Filed
Pursuant to Rule 424(b)(3)
Registration
No. 333-152727
HEMISPHERX
BIOPHARMA, INC.
21,300,000
Shares of Common Stock
The
Offering:
This
prospectus relates to the sale of up to 21,300,000 shares of our common stock
by
Fusion Capital Fund II, LLC. Fusion Capital is sometimes referred to in this
prospectus as the selling stockholder. The prices at which Fusion Capital
may
sell the shares will be determined by the prevailing market price for the
shares
or in negotiated transactions. We will not receive proceeds from the sale
of our
shares by Fusion Capital, but we will receive proceeds from sales of shares
to
Fusion Capital.
Our
common stock is registered under Section 12(g) of the Securities Exchange
Act of 1934 and quoted on the American Stock Exchange under the symbol "HEB."
On
August 1, 2008, the last reported sale price for our common stock as reported
on
the American Stock Exchange was $0.67 per share.
The
selling stockholder may sell its shares from time to time on the American
Stock
Exchange or otherwise, in one or more transactions at fixed prices, at
prevailing market prices at the time of sale or at prices negotiated with
purchasers. The selling stockholder will be responsible for any commissions
or
discounts due to brokers or dealers. We will pay substantially all expenses
of
registration of the shares covered by this prospectus.
Please
see the risk factors beginning on page 6 to read about certain factors you
should consider before buying shares of common stock.
The
selling stockholder is an "underwriter" within the meaning of the Securities
Act
of 1933.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined that this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
The
date
of this prospectus is August 21, 2008
OF
CONTENTS
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Page
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Prospectus
Summary
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2
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Risk
Factors
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6
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Special
Note Regarding Forward-Looking Statements
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20
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Use
of Proceeds
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Selling
Stockholder
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20
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Plan
of Distribution
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26
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Legal
Matters
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28
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Experts
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28
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Where
You Can Find More Information
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28
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Information
Incorporated By Reference
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28
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PROSPECTUS
SUMMARY
.
This
prospectus provides you with a general description of the common stock being
offered. You should read this prospectus, including all documents incorporated
herein by reference, together with additional information described under
the
heading "Where You Can Find More Information."
The
registration statement that contains this prospectus, including the exhibits
to
the registration statement, contains additional information about us and
the
securities being offered under this prospectus. You should read the registration
statement and the accompanying exhibits for further information. The
registration statement and exhibits can be read and are available to the
public
over the Internet at the SEC's website at http://www.sec.gov as described
under
the heading "Where You Can Find More Information."
About
Hemispherx
We
are a
biopharmaceutical company engaged in the clinical development, manufacture,
marketing and distribution of new drug therapies based on natural immune
system
enhancing technologies for the treatment of viral and immune based chronic
disorders. We were founded in the early 1970s doing contract research for
the
National Institutes of Health. Since that time, we have established a strong
foundation of laboratory, pre-clinical, and clinical data with respect to
the
development of nucleic acids to enhance the natural antiviral defense system
of
the human body and to aid the development of therapeutic products for the
treatment of certain chronic diseases.
Our
current strategic focus is derived from four applications of our two core
pharmaceutical technology platforms Ampligen® and Alferon N Injection®. The
commercial focus for Ampligen includes application as a treatment for Chronic
Fatigue Syndrome (CFS) and as a vaccine enhancer (adjuvant) for both therapeutic
and preventative vaccine development. Alferon N Injection® is an FDA approved
product with an indication for refractory or recurring genital warts. Alferon
LDO (Low Dose Oral) is an application currently under early stage development
targeting influenza and viral diseases both as an adjuvant as well as a single
entity anti-viral.
Ampligen®
is an experimental drug currently undergoing clinical development for the
treatment of Myalgic Encephalomyelitis/Chronic Fatigue Syndrome (“ME/CFS” or
“CFS”). We completed Phase III clinical trials in 2004 using Ampligen® to treat
ME/CFS patients and are presently in the registration process for a new drug
application (“NDA”) with the Food and Drug Administration (“FDA”). An NDA for
treatment of CFS was filed on October 10, 2007. On December 5, 2007 a refusal
to
file (RTF) letter was received because the application was deemed “not
substantially complete”. A written response was developed and submitted to the
FDA addressing 14 pre-clinical and clinical questions. On July 7, 2008 we
received word from the FDA that they had completed our filing review and
have
determined that our NDA is sufficiently complete to permit a substantive
review.
Ampligen represents the first drug in class of RNA (nucleic acid) molecules
to
apply for NDA review.
We
own
and operate a 43,000 sq. ft. FDA approved facility in New Brunswick, New
Jersey
primarily designed to produce Alferon N. In 2006, we completed the installation
of a polymer production line to produce Ampligen® raw materials on a more
reliable and consistent basis.
Our
principal executive offices are located at One Penn Center, 1617 JFK Boulevard,
Philadelphia, Pennsylvania 19103, and our telephone number is
215-988-0080.
We
maintain a website at “http://www.hemispherx.net.” Information contained on our
website is not considered to be a part of, nor incorporated by reference
in,
this prospectus.
Fusion
Capital Transaction
On
July
2, 2008, we entered into a Common Stock Purchase Agreement with Fusion Capital,
an Illinois limited liability company. Under the Purchase Agreement, Fusion
Capital is obligated, under certain conditions, to purchase shares from us
in an
aggregate amount of up to $30 million from time to time over a 25 month period.
Under the terms of the Purchase Agreement, Fusion Capital has received a
commitment fee consisting of 650,000 shares of our common stock. Also, we
will
issue to Fusion Capital up to an additional 650,000 shares as a commitment
fee
pro rata as we receive the $30 million of future funding. On the date of
our
agreement with Fusion Capital, July 2, 2008, there were 74,155,334 shares
outstanding (72,758,195 shares held by non-affiliates) excluding 650,000
shares
we issued to Fusion Capital upon execution of the Purchase Agreement and
the
additional 20,650,000 shares to be offered by Fusion Capital pursuant to
this
Prospectus which we have not yet issued. If all of such 21,300,000 shares
offered hereby were issued and outstanding as of July 2, 2008, the 21,300,000
shares would represent 22.3% of the total common stock outstanding or 22.6%
of
the non-affiliates shares outstanding as of the date hereof.
