In addition to the risk factors
set forth in Part I — Item 1A — “Risk Factors” of our Annual Report on Form 10-K for the fiscal
year ended December 31, 2017 (the “10-K”) and Part II — Item 1A — “Risk Factors” of
our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018 (the “10-Q”), investors
should consider the following risk factors arising from our intention to combine with Marker Therapeutics,
Inc. (“Marker”) through a “merger of equals” business combination (the “merger”, and the
Company and Marker following completion of the merger, the “Combined Company”) as well as the other risk factors
set forth in the preliminary proxy statement we filed with the SEC on July 13, 2018 in connection with the proposed merger,
which also include risks related to Marker, Marker’s product candidates, governmental regulation of Marker and
Marker’s intellectual property which may affect the Combined Company upon completion of the Merger. On May 15, 2018, we
entered into a definitive merger agreement (the “merger agreement”) with Marker. Pursuant to the terms of the
merger agreement, Marker will be merged with and into a wholly-owned acquisition subsidiary of the Company formed by the
Company in connection with the merger. Upon completion of the merger, the separate existence of the acquisition subsidiary
will cease and Marker will be a wholly owned subsidiary of the Company and we will continue as the Combined Company in the
merger and renamed Marker Therapeutics, Inc. Following a vote of the Company’s Stockholders, the merger is expected
to close in the third or fourth quarter of 2018, although we cannot assure you that the transaction will close during that
time or at all. The risk factors below related to the proposed merger with Marker and the Combined Company upon completion of
the merger should be read in conjunction with the risk factors set forth in the 10-K and 10-Q and the other information
contained in this report as our business, financial condition or results of operations could be adversely affected if any of
these risks actually occur.
RISKS RELATED TO THE PROPOSED MERGER
WITH MARKER
If the proposed merger with Marker
is not consummated, TapImmune’s business could suffer materially and TapImmune’s stock price could decline.
The consummation of
the proposed merger with Marker is subject to a number of closing conditions, including the approval of the stock issuance pursuant
to the merger agreement by TapImmune stockholders, and other customary closing conditions.
If the proposed merger
is not consummated, TapImmune may be subject to a number of material risks, and its business and stock price could be adversely
affected, as follows:
·
TapImmune has incurred, and expects to continue to incur, significant expenses related to the proposed merger with Marker even if the merger
is not consummated.
·
The market price of TapImmune common stock may decline to the extent that the current market price reflects a market assumption
that the proposed merger will be completed.
·
The
merger agreement contains covenants relating to TapImmune’s solicitation of competing acquisition proposals and the
conduct of TapImmune’s business between the date of signing the merger agreement and the closing of the merger. As a
result, significant business decisions and transactions before the closing of the merger require the consent of Marker.
Accordingly, TapImmune may be unable to pursue business opportunities that would otherwise be in its best interest as a
standalone company. If the merger agreement is terminated after TapImmune has invested significant time and resources in the
merger process, TapImmune will have a limited ability to obtain additional financing to fund its operations on a standalone
basis.
·
TapImmune
could be obligated to pay Marker a $1.5 million termination fee in connection with the termination of the merger agreement, depending
on the reason for the termination. Additionally, in connection with the termination of the merger agreement, depending on the
reason for the termination, TapImmune may be obligated to pay up to $500,000 of out-of-pocket costs incurred by Marker in connection
with the transactions and any legal fees incurred by Marker in connection with preparation of the proxy statement.
·
TapImmune
would need to raise additional capital independently of the proposed merger to continue to operate its business on a stand-alone
basis and this capital might not be available on acceptable terms, if at all.
·
The
merger agreement places certain restrictions on the conduct of our business, which may have delayed or prevented us from
undertaking business opportunities that, absent the merger agreement, we may have pursued.
·
Litigation
related to any failure to complete the merger or related to any enforcement proceeding commenced against us to perform our
obligations under the merger agreement.
·
TapImmune’s
prospective customers, collaborators and other business partners and investors in general may view the failure to consummate
the merger as a poor reflection on TapImmune’s business or prospects.
