ITEM 1. BUSINESS
THE CORPORATION
OVERVIEW
We are a vaccine company developing unique vaccines that focus on the mucosal layer as a first line of defense against viruses entering the blood stream and the development of virosomes as a new vaccine delivery platform. We believe that virosomes are the most promising vaccine delivery systems since they do not use live attenuated or killed pathogens and increase the immunogenicity and stability of the vaccine.
We currently do not make, market or sell any products, but we generate some limited revenue through the licensing of certain of our technology. We believe, however, that our research and development activities will result in valuable intellectual property that can generate significant revenues for us in the future such as by licensing. Vaccines are one of the fastest growing markets in the pharmaceutical industry. Vaccines have evolved from being an exclusively low price sector to one where substantial prices may be paid for some vaccine products.
HISTORY AND DEVELOPMENT OF THE COMPANY
We were incorporated in July 1994 pursuant to the laws of the Commonwealth of Pennsylvania under the name “PDG Remediation, Inc.” In November 1996, we reincorporated under the laws of the State of Delaware and changed our name to “ICHOR Corporation.” In July 2001, we changed our name to “Mymetics Corporation.”
In March 2001, we acquired 99.9% of the outstanding shares of the French registered company Mymetics S.A. in consideration for shares of our common stock and shares of Class B Exchangeable Preferential Non-Voting Stock of 6543 Luxembourg S.A., which are convertible into shares of our common stock. In 2002, we acquired all but 0.01% of the remaining outstanding common stock of Mymetics S.A. pursuant to share exchanges with the remaining stockholders of Mymetics S.A. The terms of these share exchanges were substantially similar to the terms of the share exchange that occurred in March 2001. In 2004, all the remaining convertible shares of 6543 Luxembourg S.A. not already held by Mymetics Corporation were converted into shares of Mymetics Corporation. On February 7, 2006, the Tribunal de Commerce in Lyon, France placed the French subsidiary Mymetics S.A., under receivership (“Redressement Judiciaire”).
We own all of the outstanding voting stock of: (i) Mymetics S.A., a company originally organized as Mymetics Management Sàrl in 2007 under the laws of Switzerland, (ii) 6543 Luxembourg S.A., a joint stock company organized in 2001 under the laws of Luxembourg,(iii) Bestewil Holding B.V. and (vi) its subsidiary Mymetics B.V. (formerly Virosome Biologicals B.V.) both of which are organized under the laws of The Netherlands and were acquired in 2009. In this document, unless the context otherwise requires, “Mymetics” and the “Corporation” refer to Mymetics Corporation and its subsidiaries.
MYMETICS S.A.
Our Swiss subsidiary MYMETICS S.A. was founded in 2007 as MYMETICS MANAGEMENT Sàrl to facilitate the conduct of our business in Switzerland. This includes managing our staff retirement and social security contributions, leasing our Swiss premises and other such local tasks which a U.S. registered company cannot easily conduct without significant legal and organizational costs. The change in name and bylaws affected in 2009, from Société A Responsabilité Limitée (SARL) to Société Anonyme (SA) is indicative of the transition from a pure service company status of this unit to a development company in its own rights within Mymetics Corporation.
LUXEMBOURG 6543 S.A.
Our Luxembourg subsidiary, Luxembourg 6543 S.A., was founded in 2001 in connection with the acquisition of Mymetics S.A. of France (formerly Hippocampe S.A.) by Mymetics Corporation. Luxembourg 6543 S.A. is dormant.
BESTEWIL HOLDING B.V. and its subsidiary MYMETICS B.V.
On April 1, 2009 we entered into an agreement with Norwood Immunology Limited (“NIL”) for the acquisition of Bestewil Holding B.V. (“Bestewil”) from its parent, NIL, under a Share Purchase Agreement pursuant to which we agreed to purchase all issued and outstanding shares of capital stock (the “Bestewil Shares”) of Bestewil from its parent, NIL, and all issued and outstanding shares of capital stock of Virosome Biologicals B.V. which were held by Bestewil. Virosome Biologicals B.V., the name of which was subsequently changed to Mymetics B.V., will continue to be engaged in research and development activities in its own facilities in Leiden (Netherlands) under the management of its founder, the original inventor of the virosome technology.
PRODUCTS UNDER DEVELOPMENT
Our current pipeline has five vaccines in development. Four of the vaccines are proprietary: HIV-1, malaria, herpes simplex virus type I and II(HSV-1 and HSV-II) and respiratory syncytial virus (RSV), and one vaccine for intra-nasal influenza which is out-licensed to Solvay Pharmaceuticals (now Abbott Laboratories). The vaccines in our portfolio are primarily prophylactic. The current stage of development of these vaccines is shown in the table below:
HIV-1 and AIDS
HIV-1 (human immunodeficiency virus type 1) is a retrovirus that gradually destroys the immune system and ultimately leads to AIDS. HIV-1 is among the pathogens harboring the highest genetic variation, leading to millions of variants, each rapidly mutating. Indeed, HIV-1 exists under many different versions (aka “clades”), like members of a large family; they are different from, but related to each other.
Our current prophylactic HIV-1 vaccine will be constituted of virosomes linked to concerved antigens (epitopes) derived from the HIV-1 gp41 proteins from the clade B, the dominant clade found in Europe and North America. Other conserved viral proteins are under investigation. The vaccine is designed to trigger mucosal antibodies (IgG and IgA), for example in the vagina, and blood antibodies (IgG). The rationale for the design of the vaccine was based on the observation that certain people who are repeatedly exposed to HIV-1 do not contract infection; they were shown to have mucosal antibodies in the semen or vaginal secretions against the HIV-1 gp41 that apparently protect them. Mymetics’ vaccine is trying to reproduce “Mother Nature”.
Key scientific results with the HIV vaccine to date:
2005: “Proof of Concept” for inducing mucosal antibodies. Vaccination of rabbits with virosomes-P1 elicited mucosal antibodies in the vagina and intestinal mucosa. P1 is a synthetic peptide corresponding to the C-terminal end of the C-helix ectodomain of the gp41. In a laboratory test, these antibodies strongly inhibited HIV-1 passage through the mucosal tissues, also called trancytosis, confirming the potential of developing an HIV-1 vaccine that prevents infection at the mucosal layer.
2006/2007: Mucosal antibodies in monkeys. Macaque monkeys (Macaca Mulatta), from Chinese origin, showed after vaccination with virosomes-P1, specific mucosal antibodies, which were detected in more than 90% of the animals and harboring the potential to block HIV-1 trancytosis.
2008: Full protection of monkeys against multiple vaginal challenges with live heterologous clade B virus. Macaque monkeys from Chinese origin were vaccinated with both virosomes-modified P1 and virosomes-rgp41 and received multiple intra-vaginal challenges with the live SHIVSF162P3 virus. The vaccinated animals were not infected with the virus, while the non-vaccinated control group was fully infected.
Dec 2008: Approval to start Phase I clinical trials. After the ground breaking results of the monkey study in 2006 and 2008, we extended the monkey studies, while at the same time preparing a first Phase I clinical trial. After submission of the complete file, we received approval in sixteen days from the local Regulatory Agency in Belgium for Phase I clinical trial for testing the MYMV101 drug product (with virosomes with the modified and lipidated P1).
Sep.- Oct. 2009: Production of the GMP-grade vaccine (MYMV101: virosomes-modified P1) for a Phase I clinical trial in Belgium. European competent authorities require GMP-grade products for clinical phase I. Currently in the U.S., GLP-grade products are required at this stage, while GMP-grade products are required from phase II onwards. GMP-grade products are notoriously more difficult and costly to produce than GLP-grade ones. Succeeding in the GMP production is considered as a major achievement.
Dec. 2009 - Dec. 2010: Phase I clinical trial -“proof of principle” to demonstrate that virosomes-modified P1 can induce mucosal antibodies in the genital tract of women, and to confirm the immunogenicity data previously obtained on monkeys. The drug product MYMV101 was used as a vaccine in a double-blind, placebo-controlled Phase I study at CEVAC (Ghent, Belgium), involving 24 healthy women randomized in 2 Panels to monitor safety and mucosal immunogenicity: Panel 1: 10 microgram/dose and Panel 2: 50 microgram/dose. In each Panel, 8 subjects received the vaccine and 4 subjects received the placebo through intra-muscular (weeks 0 and 8) and intra-nasal (weeks 16 and 24) administrations. The Phase I clinical trial had as primary objective to test the safety and tolerance of the HIV-1 vaccine in healthy women. The secondary objective is to test to presence of anti-bodies in the serum, and as ancilliry studies, to detect mucosal anti-bodies in the vaginal and rectal secretions. The preliminary Phase I results indicate that there were no safety concerns raised and that antibodies are detected in vaginal and rectal secretions of most vaccinated subjects. Until the final report is released in May 2011, the data mentioned here are partial.
Sep.- Dec. 2010: NIH supplemental grant for Mymetics HIV-1 vaccine study at University of California in Davis (UC Davis). This study on monkeys is an extension of the work done in China and will address, following vaccination with virosomes modified P1 and virosomes-rgp41, the protection on the Indian macaque monkeys, which are more susceptible to SHIV infection, respective to the Chinese macaques tested in 2007-2008.
Next steps:
Until now Mymetics has financed the development of the HIV vaccine mainly through its own capital, however, we continue to seek funding either through grants or through a partnership agreement to perform the further development of the HIV vaccine. Besides the scheduled monkey study at UC Davis, there will be other projects to identify the key defense mechanisms behind the protection triggered by the Mymetics’ HIV-1 vaccine and investigate the role of each antigen constituting the vaccine. Information obtained during these studies will be used as supportive data for the product development and for answering some issues addressed in EMEA guidelines. New potential collaborations have been identified with partners like Dr. Ruth Ruprecht from the Dana Farber Cancer Institute at Harvard University and a potential project with a Pharmaceutical company,
2011: Further development of HIV-1 prophylactic vaccine. Following the Phase I clinical trial we intend to further develop and optimize the HIV-1 prophylactic vaccine by adding an additional antigen to elicit a broader antibody immune response against other conserved regions of HIV-1 in order to minimize viral escape. Since 2007 we are developing at least one additional antigen which is compatible with virosomes and the up-scale process. Mymetics is also opened to collaboration/partnership for combining its virosome technology for inducing mucosal protection with another technology designed for eliciting the cellular immune response or neutralizing antibodies.
A combined Phase I and Phase II clinical trial is expected to start by Q4 2012, with Phase III trials to follow in 2016, and an eventual market launch anticipated in 2021.
Respiratory Syncytial Virus (RSV)
Approach: The RSV vaccine consists of the reconstituted membrane of RSV containing the native viral proteins, including also a lipopeptide, or other, adjuvant. In mice, our RSV vaccine was shown to induce cellular and humoral immunity to the virus, with a balanced Th1/Th2 response, resulting in protection against a live virus challenge, and without inducing “enhanced disease” (a skewed Th1/Th2 response being the hallmark of enhanced disease). In cotton rats, a better model than mice for RSV, the vaccine protected against a live virus challenge, without inducing enhanced disease. In a direct comparison with the 1960’s vaccine, another group of cotton rats was immunized with formaldehyde-inactivated virus, and developed enhanced disease after vaccination and challenge.
Key Results to date:
2007: First pre-clinical research on our RSV vaccine.
2008 and 2009: MedImmune repeated key experiments in order to obtain their own validation of the results. Results were beyond their expectation but MedImmune decided not to continue the program.
Jun. - 2010: Publication of Mymetics RSV results in scientific journal “Vaccine”.
2010: Conducting additional pre-clinical research and improving the manufacturing procedure of the RSV virosomes.
We have improved the adjuvant ratio and continued further tests on cotton rats and mice at the Universtiy of Groningen, Netherlands, showing that a lower adjuvant ratio still triggers protection and the absence of enhanced disease.
Next steps:
Our goal is to prepare a stable product that will be used for a combined Phase I/II trial at the end of 2012. If the vaccine is safe, well tolerated and immunogenic during Phase I, we will directly move to Phase II in 2013. The Company will seek to enter into a license agreement with a major pharmaceutical company for a Phase III starting in 2015/2016 and a potential market launch in 2019.
We will continue process development and clinical development during 2011 for the vaccine providing, for example, in-line virus purification and inactivation procedures, and develop improved formulations of the vaccine, with augmented long term product stability. The additional costs of this program to us are significant but minor, as compared to a clinical trial cost. The product will then move into clinical development: up-scale production, assay developments, pre-clincial batch for toxicology and GMP batch for Phase I, which will represent substantial cost.
We will also develop versions of the RSV vaccine which are based on enhancing the immune response to selected epitopes, while reducing the potential for cross-reactivity with human proteins, along the lines of our HIV-1 program to serve as future improved vaccines.
Intranasal Influenza
Approach: The intranasal influenza vaccine consists of the reconstituted membrane of influenza virus, also containing a lipopeptide adjuvant. In mice, intranasal application of virosomes without adjuvant does not induce immunity to influenza; however, incorporation of the lipopeptide in the virosomes produces a candidate vaccine that does induce cellular immunity, as well as serum and mucosal antibodies to the virus. The vaccine was licensed to Solvay Pharmaceuticals, a major European pharmaceutical company, which was acquired by Abbott Laboratories.
Key results to date:
2005: The vaccine completed pre-clinical trials. A first milestone payment was received from Solvay in the same year.
2006: Successful completion of Phase I trial. The vaccine was shown to be safe and well tolerated and induced an immune response which was at least as good as that obtained with an off-the-shelf injected vaccine. Subsequent milestone payment was received.
Next steps:
Solvay was planning a Phase II clinical trial under an out-licensing agreement with Mymetics. The recent acquisition of Solvay by Abbott Laboratories has slowed down the vaccine trials.During the fourth quarter of 2010, Mymetics has officialy asked Abbott about an update and the development plan of the licensed vaccine.
From a cost perspective, there are little to no costs involved for us to further develop this vaccine candidate, while Solvay will make a milestone payment after Phase III clinical trials and royalty payments following the commercial launch of the vaccine.
Malaria
Approach: The malaria vaccine design is based on optimized mimicry of the native parasite protein structure and eliciting antibodies against two stages of the parasite life cycle, unlike 90% of vaccine candidates, which target only one or the other parasite. It is today among the rare malaria vaccines able to also boost existing immune responses (it has both prophylactic and therapeutic effects) in subjects that were previously exposed to malaria.
Key results to date:
2007: Mymetics acquired a Malaria vaccine project from Pevion Biotech (Ittigen, Switzerland). A human clinical trial Phase Ia for the vaccine with two antigens (AMA-1 and CSP-1) anchored to virosomes was successfully completed on adults in Switzerland. Results showed good safety and tolerability, and the induction of blood antibodies.
2008 - 2009: Phase Ib in Tanzania on children and young adults. The clinical trial Phase Ib in Tanzania evaluated the safety of the same antigens with virosomes on children and young adults under “native” (endemic) conditions. The final report showed that the vaccine induced specific, long-lasting antibody responses, which lasted for more than 12 months for the CSP-1 antigen.
Next steps:
Further development of the malaria vaccine will only be done based on grants or through an out-licensing agreement. If funds become thus available, the following projects are proposed:
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Launching antigen interference study with various combinations
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Launching toxicology studies with the best formulation susceptible to offer an improved protection in human exposed to Plasmodium falciparum.
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Launching a new Phase I trial with four or five antigens (peptides and proteins) at the Swiss Tropical Institute.
Herpes Simplex Virus (HSV)
Approach: The current HSV vaccine candidate consists of the reconstituted membrane of HSV-1 or HSV-2, also containing a lipopeptide, or other adjuvant. In mice, the virosome vaccine induces better immunity than repeated near-lethal live virus infections, resulting in the induction of neutralizing antibodies, with predominantly a Th1 profile, cellular immunity, and vaginal IgA. Different routes of application are possible (intranasal, intramuscular).