Our
common stock is quoted on the American Stock Exchange under the symbol “HEB.” In
connection with this transaction, under the rules of the American Stock
Exchange, we may not issue more than 14,823,651 shares (19.99% of our
outstanding shares as of July 2, 2008, the date of the Purchase Agreement)
without first obtaining the approval of our stockholders. Under the Purchase
Agreement and a Registration Rights Agreement with Fusion Capital we are
required to register and have included in the offering pursuant to this
Prospectus (1) 650,000 shares which have already been issued, (2) an additional
650,000 shares which we may issue in the future as a commitment fee pro rata
as
we receive the $30 million of future funding and (3) at least 13,523,651
shares
which we may sell to Fusion Capital after this registration statement is
declared effective. In the aggregate, this is 14,823,651 or 19.99% of our
outstanding shares on July 2, 2008, the date of our agreement.
We
are
electing to register hereby 21,300,000 shares in the aggregate, 20,000,000
shares which we may sell to Fusion Capital and 1,300,000 shares we have issued
or may issue to Fusion Capital as a commitment fee (the “Commitment Shares”).
This 21,300,000 shares is greater than 19.99% of our outstanding shares of
common stock as of the date of the Purchase Agreement. The number of shares
ultimately offered for sale by Fusion Capital is dependent upon the number
of
shares purchased by Fusion Capital under the Purchase Agreement. On July
30,
2008, we filed a Definitive Proxy Statement on Schedule 14A with the Securities
& Exchange Commission in respect of our Annual Meeting of Stockholders
expected to be held on September 17, 2008. At our Annual Meeting of Stockholders
we do intend to seek stockholder approval of the Purchase Agreement in order
to
be in compliance with the American Stock Exchange rules.
All
21,300,000 shares are expected to be offered pursuant to this Prospectus.
Under
the Purchase Agreement, we have the right but not the obligation to sell
more
than the 20,000,000 shares to Fusion Capital (excluding the Commitment Shares).
As of the date hereof, we do not have any plans or intent to sell to Fusion
Capital any shares beyond the 20,000,000 shares offered hereby (excluding
the
Commitment Shares). However, if we elect to sell more than the 20,000,000
shares, which we have the right but not the obligation to do, we must first
register under the Securities Act any additional shares we may elect to sell
to
Fusion Capital before we can sell such additional shares, which could cause
substantial dilution to our stockholders.
We
do not
have the right to commence any sales of our shares to Fusion Capital until
the
SEC has declared effective the registration statement of which this Prospectus
is a part. The registration statement was declared effective on August
12, 2008, and the conditions to commence funding have been
satisfied. Generally we have the right but not the obligation from time to
time to sell our shares to Fusion Capital in amounts between $120,000 and
$1.0
million depending on certain conditions. We have the right to control the
timing
and amount of any sales of our shares to Fusion Capital. The purchase price
of
the shares will be determined based upon the market price of our shares without
any fixed discount at the time of each sale. Fusion Capital does not have
the
right nor the obligation to purchase any shares of our common stock on any
business day that the price of our common stock is below $0.40. There are
no
negative covenants, restrictions on future fundings, penalties or liquidated
damages in the Purchase Agreement or the Registration Rights Agreement. The
Purchase Agreement may be terminated by us at any time at our discretion
without
any cost to us. For more detailed information, please see “The
Fusion Transaction”
in
“Selling
Stockholder” below.
Securities
Offered
Common
stock to be offered
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by
the selling stockholder
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21,300,000
Shares consisting of:
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20,650,000
shares of our common stock issuable to Fusion Capital pursuant
to a common
stock purchase agreement (inclusive of 650,000 Commitment
Shares);
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and
650,000 outstanding shares of common stock owned by Fusion
Capital.
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prior to this offering
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74,960,278 Shares
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Use of Proceeds
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We
will receive no proceeds from the sale of shares of common stock
in this
offering. However, we may receive up to $30 million in proceeds
from the
sale of our common stock to Fusion Capital under the common stock
purchase
agreement. Any proceeds from Fusion Capital we receive under the
common
stock purchase agreement will be used to fund infrastructure growth
including manufacturing, regulatory compliance and market development.
See
"Use of Proceeds."
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American Stock Exchange symbol
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HEB
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RISK
FACTORS
The
following cautionary statements identify important factors that could cause
our
actual results to differ materially from those projected in the forward-looking
statements made in this prospectus. Among the key factors that have a direct
bearing on our results of operations are:
Risks
Associated With Our Business
No
assurance of successful product development.
Ampligen®
and related products.
The
development of Ampligen® and
our
other related products is subject to a number of significant risks.
Ampligen® may
be
found to be ineffective or to have adverse side effects, fail to receive
necessary regulatory clearances, be difficult to manufacture on a commercial
scale, be uneconomical to market or be precluded from commercialization by
proprietary right of third parties. Our products are in various stages of
clinical and pre-clinical development and require further clinical studies
and
appropriate regulatory approval processes before any such products can be
marketed. We do not know when, if ever, Ampligen® or
our
other products will be generally available for commercial sale for any
indication. Generally, only a small percentage of potential therapeutic products
are eventually approved by the FDA for commercial sale. Please see the next
risk
factor.
Alferon
N Injection®.
Although Alferon N Injection® is approved for marketing in the United States for
the intra-lesional treatment of refractory or recurring external genital
warts
in patients 18 years of age or older, to date it has not been approved for
other
indications. We face many of the risks discussed above, with regard to
developing this product for use to treat other ailments.
Our
drug and related technologies are investigational and subject to regulatory
approval. If we are unable to obtain regulatory approval, our operations
will be
significantly adversely affected.
All
of
our drugs and associated technologies, other than Alferon N Injection®, are
investigational and must receive prior regulatory approval by appropriate
regulatory authorities for general use and are currently legally available
only
through clinical trials with specified disorders. At present, Alferon N
Injection® is only approved for the intra-lesional treatment of refractory or
recurring external genital warts in patients 18 years of age or older. Use
of
Alferon N Injection® for other indications will require regulatory
approval.