In addition, if the
merger agreement is terminated and TapImmune’s board of directors determines to seek another business combination, it may
not be able to find a third party willing to provide equivalent or more attractive consideration than the consideration to be provided
by each party in the merger. In such circumstances, TapImmune’s board of directors may elect to, among other things, divest
all or a portion of TapImmune’s business, or take the steps necessary to liquidate all of TapImmune’s business and
assets, and in either such case, the consideration that TapImmune receives may be less attractive than the consideration to be
received by TapImmune pursuant to the merger agreement.
Any delay
in completing the merger may reduce or eliminate the benefits expected to be achieved thereunder.
The merger is subject
to a number of conditions beyond our control that may prevent, delay or otherwise materially adversely affect its completion. We
cannot predict whether and when these conditions will be satisfied. Any delay in completing the merger could cause the Combined
Company not to realize some or all of the operational and other benefits that we expect to achieve if the merger is successfully
completed within its expected time frame.
Completion
of the merger is subject to a number of conditions, which, if not satisfied or waived, may result in termination of the merger
agreement.
The merger agreement
contains a number of conditions to completion of the merger, including, among others:
·
receipt
of our requisite shareholder approval;
·
the
absence of any temporary restraining order, preliminary or permanent injunction or other judgment, order or decree issued by any
court of competent jurisdiction or other legal restraint that prohibits or makes illegal the completion of the merger;
·
the
absence of a stop order or proceedings threatened or initiated by the SEC for that purpose;
·
the
accuracy of the representations and warranties made in the merger agreement by us, subject to certain materiality thresholds, and
each party having performed, in all material respects, all obligations required to be performed by it under the merger agreement
at or prior to the effective time of the merger; and
·
the
non-occurrence of any fact, circumstance, development, event, change, occurrence or effect that, individually or in the aggregate,
has had or would reasonably be expected to have a material adverse effect on either party.
Many of the
conditions to completion of the merger are not within our control, and we cannot predict when or if these conditions will be
satisfied. If any of these conditions are not satisfied or waived prior to the outside deadline for consummating the merger,
it is possible that the merger agreement may be terminated. The original deadline for consummating the merger is September
15, 2018, but it will be extended for 60 days to November 14, 2018 since the Company has received notice that the
proxy statement is being reviewed by the SEC. Although we have agreed in the merger agreement to use reasonable best
efforts, subject to certain limitations, to complete the merger in the most expeditious manner practicable, these and other
conditions to completion of the merger may fail to be satisfied.
The
merger will cause dilution to the Combined Company, which may negatively affect the market price of common stock of the Combined
Company.
In connection
with the completion of the merger, we expect to issue approximately 13.7 million shares of our common stock exclusive of any
warrants that are expected to be issued and we expect to issue 17.5 million shares in connection with the concurrent private placement, exclusive of
any warrants expected to be issued in connection therewith. The issuance of these new shares of our common stock could have the effect
of depressing the market price of common stock of the Combined Company.
The announcement and pendency of
the proposed merger with Marker could adversely affect TapImmune’s business.
The announcement and
pendency of the proposed merger could adversely affect TapImmune’s business for a number of different reasons, many of which
are not within TapImmune’s control, including as follows:
·
Some
of TapImmune’s suppliers, distributors, collaborators, and other business partners may seek to change or terminate their
relationships with TapImmune as a result of the proposed merger;
·
As
a result of the proposed merger, current and prospective employees could experience uncertainty about their future roles within
the Combined Company. This uncertainty may adversely affect TapImmune’s ability to retain its key employees, who may seek
other employment opportunities; and
·
TapImmune’s
management team may be distracted from day-to-day operations as a result of the proposed merger.
Some of TapImmune’s and Marker’s officers
and directors have conflicts of interest that may influence them to support or approve the merger.
Certain officers and
directors of TapImmune and Marker participate in arrangements that provide them with interests in the merger that are different
from yours, including, among others, to the extent applicable, their continued service as an officer or director of the Combined
Company, severance benefits, the acceleration of restricted stock and stock option vesting and continued indemnification. These
interests, among others, may influence such officers and directors of TapImmune and Marker to support or approve the merger.
The merger may be completed even
though material adverse changes may result from the announcement of the merger, industry-wide changes and other causes.
