be required to pay LBS a
termination fee of $1.5 million, or up to $250,000 in expense reimbursements.
Because the lack of a public market for LBS’s capital
stock makes it difficult to evaluate the fairness of the Merger, the shareholders of LBS may receive consideration in the Merger
that is less than the fair market value of LBS’s capital stock and/or Seneca may pay more than the fair market value of LBS’s
capital stock.
The outstanding capital stock of LBS is privately
held and is not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market
value of LBS’s capital stock. Because the percentage of Seneca equity to be issued to LBS shareholders was determined based
on negotiations between the parties, it is possible that the value of the Seneca Common Stock to be received by LBS shareholders
will be less than the fair market value of LBS’s capital stock, or Seneca may pay more than the aggregate fair market value
for LBS’s capital stock. The combined organization will incur significant transaction costs as a result of the Merger, including
investment banking, legal and accounting fees. In addition, the combined organization will incur significant operating expenses
which cannot be accurately estimated at this time. Actual transaction costs may substantially exceed the Party’s estimates
and may have an adverse effect on the combined organization’s financial condition and operating results.
If Nasdaq does not approve our listing application for the
combined company and we continue with the Merger, we may be subject to delisting.
Seneca has filed an initial listing application
with Nasdaq pursuant to Nasdaq’s “reverse merger” rules. In the event our application is not accepted by the
Nasdaq and the parties proceed with the merger, the combined company will be subject to delisting proceedings and could be delisted.
If Seneca’s shares lose their status on the Nasdaq Capital Market, Seneca believes that its shares would likely be eligible
to be quoted on the inter-dealer electronic quotation and trading system operated by Pink OTC Markets Inc., commonly referred to
as the Pink Sheets and now known as the OTCQB market. These markets are generally considered not to be as efficient as, and not
as broad as, the Nasdaq Capital Market. If Seneca’s common stock is delisted, this would, among other things, substantially
impair its ability to raise additional funds and could result in a loss of institutional investor interest and fewer development
opportunities for Seneca. Additionally, investors would find it more difficult to buy and sell shares of Seneca Common Stock.
Risks Related to Seneca’s Capital Requirements, Finances
and Operations in the event the Merger is Not Completed
There is no assurance that the proposed Merger will be completed
in a timely manner or at all. If the Merger is not consummated, our business could suffer materially, and its stock price could
decline.
The consummation of the Merger is subject to
a number of closing conditions, including approval by Seneca’s and LBS’s respective stockholders and other customary
closing conditions. The parties are targeting a closing of the transaction in the first half of 2021, however, there can be no
assurance that the merger will be consummated within this desired timeframe, or at all.
If the Merger is not consummated, we may be
subject to a number of material risks, and our business and stock price could be adversely affected, as follows:
If the Merger is not completed, we may be unsuccessful in
completing an alternative transaction on terms that are as favorable as the terms of the proposed transaction, or at all, and we
may be unable to reestablish a viable operating business.
We have generated limited revenue to date from
royalties under a settlement agreement and have not generated revenue from any product sales. Our assets currently consist primarily
of cash, cash equivalents and short-term investments, our intellectual property portfolio, a settlement agreement pursuant to which
it has received royalties, its remaining assets and its listing on The Nasdaq Stock Market. While we have entered into the Merger
Agreement, the consummation of the Merger may be delayed or may not occur at all. If the Merger is not completed, our board of
directors may elect to pursue an alternative strategic transaction which is similar to the proposed Merger. Attempting to complete
an alternative transaction will be costly and time consuming. If the Merger is not completed and our board of directors determines
to pursue an alternative transaction, the terms of any such alternative transaction may not be as favorable to Seneca and its stockholders
as the terms of the Merger. We can make no assurances that such an alternative transaction would occur at all. Further, if the
Merger is not completed, given the level of investment and time that would be required to redesign its products or pursue the development
of products and services pursuant to its collaboration agreements, it is unlikely that we would be able to obtain the funding required
to recommence its product development activities on terms favorable to its stockholders, or at all.
If the Merger is not completed, our board of directors may
decide to pursue a dissolution and liquidation of our business. In such an event, the amount of cash available for distribution
to our stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved
for commitments and contingent liabilities.
There can be no assurance that the Merger will
be completed. If the Merger is not completed, our board of directors may decide to pursue a dissolution and liquidation of our
assets. In such an event, the amount of cash available for distribution to our stockholders will depend heavily on the timing of
such decision, as with the passage of time the amount of cash available for distribution will be reduced as we continue to fund
our operations. In addition, if our board of directors were to approve and recommend, and our stockholders were to approve, a dissolution
and liquidation of Seneca, we would be required under Delaware corporate law to pay our outstanding obligations, as well as to
make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to its stockholders.
As a result of this requirement, our remaining cash may need to be reserved pending the resolution of such obligations. In addition,
we may be subject to litigation or other claims related to a dissolution and liquidation of our business. If a dissolution and
liquidation were pursued, our board of directors, would need to evaluate these matters and make a determination about a reasonable
amount to reserve. Accordingly, holders of our Common Stock could lose all or a significant portion of their investment in the
event of a liquidation, dissolution or winding up.
If we were to continue to advance our research and development
activities and pursue development of any of our pipeline products, it would require substantial additional funding. Raising additional
capital would cause dilution to our existing stockholders and may restrict our operations or require us to relinquish rights to
our technologies or to a product candidate.