Our
products, including Ampligen®, are subject to extensive regulation by numerous
governmental authorities in the U.S. and other countries, including, but
not
limited to, the FDA in the U.S., the Health Protection Branch (“HPB”) of Canada,
and the Agency for the Evaluation of Medicinal Products (“EMEA”) in Europe.
Obtaining regulatory approvals is a rigorous and lengthy process and requires
the expenditure of substantial resources. In order to obtain final regulatory
approval of a new drug, we must demonstrate to the satisfaction of the
regulatory agency that the product is safe and effective for its intended
uses
and that we are capable of manufacturing the product to the applicable
regulatory standards. We require regulatory approval in order to market
Ampligen® or any other proposed product and receive product revenues or
royalties. We cannot assure you that Ampligen® will ultimately be demonstrated
to be safe or efficacious. In addition, while Ampligen® is authorized for use in
clinical trials including a cost recovery program in the United States and
Europe, we cannot assure you that additional clinical trial approvals will
be
authorized in the United States or in other countries, in a timely fashion
or at
all, or that we will complete these clinical trials.
We
filed
an NDA with the FDA for treatment of CFS on October 10, 2007. On December
5,
2007 we received an RTF letter from the FDA as our NDA filing was deemed
“not
substantially complete”. We responded to the FDA’s concerns, filing amendments
to our NDA on April 25, 2008. These amendments should allow the FDA reviewers
to
better evaluate independently the statistical efficacy/safety conclusions
of our
NDA for the use of Ampligen in treating ME/CFS. On July 7, 2008 the FDA accepted
our NDA filing for review. However, there are no assurances that upon review
of
the NDA that it will be approved by the FDA.
If
Ampligen® or one of our other products does not receive regulatory approval in
the U.S. or elsewhere, our operations most likely will be materially adversely
affected.
Although
preliminary in vitro testing indicates that Ampligen® enhances the effectiveness
of different drug combinations on avian influenza, preliminary testing in
the
laboratory is not necessarily predictive of successful results in clinical
testing or human treatment.
Ampligen®
is undergoing pre-clinical testing for possible treatment of avian flu. Although
preliminary in vitro testing indicates that Ampligen® enhances the effectiveness
of different drug combinations on avian flu, preliminary testing in the
laboratory is not necessarily predictive of successful results in clinical
testing or human treatment. No assurance can be given that similar results
will
be observed in clinical trials. Use of Ampligen® in the treatment of avian flu
requires prior regulatory approval. Only the FDA can determine whether a
drug is
safe, effective or promising for treating a specific application. As discussed
in the prior risk factor, obtaining regulatory approvals is a rigorous and
lengthy process.
In
addition, Ampligen® is being tested on two strains of avian influenza virus.
There are a number of strains and strains mutate. No assurance can be given
that
Ampligen® will be effective on any strains that might infect
humans.
We
may continue to incur substantial losses and our future profitability is
uncertain.
We
began
operations in 1966 and last reported net profit from 1985 through 1987. Since
1987, we have incurred substantial operating losses, as we pursued our clinical
trial effort to get our experimental drug, Ampligen®, approved. As of June 30,
2008, our accumulated deficit was approximately $191,157,000. We have not
yet
generated significant revenues from our products and may incur substantial
and
increased losses in the future. We cannot assure that we will ever achieve
significant revenues from product sales or become profitable. We require,
and
will continue to require, the commitment of substantial resources to develop
our
products. We cannot assure that our product development efforts will be
successfully completed or that required regulatory approvals will be obtained
or
that any products will be manufactured and marketed successfully, or be
profitable.
Our
Alferon N Injection commercial sales have halted due to lack of finished
goods
inventory.
Our
finished goods inventory of Alferon N Injection reached its current expiration
date in March 2008. As a result, we have no product to sell. Our initial
request
to extend the expiration date of this inventory was turned down by the FDA
based
on a number of issues to which we have responded. Also, we have petitioned
the
Drug Shortage Division of the FDA for assistance in obtaining an extension
of
the March 2008 expiration date. Our testing of the product indicates that
the
product is not impaired and the expiration date could be safely extended.
As
yet, we have not received a response from the FDA and there are no assurances
that they will grant an extension. Also, there is no assurance that the matter
will be resolved in a timely manner. If the expiration extension is not granted,
there can be no commercial sales of Alferon N until we produce more finished
goods from our work-in-progress inventory. Work on this inventory has been
put
on hold at this time due to the resources needed to prepare our New Brunswick
facility for the FDA preapproval inspection with respect to our Ampligen
NDA. We
expect, but cannot assure, that work on the Alferon N will resume in late
2008,
which means that we may not have any Alferon N product to sell until late
2009
or early 2010 due to the lengthy production process required.
In
2007,
we averaged Alferon N sales of approximately $77,000 per month. Without FDA
approval to extend the expiration date of our finished good inventory, we
will
not receive these monthly revenues. In addition, if there is a significant
absence of the product from the market place, no assurance can be given that
sales will return to prior levels.
We
may require additional financing which may not be
available.
The
development of our products will require the commitment of substantial resources
to conduct the time-consuming research, preclinical development, and clinical
trials that are necessary to bring pharmaceutical products to market. As
of June
30, 2008, we had approximately $10,142,000 in cash and cash equivalents and
short-term investments. We anticipate, but cannot assure, that these funds
will
be sufficient to meet our operating cash requirements for the next 12 months.
We
anticipate, but cannot assure, that we will be able to raise additional capital
from the sale of shares to Fusion Capital under the Purchase Agreement. Pursuant
to the Purchase Agreement, we only have the right to receive $120,000 every
two
business days unless our stock price equals or exceeds $0.80, in which case
we
can sell greater amounts to Fusion Capital as the price of our common stock
increases. Fusion Capital does not have the right nor the obligation to purchase
any shares of our common stock on any business day that the market price
of our
common stock is less than $0.40. Since we registered 20,000,000 shares for
sale
by Fusion Capital pursuant to this Prospectus, the selling price of our common
stock to Fusion Capital will have to average at least $1.50 per share for
us to
receive the maximum proceeds of $30 million. Assuming a purchase price of
$0.67
per share (the closing sale price of the common stock on August 1, 2008)
and the
purchase by Fusion Capital of the full 20,000,000 shares under the Purchase
Agreement, proceeds to us would only be $13,400,000 unless we choose to register
more than the 20,000,000 shares for sale by us to Fusion Capital, which we
have
the right, but not the obligation, to do. Subject to approval by our board
of
directors, we have the right but not the obligation to issue more than
20,000,000 shares to Fusion Capital. In the event we elect to issue more
than
20,000,000 shares offered hereby, we will be required to file a new registration
statement and have it declared effective by the Securities & Exchange
Commission.