Next steps:
We have identified the key elements of the vaccine that induce the protective immune response. A version of the vaccine containing those elements is being produced and will be tested in preclinical experiments. A sale or out-licensing of the vaccine is likely anticipated during or after a Phase II clinical trial. We expect to start Phase I clinical trials in 2013, to be followed by Phase II and Phase III clinical trials, resulting in expected market launch around 2021.
STRATEGY
Our strategy is to extend the application of our key scientific approaches to new vaccines by:
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Exploiting the results and knowledge of mucosal protection based vaccines
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Leveraging the effective and safe virosome vaccine technology and know-how
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Advancing existing vaccine candidates only through Phase II clinical trials
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Maintaining a comprehensive IP portfolio
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Adopting a flexible cost model based on a combination of in-house expertise and best-in-class outsourcing
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Entering into strategic partnerships with leading pharmaceutical companies
Our vision is to become the market leader in the development of new generation mucosal and virosomes based vaccines. We develop preventative vaccines that generate an efficient mucosal protection through mucosal antibodies as first line of defense, while blood antibodies would act synergistically, as a second line of defense.
To date, our focus has been on achieving very favorable results from the development of a core vaccine pipeline of HIV-1 and malaria, while securing the IP and know-how for the virosome technology and the mucosal based approach.
By using a lean and flexible operational platform and contracting with best-in-class partners, we have avoided the upfront cost of in-house resources and gained access to the best existing know-how. This has maximized the return on development and research.
MATERIAL THIRD PARTY AGEREEMENTS
For the development of its vaccines the Company has entered into several agreements in the form of license agreements, exploitation agreements or co-ownership agreements with third parties. These third parties provide specific experience and capabilities or provide access to specific know how, which are not the core competence of Mymetics. The Company believes that the following third party agreements are material. The following summaries of their material terms are qualified in their entirety by reference to the agreements filed as exhibits to prior SEC filings by the Company as set forth under Item 15 (Exhibits and Financial Statement Schedules).
INSERM
Co-Ownership Agreement dated January 8, 2008 for two patents PCT IB2005/001180 and PCT IB2005/001182, related to Mymetcs’ HIV vaccine. Each party has a 50% ownership in the patents. Mymetics pays all related maintenance charges for the two patents. Unless earlier terminated by either party, the Co-Ownership Agreement terminates upon the earlier of the expiration date of the longest-lived patent or the date where one of the co-owners becomes 100% owner of the patents.
Exploitation Agreement dated January 8, 2008 that allows Mymetics to have global rights to develop, promote, produce, co-produce, sell and distribute HIV products based on any of the following three patents: PCT IB2005/001180, PCT IB2005/001182 and PCT IB 2006/000466.
Milestone payments:
End of phase I: E70,000.
End of phase II: E120,000.
End of Phase III: E300,000.
First commercialization: E500,000.
Royalty payments in case of direct commercialization:
For sales below E250,000,000: a maximum of 1.5%.
For sales between E250,000,000 and E500,000,000: a maximum of 2.5%
For sales more than E500,000,000: a maximum of 4%.
Royalty payments in case of indirect commercialization, e.g. through Mymetics licensing of third parties, is 40%.
The Exploitation Agreement terminates upon the later of: the expiration date of the longest-lived patent, or, 10 years after the first date of commercialization of the product, unless terminated by INSERM following market approval of the HIV products in the event (i)Mymetics does not develop the product for a period more than six months, (ii) the exploitation of the product is interrupted for a period of more than twelve months, or (iii) there is an absence of sales for twelve months starting from the date of market approval.
PEVION
License Agreement dated March 1, 2007 for the exclusive use by Mymetics of the Pevion virosomes for its HIV vaccine (HIV Agreement).
Milestone payments:
10% of all monetary consideration (excluding royalties) received from third Parties.
E400,000 if Mymetics starts phase I clinical trial.
Royalties: 10% of all monetary consideration received by Mymetics.
The HIV Agreement is subject to termination by either party in writing following a notice period of ninety days and in absence of such termination, will terminate in each country as of the expiration date of the longest-lived product patent rights on a country-by-country basis.
Acquisition and License agreement dated May 19, 2008 for the Pevion virosomes and peptides for the malaria vaccine (Malaria Agreement).
Milestone payments: E2,000,000 start of phase II clinical trial in Africa.
Royalties: maximum of 15% on all income generated from markets in which the malaria vaccine is sold on a commercial basis.
The Malaria Agreement is subject to termination by either party in writing following a notice period of ninety days and, in the absence of such termination, will terminate in each country as of the expiration date of the longest-lived product patent rights on a country-by-country basis.
PX’THERAPEUTICS
Gp41 Manufacturing Technology Agreement dated 26 January 2009 between PX Therapeutics and Mymetics under which PX Therapeutics agrees to transfer the know-how to manufacture recombinant Gp41 for Mymetics’ HIV vaccine. The term of the agreement is for 5 years after the date of signature and renewable at the request of Mymetics. Mymetics is allowed to terminate the contract one month after the event of knowledge transfer has been confirmed by both parties.
Annual retainer of E200,000 until the earlier of five years or when the HIV vaccine is market approved.
Milestone payments:
E600,000 after knowledge transfer
E900,000 when Mymetics has deposited and has received acceptance of the IMPD (or IND) with regulatory authorities, such as the FDA in the United States, to start a clinical trial.
Royalty payments: 1% on all income generated from the commercialization of the product.
NORWOOD IMMUNOLOGY
Share Purchase Agreement dated March 5, 2009 pursuant to which Mymetics acquired Mymetics B.V. from Norwood Immunology Ltd. Payments to Norwood are for the intranasal influenza vaccine, Mymetics’ RSV vaccine and Mymetics’ HSV vaccine.
Intranasal Influenza vaccine: a milestone payment of E3,000,000 at the start of a phase III clinical trial of Mymetics’ intranasal influenza vaccine if the phase III clinical trial commences before April 1, 2013.
RSV vaccine: a milestone payment of E2,800,000 if Mymetics enters into a license agreement for a RSV vaccine with a third party before April 1, 2011 and royalty payments of 50% on all income generated by Mymetics after the commercialization of the RSV vaccine.
HSV vaccine: payments of 25% of all income generated by Mymetics. This includes all upfront, milestone and royalty income received for Mymetics’ HSV vaccine.
RESEARCH AND DEVELOPMENT EXPENSES
Research and Development Expenses of E3,083,000 in 2010 include E640,000 scientific staff expenses and fees of our scientific consultants, E50,200 paid to scientific partners and suppliers of scientific services, E830,000 for support of virosomes licenses and the malaria license and preventive vaccine project and E1,562,800 related to our AIDS vaccine clinical trial phase I.
INTELLECTUAL PROPERTY
COMPETITION
We have not yet developed an actual product or generated significant revenues. Our future competitive position depends on our ability to successfully develop our intellectual property, and to license or sell such intellectual property to third parties on financially favorable terms. Although we believe that the results of our research and development activities have been favorable, there are numerous entities and individuals conducting research and development activities in the area of human biology and medicine, all of which could be considered competitors.
The worldwide vaccine market is dominated by five large multinational companies: Sanofi Pasteur S.A. (formerly Aventis Pasteur S.A.), Merck & Co., GlaxoSmithKline Plc, Pfizer-Wyeth and Novartis-Chiron Inc. Other companies such as Progenics Pharmaceuticals, Inc., are developing therapeutic HIV vaccines, i.e. vaccines that target HIV-infected persons in an attempt to control the development of the disease.
While many of these individuals and entities have greater financial and scientific capabilities, and greater experience in conducting pre-clinical and clinical trials, the Company believes that its innovative approach to vaccine development is very competitive.
GOVERNMENTAL REGULATION
Our strategy was crafted in part to minimize the risks usually associated with Phase III clinical trials, regulatory approvals and marketing, which are expected to be borne by one or more future partners.
We contract with third parties to perform research projects related to our business. These third parties are located in various countries and are subject to the applicable laws and regulations of their respective countries. Accordingly, regulation by government authorities in the United States, the European Union and other foreign countries is a significant factor in the development, manufacture and marketing of our proposed products by our future partners and therefore has a direct impact on our ongoing research and product development activities.
Any products that will be developed by our future partners based on our technology will require regulatory approval by government agencies prior to commercialization. In particular, like human therapeutic products, vaccines are subject to rigorous pre-clinical studies and clinical trials and other approval procedures of the FDA and similar regulatory authorities in foreign countries. In addition, various federal and state statutes and regulations will also govern, or influence testing, manufacturing, safety, labeling, storage and record keeping related to such products and their marketing. The process of obtaining these approvals and the subsequent substantial compliance with appropriate federal and state statutes and regulations require the expenditure of substantial time and financial resources. Obtaining royalties in the future will depend on our future partners’ ability to obtain and maintain the necessary regulatory approvals.
Pre-clinical studies are generally conducted on laboratory animals to evaluate the imunogenicity (induction of antibodies of the cellular response), first proof of potential efficacy and safety of a product. In light of our limited financial resources, clinical trials of our vaccines are conducted first in Europe under the European Union (“EU”) guidelines, a quicker and less expensive approach than seeking FDA approval, which we intend to do after EU approval is granted and we expect our financial resources to be greater. There is however no certainty that such EU approval will be granted. The Phase I, II and III EU clinical trials are similar to those required for FDA approval. The FDA requirements are addressed in this discussion.
The process which is described below is therefore to be considered as generic background information which is relevant to the industry as a whole. As such process applies to drugs as well as vaccines, the term “drugs” as used hereafter refers also to vaccines.
In the United States, any company developing new drugs must submit the results of pre-clinical studies to the FDA as a part of an investigational new drug application, or IND, which application must become effective before it can begin clinical trials in the United States. An IND becomes effective 30 days after receipt by the FDA unless the FDA objects to it and the IND must be annually updated. Typically, clinical evaluation involves a time-consuming and costly three-phase process.
Phase I refers typically to closely monitored clinical trials and includes the initial introduction of an investigational new drug into human patients or normal healthy volunteer subjects. Phase I clinical trials are designed to determine the safety (metabolic and pharmacologic actions of a drug in humans), the side effects associated with increasing drug doses and, if possible, to gain early evidence on effectiveness (inductions of antibodies in our case). Phase I trials also include the study of structure-activity relationships and mechanism of action in humans, as well as studies in which investigational drugs are used as research tools to explore biological phenomena or disease processes. During Phase I clinical trials, sufficient information about a drug’s pharmacokinetics and pharmacological effects should be obtained to permit the design of well-controlled, scientifically valid, Phase II studies. The total number of subjects and patients included in Phase I clinical trials varies but is generally in the range of 20 to 80 people. Bioanalyses on the clinical trial samples in different in vitro assays must be conducted under good laboratory practice (GLP). At this stage, all techniques must be qualified according to standard operating procedures (SOPs) but it is not required to have the assays validated. Validating an assay consists of analyzing or verfiying the 8 or 9 assay parameters as described in the US pharmacopeia or the ICH guidelines: 1) accuracy; 2) precision; 3) limit of detection; 4) limit of qualification; 5) specificity; 6) linearity and range; 7) robustness; and 8) system suitability.
Phase II refers to controlled clinical trials conducted to evaluate the safety and effectiveness of a drug for a particular indication or indications in patients with a disease or condition under study and to determine the common short-term side effects and risks associated with the drug. These clinical trials are typically well-controlled, closely monitored and conducted in a relatively small number of patients, usually involving no more than several hundred subjects. For prophylactic vaccines, a fraction of the enrolled subjects for the Phase II trials should ideally correspond to people at higher risk to contract the infection due to their social and/or sexual behaviors. At this stage, all identified and relevant techniques must be qualified and validation should be initiated prior starting the phase II and full validation must be achieved at the end of the phase II, prior launching Phase III. Completion of Phase II trials generally corresponds to the “stage of development” where big Pharma have a high interest for the drug product.
Phase III refers to expanded controlled clinical trials, which many times are designated as “pivotal trials” designed to reach end points that the FDA has agreed in advance, if met, would allow approval for marketing. These clinical trials are performed after preliminary evidence suggesting effectiveness of a drug has been obtained. Meanwhile, prophylactic vaccines are different because the true evidence of effectiveness is obtained during the Phase III trials involving an important fraction of the enrolled subjects with high risk of contracting the pathogen, providing more statistical power. Depending on the vaccine tested, vaccinated subjects are monitored over a period of few months to several years and the infection rate (protection) of this group is compared to the placebo treated group. Phase III trials are intended to gather additional information about the effectiveness and safety that is needed to evaluate the overall benefit-risk relationship of the drug and to provide an adequate basis for physician labeling. Phase III clinical trials can include from several hundred to tens of thousands of subjects depending on the specific indication being tested.
The FDA closely monitors the progress of each of the three phases of clinical trials that are conducted in the United States and may, at its discretion, re-evaluate, alter, suspend or terminate the testing based upon the data accumulated to that point and the FDA’s assessment of the risk/benefit ratio to the patient. Once Phase III trials are completed, drug developers submit the results of pre-clinical studies and clinical trials to the FDA, in the form of a new drug application, or NDA, for approval to commence commercial sales. In response, the FDA may grant marketing approval, request additional information or deny the application if the FDA determines that the application does not meet the predetermined study goals and other regulatory approval criteria.
Furthermore, the FDA may prevent a drug developer from marketing a product under a label for its desired indications, which may impair commercialization of the product.
If the FDA approves the new drug application, the drug becomes available for physicians to prescribe in the United States. After approval, the drug developer must submit periodic reports to the FDA, including descriptions of any adverse reactions reported. The FDA may request additional studies, known as Phase IV clinical trials to evaluate long-term effects.
We will be required to comply with similar regulatory procedures in countries other than the United States.
In addition to studies requested by the FDA after approval, a drug developer may conduct other trials and studies to explore use of the approved compound for treatment of new indications. The purpose of these trials and studies and related publications is to broaden the application and use of the drug and its acceptance in the medical community.
At this time, neither we nor any of our partners have submitted any of its pre-clinical results to the FDA. It is only in 2009 that the local Belgium Authority Approval to begin Phase I human clinical trials for our HIV vaccine was received.
Our future partner(s) will have to complete an approval process, similar to the one required in the United States, in virtually every foreign target market in order to commercialize product candidates based on our technology in those countries. The approval procedure and the time required for approval vary from country to country and may involve additional testing. Approvals (both foreign and in the United States) may not be granted on a timely basis, or at all. In addition, regulatory approval of prices is required in most countries other than the United States. We face the risk that the resulting prices would be insufficient to generate an acceptable return to our partner(s).
EMPLOYEES
Jacques-François Martin is our President and Chief Executive Officer. Additionally, there are three full-time employees of Mymetics Corporation: Ronald Kempers, Chief Financial Officer and Chief Operating Officer, Dr. Sylvain Fleury, Ph.D., Chief Scientific Officer, and Christian Rochet, who resigned as our President and CEO effective July 1, 2009, but is currently employed by us as Senior Advisor to the President. Ernest Luebke resigned as CFO effective July 30, 2010.
Our Swiss subsidiary, Mymetics S.A., has on its payroll three employees: Director of Finance, Director of R&D and an Office Manager.
Mymetics B.V. has one full time executive officer (CSO) plus two full-time assistants.
As of December 31, 2010, our Luxembourg affiliate had no employees.
WWW.MYMETICS.COM
News and information about Mymetics Corporation are available on our web site, www.mymetics.com.
ITEM 1A.