In general, either party
can refuse to complete the merger if there is a material adverse change affecting the other party between May 15, 2018, the date
of the merger agreement, and the closing. However, some types of changes do not permit either party to refuse to complete the merger,
even if such changes would have a material adverse effect on TapImmune or Marker, to the extent they resulted from the following
(unless, in some cases, they have a materially disproportionate effect on TapImmune or Marker, as the case may be):
·
any
rejection by a governmental body of a registration or filing by TapImmune or Marker relating to TapImmune or Marker’s intellectual
property rights;
·
any
change in the cash position of TapImmune or Marker that results from operations in the ordinary course of business;
·
conditions
generally affecting the industries in which TapImmune or Marker and its subsidiaries participate or the U.S. or global economy
or capital markets as a whole, to the extent that such conditions do not have a disproportionate impact on Marker and its subsidiaries,
taken as a whole;
·
any
failure by TapImmune or Marker or any of its subsidiaries to meet internal projections or forecasts on or after the date of the
merger agreement, provided that any such effect, change, event, circumstance, or development causing or contributing to any such
failure to meet projections or forecasts may constitute a material adverse effect of TapImmune or Marker and may be taken into
account in determining whether a material adverse effect has occurred;
·
the
execution, delivery, announcement, or performance of obligations under the merger agreement or the announcement, pendency or anticipated
consummation of the merger;
·
any
natural disaster or any acts of terrorism, sabotage, military action, or war or any escalation or worsening thereof; or
·
any
changes after the date of the merger agreement in U.S. GAAP or applicable laws.
If adverse changes occur
but TapImmune and Marker must still complete the merger, the Combined Company’s stock price may suffer.
During the pendency of the merger,
TapImmune may not be able to enter into a business combination with another party because of restrictions in the merger agreement.
Covenants in the merger
agreement impede the ability of TapImmune or Marker to make acquisitions or complete other transactions that are not in the ordinary
course of business pending completion of the merger. As a result, if the merger is not completed, the parties may be at a disadvantage
to their competitors. In addition, while the merger agreement is in effect and subject to limited exceptions, each party is prohibited
from soliciting, initiating, encouraging or taking actions designed to facilitate any inquiries or the making of any proposal or
offer that could lead to the entering into certain extraordinary transactions with any third party, such as a sale of assets, an
acquisition of TapImmune common stock, a tender offer for TapImmune common stock or a merger or other business combination outside
the ordinary course of business, which transactions could be favorable to such party’s stockholders.
The market price of the Combined
Company’s common stock may decline as a result of the merger.
The market price of
the Combined Company’s common stock may decline as a result of the merger for a number of reasons including if:
·
the
Combined Company does not achieve the perceived benefits of the merger as rapidly or to the extent anticipated by financial or
industry analysts;
·
the
effect of the merger on the Combined Company’s business and prospects is not consistent with the expectations of financial
or industry analysts; or
·
investors
react negatively to the effect on the Combined Company’s business and prospects from the merger.
TapImmune stockholders may not realize
a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger.
If the Combined Company
is unable to realize the strategic and financial benefits currently anticipated from the merger, TapImmune stockholders will have
experienced substantial dilution of their ownership interest without receiving any commensurate benefit. Significant management
attention and resources will be required to integrate and operate the Combined Company. Delays in this process could adversely
affect the Combined Company’s business, financial results, financial condition and stock price following the merger. Even
if the Combined Company is able to integrate the business operations successfully, there can be no assurance that this integration
will result in the realization of the full benefits of synergies, innovation, and operational efficiencies that may be possible
from this integration and that these benefits will be achieved within a reasonable period of time.
Because the lack of a public market
for the Marker shares makes it difficult to value Marker, TapImmune may pay consideration in the merger that is greater than the
fair market value of the Marker shares.
The outstanding capital
stock of Marker is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult
to determine the fair market value of Marker. Since the percentage of TapImmune’s equity to be issued to Marker stockholders
was determined based on negotiations between the parties, it is possible that the value of the TapImmune common stock to be issued
in connection with the merger will be greater than the fair market value of Marker.