In
connection with this transaction, under the rules of the American Stock
Exchange, we may not issue more than 14,823,651 shares (19.99% of our
outstanding shares as of July 2, 2008, the date of the Purchase Agreement)
without first obtaining the approval of our stockholders. We are electing
to
register hereby 21,300,000 shares in the aggregate, 20,000,000 shares which
we
may sell to Fusion Capital and 1,300,000 shares we have issued or may issue
to
Fusion Capital as a commitment fee. This 21,300,000 shares is greater than
19.99% of our outstanding shares of common stock as of the date of the Purchase
Agreement. The number of shares ultimately offered for sale by Fusion Capital
is
dependent upon the number of shares purchased by Fusion Capital under the
Purchase Agreement. On July 30, 2008, we filed a Definitive Proxy Statement
on
Schedule 14A with the Securities & Exchange Commission in respect of our
Annual Meeting of Stockholders expected to be held on September 17, 2008.
At our
Annual Meeting of Stockholders we do intend to seek stockholder approval
of the
Purchase Agreement in order to be in compliance with the American Stock Exchange
rules.
The
extent we rely on Fusion Capital as a source of funding will depend on a
number
of factors including, the prevailing market price of our common stock and
the
extent to which we are able to secure working capital from other sources.
Specifically, Fusion Capital does not have the right nor the obligation to
purchase any shares of our common stock on any business days that the market
price of our common stock is less than $0.40. If obtaining sufficient financing
from Fusion Capital were to prove unavailable or prohibitively dilutive,
we will
need to secure another source of funding in order to satisfy our working
capital
needs. Even if we are able to access the full $30 million under the common
stock
purchase agreement with Fusion Capital, we may still need additional capital
to
fully implement our business, operating and development plans. Should the
financing we require to sustain our working capital needs be unavailable
or
prohibitively expensive when we require it, the consequences could be a material
adverse effect on our business, operating results, financial condition and
prospects.
We
may not be profitable unless we can protect our patents and/or receive approval
for additional pending patents.
We
need
to preserve and acquire enforceable patents covering the use of Ampligen® for a
particular disease in order to obtain exclusive rights for the commercial
sale
of Ampligen® for such disease. We obtained all rights to Alferon N Injection®,
and we plan to preserve and acquire enforceable patents covering its use
for
existing and potentially new diseases. Our success depends, in large part,
on
our ability to preserve and obtain patent protection for our products and
to
obtain and preserve our trade secrets and expertise. Certain of our know-how
and
technology is not patentable, particularly the procedures for the manufacture
of
our experimental drug, Ampligen®, which is carried out according to standard
operating procedure manuals. We have been issued certain patents including
those
on the use of Ampligen® and Ampligen® in combination with certain other drugs
for the treatment of HIV. We also have been issued patents on the use of
Ampligen® in combination with certain other drugs for the treatment of chronic
Hepatitis B virus, chronic Hepatitis C virus, and a patent which affords
protection on the use of Ampligen® in patients with Chronic Fatigue Syndrome. We
have not yet been issued any patents in the United States for the use of
AmpligenÒ
as a
sole treatment for any of the cancers, which we have sought to target. With
regard to Alferon N Injection®, we have acquired from ISI its patents for
natural alpha interferon produced from human peripheral blood leukocytes
and its
production process and we have filed a patent application for the use of
Alferon® LDO in treating viral diseases including avian influenza. We cannot
assure that our competitors will not seek and obtain patents regarding the
use
of similar products in combination with various other agents, for a particular
target indication prior to our doing such. If we cannot protect our patents
covering the use of our products for a particular disease, or obtain additional
patents, we may not be able to successfully market our products.
The
patent position of biotechnology and pharmaceutical firms is highly uncertain
and involves complex legal and factual questions.
To
date,
no consistent policy has emerged regarding the breadth of protection afforded
by
pharmaceutical and biotechnology patents. There can be no assurance that
new
patent applications relating to our products or technology will result in
patents being issued or that, if issued, such patents will afford meaningful
protection against competitors with similar technology. It is generally
anticipated that there may be significant litigation in the industry regarding
patent and intellectual property rights. Such litigation could require
substantial resources from us and we may not have the financial resources
necessary to enforce the patent rights that we hold. No assurance can be
made
that our patents will provide competitive advantages for our products or
will
not be successfully challenged by competitors. No assurance can be given
that
patents do not exist or could not be filed which would have a materially
adverse
effect on our ability to develop or market our products or to obtain or maintain
any competitive position that we may achieve with respect to our products.
Our
patents also may not prevent others from developing competitive products
using
related technology.
There
can be no assurance that we will be able to obtain necessary licenses if
we
cannot enforce patent rights we may hold. In addition, the failure of third
parties from whom we currently license certain proprietary information or
from
whom we may be required to obtain such licenses in the future, to adequately
enforce their rights to such proprietary information, could adversely affect
the
value of such licenses to us.
If
we
cannot enforce the patent rights we currently hold we may be required to
obtain
licenses from others to develop, manufacture or market our products. There
can
be no assurance that we would be able to obtain any such licenses on
commercially reasonable terms, if at all. We currently license certain
proprietary information from third parties, some of which may have been
developed with government grants under circumstances where the government
maintained certain rights with respect to the proprietary information developed.
No assurances can be given that such third parties will adequately enforce
any
rights they may have or that the rights, if any, retained by the government
will
not adversely affect the value of our license.
There
is no guarantee that our trade secrets will not be disclosed or known by
our
competitors.
To
protect our rights, we require certain employees and consultants to enter
into
confidentiality agreements with us. There can be no assurance that these
agreements will not be breached, that we would have adequate and enforceable
remedies for any breach, or that any trade secrets of ours will not otherwise
become known or be independently developed by competitors.