ITEM 1A. RISK FACTORS
You should carefully consider the risks described below together with all of the other information included in this report on Form 10-K. An investment in our common stock is risky. If any of the following risks materialize, our business, financial condition or results of operations could be adversely affected. In such an event, the trading price of our common stock could decline, and you may lose part or all of your investment. When used in these risk factors, the terms “we” or “our” refer to Mymetics Corporation and its subsidiaries.
We are a company engaged exclusively in research and development activities, focusing primarily on vaccine development. Our strategy was crafted in part to minimize the risks usually associated with clinical trials, regulatory approvals and marketing, which we would expect to be borne by our future partner(s).
WE HISTORICALLY HAVE LOST MONEY, EXPECT LOSSES TO CONTINUE FOR THE FORESEEABLE FUTURE AND MAY NEVER ACHIEVE PROFITABILITY.
We historically have lost money. In the years ended December 31, 2010, and December 31, 2009, we sustained net losses of approximately E11,428,000 and E10,186,000, respectively. At December 31, 2010, we had an accumulated deficit of approximately E53,518,000. Total cash disbursed since 1990 for operating activities, including research and development, is E43,528,000.
The amount of these losses may vary significantly from year-to-year and quarter-to-quarter and will depend on, among other factors:
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the timing and cost of product development;
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the progress and cost of preclinical and clinical development programs;
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the timing and cost of obtaining necessary regulatory approvals;
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the timing and cost of sales and marketing activities for future products; and
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the costs of pending and any future litigation of which we may be subject.
We currently are engaged in research and development activities and do not have any commercially marketable products. The product research and development process requires significant capital expenditures, and we do not have any other sources of revenue to off-set such expenditures.
Accordingly, we expect to generate additional operating losses at least until such time as we are able to generate significant revenues.
To become profitable, we will need to generate revenues to offset our operating costs, including our general and administrative expenses. We may not achieve or, if achieved, sustain our revenue or profit objectives, and our losses may increase in the future, and, ultimately, we may have to cease operations.
In order to generate new and significant revenues, we must successfully develop and commercialize our proposed products or enter into collaborative agreements with others who can successfully develop and commercialize them. Our business plan is predicated on commercializing our products in collaboration with others. Even if our proposed products are commercially introduced, they may never achieve market acceptance and we may never generate significant revenues or achieve profitability.
WE NEED TO RAISE SUBSTANTIAL ADDITIONAL CAPITAL TO FUND OUR OPERATIONS AND WE MAY BE UNABLE TO RAISE SUCH FUNDS ON A TIMELY BASIS AND ON ACCEPTABLE TERMS.
We need to address our working capital needs to allow us to continue devoting our efforts to development of the business instead of raising needed capital. If we must devote a substantial amount of time to raising capital, it will delay our ability to achieve our business plan within the time frames that we now expect, which could increase the amount of capital we need and could threaten the success of our business if competitors are able to produce an effective vaccine to the market ahead of us.
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OR PREDICT OUR FUTURE BUSINESS PROSPECTS.
We have no operating history, and our operating results are impossible to predict because we have not begun selling any products. We are in the development stage, and our proposed operations are subject to all of the risks inherent in establishing a new business enterprise, including:
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the absence of an operating history;
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the lack of commercialized products;
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insufficient capital;
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expected substantial and continual losses for the foreseeable future;
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limited experience in dealing with regulatory issues;
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limited marketing experience;
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an expected reliance on third parties for the commercialization of our proposed products;
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a competitive environment characterized by numerous, well-established and well-capitalized competitors;
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uncertain market acceptance of our proposed products; and
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reliance on key personnel.
The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with the formation of a new business, the development of new technology, and the competitive and regulatory environment in which we will operate. See “Description of the Business”.
Because we are subject to these risks, you may have a difficult time evaluating our business and your investment in our company.
OUR PROPOSED VACCINES ARE IN THE DEVELOPMENT STAGES AND WILL LIKELY NOT BE COMMERCIALLY INTRODUCED BEFORE 2018, IF AT ALL.
Our proposed key products still are in the development stage and will require further development, preclinical and clinical testing and investment prior to commercialization in the United States and abroad. See “Description of the Business”. While we are pleased about the progress made to date on these products, we cannot be sure that these products in development will:
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be successfully developed;
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prove to be safe and efficacious in clinical trials;
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meet applicable regulatory standards or obtain required regulatory approvals;
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demonstrate substantial protective or therapeutic benefits in the prevention or treatment of any disease;
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be capable of being produced in commercial quantities at reasonable costs;
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obtain coverage and favorable reimbursement rates from insurers and other third-party payers; or
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be successfully marketed or achieve market acceptance by physicians and patients.
We do not intend to undertake any product development beyond Phase II human clinical trials (i.e., Phase III clinical studies) or be responsible for obtaining regulatory approval or marketing the products. Nevertheless, even if we are successful in selling or licensing our products to another pharmaceutical company, it is likely that any revenues we may receive in connection with those arrangements will depend upon other companies’ sales, which will, in turn, depend upon the factors stated above.
THE LOSS OF OUR PRINCIPAL EXECUTIVE OFFICERS WOULD DIMINISH OUR ABILITY TO ACHIEVE OUR BUSINESS PLAN.
Messrs. Martin and Kempers play an important role in financing, achievement of our strategic goals and administration. In addition, Dr. Fleury has been following, and associated with, our AIDS vaccine project since 1998 and we believe that replacing him as CSO on time for successfully prosecuting our pending patent applications would be extremely difficult. Accordingly, the loss of any of these individuals might prevent the Company from achieving its business plan.
THE LOSS OF KEY SCIENTIFIC OR INDUSTRIAL PARTNERS WOULD DIMINISH OUR ABILITY TO ACHIEVE OUR BUSINESS PLAN.
Certain components or know-how obtained from partners such as Protein eXpert S.A. and PX’Therapeutics, supplier of GMP grade engineered mutated gp41 protein, or Pevion Biotech Ltd., supplier and integrator of virosomes, are key components of our vaccines currently under development. Accordingly, the loss of any of these components or know-how might prevent us from achieving our business plan, despite the fact that contractual safeguards are in place.
OUR BUSINESS MODEL IS PREDICATED ON OUR BELIEF THAT WE WILL BE ABLE TO ENGAGE LARGE PHARMACEUTICAL COMPANIES TO PARTNER WITH US IN THE DEVELOPMENT OF OUR PRODUCTS AND FAILURE TO DO SO WILL LIKELY MAKE US UNATTRACTIVE AS AN ACQUISITION TARGET.
We anticipate that we will need a large pharmaceutical company to assist us with human trials and financing. See “Funding Requirements”. Our failure to succeed in this endeavor will have a dramatic adverse result regarding our financial needs and ability to successfully sell any products that we develop.
IF WE FAIL TO OBTAIN REGULATORY APPROVAL TO COMMERCIALLY MANUFACTURE OR SELL ANY OF OUR FUTURE PRODUCTS, OR IF APPROVAL IS DELAYED OR WITHDRAWN, WE WILL BE UNABLE TO GENERATE REVENUE FROM THE SALE OF OUR PRODUCTS.
We must obtain regulatory approval to sell any of our products in the United States and abroad. In the United States, we must obtain the approval of the FDA for each product or drug that we intend to commercialize. The FDA approval process is typically lengthy and expensive, and approval is never certain. Products to be commercialized abroad are subject to similar foreign government regulation.
Generally, only a very small percentage of newly discovered pharmaceutical products that enter preclinical development are approved for sale. Because of the risks and uncertainties in biopharmaceutical development, our proposed products could take a significantly longer time to gain regulatory approval than we expect or may never gain approval. If regulatory approval is delayed or never obtained, our management’s credibility, the value of our company and our operating results and liquidity would be adversely affected. Furthermore, even if a product gains regulatory approval, the product and the manufacturer of the product may be subject to continuing regulatory review. Even after obtaining regulatory approval, we may be restricted or prohibited from marketing or manufacturing a product if previously unknown problems with the product or its manufacture are subsequently discovered. The FDA may also require us to commit to perform lengthy post-approval studies, for which we would have to expend significant additional resources, which could have an adverse effect on our operating results and financial condition.
Although we have conducted pre-clinical studies, costly and lengthy human clinical trials are required to obtain regulatory approval to market our proposed vaccine, and the results of the trials are highly uncertain. In addition, the number of pre-clinical studies and human clinical trials that the FDA requires varies depending on the product, the disease or condition the product is being developed to address and regulations applicable to the particular product. Accordingly, we may need to perform additional pre-clinical studies using various doses and formulations before we can begin human clinical trials, which could result in delays in our ability to market any of our products. Furthermore, even if we obtain favorable results in pre-clinical studies on animals, the results in humans may be different.
After we have conducted pre-clinical studies in animals, we must demonstrate that our products are safe and effective for use on the target human patients in order to receive regulatory approval for commercial sale. The data obtained from pre-clinical and human clinical testing are subject to varying interpretations that could delay, limit or prevent regulatory approval. We face the risk that the results of our clinical trials in later phases of clinical trials may be inconsistent with those obtained in earlier phases. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials, even after experiencing promising results in early animal or human testing. Adverse or inconclusive human clinical results would prevent us from filing for regulatory approval of our products. Additional factors that can cause delay or termination of our human clinical trials include:
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slow patient enrollment;
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timely completion of clinical site protocol approval and obtaining informed consent from subjects;
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longer trial time than foreseen to demonstrate efficacy or safety;
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adverse medical events or side effects in immunized patients; and
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lack of effectiveness of the vaccines being tested.
Delays in our clinical trials could allow our competitors additional time to develop or market competing products and thus can be extremely costly in terms of lost sales opportunities and increased clinical trial costs.
EVEN IF OUR PROPOSED PRODUCTS RECEIVE EU AND FDA APPROVAL, THEY MAY NOT ACHIEVE EXPECTED LEVELS OF MARKET ACCEPTANCE, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL POSITION AND OPERATING RESULTS AND COULD CAUSE THE MARKET VALUE OF OUR COMMON STOCK TO DECLINE.
Even if we are able to obtain required regulatory approvals for our proposed products, the success of those products is dependent upon market acceptance by physicians and patients. Levels of market acceptance for our new products could be impacted by several factors, including:
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the availability of alternative products from competitors;
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the price of our products relative to that of our competitors;
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the timing of our market entry; and
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the ability to market our products effectively.
Some of these factors are not within our control. Our proposed products may not achieve expected levels of market acceptance. Additionally, continuing studies of the proper utilization, safety and efficacy of pharmaceutical products are being conducted by the industry, government agencies and others. Such studies, which increasingly employ sophisticated methods and techniques, can call into question the utilization, safety and efficacy of previously marketed products. In some cases, these studies have resulted, and may in the future result, in the discontinuance of product marketing. These situations, should they occur, could have a material adverse effect on our business, financial position and results of operations, and the market value of our common stock could decline.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, WE MAY NOT BE ABLE TO COMPETE AS EFFECTIVELY.
The pharmaceutical industry places considerable importance on obtaining patent and trade secret protection for new technologies, products and processes. Our success will depend, in part, upon our ability to obtain, enjoy and enforce protection for any products we develop or acquire under United States and foreign patent laws and other intellectual property laws, preserve the confidentiality of our trade secrets and operate without infringing the proprietary rights of third parties.
Where appropriate, we seek patent protection for certain aspects of our technology. However, our owned and licensed patents and patent applications may not ensure the protection of our intellectual property for a number of other reasons:
- Competitors may interfere with our patents and patent process in a variety of ways. Competitors may claim that they invented the claimed invention before us or may claim that we are infringing on their patents and therefore we cannot use our technology as claimed under our patent. Competitors may also have our patents reexamined by showing the patent examiner that the invention was not original or novel or was obvious.
- We are in the development stage and are in the process of developing proposed products. Even if we receive a patent, it may not provide much practical protection. If we receive a patent with a narrow scope, then it will be easier for competitors to design products that do not infringe on our patent. Even if the development of our proposed products is successful and approval for sale is obtained, there can be no assurance that applicable patent coverage, if any, will not have expired or will not expire shortly after this approval. Any expiration of the applicable patent could have a material adverse effect on the sales and profitability of our proposed product.
- Enforcing patents is expensive and may require significant time by our management. In litigation, a competitor could claim that our issued patents are not valid for a number of reasons. If the court agrees, we would lose protection on products covered by those patents.
- We also may support and collaborate in research conducted by government organizations or universities. We cannot guarantee that we will be able to acquire any exclusive rights to technology or products derived from these collaborations. If we do not obtain required licenses or rights, we could encounter delays in product development while we attempt to design around other patents or we may be prohibited from developing, manufacturing or selling products requiring these licenses. There is also a risk that disputes may arise as to the rights to technology or products developed in collaboration with other parties.
It also is unclear whether efforts to secure our trade secrets will provide useful protection. While we use reasonable efforts to protect our trade secrets, our employees or consultants may unintentionally or willfully disclose our proprietary information to competitors resulting in a loss of protection. Enforcing a claim that someone else illegally obtained and is using our trade secrets, like patent litigation, is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Finally, our competitors may independently develop equivalent knowledge, methods and know-how.
CLAIMS BY OTHERS THAT OUR PRODUCTS INFRINGE THEIR PATENTS OR OTHER INTELLECTUAL PROPERTY RIGHTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.
The pharmaceutical industry has been characterized by frequent litigation regarding patent and other intellectual property rights. Patent applications are maintained in secrecy in the United States and also are maintained in secrecy outside the United States until the application is published. Accordingly, we can conduct only limited searches to determine whether our technology infringes the patents or patent applications of others. Any claims of patent infringement asserted by third parties would be time-consuming and could likely:
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result in costly litigation;
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divert the time and attention of our technical personnel and management;
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cause product development delays;
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require us to develop non-infringing technology; or
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require us to enter into royalty or licensing agreements.
Although patent and intellectual property disputes in the pharmaceutical industry often have been settled through licensing or similar arrangements, costs associated with these arrangements may be substantial and often require the payment of ongoing royalties, which could hurt our gross margins. In addition, we cannot be sure that the necessary licenses would be available to us on satisfactory terms, or that we could redesign our products or processes to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses, could prevent us from developing, manufacturing and selling some of our products, which could harm our business, financial condition and operating results.
WE HAVE ANTI-TAKEOVER PROVISIONS IN OUR BYLAWS THAT MAY DISCOURAGE A CHANGE OF CONTROL.
Our bylaws contain provisions that could discourage, delay or prevent a change in control of our Company or changes in our management that the stockholders of our company may deem advantageous. These provisions
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limit the ability of our stockholders to call special meetings of stockholders;
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provide for a staggered board;
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provide that our board of directors is expressly authorized to make, alter or repeal the bylaws; and
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establish advance notice requirements for nominations for election to our board or for proposing matters that can be acted upon by stockholders at stockholder meetings.
ITEM 2.
ITEM 2. PROPERTIES
Since March 1, 2009, we leased new office space in a campus recently established near Lausanne (40 miles from Geneva) by the local state government to attract promising biotech companies. This houses our scientific management and administrative operations. These facilities could be enhanced in April 2011 with about 300 square meters of new laboratory facilities on which Mymeticcs has taken an option. These facilities will be used to perform the various testing on pre-clinical and clinical samples under Good Laboratory Practice (GLP) and some product characterization work required by regulatory agencies and which cannot be subcontracted to third parties, or if so, only at prohibitive costs and often not compatible with our timeline. Developing this in-house expertise would favor a better control on the IP and know-how.
During 2010 we also leased approximately 100 square meters of office space in Nyon, Switzerland (20 miles from Geneva), at 14, rue de la Colombiere, presently used by the Senior Advisor to the CEO. This contract has been terminated and the terms oblige Mymetics to pay until February 28, 2011.