The Combined Company
will incur significant transaction costs as a result of the merger, including investment banking, legal, and accounting fees. In
addition, the Combined Company will incur significant consolidation and integration expenses which cannot be accurately estimated
at this time. These costs could include the planned relocation of certain operations from Jacksonville, Florida to Houston, Texas
as well as other transition and start-up costs associated with the clinical programs to be conducted by the Combined Company after
the merger. Actual transaction costs may substantially exceed TapImmune’s estimates and may have an adverse effect on the
Combined Company’s financial condition and operating results.
Marker’s principal stockholders,
executive officers, and directors will own a significant percentage of TapImmune common stock and will be able to exert significant
control over matters submitted to the stockholders for approval.
Immediately following
the effective time of the merger between Marker and TapImmune, and after taking into account the issuance of shares in the private
placement transaction occurring concurrently with the merger, Marker’s stockholders are expected to own, on a fully-diluted
basis (assuming the exercise of all outstanding warrants and options), approximately 27.5%, and TapImmune’s current stockholders
are expected to own approximately 27.5%, of TapImmune common stock.
After the merger with
TapImmune, Marker’s stockholders will beneficially own a significant percentage of TapImmune common stock. This significant
concentration of share ownership may adversely affect the trading price for TapImmune common stock because investors often perceive
disadvantages in owning stock in companies with large stockholders. These stockholders, if they acted together, could significantly
influence all matters requiring approval by the stockholders following the merger, including the election of directors and the
approval of mergers or other business combination transactions. The interests of these stockholders may not always coincide with
the interests of other stockholders.
The merger may limit the use of the
NOL carryforwards and other tax attributes of both TapImmune and Marker to offset future taxable income of the Combined Company.
Under Section 382 of
the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change” (generally
defined as a greater than 50% change (by value) in its equity ownership over a three-year period), the corporation’s ability
to use its pre-change net operating loss, which is referred to as NOL, carryforwards, and other pre-change tax attributes (such
as research tax credits) to offset its post-change income may be limited.
As of December 31, 2017,
TapImmune had federal NOL carryforwards of approximately $41.7 million and state NOL carryforwards of approximately $21.9 million.
The merger may result in an ownership change for TapImmune under Section 382 of the Code and may limit the use of the NOL carryforwards
and other tax attributes of TapImmune to offset future taxable income of the Combined Company for both federal and state income
tax purposes. These tax attributes are subject to expiration at various times in the future to the extent that they have not been
applied to offset the taxable income of the Combined Company. These limitations may affect the Combined Company’s effective
tax rate in the future.
RISKS RELATED TO THE COMBINED COMPANY UPON COMPLETION OF
MERGER
Risks Related to the Combined Company’s
Business and Product Candidates
The Combined Company’s future
success will be highly dependent upon its key personnel, and its ability to attract, retain, and motivate additional qualified
personnel.
The Combined Company’s
ability to compete in the highly competitive biotechnology and pharmaceutical industries depends upon its ability to attract and
retain highly qualified managerial, scientific, and medical personnel. The Combined Company will be highly dependent on its management,
scientific, and medical personnel, including Peter Hoang, its President and Chief Executive Officer, Ann Leen, Ph.D., who is expected
to be its Chief Scientific Officer following completion of the merger, and Juan Vera, M.D., who is expected to be its Chief Development
Officer following completion of the merger. The loss of the services of any of the Combined Company’s executive officers,
other key employees, and other scientific and medical advisors, and the Combined Company’s inability to find suitable replacements
could result in delays in product development and harm to the Combined Company’s business. In particular, Dr. Leen is the
key person who has produced Marker’s MultiTAA T cell therapy-based product. A priority of the Combined Company will be to
quickly train additional qualified scientific and medical personnel in the Combined Company to ensure the ability to maintain business
continuity. Any delays in training such personnel could delay the development, manufacture, and clinical trials of the Combined
Company’s product candidates.
The Combined Company
also anticipates hiring additional scientific and medical personnel to grow its business. The Combined Company will conduct operations
in Houston, Texas. This region is headquarters to many other biopharmaceutical companies and many academic and research institutions.
Competition for skilled personnel in the combined companies market is intense and may limit its ability to hire and retain highly
qualified personnel on acceptable terms or at all. If the Combined Company is not successful in attracting and retaining highly
qualified personnel, it may not be able to successfully implement its business strategy.