We
have limited marketing and sales capability. If we are unable to obtain
additional distributors and our current and future distributors do not market
our products successfully, we may not generate significant revenues or become
profitable.
We
have
limited marketing and sales capability. We are dependent upon existing and,
possibly future, marketing agreements and third party distribution agreements
for our products in order to generate significant revenues and become
profitable. As a result, any revenues received by us will be dependent in
large
part on the efforts of third parties, and there is no assurance that these
efforts will be successful.
Our
commercialization strategy for Ampligen-CFS may include licensing/co-marketing
agreements utilizing the resources and capacities of a strategic partner(s).
We
are currently seeking worldwide marketing partner(s), with the goal of having
a
relationship in place before approval is obtained. In parallel to partnering
discussions, appropriate pre-marketing activities will be undertaken. We
intend
to control manufacturing of Ampligen on a worldwide basis.
We
cannot
assure that our U.S. or foreign marketing strategy will be successful or
that we
will be able to establish future marketing or third party distribution
agreements on terms acceptable to us, or that the cost of establishing these
arrangements will not exceed any product revenues. Our inability to establish
viable marketing and sales capabilities would most likely have a materially
adverse effect on us.
There
are no long-term agreements with suppliers of required materials. If we are
unable to obtain the required raw materials, we may be required to scale
back
our operations or stop manufacturing Alferon N Injection® and/or
Ampligen®.
A
number
of essential materials are used in the production of Alferon N Injection®,
including human white blood cells. We do not have long-term agreements for
the
supply of any of such materials. There can be no assurance we can enter into
long-term supply agreements covering essential materials on commercially
reasonable terms, if at all.
There
are
a limited number of manufacturers in the United States available to provide
the
polymers for use in manufacturing Ampligen®. At present, we do not have any
agreements with third parties for the supply of any of these polymers. We
have
established relevant manufacturing operations within our New Brunswick, New
Jersey facility for the production of Ampligen® polymers from raw materials in
order to obtain polymers on a more consistent manufacturing basis.
If
we are
unable to obtain or manufacture the required polymers, we may be required
to
scale back our operations or stop manufacturing. The costs and availability
of
products and materials we need for the production of Ampligen® and the
commercial production of Alferon N Injection® and other products which we may
commercially produce are subject to fluctuation depending on a variety of
factors beyond our control, including competitive factors, changes in
technology, and FDA and other governmental regulations and there can be no
assurance that we will be able to obtain such products and materials on terms
acceptable to us or at all.
There
is no assurance that successful manufacture of a drug on a limited scale
basis
for investigational use will lead to a successful transition to commercial,
large-scale production.
Small
changes in methods of manufacturing, including commercial scale-up, may affect
the chemical structure of Ampligen® and other RNA drugs, as well as their safety
and efficacy, and can, among other things, require new clinical studies and
affect orphan drug status, particularly, market exclusivity rights, if any,
under the Orphan Drug Act. The transition from limited production of
pre-clinical and clinical research quantities to production of commercial
quantities of our products will involve distinct management and technical
challenges and will require additional management and technical personnel
and
capital to the extent such manufacturing is not handled by third parties.
There
can be no assurance that our manufacturing will be successful or that any
given
product will be determined to be safe and effective, capable of being
manufactured economically in commercial quantities or successfully
marketed.
We
have limited manufacturing experience and capacity.
Ampligen®
has been only produced in limited quantities for use in our clinical trials
and
we are dependent upon a third party supplier for substantially all of the
production process. The failure to continue these arrangements or to achieve
other such arrangements on satisfactory terms could have a material adverse
affect on us. Also, to be successful, our products must be manufactured in
commercial quantities in compliance with regulatory requirements and at
acceptable costs. To the extent we are involved in the production process,
our
current facilities are not adequate for the production of our proposed products
for large-scale commercialization, and we currently do not have adequate
personnel to conduct commercial-scale manufacturing. We intend to utilize
third-party facilities if and when the need arises or, if we are unable to
do
so, to build or acquire commercial-scale manufacturing facilities. We will
need
to comply with regulatory requirements for such facilities, including those
of
the FDA pertaining to current Good Manufacturing Practices (“cGMP”) regulations.
There can be no assurance that such facilities can be used, built, or acquired
on commercially acceptable terms, or that such facilities, if used, built,
or
acquired, will be adequate for our long-term needs. Please refer to Risk
Factor
“Our Alferon N Injection commercial sales have halted due to lack of finished
goods inventory”.
We
may not be profitable unless we can produce Ampligen® or other products in
commercial quantities at costs acceptable to us.
We
have
never produced Ampligen® or any other products in large commercial quantities.
We must manufacture our products in compliance with regulatory requirements
in
large commercial quantities and at acceptable costs in order for us to be
profitable. We intend to utilize third-party manufacturers and/or facilities
if
and when the need arises or, if we are unable to do so, to build or acquire
commercial-scale manufacturing facilities. If we cannot manufacture commercial
quantities of Ampligen® or enter into third party agreements for its manufacture
at costs acceptable to us, our operations will be significantly affected.
Also,
each production lot of Alferon N Injection® is subject to FDA review and
approval prior to releasing the lots to be sold. This review and approval
process could take considerable time, which would delay our having product
in
inventory to sell.
Rapid
technological change may render our products obsolete or
non-competitive.
The
pharmaceutical and biotechnology industries are subject to rapid and substantial
technological change. Technological competition from pharmaceutical and
biotechnology companies, universities, governmental entities and others
diversifying into the field is intense and is expected to increase. Most
of
these entities have significantly greater research and development capabilities
than us, as well as substantial marketing, financial and managerial resources,
and represent significant competition for us. There can be no assurance that
developments by others will not render our products or technologies obsolete
or
noncompetitive or that we will be able to keep pace with technological
developments.
Our
products may be subject to substantial competition.
Ampligen®.