Bestewil Holding B.V. and its subsidiary Mymetics B.V operate from a similar biotechnology campus near Leiden in the Netherlands, where they occupy 100 square meters for office and laboratory use.
We also conduct research operations at the properties of various third parties, worldwide.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Neither we, nor our wholly owned subsidiaries 6543 Luxembourg S.A., Mymetics S.A., Bestewil Holding B.V. nor its subsidiary Mymetics B.V. are presently involved in any litigation incident to our business except as follows:
Pursuant to our indemnification obligations under Delaware law, our charter and the consulting agreements with Christian Rochet and Ernst Luebke, respectively, we have paid a judgment for 173,000 entered against these two former officers and directors entered in November 2010 in a case styled Luebke Rochet / Serres - ref. 120494. The lawsuit was brought in the Tribunal de Commerce in Lyon, France, by our former CEO, Dr. Pierre-Francois Serres, who sued Messrs. Rochet and Luebke for an alleged breach of a shareholders agreement in 1998. Mr. Serres brought this case against Messrs. Rochet and Luebke following the dismissal of the case he filed against us for an alleged unlawful termination of Mr. Serres by Messrs. Rochet and Luebke in 2003. We are appealing the decision.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
(a) Market Information. The Corporation’s common stock is quoted on the OTC Bulletin Board under the trading symbol “MYMX”
The following table sets forth the quarterly high and low sales price per share of our common stock for the periods indicated. The prices represent inter-dealer quotations, which do not include retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
(b)
Stockholders. At March 24, 2011, we had approximately 650 holders of record of our common stock, some of which are securities clearing agencies and intermediaries.
(c)
Dividends. We have not paid any dividends on our common stock and do not intend to pay any dividends in the foreseeable future.
(d)
Securities Authorized for Issuance under Equity Compensation Plans.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information about the common stock that may be issued upon the exercise of options, warrants and rights under all of the Company’s existing equity compensation plans as of December 31, 2010.
In additon, Mymetics granted Norwood Immunology Limited (“NIL”) an option to acquire shares of Mymetics common stock equal to the result obtained by dividing $9,609 by the Conversion Price. As part of the Share Purchase Agreement, if Mymetics had issued shares of capital stock in connection with a financing to repay the Bridge Loan that had more favorable financial rights and preferences than the original conversion price or other terms, NIL had the right, at its election, to acquire those shares at the better terms. Since the Company converted the Bridge Loan to finance the acquisition at $0.50 in September 2010, the result is that the option allows NIL to acquire 19,218,450 shares of common stock.
Further, on July 1 2010, Mymetics issued a warrant to Round Enterprises providing the right to buy 32 million shares of Mymetics common stock at a price of US $0.25 per share. The warrant is valid from July 1, 2010 until June 30, 2013.
ISSUANCES OF UNREGISTERED SECURITIES
Set forth below is information regarding our sales of unregistered securities during the period commencing on January 1, 2010 and ending on March 24, 2011. These issuances were made pursuant to individual contracts that are discrete from one another and in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, and/or Regulation D promulgated under the Securities Act, as transactions by an issuer not involving any public offering to persons who are sophisticated in such transactions and who had knowledge of and access to sufficient information about us to make an informed investment decision. Among this information was the fact that the securities were restricted securities.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not Applicable
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis of the results of operations and financial condition of us for the years ended December 31, 2010 and 2009 should be read in conjunction with our audited consolidated financial statements and related notes and the description of our business and properties included elsewhere herein.
RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 2010 COMPARED TO YEAR ENDED DECEMBER 31, 2009
We received grant income of E4,000 and E13,000 for the years ended December 31, 2010 and 2009, respectively. We also received E150,000 and E136,000 related to license agreement fees for the years ended December 31, 2010 and 2009, respectively. We recorded a gain of E68,000 through the sale of equipment. The lack of product revenue is directly attributable to our focus on research and development. We believe that this focus will continue for the foreseeable future. Future revenues could be affected by local and other economic conditions, technology, competitive forces, and/or challenges to our intellectual property.
Research and development expenses decreased to E3,083,000 in the current period from E6,364,000 in the comparative period of 2009, a decrease of 51.56%. This is mostly attributable to licensing costs and the increased activity required to achieve acceptance to begin Phase I clinical trials of our HIV vaccine in the year 2009.
General and administrative expenses increased by 2.34% to E3,320,000 in the year ended December 31, 2010 from E3,244,000 in the comparable period of 2009, primarily as a result of a decrease in the exercise price on outstanding warrants, offset by reduced costs for our continuing investor relations efforts.
Induced conversion cost of E807,000 incurred in the year ended December 31, 2010 resulted from a reduction in the conversion price of shareholder debt. No such expense was incurred in the comparative period of 2009.
Interest expense increased by 36.12% to E2,834,000 in the year ended December 31, 2010 from E2,082,000 in the comparable period of 2009 due to additional secured convertible loans outstanding and amortization of debt discount.
The fair value of acquisition-related contingent consideration increased by E1,276,000 in the year ended December 31, 2010 compared to a decrease of E(1,614,000) in the comparable period of 2009.
CRITICAL ACCOUNTING POLICIES AND MANAGEMENT ESTIMATES
The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Certain of the estimates and assumptions required to be made relate to matters that are inherently uncertain as they pertain to future events. While management believes that the estimates and assumptions used were the most appropriate, actual results could differ significantly from those estimates under different assumptions and conditions. The following is a description of those accounting policies believed by management to require subjective and complex judgments which could potentially affect reported results.
REVENUE RECOGNITION AND RECEIVABLES
As a development stage company, we have not generated any material revenues since we commenced our current line of business in 2001, and management does not anticipate generating any material revenues on a sustained basis unless and until a substantial licensing agreement or other commercial arrangement is entered into with respect to our technology.
However, should we engage in any form of commercial activity, a revenue recognition and receivables policy according to the following principles would be implemented:
Revenue related to the sale of products is recognized when all of the following conditions are met: persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and collectability is reasonably assured. Receivables are stated at their outstanding principal balances. Management reviews the collectability of receivables on a periodic basis and determines the appropriate amount of any allowance. Based on this review procedure, management has determined that the allowances at December 31, 2010 and 2009 are sufficient. We charge off receivables to the allowance when management determines that a receivable is not collectible. We may retain a security interest in the products sold.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
CURRENCY TRANSLATION
Our reporting currency is the Euro because substantially all of our activities are conducted in Europe. Non-Euro assets and liabilities of our subsidiaries are translated at the rate of exchange at the balance sheet date. Revenues and expenses are translated at the average rate of exchange throughout the year. Unrealized gains or losses from these translations are reported as a separate component of comprehensive income. Transaction gains or losses are included in general and administrative expenses in the consolidated statements of operations. The translation adjustments do not recognize the effect of income tax because we expect to reinvest the amounts indefinitely in operations.
IN-PROCESS RESEARCH AND DEVELOPMENT
In-Process research and development (referred to as IPR&D) represents the estimated fair value assigned to research and development projects acquired in a purchased business combination that have not been completed at the date of acquisition and which have no alternative future use. IPR&D assets acquired in a business combination after January 1, 2009, are capitalized as indefinite-lived intangible assets. These assets remain indefinite-lived until the completion or abandonment of the associated research and development efforts. During the period prior to completion or abandonment, those acquired indefinite-lived assets are not amortized but are tested for impairment annually, or more frequently, if events or changes in circumstances indicate that the asset might be impaired.
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets, which include property and equipment, and the license contract, are assessed for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. The impairment testing involves comparing the carrying amount to the forecasted undiscounted future cash flows generated by that asset. In the event the carrying value of the assets exceeds the undiscounted future cash flows generated by that asset and the carrying value is not considered recoverable, impairment exists. An impairment loss is measured as the excess of the asset’s carrying value over its fair value, calculated using a discounted future cash flow method. An impairment loss would be recognized in net income in the period that the impairment occurs.
GOODWILL
Goodwill, which represents the excess of purchase price over the fair value of net assets acquired, is carried at cost. Goodwill is not amortized; rather, it is subject to a periodic assessment for impairment by applying a fair value based test. Goodwill is assessed for impairment on an annual basis as of April 1st of each year or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment model prescribes a two-step method for determining goodwill impairment. In the first step, we determine the fair value of our reporting unit using an enterprise value analysis. If the net book value of our reporting unit exceeds the fair value, we would then perform the second step of the impairment test which requires allocation of our reporting unit’s fair value to all of its assets and liabilities using the acquisition method prescribed under authoritative guidance for business combinations with any residual fair value being allocated to goodwill. An impairment charge will be recognized only when the implied fair value of our reporting unit’s goodwill is less than its carrying amount.
CONTINGENT CONSIDERATION
We account for contingent consideration in a purchase business combination in accordance with applicable guidance provided within the business combination rules. As part of our consideration for the Bestewil acquisition, we are contractually obligated to pay additional purchase price consideration upon achievement of certain commercial milestones and future royalties. Therefore, we are required to update our assumptions each reporting period, based on new developments, and record such amounts at fair value until such consideration is satisfied.
STOCK BASED COMPENSATION POLICY
Compensation cost for all share-based payments is based on the estimated grant-date fair value. The Company amortizes stock compensation cost ratably over the requisite service period.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 of Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements including the respective dates of adoption and effects on results of operations and financial condition.
BUSINESS PLAN
We subcontract our research project modules to best of class research teams. We pay for and coordinate the work, consolidate the results, and retain all associated intellectual property. On rare occasions, we execute partnership agreements with companies offering technologies that can enhance our products. As human clinical trials have been initiated, access to our owned laboratory facilities becomes necessary. We have an option on a pre-lease agreement for such facilities in the new Biopole campus established by the local state government near Lausanne. These facilities are expected to become available by mid-2011 or end of 2011.
We will continue in the foreseeable future to outsource to specialized third parties all human clinical trials of our vaccines, such process being complex and highly regulated.
Our business plan is predicated by the size and availablility of our resources, which preclude us from pursuing our human clinical trials beyond phase II, which normally involves no more than 250-300 volunteers and a cost in the range of $5-10 million per phase I and II trial cycle. In contrast, phase III trial for a prophylactic vaccine involves up to 30,000 patients and several testing centers spread over two or more continents. The high number of volunteers, as well as the logistical complexity of such an undertaking, implies a cost-per-volunteer in the $10,000 to $12,000 range, or up to $360 million per phase III trial. Similarly, the cost and complexity of the vaccine registration procedure with the relevant European agencies can be very expensive. The cost of registration with the U.S. Food and Drug Administration (FDA) is generally significantly higher due to a variety of factors, including, potential product liability claims.
In light of the significant phase III costs, we expect to sign a partnership agreement with one or more of the major pharmaceutical companies active in the preventive vaccine market as soon as human clinical phase II trials are completed. Such partnership agreements typically involve an initial cash payment with covers the initial costs of R&D up to that time plus an adequate margin of profit, followed by a series of payments associated with specific milestones and finally, royalties on any sales of end products, assuming these have been approved by the various regulatory authorities involved, such as the FDA.
We are trying to achieve this for the HIV-1 vaccine by 2012, which has successfully completed the Phase I in Belgium. Malaria is the other vaccine that already completed successfully a Phase Ia (adults in Switzerland) and more recently a Phase Ib (children in Tanzania). Partnership for HIV-1 and malaria phase II and III might also involve non-profit entities like the Bill and Melinda Gates Foundation or governmental agencies like the NIH. These dates are based on our results, which have been encouraging so far.
We will enter into negotiations with potential pharmaceutical partners as soon as positive intermediary results will be observed in view of a partnership agreement as described above.
Dream Vaccines Foundation
We attempted to establish Dream Vaccines Foundation as a 501(c)3) public charity in the United States. Due to the cost and complexity of the registration process as well as to resource limitations, this endeavor has been terminated and the entity will be liquidated.
LIQUIDITY AND CAPITAL RESOURCES
We had E1,811,000 cash at December 31, 2010, compared to E2,959,000 at December 31, 2009.
As a development stage company, we have not generated significant material revenues since the current line of business was commenced in 2001, and we do not anticipate generating significant material revenues on a sustained basis unless and until a major licensing agreement or other commercial arrangement is entered into with respect to its technology.
As of December 31, 2010, we had an accumulated deficit of approximately E53.5 million and incurred losses of E11,428,000 in the year ended December 31, 2010. This compares with losses of E10,186,000 in the year ended December 31, 2009. These losses are principally associated with the research and development of our HIV vaccine and RSV vaccine technologies, the acquisition of its malaria project from Pevion Biotech Ltd. and the acquisition of Bestewil and Mymetics B.V. We expect to continue to incur expenses in the future for research, development and activities related to the future licensing of our technologies.
Accounts payable of E1,340,000 at December 31, 2010, decreased from E1,540,000 at December 31, 2009.
Net cash used in operating activities was E7,870,000 for the year ended December 31, 2010, compared to E11,046,000 for the year ended December 31, 2009. The major factor in 2010 was costs incurred in connection with our first HIV vaccine human clinical trial Phase I, which began in December 2009.
Investing activities provided cash of E109,000 for the year ended December 31, 2010, primarily due to proceeds from the sale of equipment. Investing activities used cash of E5,082,000 for the year ended December 31, 2009, primarily for the acquisition of Bestewil BV.
Financing activities provided cash of E6,633,000 for the year ended December 31, 2010, which includes new debt needed to fund 2010 operations, compared to E18,582,000 for the year ended December 31, 2009, which includes new debt needed to fund 2009 operations and the purchase of Bestewil.
Our major shareholder, a member of our Board of Directors and another previous investor have made available an aggregate E27,982,000 in the form of notes payable, the details of which are described in Note 3 of our financial statements.
The Company’s budgeted cash outflow, or cash burn rate, for 2011 is approximately E10,100,000 for research and fixed and normal recurring expenses, assuming the ability to obtain the necessary financing and without taking into account any grants that may be obtained.
Our monthly burn rate is only relevant as regards administration expenses and amounts to E235,000. Other expenditures related to vaccine research and development have either already been spent during the first quarter of 2011 or will be spent in the very near future as the service companies we contract to perform our clinical trials always require advance, generally non refundable, payments.
Management expects the cash outflow on R&D to increase but this should be compensated by administrative savings to give an overall decrease in 2011 over 2010 as we increase our research and development activities, and proceed with current, or prepare for new, human clinical trials and compliance duties associated with the signing of a partnership agreement with a major pharmaceutical company.
Administration costs include E1,300,000 in gross salaries and related payroll costs for three of the Company’s executive officers, and payments under various consulting contracts.
Jacques-François Martin is our President and Chief Executive Officer. Additionally, there are three full-time employees of Mymetics Corporation: Ronald Kempers, Chief Financial Officer and Chief Operating Officer, Dr. Sylvain Fleury, Ph.D., Chief Scientific Officer, and Christian Rochet, who resigned as our President and CEO effective July 1, 2009, but is currently employed by us as Senior Advisor to the President.
In addition, our Swiss subsidiary, Mymetics S.A., has three employees on its payroll: Director of Finance, Director of R&D and an Office Manager. Mymetics BV has one full time executive officer (CSO) and two full-time assistants.
Included in administration costs are E400,000 of legal fees to outside corporate counsel, E200,000 audit and review fees to the Company’s independent accountants, and E220,000 in finance and acquisition expenses.
We intend to continue to incur additional expenditures during the next 12 months for additional research and development of our HIV, RSV and HSV vaccines. These expenditures will relate to the continued testing of its prototype vaccines and are included in the monthly cash outflow described above. Additional funding requirements during the next 12 months are needed to prepare for the next clinical trial for our HIV vaccine and to prepare for a Phase I clinical trial for our RSV vaccine.
In the past, we have financed our research and development activities primarily through debt and equity financings from various parties.