The Combined Company’s strategic
relationship with Baylor College of Medicine, or BCM, is dependent, in part, upon its relationship with key medical and scientific
personnel and advisors.
Marker’s therapy
has been developed through its collaboration with the Center for Cell and Gene Therapy at BCM, founded by Malcom K. Brenner, M.D.,
Ph.D., a recognized pioneer in immuno-oncology. In addition to Dr. Brenner, Marker’s founders include, Ann Leen, Ph.D., Juan
Vera, M.D., Helen Heslop, M.D., DSc (Hon) and Cliona Rooney, Ph.D., who have significant experience in this field and are all affiliated
with the Center for Cell and Gene Therapy at BCM. Dr. Leen and Dr. Vera are expected to serve as the Combined Company’s Chief
Scientific Officer and Chief Development Officer, respectively, following completion of the merger. In addition, Dr. Brenner, Dr.
Heslop and Dr. Rooney have agreed to join the Combined Company’s newly formed Scientific Advisory Board that will become
effective in conjunction with the merger.
The Combined Company’s
strategic relationship with BCM will be dependent, in part, on its relationship with these key employees and advisors, and in particular
Dr. Leen and Dr. Vera, who are also employed with the Center for Cell and Gene Therapy at BCM. If the Combined Company loses Dr.
Leen or Dr. Vera, or if either leaves their position at BCM, the Combined Company’s relationship with BCM may deteriorate,
and its business could be harmed.
The Combined Company, and certain
of its key medical and scientific personnel, will need additional agreements in place with BCM to expand its development, manufacture,
and clinical trial efforts.
Although the Combined
Company will have an exclusive license agreement with BCM under which Marker received a worldwide, exclusive license to BCM’s
rights in and to three patent families to develop and commercialize the MultiTAA product candidates, the Combined Company will
need to enter into additional agreements with BCM with respect to (i) a strategic alliance to advance pre-clinical research, early
stage clinical trials, and Phase II clinical trials with respect to the Combined Company’s product candidates, as well as
continued access to its clinical data, (ii) sponsored research for investigators within the Center for Cell and Gene Therapy at
BCM, and (iii) product manufacturing and support, including personnel and space at the institution for the foreseeable future.
Any delays in entering into new strategic agreements with BCM related to the Combined Company’s product candidates could
delay the development, manufacture, and clinical trials of its product candidates.
The multiple roles of certain of
the Combined Company’s officers and directors could limit their time and availability to the Combined Company, and create,
or appear to create, conflicts of interest.
After completion of
the merger, Dr. Leen and Dr. Vera will continue to be employees of BCM, and will be contractually obligated to spend a significant
portion of their time for BCM. In addition, Dr. Leen and Dr. Vera are co-founders and members of ViraCyte, and perform services
from time to time for ViraCyte LLC, or ViraCyte. ViraCyte is owned by the same principal stockholder group as Marker and has technology
which is being developed under a license agreement with BCM by the same research group at BCM. More specifically, ViraCyte is a
clinical stage biopharmaceutical company, which is investigating and developing virus-specific T cell therapy technology for the
prevention and/or treatment of viral infections. Accordingly, Dr. Leen and Dr. Vera may have other commitments that would, at times,
limit their availability to the Combined Company, and other research being conducted by Dr. Leen and Dr. Vera may, at times, receive
higher priority than research on the Combined Company’s programs, which may, in turn, delay the development or commercialization
of the Combined Company’s product candidates.
In addition, John Wilson
is a member, director and officer of ViraCyte and will be a director of the Combined Company after the consummation of the merger.
Dr. Leen and Dr. Vera are also co-founders and members of ViraCyte, and perform services for ViraCyte from time to time, and Dr.
Vera will be a director of the Combined Company after the consummation of the merger. All of these individuals will have certain
fiduciary or other obligations to the Combined Company after the consummation of the merger and certain fiduciary or other obligations
to ViraCyte and, in the case of Dr. Leen and Dr. Vera, to BCM. Such multiple obligations may in the future result in a conflict
of interest with respect to presenting other potential business opportunities to the Combined Company or to ViraCyte. A conflict
of interest also may arise concerning the timing of the parties’ planned and ongoing clinical trials, investigational new
drug application filings and the parties’ opportunities for marketing their respective product candidates. In addition, they
may be faced with decisions that could have different implications for the Combined Company than for ViraCyte. Consequently, there
is no assurance that these members of the Combined Company’s board and management would always act in the Combined Company’s
best interests in all situations should a conflict arise.