Competitors may be developing technologies that are, or in the future may
be,
the basis for competitive products. Some of these potential products may
have an
entirely different approach or means of accomplishing similar therapeutic
effects to products being developed by us. These competing products may be
more
effective and less costly than our products. In addition, conventional drug
therapy, surgery and other more familiar treatments may offer competition
to our
products. Furthermore, many of our competitors have significantly greater
experience than us in pre-clinical testing and human clinical trials of
pharmaceutical products and in obtaining FDA, HPB and other regulatory approvals
of products. Accordingly, our competitors may succeed in obtaining FDA, HPB
or
other regulatory product approvals more rapidly than us. There are no drugs
approved for commercial sale with respect to treating ME/CFS in the United
States. The dominant competitors with drugs to treat disease indications
in
which we plan to address include Gilead Pharmaceutical, Pfizer, Bristol-Myers,
Abbott Labs, Glaxo Smith Kline, Merck and Schering-Plough Corp. These potential
competitors are among the largest pharmaceutical companies in the world,
are
well known to the public and the medical community, and have substantially
greater financial resources, product development, and manufacturing and
marketing capabilities than we have. Although we believe our principal advantage
is the unique mechanism of action of Ampligen® on the immune system, we cannot
assure that we will be able to compete.
ALFERON
N
Injection®. Our competitors are among the largest pharmaceutical companies in
the world, are well known to the public and the medical community, and have
substantially greater financial resources, product development, and
manufacturing and marketing capabilities than we have. Alferon N Injection®
currently competes with Schering’s injectable recombinant alpha interferon
product (INTRON® A) for the treatment of genital warts. 3M Pharmaceuticals also
offer competition from its immune-response modifier, Aldara®, a
self-administered topical cream, for the treatment of external genital and
perianal warts. In addition, Medigene recently received FDA approval for
a
self-administered ointment, VeregenTM, which is indicated for the topical
treatment of external genital and perianal warts. Alferon N Injection® also
competes with surgical, chemical, and other methods of treating genital warts.
We cannot assess the impact products developed by our competitors, or advances
in other methods of the treatment of genital warts, will have on the commercial
viability of Alferon N Injection®. If and when we obtain additional approvals of
uses of this product, we expect to compete primarily on the basis of product
performance. Our competitors have developed or may develop products (containing
either alpha or beta interferon or other therapeutic compounds) or other
treatment modalities for those uses. There can be no assurance that, if we
are
able to obtain regulatory approval of Alferon N Injection® for the treatment of
new indications, we will be able to achieve any significant penetration into
those markets. In addition, because certain competitive products are not
dependent on a source of human blood cells, such products may be able to
be
produced in greater volume and at a lower cost than Alferon N Injection®.
Currently, our wholesale price on a per unit basis of Alferon N Injection® is
higher than that of the competitive recombinant alpha and beta interferon
products.
General.
Other companies may succeed in developing products earlier than we do, obtaining
approvals for such products from the FDA more rapidly than we do, or developing
products that are more effective than those we may develop. While we will
attempt to expand our technological capabilities in order to remain competitive,
there can be no assurance that research and development by others or other
medical advances will not render our technology or products obsolete or
non-competitive or result in treatments or cures superior to any therapy
we
develop.
Possible
side effects from the use of Ampligen® or Alferon N Injection® could adversely
affect potential revenues and physician/patient acceptability of our
product.
Ampligen®.
We believe that Ampligen® has been generally well tolerated with a low incidence
of clinical toxicity, particularly given the severely debilitating or life
threatening diseases that have been treated. A mild flushing reaction has
been
observed in approximately 15% of patients treated in our various studies.
This
reaction is occasionally accompanied by a rapid heart beat, a tightness of
the
chest, urticaria (swelling of the skin), anxiety, shortness of breath,
subjective reports of ''feeling hot'', sweating and nausea. The reaction
is
usually infusion-rate related and can generally be controlled by reducing
the
rate of infusion. Other adverse side effects include liver enzyme level
elevations, diarrhea, itching, asthma, low blood pressure, photophobia, rash,
transient visual disturbances, slow or irregular heart rate, decreases in
platelets and white blood cell counts, anemia, dizziness, confusion, elevation
of kidney function tests, occasional temporary hair loss and various flu-like
symptoms, including fever, chills, fatigue, muscular aches, joint pains,
headaches, nausea and vomiting. These flu-like side effects typically subside
within several months. One or more of the potential side effects might deter
usage of Ampligen® in certain clinical situations and therefore, could adversely
affect potential revenues and physician/patient acceptability of our product.
Alferon
N
Injection®. At present, Alferon N Injection® is only approved for the
intra-lesional (within the lesion) treatment of refractory or recurring external
genital warts in adults. In clinical trials conducted for the treatment of
genital warts with Alferon N Injection®, patients did not experience serious
side effects; however, there can be no assurance that unexpected or unacceptable
side effects will not be found in the future for this use or other potential
uses of Alferon N Injection® which could threaten or limit such product’s
usefulness.
We
may be subject to product liability claims from the use of Ampligen®, Alferon N
Injection®, or other of our products which could negatively affect our future
operations.
We
face
an inherent business risk of exposure to product liability claims in the
event
that the use of Ampligen® or other of our products results in adverse effects.
This liability might result from claims made directly by patients, hospitals,
clinics or other consumers, or by pharmaceutical companies or others
manufacturing these products on our behalf. Our future operations may be
negatively affected from the litigation costs, settlement expenses and lost
product sales inherent to these claims. While we will continue to attempt
to
take appropriate precautions, we cannot assure that we will avoid significant
product liability exposure. Although we currently maintain product liability
insurance coverage, there can be no assurance that this insurance will provide
adequate coverage against Ampligen® and/or Alferon N Injection® product
liability claims. A successful product liability claim against us in excess
of
Ampligen’s® $1,000,000 in insurance coverage; $3,000,000 in aggregate, or in
excess of Alferon N Injection’s® $5,000,000 in insurance coverage; $5,000,000 in
aggregate; or for which coverage is not provided could have a negative effect
on
our business and financial condition.
The
loss of services of key personnel including Dr. William A. Carter could hurt
our
chances for success.
Our
success is dependent on the continued efforts of Dr. William A. Carter because
of his position as a pioneer in the field of nucleic acid drugs, his being
the
co-inventor of Ampligen®, and his knowledge of our overall activities, including
patents and clinical trials. The loss of Dr. Carter’s services could have a
material adverse effect on our operations and chances for success. We have
secured key man life insurance in the amount of $2,000,000 on the life of
Dr.