We anticipate that our normal operations will require approximately E10,100,000 in the year ending December 31, 2011. We will seek to raise the required capital from equity or debt financings, donors and/or potential partnerships with major international pharmaceutical and biotechnology firms. However, there can be no assurance that it will be able to raise additional capital on satisfactory terms, or at all, to finance its operations. In the event that we are not able to obtain such additional capital, we will be required to further restrict or even cease our operations.
RECENT FINANCING ACTIVITIES
During 2010, our principal source of funds has been shareholder loans. Two short term convertible loans with a carrying amount of E5,988,000 were converted into Mymetic’s common shares at a conversion price of $0.50 per share with an exchange rate of $1.3486 per Euro. This event has also fixed the conversion price at $0.50 per share for the Norwood convertible loan and the Norwood option (see note 7).
During 2010, Round Enterprises provided three loans to the Company for a total of E4,400,000. The first loan was issued on July 1, 2010 for a total amount of E2,200,000; the second loan was issued on September 30, 2010 for a total amount of E1,100,000 and the third loan was issued on December 16, 2010 for a total amount of E1,100,000.
These three loans have a duration of 12 months and each carry an interest rate of 5% per year.
On July 1 2010, Mymetics issued a warrant to Round Enterprises providing the right to buy 32 million shares of Mymetics common stock at a price of US $0.25 per share. The warrant is valid from July 1, 2010 until June 30, 2013. This warrant has been accounted for by taking its proportional fair value, which was calculated by the Black Scholes methodology using a hundred fourty percent historical volatility, a three year expected term, a zero percent dividend yield and a three percent risk free rate. This proportional fair value was accounted for as a debt discount on the E2,200,000 loan issued on the same date and amortizing that discount over 12 months as interest expense.
We have filed or are in the process of filing several new grant applications with European as well as U.S. Institutions in relation to our HIV-1 and malaria vaccines.
We anticipate using our current funds and those we receive in the future both to meet our working capital needs and for funding the ongoing vaccines pre-clinical research costs for our RSV and HSV while preparing for further clinical trials for our HIV-AIDS vaccine.
Management does not anticipate that our existing capital resources will be sufficient to fund our cash requirements through the next six months. We do not have enough cash presently on hand, based upon our current levels of expenditures and anticipated needs during this period, and will need additional funding through future collaborative arrangements, licensing arrangements, and debt and equity financings under Regulation D and Regulation S under the Securities Act of 1933. We do not know whether additional financing will be available on commercially acceptable terms when needed.
If management cannot raise funds on acceptable terms when needed, we may not be able to successfully commercialize our technologies, take advantage of future opportunities, or respond to unanticipated requirements. If unable to secure such additional financing when needed, we will have to curtail or suspend all or a portion of our business activities and could be required to cease operations entirely. Further, if new equity securities are issued, our shareholders may experience severe dilution of their ownership percentage.
The extent and timing of our future capital requirements will depend primarily upon the rate of our progress in the research and development of our technologies, our ability to enter into a partnership agreement with a major pharmaceutical company, and the results of our present and future clinical trials.
To date, we have generated no material revenues from our business operations and are unable to predict when or if we will be able to generate revenues from licensing our technology or the amounts expected from such activities. These revenue streams may be generated by us or in conjunction with collaborative partners or third party licensing arrangements, and may include provisions for one-time, lump sum payments in addition to ongoing royalty payments or other revenue sharing arrangements.
OFF-BALANCE SHEET ARRANGMENTS
None
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data required with respect to this Item 8, and as identified in Item 14 of this annual report, are included in this annual report.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer the Company conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this annual report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded as of December 31, 2010 that the Company’s disclosure controls and procedures were not effective such that the information required to be disclosed in the Company’s United States Securities and Exchange Commission (the “SEC”) reports is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Based on its evaluation under the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, the Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, concluded that its internal control over financial reporting was not effective as of December 31, 2010, due to existence of a material weakness, as described below. A material weakness is a control deficiency, or combination of control deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which permanently exempts non-accelerated filers from complying with Section 404(b) of the Sarbanes-Oxley Act of 2002.
Attached as exhibits to this Form 10-K are certifications of Mymetics’ Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This “Controls and Procedures” section includes information concerning the controls and controls evaluation referred to in the certifications.
Material Weakness Identified
Subsequent to filing its Form 10-Q for the quarter ended September 30, 2010, the Company determined that a reduction in the conversion price of shareholder debt and adjustments to the terms of a stock option should have been recorded as expenses, resulting in material adjustments that were required to appropriately account for these changes. As a result, the Company has concluded that there is a weakness regarding the identification, evaluation, and adoption of applicable accounting guidance in a timely manner. The Company is currently evaluating how to effectively remediate this material weakness. In this regard, the Company continues to review its internal controls and procedures, including its internal control over financial reporting, and intends to make changes aimed at enhancing their effectiveness.
Changes in internal Control over Financial Reporting
With the changes of the CFO position, where Mr. Luebke was replaced by Mr. Kempers as the new CFO, we have reviewed and adjusted our internal control procedures and authorization procedures to reflect this change.
Inherent Limitations on Effectiveness of Controls
Our management, including the CEO and CFO, does not expect that the Disclosure Controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company have been detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions of deterioration in the degree of compliance with policies or procedures.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our number of directors is established at six, divided into three classes, designated as Class I, Class II and Class III. The term of the Class I directors will expire at the Company’s 2013 annual meeting of stockholders, the term of the Class II directors will expire at the 2011 annual meeting of stockholders, and the term of the Class III directors will expire at the 2012 annual meeting of stockholders. A plurality of the votes of the shares of the registrant’s common stock present in person or represented by proxy at the annual meeting and entitled to vote on the election of directors are required to elect the directors. The Board members have three year terms and in the absence of a vote at an annual meeting of stockholders, they continue for successive three year terms until they are replaced or resign.
The following table sets forth information regarding each of our current directors and executive officers:
JACQUES-FRANCOIS MARTIN
Mr. Martin is the Chief Executive Officer, President and a Director of Mymetics. Mr. Martin is also chairman and CEO of Parteurop, a biotech consulting company, and has a long history in biotechnology and public health. Prior to joining Mymetics in July 2009, he had been president of The Vaccine Fund, now GAVI Fund; he was CEO of Rhone-Poulenc Pharma in Hamburg, Germany before joining Institut Mérieux as vice-president of sales and marketing in 1976. He became CEO of Pasteur-Mérieux in 1998, where he was instrumental in the merger with Connaught Laboratories Ltd in Toronto. From 1996 to 1999, Mr. Martin was a member of the board of the French Institut National de la Santé et de la Recherche Médicale (INSERM). He is a past member of the GAVI Working Group and the Strategic Advisory Council of the Bill & Melinda Gates Children’s Vaccine Programme and was a board member of the International AIDS Vaccine Initiative (IAVI). Mr. Martin holds an MBA from the Ecole des Hautes Etudes Commerciales, is a member of the French Academy of Technologies and an officer in the French Order of Merit.
Key Director Qualifications: Mr. Martin has extensive vaccine industry experience to assist raising the Company’s credibility in the scientific community and to assist with introductions to strategic partners, including large pharmaceutical companies.
ERNST LUEBKE
Mr. Luebke was Chief Financial Officer from July 31, 2003 until July 30 2010. Prior to joining Mymetics, Mr. Luebke spent over 21 years as an independent international business consultant and was the founder of several companies active in the medical and biotech sectors. Together with Mr. Rochet, he became a major shareholder of Mymetics’ former French subsidiary Mymetics S.A. (f.k.a. Hippocampe S.A.) in 1997, and was a director of that company between 1999 and 2001. On July 31, 2003, Mr. Luebke was elected as Director and appointed as Chief Financial Officer and Treasurer of Mymetics. Mr. Luebke was further appointed Secretary of Mymetics on August 29, 2003. Mr. Luebke resigned as Director on December 31, 2010.
Key Director Qualifications: Mr. Luebke has extensive international finance and biotech industry experience to assist the Company with its financing efforts and collaborations with commercial and public institutions in the vaccine field.
SYLVAIN FLEURY, Ph.D.
Dr. Fleury was appointed as our Chief Scientific Officer in November 2003 and as a Director on January 11, 2006. Following a scientific audit in 1997, Dr. Fleury was the first consultant recommending to the Swiss investors the development of the parental biotech company that became later Mymetics Corporation. Dr. Fleury has a broad knowledge in molecular and cellular Immunology and antigen design, with over 20 years of expertise in infectious diseases and HIV-1/AIDS field. Researcher at the Centre Hospitalier Universitaire Vaudois (CHUV) in Lausanne from 1997 to 2003, working on the immune regeneration in HIV-1 infected subjects and gene therapy. Dr. Fleury obtained his B.Sc. in Microbiology in 1985 from the University of Montreal (Canada), his M.Sc. in Virology in 1988 from the Institut Armand-Frappier (Laval, Canada) and his Ph.D. in Immunology in 1992 from the Clinical Research Institute of Montreal, Canada. Dr. Fleury also worked at the Columbia Hospital in New-York before doing his post-doc training from 1993 to 1996 at the National Institutes of Allergy and Infectious Diseases (NIAID/NIH) in Bethesda (Maryland, USA). Consultant for several biotechs, Dr. Fleury is a recipient of numerous awards; published in leading scientific journals with a high impact such as Science, Cell, Nature, Nature Medicine and Circulation.
Key Director Qualifications: Dr.Fleury has extensive scientific experience in the vaccines that the Company is developing and in the delivery system of these vaccines to maximize the effectiveness of the vaccines.
RONALD KEMPERS
Chief Operating Officer (since July 1, 2009) and was appointed Chief Financial Officer on August 1 2010. Senior business leader and entrepreneur, over 15 years of international business management, business development and finance experience with leading global corporations (Hewlett Packard, Oracle) and medical and IT start-ups. Mr. Kempers has a M.Sc. in Business Administration from the Erasmus University, Rotterdam School of Management and has continued further education with various executive courses, among which at IMD, Lausanne.
CHRISTIAN ROCHET
Mr. Rochet is a Director of Mymetics and was its former Chief Executive Officer. Prior to joining Mymetics in July 2003, he had been an independent business consultant on development and diversification strategies for over 21 years. He became a major shareholder of Mymetics’ former French subsidiary Mymetics S.A. (f.k.a. Hippocampe S.A.) in 1997, on the scientific advice of Dr. Sylvain Fleury, Ph. D., and was a director of that company between 1999 and 2001. On July 31, 2003, Mr. Rochet was elected as President and Director and appointed as Chief Executive Officer of the Company. Mr. Rochet resigned as President and CEO of Mymetics effective July 1, 2009, and is currently employed by the Company as Senior Advisor to the President.
Key Director Qualifications: Mr. Rochet has international finance and biotech industry experience to assist the Company with its financing efforts in Europe and the United States and strategic alliances with vaccine companies and French and Swiss educational and scientific institutions.
DR. THOMAS STAEHELIN
Dr. Staehelin is Senior Managing Partner of Fromer, Schultheiss and Staehelin, a law firm located in Basel, Switzerland. Dr. Staehelin focuses primarily on corporate and tax law. Dr. Staehelin has served as a member of this law firm since 1975. Dr. Staehelin also serves on the boards of various Swiss companies and is Chairman of the Chamber of Commerce of the Basel region. In addition, Dr. Staehelin is Managing Director of the “Swiss Association of privately held Swiss Companies” and is a member of the Board of “economiesuisse,” The Swiss Business Federation. Dr. Staehelin received his Ph.D. degree in Law from the University of Basel. He formerly served as a member of the cantonal parliament of Basel.
Key Director Qualifications: Dr. Staehelin has significant international business experience, financial expertise through his role as a lawyer and board member of many companies conducting business on a global basis and knowledge of the Swiss legal system to assist the Company with its Swiss subsidiaries.
ERNEST M. STERN
Ernest M. Stern was appointed as a Director in January 2008. Mr. Stern is a partner in the law firm of Akerman Senterfitt LLP, which serves as outside U.S. counsel of Mymetics, where he specializes in securities and corporate law, representing public companies, investment banks and venture funds, and is the engagement partner for Mymetics. Mr. Stern received his undergraduate degree from Bowdoin College (Phi Beta Kappa, summa cum laude), and his J.D and LL.M (Taxation) degrees from Georgetown University Law Center (Case and Note Editor, Law and Policy in International Business).
Key Director Qualifications: Mr. Stern has extensive international business experience and contacts through his representation as a U.S. lawyer of many companies engaged in international business, knowledge of state and federal laws applicable to the Company and finance knowledge.
MARC GIRARD, DVM, D. SC.
Professor Girard has been a Consultant to Mymetics since January 2004. Prior to joining Mymetics, Professor Girard served as Director General, Fondation Merieux, in Lyon, France between 2001 and 2003. Between 1999 and 2001, Professor Girard served as Director, European Research Center for Virology and Immunology (CERVI), Lyon, France. Professor Girard has also taught as a professor since 1966, most recently between 1984 and 1999 at the Institut Pasteur, Paris, France where he also served as the Head of Laboratory of Molecular Virology, Department of Virology, Institut Pasteur, Paris between 1980 and 1999. During his career, Professor Girard has served the medical community in a variety of capacities, including as Head, HIV Vaccine Task Force, French National Agency for AIDS Research (ANRS), Paris between 1988 and 1998, the Chairman, Department of Virology, Institut Pasteur, Paris between 1997 and 1999 and the Chairman, European Consortium for an HIV Vaccine (EuroVac), Brussels between 1999 and 2002. Professor Girard received his D.V.M. (Alfort Veterinary College) in 1960, his D. Sc. (University of Paris) in 1967 and completed a post doctoral fellow in 1966 through studies with Prof. James Darnell, MIT, then Albert Einstein College of Medicine and Prof. David Baltimore and Renato Dulbecco of the Salk Institute. Professor Girard is also the published author of several articles in his field of study.
SCIENTIFIC ADVISORY BOARD
In 2009 a ten member Scientific Advisory Board (SAB) was created, made up of eminent intellectuals from around the world with expertise related to the Company’s products as follows:
•
Chairman of the Scientific Advisory Board - Dr. Stanley Plotkin, Emeritus Professor Wistar Institute, University of Pennsylvania, consultant to Sanofi Pasteur, developed the rubella vaccine in 1960s; worked extensively on the development and application of other vaccines including polio, rabies, varicella, rotavirus and cytomegalovirus as well as senior roles at the Epidemic Intelligence Service, U.S. Public Health Service; Aventis Pasteur (medical and scientific director); and Sanofi Pasteur (executive advisor).
•
Vice Chairman of the Scientific Advisory Board - Dr. Marc Girard, has over 20 years of experience in the HIV-1 research field, past Director of the Mérieux Foundation and a consultant to the WHO and former Chairman of EuroVac (European Consortium for HIV vaccine).
•
Dr. Morgane Bomsel, Cochin Institute, France
•
Dr. Ruth Ruprecht, Harvard University, Dana Farber Cancer Institute, Boston USA
•
Dr. Ronald H. Gray, Johns Hopkins University, Baltimore, USA
•
Dr. Malegapuru William Makgoba, University of KwaZulu-Natal, Durban, South Africa
•
Dr. Souleymane Mboup, Cheikh Anta DIOP University, Dakar, Sénégal
•
Dr. Juliana McElrath, University of Washington, Seattle, USA
•
Dr. Odile Puijalon, Pasteur Institute, Paris, France
•
Dr. Caetano Reis e Sousa, Cancer Research UK, London, UK
AUDIT COMMITTEE
The Company’s board of directors has appointed Ernest M. Stern and Dr. Thomas Staehelin to serve as members of its Audit Committee. The board of directors has determined that Dr. Staehelin qualifies as our “audit committee financial expert” and is independent as that term is defined under NASDAQ Rule 4200(a)(15).