Product development involves a lengthy
and expensive process with an uncertain outcome, and results of earlier pre-clinical and clinical trials may not be predictive
of future clinical trial results.
Clinical testing is
expensive and generally takes many years to complete, and the outcome is inherently uncertain. Failure can occur at any time during
the clinical trial process. The results of pre-clinical testing and early clinical trials of the Combined Company’s product
candidates may not be predictive of the results of larger, later-stage controlled clinical trials. Product candidates that have
shown promising results in early-stage clinical trials may still suffer significant setbacks in subsequent clinical trials. Marker’s
clinical trials to date have been conducted on a small number of patients in a single clinical site for a limited number of indications.
The Combined Company will have to conduct larger, well-controlled trials in its proposed indications at multiple sites to verify
the results obtained to date and to support any regulatory submissions for further clinical development of Marker’s product
candidates. TapImmune’s and Marker’s assumptions related to Marker’s products, such as with respect to lack of
toxicity and manufacturing cost estimates, are based on early limited clinical trials and current manufacturing process at BCM
and may prove to be incorrect. In addition, the initial estimates of the clinical cost of development may prove to be inadequate,
particularly if clinical trial timing or outcome is different than predicted or regulatory agencies require further testing before
approval. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials
due to lack of efficacy or adverse safety profiles despite promising results in earlier, smaller clinical trials. Moreover, clinical
data are often susceptible to varying interpretations and analyses. The Combined Company does not know whether any Phase II, Phase
III, or other clinical trials it may conduct will demonstrate consistent or adequate efficacy and safety with respect to the proposed
indication for use sufficient to receive regulatory approval or market its product candidates.
The Combined Company may not be able
to expand its manufacturing processes to other third-party manufacturing facilities or successfully create its own manufacturing
infrastructure for supply of its requirements of product candidates for use in clinical trials and for commercial sale.
The Combined Company
will not own any facility that may be used as its clinical-scale manufacturing and processing facility following the merger. The
Combined Company anticipates it will initially rely solely on the cGMP manufacturing facility within BCM for the manufacturing
of its product candidates. If the cGMP manufacturing facility of BCM, which does manufacturing for itself and other parties, experiences
capacity constraints, disruptions, or delays in manufacturing the Combined Company’s products, the Combined Company’s
planned clinical trials and necessary manufacturing capabilities will be disrupted or delayed, which will adversely affect the
Combined Company’s ability to conduct and further develop its business as currently planned. Further, the cGMP manufacturing
facility is most likely too small to conduct the pivotal clinical studies being planned by the Combined Company, so the Combined
Company will need to develop its own cGMP manufacturing capacity that will be adequate for such clinical trials.
In 2019, the Combined
Company currently intends to begin developing additional cGMP manufacturing capacity of its own that would be capable of supporting
its manufacturing needs with respect to its clinical trials, particularly with respect to pivotal studies. TapImmune and Marker
expect that the Combined Company’s manufacturing strategy will involve the use of one or more Contract Manufacturing Organizations,
or CMOs, or the Combined Company will establish its own capabilities and infrastructure, including a manufacturing facility. Establishment
of the Combined Company’s own manufacturing facility is subject to many risks. For example, the establishment of a cell-therapy
manufacturing facility is a complex endeavor requiring knowledgeable individuals. Creating an internal manufacturing infrastructure
will rely upon building out a complex facility and finding personnel with an appropriate background and training to staff and operate
the facility. Should it be unable to find these individuals, the Combined Company may need to rely on external contractors or train
additional personnel to fill needed roles. There are a small number of individuals with experience in cell therapy, and the competition
for these individuals is high.