Carter and we have an employment agreement with Dr. Carter that, as amended,
runs until December 31, 2010. However, Dr. Carter has the right to terminate
his
employment upon not less than 30 days prior written notice. The loss of Dr.
Carter or other personnel or the failure to recruit additional personnel
as
needed could have a materially adverse effect on our ability to achieve our
objectives.
Uncertainty
of health care reimbursement for our products.
Our
ability to successfully commercialize our products will depend, in part,
on the
extent to which reimbursement for the cost of such products and related
treatment will be available from government health administration authorities,
private health coverage insurers and other organizations. Significant
uncertainty exists as to the reimbursement status of newly approved health
care
products, and from time to time legislation is proposed, which, if adopted,
could further restrict the prices charged by and/or amounts reimbursable
to
manufacturers of pharmaceutical products. We cannot predict what, if any,
legislation will ultimately be adopted or the impact of such legislation
on us.
There can be no assurance that third party insurance companies will allow
us to
charge and receive payments for products sufficient to realize an appropriate
return on our investment in product development.
There
are risks of liabilities associated with handling and disposing of hazardous
materials.
Our
business involves the controlled use of hazardous materials, carcinogenic
chemicals, flammable solvents and various radioactive compounds. Although
we
believe that our safety procedures for handling and disposing of such materials
comply in all material respects with the standards prescribed by applicable
regulations, the risk of accidental contamination or injury from these materials
cannot be completely eliminated. In the event of such an accident or the
failure
to comply with applicable regulations, we could be held liable for any damages
that result, and any such liability could be significant. We do not maintain
insurance coverage against such liabilities.
Risks
Associated With an Investment in Our Common Stock
The
market price of our stock may be adversely affected by market
volatility.
The
market price of our common stock has been and is likely to be volatile. In
addition to general economic, political and market conditions, the price
and
trading volume of our stock could fluctuate widely in response to many factors,
including:
| |
·
|
announcements
of the results of clinical trials by us or our
competitors;
|
| |
·
|
adverse
reactions to products;
|
| |
·
|
governmental
approvals, delays in expected governmental approvals or withdrawals
of any
prior governmental approvals or public or regulatory agency concerns
regarding the safety or effectiveness of our
products;
|
| |
·
|
changes
in U.S. or foreign regulatory policy during the period of product
development;
|
| |
·
|
developments
in patent or other proprietary rights, including any third party
challenges of our intellectual property
rights;
|
| |
·
|
announcements
of technological innovations by us or our
competitors;
|
| |
·
|
announcements
of new products or new contracts by us or our
competitors;
|
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·
|
actual
or anticipated variations in our operating results due to the level
of
development expenses and other
factors;
|
| |
·
|
changes
in financial estimates by securities analysts and whether our earnings
meet or exceed the estimates;
|
| |
·
|
conditions
and trends in the pharmaceutical and other
industries;
|
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·
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new
accounting standards; and
|
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·
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the
occurrence of any of the risks described in these "Risk
Factors."
|
Our
common stock is listed for quotation on the American Stock Exchange. For
the
12-month period ended June 30, 2008, the closing price of our common stock
has
ranged from $0.61 to $2.00 per share. We expect the price of our common stock
to
remain volatile. The average daily trading volume of our common stock varies
significantly. Our relatively low average volume and low average number of
transactions per day may affect the ability of our stockholders to sell their
shares in the public market at prevailing prices and a more active market
may
never develop.
In
the
past, following periods of volatility in the market price of the securities
of
companies in our industry, securities class action litigation has often been
instituted against companies in our industry. If we face securities litigation
in the future, even if without merit or unsuccessful, it would result in
substantial costs and a diversion of management attention and resources,
which
would negatively impact our business.
The
sale of our common stock to Fusion Capital may cause dilution and the sale
of
the shares of common stock acquired by Fusion Capital could cause the price
of
our common stock to decline.
In
connection with entering into the Purchase Agreement with Fusion Capital,
we are
electing to register hereby 21,300,000 shares in the aggregate, consisting
of
20,000,000 shares which we may sell to Fusion Capital and 1,300,000 shares
we
have issued or may issue to Fusion Capital as Commitment Shares. The number
of
shares ultimately offered for sale by Fusion Capital under this prospectus
is
dependent upon the number of shares purchased by Fusion Capital under the
agreement. The purchase price for the common stock to be sold to Fusion Capital
pursuant to the common stock purchase agreement will fluctuate based on the
price of our common stock. All 21,300,000 shares registered in this offering
are
expected to be freely tradable. It is anticipated that shares registered
in this
offering will be sold over a period of up to 25 months from the date of this
prospectus. Depending upon market liquidity at the time, a sale of shares
under
this offering at any given time could cause the trading price of our common
stock to decline. Fusion Capital may ultimately purchase all, some or none
of
the 20,000,000 shares of common stock not yet issued but registered in this
offering. After it has acquired such shares, it may sell all, some or none
of
such shares. Therefore, sales to Fusion Capital by us under the Purchase
Agreement may result in substantial dilution to the interests of other holders
of our common stock. The sale of a substantial number of shares of our common
stock under this offering, or anticipation of such sales, could make it more
difficult for us to sell equity or equity-related securities in the future
at a
time and at a price that we might otherwise wish to effect sales. However,
we
have the right to control the timing and amount of any sales of our shares
to
Fusion Capital and the agreement may be terminated by us at any time at our
discretion without any cost to us.
In
addition to the 21,300,000 shares registered herein, we have previously
registered 135% of 3,615,514 shares issuable upon exercise of Warrants related
to our former convertible debentures and 14,442,294 shares issuable upon
exercise of certain other warrants. To the extent the exercise price of the
warrants is less than the market price of the common stock, the holders of
the
warrants are likely to exercise them and sell the underlying shares of common
stock and to the extent that the conversion price and exercise price of these
securities are adjusted pursuant to anti-dilution protection, the securities
could be exercisable or convertible for even more shares of common stock.