CODE OF ETHICS
The registrant has adopted a Code of Ethics that applies to its executive officers, including its chief executive officer, as well as to the entire staff of the Company. A copy of the Code of Ethics is filed as an exhibit to Form 10-K annual report for the year ended December 31, 2010, hereby incorporated by reference.
MEETINGS OF THE BOARD OF DIRECTORS
In 2010, our Board of Directors held ten meetings, one of which was conducted by telephone conference call, and acted by unanimous written consent four times. All directors attended at least 75% of the total number of Board meetings. The Board of Directors has determined that Mr. Stern is independent within the meaning of Section 10A and Rule 10A-3 of the Exchange Act. The Company does not have a formal policy regarding attendance by members of the board of directors at our annual meetings of stockholders since we did not hold an annual meeting in 2010.
Shareholders may contact our Board of Directors by mail addressed to the entire board of directors, or to one or more individual directors, at c/o Mymetics S.A., Biopole, Route de la Corniche 4, CH-1066 Epalinges, Switzerland, Attn: Secretary. All communications directed to our board of directors or individual directors in this manner will be relayed to the intended recipients.
We do not have a separate nominating committee and do not believe that such a committee is required at this time given our emphasis on research and development rather than active revenue generating business and our limited shareholder base.
DIRECTORS’ FEES
Our non-executive directors became eligible for compensation of E10,000 each for their services as directors in 2010.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities and Exchange Act of 1934, as amended, requires that executive officers, directors and persons who own more than 10% of a registered class of the Company’s equity securities to file reports of ownership and changes of ownership with the SEC within specified due dates. These persons are required by SEC regulations to furnish the Company with copies of all such reports they file. Based solely on the review of the copies of such reports furnished, we believe that, with respect to our fiscal year ended December 31, 2010, all of our executive officers, directors and 10% stockholders filed all required reports under Section 16(a) in a timely manner, except as follows: Dr Fleury due to incompatibility between the respectively Swiss and French legal procedures with the electronic filing procedure of the SEC.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Compensation Committee Report
The Compensation Committee of the Board of Directors (the “Committee”) is composed of one employee Director, Mr. Jacques-François Martin, our President and CEO, and two non-Executive directors, Mr. Ernst M. Stern and Mr. Thomas Staehelin. The Compensation Committee does not have a charter.
The Committee met with management to review and discuss the Compensation Discussion and Analysis disclosures that follow. Based on such review and discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K, and the Board has approved that recommendation.
Compensation Discussion and Analysis
The Committee is responsible for reviewing and approving the compensation paid to executive officers of the Company, including salaries, bonuses, stock grants and stock options. Following review and approval by the Committee, action pertaining to executive compensation for the two named executive officers, Ronald Kempers, CFO and Sylvain Fleury, CSO for 2010 is reported to the full Board of Directors for further consideration.
Compensation Philosophy
The Company’s compensation of executive officers and its philosophy regarding executive compensation is comprised of the following characteristics:
(i)
Competitive base salary;
(ii)
Granting stock awards as a portion of the total compensation, which vest over a certain number of years; and
(iii)
Granting performance-based bonuses either in cash or common stock.
We believe our executive compensation should be designed to allow us to attract, motivate and retain executives of a high caliber to permit us to remain competitive in our industry. We desire to maintain for now a uniformity of base salary compensation in light of the contributions each of the three principal executives has either made, or is expected to make, to our ability to remain in business and achieve the level of success that we have reached in meeting scientific results, primarily to date with the HIV-AIDS vaccine. We take into account the compensation paid at similarly situated companies, both within and outside of our industry, when determining executive compensation. We believe that by granting shares of our Common Stock to our executives which vest over a certain number of years, we will be able to encourage executives to remain with us.
Additionally, individual performance of the executive is considered as a factor in determining executive compensation, as well as the overall performance of the Company, which, since we are pre-revenue and primarily involved in research and development, includes, but is not limited to, fund raising and meeting our business plan milestones on time and within budget, including successful conclusion of strategic partner agreements and achieving the regulatory approvals to commercialize the HIV-AIDS and malaria vaccines, rather than earnings, revenue growth, cash flow and earnings per share which would be more typical for a company generating revenues and earnings. The Committee also uses subjective criteria it deems relevant in its reasonable discretion.
Compensation of Chief Executive Officer
Mr. Rochet joined the Company on July 31, 2003 as its Chief Executive Officer. Mr. Rochet was paid a base salary of E96,000 in calendar year 2004, the first full year of his employment by the Company. The Company had very little cash and Mr. Rochet deferred a significant portion of his salary in 2004, 2005, and 2006. As a result of Mr. Rochet’s efforts, we were able to stay in business and achieve important scientific goals for our HIV-AIDS vaccine that encouraged investment in us. Mr. Rochet’s salary was first increased to E120,000 in 2005, then E180,000 in 2006 and E216,000 in 2007 based upon his success in fund raising for the Company and negotiating an agreement with Pevion Biotech Ltd. to acquire the malaria vaccine. Mr. Rochet resigned as our President and CEO effective July 1, 2009 and became the Senior Advisor to the new President on a full-time basis with an annual salary of E108,000. Mr. Rochet is further entitled to finder’s fees of 3% on all funding amounts raised through his efforts. As of December 31, 2010, Mr. Rochet’s contract can be terminated giving one month notice.
Mr. Jacques-François Martin joined us on July 1, 2009 as our President and Chief Executive Officer for an annual compensation of E240,000.
Compensation of Chief Financial Officer
As of January 1, 2010, Mr. Luebke’s annual salary was converted into CHF300,000, which is approximately equal to his previous salary of E216,000 at the exchange rate at that time and included also the employer’s share of social contributions. A contractual clause allowing for a 3% success fee upon sale of the Company to, or licensing of technology to, a major partner has been deleted in favor of stock options. Mr. Luebke resigned as CFO on July 30 2010 and was replaced by Ronald Kempers the Chief Operating Officer.
Compensation of Chief Scientific Officer
Dr. Fleury was the Company’s Scientific Consultant from July 31, 2003 until November 3, 2003 when he was appointed Chief Scientific Officer. Dr. Fleury was paid a base salary of E96,000 in calendar year 2004, the first full year of his employment by the Company. The Company had very little cash and Mr. Fleury deferred a significant portion of his salary in 2004, 2005, and 2006. As a result of Mr. Fleury’s efforts, the Company achieved important scientific goals for its HIV-AIDS vaccine that encouraged investment in the Company. Dr. Fleury’s salary was first increased to E120,000 in 2005, then E180,000 in 2006 and E216,000 in 2007 based upon his success in the animal studies leading to the Company’s ability to commence Phase I clinical trials for its HIV-AIDS vaccine in addition to his role in the negotiations in concluding an agreement with Pevion Biotech Ltd. to acquire the malaria vaccine. As of January 1, 2010, Dr Fleury’s salary has been converted into CHF300,000, which is approximately equal to his previous salary of E216,000 at the exchange rate at that time and included also the employer’s share of social contributions. A contractual clause allowing for a 3% success fee upon sale of the Company to, or licensing of technology to, a major partner was deleted in favor of stock options.
Compensation of Chief Operating Officer
Mr. Kempers joined us on July 1, 2009 as Chief Operating Officer and was appointed Chief Financial Officer on August 1, 2010. Mr. Kempers was paid a base salary of CHF300,000 in calendar year 2010.
SUMMARY COMPENSATION TABLE
The following table sets forth for the last three fiscal years information on the annual compensation earned by our directors and officers.
The tables entitled “OPTION EXERCISES AND STOCK VESTED,” “PENSION BENEFITS,” “NONQUALIFIED DEFERRED COMPENSATION” and “DIRECTOR COMPENSATION” and the respective discussions related to those tables have been omitted because no compensation required to be reported in those tables was awarded to, earned by or paid to any of the named executive officers or directors in any of the covered fiscal years.
Employment Agreements
Under the Executive Employment Agreement for Christian Rochet, he was employed as CEO for five years commencing July 1, 2006. Mr. Rochet received an annual salary of E216,000, and was entitled to cash bonuses of 3% of all payments to be received from industry partners of the Company. If Mr. Rochet were terminated without cause or he terminated for good reason, he was entitled to a lump-sum payment equal to the greater of 24 months of his salary or the remaining term of his employment agreement. Mr. Rochet resigned as President and CEO of Mymetics effective July 1, 2009, Mr. Rochet is currently employed by us under a Consulting Agreement as Senior Advisor to the President (to be reviewed on monthly basis from January, 2011). Under this Consulting Agreement, Mr. Rochet receives an annual salary of CHF 150,000, which is approximately equal to E108,000. Christian Rochet is further entitled to finder’s fees of 3% on all funding amounts raised through his efforts.
Under the Executive Employment Agreement for Ernst Luebke, he was employed as CFO for five years commencing July 1, 2006. Mr. Luebke received an annual salary of E216,000. During the employment period, at the discretion of the Board and the Compensation Committee and based on the company’s performance and individual achievements, The executive shall be eligible for an annual bonus to be paid in cash, stock or stock options. Retroactive to January 1, 2010, Mr. Luebke’s salary has been converted into CHF300,000, which is approximately equal to his previous salary of E216,000, which included also the employer’s share of social contributions. Mr. Luebke resigned as Chief Financial Officer on July 30 2010.
Under the Executive Employment Agreement for Sylvain Fleury Ph.D., he is employed as CSO for five years commencing July 1, 2006. Dr. Fleury receives an annual salary of E216,000. During the employment period, at the discretion of the Board and the Compensation Committee and based on the company’s performance and individual achievements, The executive shall be eligible for an annual bonus to be paid in cash, stock or stock options. If Dr. Fleury is terminated without cause or he terminates for good reason, he is entitled to a lump-sum payment equal to the greater of 24 months of his salary or the remaining term of his employment agreement. Retroactive to January 1, 2010, Dr. Fleury’s salary has been converted into CHF300,000, which is approximately equal to his previous salary of E216,000, which included also the employer’s share of social contributions.
Under the Executive Employment Agreement for Ronald Kempers, he is employed as COO for five years commencing July 1, 2009. Mr. Kempers receives an annual salary of CHF300,000, which is approximately equal to E216,000 and is entitled to participate in the stock incentive plan. If Mr. Kempers is terminated without cause or he terminates for good reason, he is entitled to a lump-sum payment equal to the greater of 12 months of his salary or the remaining term of his employment agreement.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information about the beneficial ownership of our common stock as of March 24, 2011, by: (a) each of our named executive officers; (b) each of our directors; (c) each person known to the management to be the beneficial owner of more than 5% of our outstanding voting securities; and (d) all of our current executive officers and directors as a group. The following is based solely on statements and reports filed with the Securities and Exchange Commission or other information we believe to be reliable.
There were 213,963,166 shares of our common stock outstanding on March 24, 2011. Beneficial ownership has been determined in accordance with the rules of the Securities and Exchange Commission. Except as indicated by the footnotes below, we believe, based on the information furnished, that the persons and entities named in the tables below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.
In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options or warrants held by that person that are currently exercisable or exercisable within 60 days of March 24, 2011, are deemed outstanding. These shares of common stock, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
During 2010, there were no transactions, and there are currently no proposed transactions, to which we were, are or will be a party in which the amount involved exceeds $120,000 and in which any of our directors, executive officers or holders of more than 5% of our common stock, or an immediate family member of any of the foregoing, had or will have a direct or indirect interest.
Furthermore, it is our intention to ensure that all future transactions, including loans, between us and our officers, directors and principal stockholders and their affiliates are on terms no less favorable to us than those that could be obtained from unaffiliated third parties.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table provides information about the fees billed to us for professional services rendered by Peterson Sullivan LLP during fiscal years 2010 and 2009:
Audit Fees. Audit fees consist of fees for the audit of our annual financial statements or services that are normally provided in connection with statutory and regulatory annual and quarterly filings or engagements.
Audit-Related Fees. Audit-related fees consist of fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported as Audit Fees. During fiscal 2010 and 2009, no services were provided in this category.
Tax Fees. Tax fees consist of fees for tax compliance services, tax advice and tax planning. During fiscal 2010 and 2009, the services provided in this category included assistance and advice in relation to the preparation of corporate income tax returns.
All Other Fees. Any other fees not included in Audit Fees, Audit-Related Fees or Tax Fees.
Pre-Approval Policies and Procedures.
Our audit Committee pre-approved all services to be provided by Peterson Sullivan LLP.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1)
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Changes in Shareholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(a)(2)
ALL OTHER SCHEDULES HAVE BEEN OMITTED BECAUSE THEY ARE NOT APPLICABLE OR THE REQUIRED INFORMATION IS SHOWN IN THE FINANCIAL STATEMENTS OR NOTES THERETO.