We
also may issue shares pursuant to this prospectus or otherwise to be used
to
meet our capital requirements or use shares to compensate employees, consultants
and/or directors. In this regard we also have previously registered $50,000,000
worth of our securities in a universal shelf registration statement, none
of
which has been designated or issued. We are unable to estimate the amount,
timing or nature of future sales of outstanding common stock or instruments
convertible into or exercisable for our common stock. Sales of substantial
amounts of our common stock in the public market could cause the market price
for our common stock to decrease. Furthermore, a decline in the price of
our
common stock would likely impede our ability to raise capital through the
issuance of additional shares of common stock or other equity
securities.
Provisions
of our Certificate of Incorporation and Delaware law could defer a change
of our
management which could discourage or delay offers to acquire
us.
Provisions
of our Certificate of Incorporation and Delaware law may make it more difficult
for someone to acquire control of us or for our stockholders to remove existing
management, and might discourage a third party from offering to acquire us,
even
if a change in control or in management would be beneficial to our stockholders.
For example, our Certificate of Incorporation allows us to issue shares of
preferred stock without any vote or further action by our stockholders. Our
Board of Directors has the authority to fix and determine the relative rights
and preferences of preferred stock. Our Board of Directors also has the
authority to issue preferred stock without further stockholder approval.
As a
result, our Board of Directors could authorize the issuance of a series of
preferred stock that would grant to holders the preferred right to our assets
upon liquidation, the right to receive dividend payments before dividends
are
distributed to the holders of common stock and the right to the redemption
of
the shares, together with a premium, prior to the redemption of our common
stock. In this regard, in November 2002, we adopted a stockholder rights
plan
and, under the Plan, our Board of Directors declared a dividend distribution
of
one Right for each outstanding share of Common Stock to stockholders of record
at the close of business on November 29, 2002. Each Right initially entitles
holders to buy one unit of preferred stock for $30.00. The Rights generally
are
not transferable apart from the common stock and will not be exercisable
unless
and until a person or group acquires or commences a tender or exchange offer
to
acquire, beneficial ownership of 15% or more of our common stock. However,
for
Dr. Carter, our chief executive officer, who already beneficially owns 7.8%
of
our common stock, the Plan’s threshold will be 20%, instead of 15%. The Rights
will expire on November 19, 2012, and may be redeemed prior thereto at $.01
per
Right under certain circumstances.
Because
the risk factors referred to above could cause actual results or outcomes
to
differ materially from those expressed in any forward-looking statements
made by
us, you should not place undue reliance on any such forward-looking statements.
Further, any forward-looking statement speaks only as of the date on which
it is
made and we undertake no obligation to update any forward-looking statement
or
statements to reflect events or circumstances after the date on which such
statement is made or reflect the occurrence of unanticipated events. New
factors
emerge from time to time, and it is not possible for us to predict which
will
arise. In addition, we cannot assess the impact of each factor on our business
or the extent to which any factor, or combination of factors, may cause actual
results to differ materially from those contained in any forward-looking
statements. Our research in clinical efforts may continue for the next several
years and we may continue to incur losses due to clinical costs incurred
in the
development of Ampligen® for commercial application. Possible losses may
fluctuate from quarter to quarter as a result of differences in the timing
of
significant expenses incurred and receipt of licensing fees and/or cost recovery
treatment revenue.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain
statements in this prospectus constitute “forwarding-looking statements” within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1995 (collectively, the
“Reform Act”). Certain, but not necessarily all, of such forward-looking
statements can be identified by the use of forward-looking terminology such
as
“believes,” “expects,” “may,” “will,” “should,” or “anticipates” or the negative
thereof or other variations thereon or comparable terminology, or by discussions
of strategy that involve risks and uncertainties. All statements other than
statements of historical fact, included in this prospectus regarding our
financial position, business strategy and plans or objectives for future
operations are forward-looking statements. Without limiting the broader
description of forward-looking statements above, we specifically note that
statements regarding potential drugs, their potential therapeutic effect,
the
possibility of obtaining regulatory approval, our ability to manufacture
and
sell any products, market acceptance or our ability to earn a profit from
sales
or licenses of any drugs or our ability to discover new drugs in the future
are
all forward-looking in nature.
Such
forward-looking statements involve known and unknown risks, uncertainties
and
other factors, including but not limited to, the risk factors discussed above,
which may cause the actual results, performance or achievements of Hemispherx
and its subsidiaries to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements and other factors referenced in this prospectus. We do not undertake
and specifically decline any obligation to publicly release the results of
any
revisions which may be made to any forward-looking statement to reflect events
or circumstances after the date of such statements or to reflect the occurrence
of anticipated or unanticipated events.
USE
OF PROCEEDS
We
will
not receive any proceeds from the sale of the shares of common stock offered
by
the selling stockholder. However, we may receive up to $30 million in proceeds
from the sale of shares of our common stock to Fusion Capital under the Purchase
Agreement. We will apply such proceeds, if any, to fund infrastructure growth
including manufacturing, regulatory compliance and market
development.
SELLING
STOCKHOLDER
The
following table presents information regarding the selling stockholder. Neither
the selling stockholder nor any of its affiliates has held a position or
office,
or had any other material relationship, with us. However, in July 2005 we
entered into a prior common stock purchase agreement with Fusion Capital,
pursuant to which we sold an aggregate of 8,791,838 shares for total gross
proceeds of $20,000,000. In April 2006 we entered into a prior common stock
purchase agreement with Fusion Capital, pursuant to which we sold an aggregate
of 10,682,032 shares for total gross proceeds of approximately $19,739,000
through November, 2007. Each of these transactions was substantially similar
to
the transaction set forth herein.
|
Selling
Stockholder
|
|
Shares
Beneficially
Owned Before
Offering
|
|
Percentage
of
Outstanding
Shares
Beneficially
Owned
Before
Offering (1)
|
|
Shares to be Sold in
the Offering
Assuming The
Company Issues The
Maximum Number of
Shares Under the
Purchase Agreement
(1)
|
|
Percentage of
Outstanding
Shares
Beneficially
Owned After
Offering
|
|
|
Fusion Capital
Fund II, LLC (2)
|
|
|
1,098,814
|
(3)
|
|
1.5
|
%
|
|
21,300,000
|
(3)
|
|
Less
than 1
|
%
|