(3)
List of Exhibits
2.1
Share Exchange Agreement dated December 13, 2001 between the Corporation and the stockholders of Mymetics S.A. listed on the signature page thereto (1)
2.2
Share Exchange Agreement dated December 13, 2001 between the Company and the stockholders of Mymetics S.A. listed on the signature page thereto (1)
2.3
Purchase Agreement dated October 17, 1998 between the Company and the majority stockholders of Nazca Holdings Ltd. (2)
2.4
Amendment to the Purchase Agreement dated October 17, 1998 between the Company and the majority stockholders of Nazca Holdings Ltd. (3)
2.5
Revised Purchase Agreement dated July 28, 1999 between the Company and the majority stockholders of Nazca Holdings Ltd. (4)
2.6
Share Exchange Agreement dated July 30, 2002 between the Company and the stockholders of Mymetics S.A. listed on the signature page thereto (5)
3(i)
Articles of Incorporation of the Company (as amended through May 10, 2002) (6)
3(ii)
Bylaws (7)
4.1
Form of Specimen Stock Certificate (8)
4.2
Form of letter regarding Warrant (8)
4.3
Form of Share Exchange Agreement (8)
9.1
Voting and Exchange Trust Agreement dated March 19, 2001, among the Company, 6543 Luxembourg S.A. and MFC Merchant Bank S.A. (8)
10.1
Services Agreement dated May 31, 2001, between the Company and MFC Merchant Bank, S.A.(7)
10.2
Employment Agreement dated May 3, 2001, between Pierre-Francois Serres and the Company (7)
10.3
Indemnification Agreement dated March 19, 2001, between the Company and MFC Bancorp Ltd. (7)
10.4
Agreement dated for reference May 15, 2000, between the Company and Maarten Reidel (7)
10.5
Preferred Stock Redemption and Conversion Agreement dated for reference December 21, 2000, between the Company and Sutton Park International Ltd. (10)
10.6
Preferred Stock Conversion Agreement dated for reference December 21, 2000, between the Company and Med Net International Ltd. (11)
10.7
Preferred Stock Conversion Agreement dated December 21, 2000, between the Company and Dresden Papier GmbH (11)
10.8
Assignment Agreement dated December 29, 2000, among the Company, Mymetics S.A. and MFC Merchant Bank S.A. (1)
10.9
Credit Facility Agreement dated July 27, 2000, between MFC Merchant Bank, S.A. and the Company (1)
10.10
Amended Credit Facility Agreement dated for reference August 13, 2001, between MFC Merchant Bank, S.A. and the Company (16)
10.11
Second Amended Credit Facility Agreement dated for reference February 27, 2002, between MFC Merchant Bank, S.A. and the Company (16)
10.12
Amended and Restated Credit Facility Agreement dated for reference February 28, 2003, among MFC Merchant Bank, S.A., MFC Bancorp Ltd., and the Company (16)
10.13
Guarantee dated for reference February 28, 2003, by MFC Bancorp Ltd. to MFC Merchant Bank S.A. (16)
10.14
Shareholder Agreement dated March 19, 2001, among the Company, the Holders of Class B Exchangeable Preferential Non-Voting Shares of 6543 Luxembourg S.A. signatory thereto and 6543 Luxembourg S.A.(8)
10.15
Support Agreement dated March 19, 2001, between the Company and 6543 Luxembourg S.A. (8)
10.16
1995 Qualified Incentive Stock Option Plan (12)
10.17
Amended 1994 Stock Option Plan (13)
10.18
2001 ICHOR Company Stock Option Plan (7)
10.19
Employment Agreement dated March 18, 2002, between the Company and Peter P. McCann (14)
10.20
Consulting Agreement dated August 31, 2001, between the Company and Michael K. Allio (8)
10.21
Amendment to Consulting Agreement dated August 21, 2002, between the Company and Michael K. Allio (16)
10.22
Employment Agreement dated March 18, 2002, between the Company and Dr. Joseph D. Mosca (15)
10.23
Separation Agreement and Release dated January 31, 2003, between the Company and Peter P. McCann (16)
10.24
Director and Non-Employee Stock Option Agreement dated July 19, 2001, between the Company and Robert Demers (8)
10.25
Director and Non-Employee Stock Option Agreement dated July 19, 2001, between the Company and Michael K. Allio (8)
10.26
Director and Non-Employee Stock Option Agreement dated July 19, 2001, between the Company and John M. Musacchio (8)
10.27
Director and Non-Employee Stock Option Agreement dated July 19, 2001, between the Company and Patrice Pactol (8)
10.28
Director and Non-Employee Stock Option Agreement dated July 19, 2001, between the Company and Pierre-Francois Serres (8)
10.29
Director and Non-Employee Stock Option Agreement dated July 23, 2002, between the Company and Pierre-Francois Serres (16)
10.30
Director and Non-Employee Stock Option Agreement dated July 23, 2002, between the Company and Patrice Pactol (16)
10.31
Director and Non-Employee Stock Option Agreement dated July 23, 2002, between the Company and Robert Demers (16)
10.32
Director and Non-Employee Stock Option Agreement dated July 23, 2002, between the Company and John M. Musacchio (16)
10.33
Director and Non-Employee Stock Option Agreement dated July 23, 2002, between the Company and Michael K. Allio (16)
10.34
Director and Non-Employee Stock Option Agreement dated August 21, 2002, between the Company and Michael K. Allio (16)
10.35
Director and Non-Employee Stock Option Agreement dated June 20, 2002, between the Company and Peter P. McCann (16)
10.36
Director and Non-Employee Stock Option Agreement dated July 23, 2002, between the Company and Peter P. McCann (16)
10.37
Director and Non-Employee Stock Option Agreement dated February 6, 2003, between the Company and Peter P. McCann (16)
10.38
Patent Pledge Agreement dated November __, 2002 among Mymetics S.A., Mymetics Deutschland GmbH, the Company and MFC Merchant Bank S.A. (16)
10.39
Third Amendment to the Credit Facility Agreement dated for Reference December 31, 2006, between MFC Merchant Bank, S.A. and the Company (17)
10.40
Fourth Amendment to the Credit Facility Agreement dated for Reference February 16, 2005, between MFC Merchant Bank, S.A. and the Company (17)
10.41
Consulting Agreement dated for reference January 1, 2004, between the Centre Hospitalier Universitaire Vaudois (CHUV), the Company and Dr. Sylvain Fleury, Ph.D. (18)
10.42
Consulting Agreement dated for reference January 1, 2004, between the Company and Professor Marc Girard, DVM, D.Sc. (18)
10.43
Cooperation and Option Agreement dated March 10, 2005, between the Company and Pevion A.G. (18)
10.44
Consulting Agreement dated March 23, 2005, between the Company and Northern Light International. (18)
10.45
Sixth Amended Credit Facility Agreement dated for reference December 31, 2005, between MFC Merchant Bank, S.A. and the Company (19)
10.46
Employment Agreement dated July 1, 2006, between the Company and Dr. Sylvain Fleury (20)
10.47
Employment Agreement dated July 1, 2006, between the Company and Christian Rochet (20)
10.48
Employment Agreement dated July 1, 2006, between the Company and Ernst Luebke (20)
10.49
License Agreement dated March 1, 2007, between the Company and Pevion Biotech Ltd. (21)
10.50
Settlement Agreement dated March 19, 2007 between Mymetics and MFC Merchant Bank S.A. (22)
10.51
Co-ownership Agreement dated January 8, 2008 between the Company, INSERM and Pevion Biotech Ltd. (23)
10.52
Co-ownership Agreement dated January 8, 2008 between the Company and INSERM (23)
10.53
Exploitation Agreement dated January 8, 2008 between the Company and INSERM (23)
10.54
Non-Executive Director Agreement dated 21 January between the Company and Mr Ernest M Stern.(24)
10.55
NGIN Material Transfer Agreement dated 11 February 2008 between the Company, Institute Cochin, Université Paris Descartes and Pevion Biotech.(25)
10.56
Acquisition & License Agreement dated 19 May 2008 between the Company and Pevion Biotech Ltd. (26)
10.57
Extension of Convertible Note Maturity Date Agreement dated 22 August 2008 between the Company, Anglo Irish Bank and Round Enterprises Ltd. (27)
10.58
Gp41 Manufacturing Technology Agreement dated 26 January 2009 between the Company and PX Therapeutics (28)
10.59
Share Purchase Agreement pursuant to which Mymetics purchased all issued and outstanding shares of capital stock of Bestewil Holding B.V. (“Bestewil”) from its parent, Norwood Immunology Limited (“NIL”), and all issued and outstanding shares of capital stock of Virosome Biologicals B.V. now held by Bestewil. (29)
10.60
Resignation of Prof Marc Girard as Head of vaccine development for reasons of personal health. (30)
10.61
Completion of Share Purchase Agreement pursuant to which Mymetics purchased all issued and outstanding shares of capital stock of Bestewil Holding B.V. and Virosome Biologicals B.V. including Unregistered Sales of Equity Securities, Financial Statements and Exhibits. (31)
10.62
Completion of Share Purchase Agreement pursuant to which Mymetics purchased all issued and outstanding shares of capital stock of Bestewil Holding B.V. and Virosome Biologicals B.V. including Unregistered Sales of equity Securities, further Financial Statements and Exhibits. (32)
10.63
Election of Jacques-François Martin as a member of the Board of Directors and Chairman of the Board, resignation of Christian Rochet as President and CEO and agreement of Jacques-François Martin to serve as President and CEO. (33)
10.64
Consulting Agreement dated September 1, 2009, between the Company and Mr. Christian Rochet.
10.65
Resignation of Ernest Luebke as Chief Finance Officer and Board member.
11.1
Statement Regarding Calculation of Per Share Earnings.
14.1
Code of Ethics.
21.1
List of Subsidiaries
24.1
Powers of Attorney (included on the signature page hereto)
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14 of the Securities Exchange Act of 1934
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14 of the Securities Exchange Act of 1934
32.1
Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders
Mymetics Corporation and Subsidiaries
Epalinges, Switzerland
We have audited the accompanying consolidated balance sheets of Mymetics Corporation (a development stage company) and Subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operations and comprehensive loss, changes in shareholders’ equity (deficit), and cash flows for the years ended December 31, 2010 and 2009, and for the period from May 2, 1990 (inception) to December 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mymetics Corporation (a development stage company) and Subsidiaries as of December 31, 2010 and 2009, and the results of their operations and their cash flows for the years ended December 31, 2010 and 2009, and for the period from May 2, 1990 (inception) to December 31, 2010, in conformity with accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has not developed a commercially viable product and, therefore, has not been able to generate revenue, which has resulted in significant losses. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 1. These consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
/S/ PETERSON SULLIVAN LLP
Seattle, Washington
March 28, 2011
MYMETICS CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
December 31, 2010 and 2009
(In Thousands of Euros)
The accompanying notes are an integral part of these financial statements.
MYMETICS CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
For the Years Ended December 31, 2010 and 2009 and
the Period from May 2, 1990 (Inception) to December 31, 2010
(In Thousands of Euros, Except Per Share Data)
The accompanying notes are an integral part of these financial statements.
MYMETICS CORPORATION AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
For the Period from May 2, 1990 (Inception) to December 31, 2010
(In Thousands of Euros)
The accompanying notes are an integral part of these financial statements.
MYMETICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2010 and 2009 and
the Period from May 2, 1990 (Inception) to December 31, 2010
(In Thousands of Euros)
The accompanying notes are an integral part of these financial statements.
MYMETICS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. The Company and Summary of Significant Accounting Policies
Basis of Presentation
The amounts in the notes are rounded to the nearest thousand except for share and per share amounts.
Mymetics Corporation (the “Company” or “Mymetics”) was created for the purpose of engaging in vaccine research and development. Its main research efforts have been concentrated in the prevention and treatment of the AIDS virus and malaria. The Company has established a network which enables it to work with education centers, research centers, pharmaceutical laboratories and biotechnology companies. On April 1, 2009 the Company successfully closed its acquisition of Bestewil Holding BV and Mymetics BV (previously Virosome Biologicals BV) and, as a result, has further increased the pipeline of vaccines under development to include (i)Herpes Simplex which is at the pre-clinical stage, (ii)influenza for elderly which is at clinical trial Phase II and is being developed in collaboration with Solvay Pharmaceuticals (now Abbott Laboratories), and (iii) Respiratory Syncytial Virus (RSV) which is at the pre-clinical stage.
These financial statements have been prepared treating the Company as a development stage company. As of December 31, 2010, the Company had not performed any stage III clinical testing and a commercially viable product is not expected for several more years. As such, the Company has not generated significant revenue. For the purpose of these financial statements, the development stage started May 2, 1990.
These financial statements have also been prepared assuming the Company will continue as a going concern. The Company has experienced significant losses since inception resulting in a deficit accumulated during the development stage of E53,518 at December 31, 2010. Deficits in operating cash flows since inception have been financed through debt and equity funding sources. In order to remain a going concern and continue the Company’s research and development activities, management intends to seek additional funding. Further, the Company’s current liabilities exceed its current assets by E3,297 as of December 31, 2010, and there is no assurance that cash will become available to pay current liabilities in the near term. Management is seeking additional financing but there can be no assurance that management will be successful in any of those efforts.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions have been eliminated.
Foreign Currency Translation
The Company translates non-Euro assets and liabilities of its subsidiaries at the rate of exchange at the balance sheet date. Revenues and expenses are translated at the average rate of exchange throughout the year. Unrealized gains or losses from these translations are reported as a separate component of comprehensive income. Transaction gains or losses are included in general and administrative expenses in the consolidated statements of operations. The translation adjustments do not recognize the effect of income tax because the Company expects to reinvest the amounts indefinitely in operations. The Company’s reporting currency is the Euro because substantially all of the Company’s activities are conducted in Europe.
Cash and Cash Flow Disclosure
Cash deposits are occasionally in excess of insured amounts. No interest was paid in 2010 and 2009.
Revenue Recognition
Revenue related to the sale of products is recognized when all of the following conditions are met: persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable, and collectability is reasonably assured.
Grant revenue is recognized when the associated costs are incurred.
Receivables
Receivables are stated at their outstanding principal balances. Management reviews the collectability of receivables on a periodic basis and determines the appropriate amount of any allowance. Based on this review procedure, management has determined that the allowances at December 31, 2010 and 2009 are sufficient. The Company charges off receivables to the allowance when management determines that a receivable is not collectible. The Company may retain a security interest in the products sold.
Property and Equipment
Property and equipment is recorded at cost and is depreciated over its estimated useful life on straight-line basis from the date placed in service. Estimated useful lives are usually taken as three years.
License Contract
The license contract was acquired as part of the acquisition of Bestewil. It is amortized over 14 years on a straight-line basis.
In-Process Research and Development
In-Process research and development (referred to as IPR&D) represents the estimated fair value assigned to research and development projects acquired in a purchased business combination that have not been completed at the date of acquisition and which have no alternative future use. IPR&D assets acquired in a business combination after January 1, 2009, are capitalized as indefinite-lived intangible assets. These assets remain indefinite-lived until the completion or abandonment of the associated research and development efforts. During the period prior to completion or abandonment, those acquired indefinite-lived assets are not amortized but are tested for impairment annually, or more frequently, if events or changes in circumstances indicate that the asset might be impaired.
Impairment of Long-Lived Assets
Long-lived assets, which include property and equipment, and the license contract, are assessed for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. The impairment testing involves comparing the carrying amount to the forecasted undiscounted future cash flows generated by that asset. In the event the carrying value of the assets exceeds the undiscounted future cash flows generated by that asset and the carrying value is not considered recoverable, impairment exists. An impairment loss is measured as the excess of the asset’s carrying value over its fair value, calculated using a discounted future cash flow method. An impairment loss would be recognized in net income in the period that the impairment occurs.
Goodwill
Goodwill, which represents the excess of purchase price over the fair value of net assets acquired, is carried at cost. Goodwill is not amortized; rather, it is subject to a periodic assessment for impairment by applying a fair value based test. Goodwill is assessed for impairment on an annual basis as of April 1st of each year or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment model prescribes a two-step method for determining goodwill impairment. In the first step, the Company determines the fair value of its reporting unit using an enterprise value analysis. If the net book value of its reporting unit exceeds the fair value, then the second step of the impairment test is performed which requires allocation of the Company’s reporting unit’s fair value to all of its assets and liabilities using the acquisition method prescribed under authoritative guidance for business combinations with any residual fair value being allocated to goodwill. An impairment charge will be recognized only when the implied fair value of the reporting unit’s goodwill is less than its carrying amount.
Contingent Consideration
The Company accounts for contingent consideration in a purchase business combination in accordance with applicable guidance provided within the business combination rules. As part of the consideration for the Bestewil acquisition, the Company is contractually obligated to pay additional purchase price consideration upon achievement of certain commercial milestones and future royalties. Therefore, the Company is required to update the assumptions at each reporting period, based on new developments, and record such amounts at fair value until such consideration is satisfied.
Research and Development
Research and development costs are expensed as incurred.
Taxes on Income
The Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in the tax laws or rates.
The Company reports a liability, if any, for unrecognized tax benefits resulting from uncertain income tax positions taken or expected to be taken in an income tax return. Estimated interest and penalties, if any, are recorded as a component of interest expense and other expense, respectively.
The Company has not recorded any liabilities for uncertain tax positions or any related interest and penalties at December 31, 2010 or 2009. The Company’s United States tax returns are open to audit for the years ended December 31, 2007 to 2010. The returns for the Luxembourg subsidiary LUXEMBOURG 6543 S.A., are open to audit for the year ended December 31, 2010. The returns for the Swiss subsidiary, Mymetics S.A., are open to audit for the years ended December 31, 2007 to 2010. The returns for the Netherlands subsidiaries, Bestewil B.V. and Mymetics B.V., are open to audit for the year ended December 31, 2010.
Earnings per Share
Basic earnings per share is computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding in the period. The weighted average number of shares (including shares issuable) was 202,059,230 for the year ended December 31, 2010 and 195,728,698 for the year ended December 31, 2009. Diluted earnings per share takes into consideration common shares outstanding (computed under basic earnings per share) and potentially dilutive securities. For the year ended December 31, 2010, the total potential number of shares issuable of 138,634,271 includes 82,623,321 potential issuable shares related to convertible loans, 51,218,450 potential issuable shares related to warrants, and 4,792,500 potential issuable shares related to outstanding options granted to employees. Options, warrants and convertible debt were not included in the computation of diluted earnings per share because their effect would be anti-dilutive due to net losses incurred. For the year ended December 31, 2009, the total potential number of shares issuable of 87,810,109 includes potential issuable shares related to warrants, options, and convertible loans.
Preferred Stock
The Company has authorized 5,000,000 shares of preferred stock. No shares are issued or outstanding at December 31, 2010 or 2009. The preferred stock is issuable in several series with varying dividend, conversion and voting rights. The specific series and rights will be determined upon any issuance of preferred stock.
Stock-Based Compensation
Compensation cost for all share-based payments is based on the estimated grant-date fair value. The Company amortizes stock compensation cost ratably over the requisite service period.
The issuance of common shares for services is recorded at the quoted price of the shares on the date the services are rendered. For the years ended December 31, 2010 and 2009, 1,750,000 and 750,000 shares with a fair value of E179 and E89 respectively, were issued to individuals as fee for services rendered.
On April 1, 2009 Mymetics issued an option to Norwood Immunology Limited (“NIL”) as part of its acquisition of Bestewil Holding B.V. (“Bestewil”). See Note 2. Mymetics also granted stock options to employees in 2010. See Note 5.
Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value Measurements
Fair value guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
Level 1-Quoted prices in active markets for identical assets or liabilities.
Level 2-Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3-Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Fair Values of Financial Instruments
The Company generally has the following financial instruments: cash, receivables, accounts payable, taxes and social costs payable, acquisition-related contingent consideration, and notes payable. The carrying value of cash, receivables, accounts payable, and taxes and social costs payable approximates their fair value based on the short-term nature of these financial instruments. The carrying value of acquisition-related contingent consideration is equal to fair value since this liability is required to be reported at fair value. Management estimates that it is not practicable to estimate the fair value of the notes payable due to the unique nature of these instruments.
Concentrations
The Company enters into scientific collaboration agreements with selected partners such as Pevion Biotech Ltd., a Swiss company that granted Mymetics exclusive licenses to use their virosome vaccine delivery technology in conjunction with the Company’s AIDS and malaria preventive vaccines under development. Under this agreement, Pevion Biotech is committed to supply the actual Virosomes and perform their integration with the Company’s antigens, which requires proprietary know-how, at Pevion’s premises. The agreement includes specific mechanisms to mitigate the risk of losing a key component of Mymetics’ vaccines should Pevion become unable to meet its commitment.
Recently Issued Accounting Standards
In September 2009, the FASB ratified authoritative guidance relating to revenue recognition in multiple element arrangements, which is effective for fiscal years beginning after June 15, 2010 and may be applied retrospectively or prospectively for new or materially modified arrangements with early adoption permitted. The guidance provides greater ability to separate and allocate arrangement consideration in a multiple element revenue arrangement. In addition, it will require the use of estimated selling price to allocate arrangement considerations, therefore eliminating the use of the residual method of accounting. The Company does not believe the adoption of this standard will have a material impact on its financial statements.
In December 2010, the FASB issued an update under Topic 350, Goodwill and Other Intangible Assets, where testing for goodwill impairment is a two-step test. When a goodwill impairment test is performed (either on an annual or interim basis), an entity must assess whether the carrying amount of a reporting unit exceeds its fair value (step 1). If it does, an entity must perform an additional test to determine whether goodwill has been impaired and to calculate the amount of this impairment (step 2). This update is effective for the fiscal years and interim periods within those years, beginning after December 15, 2010. The Company is in the process of determining the impact the adoption of this standard might have on its financial statements.
Note 2. Receivables
Note 3. Transactions with Affiliates
Mr. Ernest M. Stern, the Company’s outside U.S. counsel, is both a director of the Company and a partner in Akerman Senterfit LLP, the firm retained as legal counsel by the Company. Fees paid to the law firm in the years ended December 31, 2010 and 2009, amounted to E111 and E105, respectively.
Three of the Company’s major shareholders have made available an aggregate E27,982 in the form of notes payable. Conversion prices on the Euro-denominated convertible debt have been fixed to a fixed Euro/US dollar exchange rate.
During the year ending December 31, 2010, two short term convertible loans with a carrying amount of E5,988 were converted into Mymetics common shares at a conversion price of $0.50 per share with an exchange rate of $1.3486 per Euro. The original conversion price of these loans was $0.80, but in order to induce the lender to convert, the lower conversion price of $0.50 had to be accepted. This event has also fixed the conversion price at $0.50 per share for the Norwood convertible loan and the Norwood option (see Note 7). The advantage of this lower conversion price for the lender has been treated in accordance with ASC Subtopic 470-20-40. The difference in the fair value of the shares issuable based on the terms of the original conversion price and the fair value of the shares actually issued based on the inducement terms is recorded as an expense of E807.
The details of these notes and other loans and contingent liabilities are as follows:
(1)
Private investment company of Dr. Thomas Staehelin, member of the Board of Directors and of the Audit Committee of the Company. Face value is stated in U.S. dollars at $190,000.
(2)
The earlier of: (i) The date that the Company has sufficient revenues to repay, or (ii) upon an event of default. The loan is secured against IP assets of Mymetics Corporation.
(3)
Renamed Hyposwiss Private Bank Genève S.A. and acting on behalf of Round Enterprises Ltd. which is a major shareholder.
(4)
The loan is secured against 2/3rds of the IP assets of Bestewil Holding BV.
(5)
The earlier of (i) June 30, 2011 or (ii) upon an event of default. The term of the loan agreement started on July 1, 2010.
(6)
Under the terms of the acquisition of Bestewil B.V., as part of the consideration, the Company issued to Norwood Immunology Limited (“NIL”) a convertible redeemable note (the “Note”) in the principal amount of E2,500 with maturity 36 months after the closing date and bearing interest at 5% per annum. The note is secured against one third of Bestewil common stock.
(7)
Under the terms of the acquisition of Bestewil BV, as part of the consideration, the Company is committed to make further payments to NIL in the event that certain stated milestones for the development of vaccines are achieved. These have been considered on a risk probability basis.
(8)
The earlier of (i) September 30, 2011 or (ii) upon an event of default.
(9)
The earlier of (i) December 16, 2011 or (ii) upon an event of default.
(10)
On July 1 2010, Mymetics issued a warrant to Round Enterprises providing the right to buy 32 million shares of Mymetics common stock at a price of US $0.25 per share. The warrant is valid from July 1, 2010 until June 30, 2013. This warrant has been accounted for by taking it’s proportional fair value, which was calculated by the Black Scholes methodology using a hundred fourty percent historical volatility, a three year expected term, a zero percent dividend yield and a three percent risk free rate. This proportional fair value was accounted for as a debt discount on the E2,200 loan issued on the same date and amortizing that discount over 12 months as interest expense.
Required future payments on long-term debt are as follows as of December 31, 2010:
Note 4. Income Taxes
The reconciliation of income tax on income computed at the federal statutory rates to income tax expense is as follows:
Deferred tax asset is composed of the following:
The Company’s provision for income taxes was derived from U.S., Swiss, Netherlands and Luxembourg operations. At December 31, 2010, the Company had estimated net operating loss carry forwards which expire as follows (the Luxembourg losses do not expire):
Note 5. Stock Options
2001 Qualified Incentive Stock Option Plan
The Company’s board of directors approved a Stock Option Plan on June 15, 2001, which provides for the issuance of up to 5,000,000 shares of the Company’s common stock to employees and non-employee directors.
For the year ended December 31 2010, the Board of Directors of Mymetics awarded 4,350,000 incentive stock options to the employees and officers of the Company. Incentive stock options were awarded on June 30, 2010, for a total of 3,350,000 shares with an exercise price of USD 0.14 per share, of which 1,850,000 vested immediately and 1,500,000 vest in equal quantities over the next three years. As part of the employment contract with the CFO of Mymetics, 1,000,000 employee incentive stock options were issued on July 1, 2010 with an exercise price of USD 0.19 per share, of which 250,000 vested immediately and 750,000 vest in equal quantities over the next three years. No options were issued in the year ended December 31, 2009.
The Company recognized compensation expense related to the issued option grants of E238 and nil for the years ended December 31, 2010 and 2009, respectively. These amounts were recognized as research and development expense and general and administrative expense based on the specific recipient of the award for the years ended December 31, 2010 and 2009, respectively. As of December 31, 2010, a total of 2,250,000 shares of common stock with unrecognized compensation cost of E140 are unvested. The cost is expected to be recognized ratably through June 2013.
A summary of activity related to stock options under the 2001 Stock Option Plan is represented below:
The aggregate intrinsic value of the stock options fluctuates in relation to the market price of our common stock.
The range of exercise prices for options outstanding and options exercisable under the 2001 Stock Option Plan at December 31, 2010 are as follows:
A summary of the status of the Company’s nonvested options as of December 31, 2010 and changes during the year ended December 31, 2010 are presented below:
The estimated fair value of the options on the date of grant was calculated using Black Scholes option pricing model and the following assumptions:
As of December 31, 2010, the 2001 Stock Option Plan has 207,500 shares available for future grants of stock options.
Not included in the above table are the 19,218,450 options issued as part of the acquisition of Bestewil described in Note 7.
The Company will issue new shares upon the exercise of any options.
Note 6. Commitments and Contingencies
Total rent expense per year was E194 for 2010 and E179 for 2009. The lease of the Company’s Nyon, Switzerland facility expires in 2011; the lease of the Company’s Lausanne, Switzerland facilities expires in 2016.
Future lease payments expected on the above office leases are as follows for the years ending December 31, 2010.
As per an agreement signed on December 22, 2008, PX Therapeutics has granted the license rights of the general know-how of Gp41 manufacturing technology to Mymetics for five years. During this period, the Company pays to PX Therapeutics an annual fee of E200 until the expiration date of December 23, 2013.
Note 7. Acquisition of Bestewil
On April 1, 2009 Mymetics and NIL closed the acquisition of Bestewil Holding B.V. (“Bestewil”) from its parent, NIL, under a Share Purchase Agreement pursuant to which Mymetics agreed to purchase all issued and outstanding shares of capital stock (the “Bestewil Shares”) of Bestewil from its parent, NIL, and all issued and outstanding shares of capital stock of Virosome Biologicals B.V. which were held by Bestewil. Mymetics paid NIL E5,000 (the “Cash Consideration”)raised from bridge financing (the “Bridge Loan”)and issued to NIL a convertible redeemable note (the “Note”) in the principal amount of E2,500 due 36 months after the closing date, bearing interest at 5% per annum, convertible into shares of the Company’s common stock at a conversion rate of $0.50 (“the Conversion Price” since September 2010) and secured by the Company’s pledge of 1/3rd of the Bestewil Shares. The reduction of the Conversion price from $0.80 to $0.50 in September 2010 did not result in an extinguishment and reissuance of the note, nor did it result in a material adjustment in the consolidated financial statements. In addition, Mymetics granted NIL an option to acquire shares of Mymetics common stock equal to the result obtained by dividing $9,609 by the Conversion Price. As part of the Share Purchase Agreement, if Mymetics had issued shares of capital stock in connection with a financing to repay the Bridge Loan that had more favorable financial rights and preferences than the original conversion price or other terms, NIL had the right, at its election, to acquire those shares at the better terms. Since the Company reduced the conversion price of the Bridge Loan to finance the acquisition from $0.80 to $0.50 in September 2010 (see note 3), the result is that the option now allows NIL to acquire 19,218,450 shares of common stock. Prior to this, the option allowed NIL to acquire 12,011,531 shares of common stock at $0.80 per share. The difference between the fair value calculation of the option at the original exercise price of $0.80 and the now established $0.50 per share is E484 and has been recorded as a general and administrative expense and an increase in additional paid-in capital. The fair values were calculated with standard Black Scholes methodology using the following assumptions:
Further contingent consideration to be paid under the Share Purchase Agreement includes:
•
A payment of up to E2,800 in cash in the event of a license agreement being signed by April 1, 2011 with a third party to access Bestewil intellectual property and know-how in the field of Respiratory Syncytial Virus (“RSV License”);
•
A payment of up to E3,000 in cash should a third party commence a Phase III clinical trial by April 1, 2013 for Mymetics’ Intranasal Influenza Vaccine licensed from Bestewil;
•
A payment of 50% of Mymetics’ net royalties received from a Respiratory Syncytial Virus license (RSV license), payable in cash, maximum amount unlimited; and
•
A payment in cash, maximum amount unlimited, of 25% of any net amounts received by Mymetics from a third party Herpes Simplex Virus license (HSV license) based upon Bestewil intellectual property.
Under the terms of the Share Purchase Agreement, Mymetics has entered into an employment agreement with Antonius Stegmann, CSO of Virosome Biologicals B.V. (renamed Mymetics B.V.).
The acquisition of Bestewil has expanded Mymetics’ current portfolio of vaccines and vaccine candidates.
The acquisition of Bestewil has been recorded as a business acquisition. In a business acquisition, the purchase price of an acquired entity is allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition.
The Company has concluded the measurement period for estimating the fair value of the purchase consideration. The fair value of the purchase consideration for the Bestewil acquisition on April 1, 2009 was as follows:
The range of the undiscounted amounts the Company could pay in contingent consideration is not determinable since it is based on sales of vaccines that are yet to be developed. The fair value of the contractual obligations to pay the contingent consideration recognized on the acquisition date was determined based on a risk-adjusted, discounted cash flow approach. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The resultant cash flows were discounted using a discount rate of 25%, which the Company believes is appropriate and is representative of a market participant assumption.
The options to acquire 12,011,531 shares of common stock had a grant date fair value of E0.05 using the following assumptions:
The Company’s fair value estimates of the purchase price consideration are assigned to the assets acquired and liabilities assumed based on their estimated fair values as of April 1, 2009:
The above allocation is final. The license contract will be amortized over 14 years.
The fair value of the in-process research and development assets and license contract were estimated using an income approach and Level 3 inputs. Under this method, an intangible asset’s fair value is equal to the present value of the incremental after-tax cash flows (excess earnings) attributable solely to the intangible asset over its remaining useful life. To calculate fair value, the Company used risk-adjusted cash flows discounted at rates considered appropriate given the inherent risks associated with each type of asset. The Company believes that the level and timing of cash flows appropriately reflect market participant assumptions. Cash flows were generally assumed to extend either through the patent life underlying each product.
The Company derived the estimated cash flows from the existing license in the case of the Solvay contract and the projected revenues of drugs developed with in-process research and development. The fair value of in-process research and development also includes an existing royalty payable by the Company to Norwood based on the net sales derived from drugs that use the IPR&D technology. The discount rate applied to the estimated cash flows for all intangible assets acquired was 25%. We believe the discount rate used is consistent with what a market participant would use.
The E6,671 of goodwill was assigned to the vaccine development reporting unit, which is the only reporting unit as of December 31, 2010. The goodwill recognized is attributable primarily to the potential additional applications for the acquired patents, expected corporate synergies, the assembled workforce of Bestewil and other factors. None of the goodwill is expected to be deductible for income tax purposes.
Note 8. Fair Value Measurements
As of December 31, 2010, the Company held a liability for acquisition-related contingent consideration that is required to be measured at fair value on a recurring basis.
The Company’s acquisition-related contingent consideration is measured at fair value on a recurring basis using Level 3 inputs.
The following table presents changes to the Company’s acquisition-related contingent consideration for the years ended December 31, 2010 and 2009:
As of December 31, 2010, the fair value of the acquisition-related contingent consideration increased from the acquisition date primarily due to timing, as cash payments get closer.
Note 9. Intangible Assets
Intangible assets consisted of the following at December 31, 2010 and December 31, 2009:
Amortization of intangibles amounting to E193 and E144 has been recorded during the years ended December 31, 2010 and 2009, respectively. Amortization for the years 2011 through 2015 is expected to be E192 per year.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
March 28, 2011
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