The Combined Company
would expect that development of its own manufacturing facility could provide it with enhanced control of material supply for both
clinical trials and the commercial market, enable the more rapid implementation of process changes, and allow for better long-term
margins. However, neither TapImmune nor Marker has any experience as a company in developing a manufacturing facility and may never
be successful in developing the Combined Company’s own manufacturing facility or capability. The Combined Company may establish
multiple manufacturing facilities as it expands its commercial footprint to multiple geographies, which may lead to regulatory
delays or prove costly. Even if the Combined Company is successful, its manufacturing capabilities could be affected by cost-overruns,
unexpected delays, equipment failures, labor shortages, natural disasters, power failures, transportation difficulties and numerous
other factors that could prevent the Combined Company from realizing the intended benefits of its manufacturing strategy and have
a material adverse effect on the Combined Company’s clinical development and/or commercialization plans.
In addition, the manufacturing
process for any products that the Combined Company may develop is subject to the U.S. Food and Drug Administration, or FDA, and
foreign regulatory authority approval process, and the Combined Company will need to contract with manufacturers who can meet all
applicable FDA and foreign regulatory authority requirements on an ongoing basis. If the Combined Company or its CMOs are unable
to reliably produce products to specifications acceptable to the FDA, or other regulatory authorities, the Combined Company may
not obtain or maintain the approvals it needs to commercialize such products. Even if the Combined Company obtains regulatory approval
for any of its product candidates, there is no assurance that either the Combined Company or its CMOs will be able to manufacture
the approved product to specifications acceptable to the FDA or other regulatory authorities, to produce it in sufficient quantities
to meet the requirements for the potential launch of the product, or to meet potential future demand. Any of these challenges could
delay completion of clinical trials, require bridging clinical trials or the repetition of one or more clinical trials, increase
clinical trial costs, delay approval of the Combined Company’s product candidate, impair commercialization efforts, increase
its cost of goods, and have an adverse effect on its clinical development and/or commercialization plans.
Regardless of whether
the Combined Company engages additional CMOs to manufacture its products or establishes its own manufacturing facility, in order
to transfer the Combined Company’s manufacturing from or expand its manufacturing capabilities beyond BCM pursuant to its
development plans, whether through additional third parties or by developing its own manufacturing capabilities, the Combined Company
will need access to the Standard Operating Procedures and the specific Batch Production Records that are used to manufacture the
product candidates. If BCM fails to transfer Marker’s manufacturing processes, or impedes the Combined Company’s ability
to transfer the manufacturing processes of its products to the Combined Company or third-party manufacturers, the Combined Company’s
planned clinical trials and additional necessary manufacturing capabilities will be delayed, which will adversely affect the Combined
Company’s ability to conduct and further develop its business as currently planned.
The Combined Company will be dependent
on third-party vendors to design, build, maintain and support its manufacturing and cell processing facilities.
As a result of the Combined
Company’s strategy to outsource its manufacturing, it will rely very heavily on BCM and other third-party manufacturers to
perform the Combined Company’s manufacturing of Marker’s products for its clinical trials. Marker also licenses a significant
portion of its technology from others and, at this time, does not own any intellectual properties or technologies. The Combined
Company intends to rely on its contract manufacturers to produce large quantities of materials needed for clinical trials and potential
product commercialization. Third-party manufacturers may not be able to meet the Combined Company’s needs concerning timing,
quantity, or quality. If the Combined Company is unable to contract for a sufficient supply of needed materials on acceptable terms,
or if it should encounter delays or difficulties in its relationships with manufacturers, its clinical testing may be delayed,
thereby delaying the submission of products for regulatory approval or the market introduction and subsequent sales of its products.
Any such delay may lower the Combined Company’s revenues and potential profitability.
If any third party breaches
or terminates its agreement with the Combined Company,or fails to conduct its activities in a timely manner, the commercialization
of the Combined Company’s products under development could be slowed down or blocked completely. It is possible that third
parties relied upon by the Combined Company will change their strategic focus, pursue alternative technologies, or develop alternative
products, either on their own or in collaboration with others, as a means for developing treatments for the diseases targeted by
the Combined Company’s collaborative programs, or for other reasons. The effectiveness of these third parties in marketing
their own products may also affect the revenues and earnings of the Combined Company.
The Combined Company
intends to continue to enter into additional third-party agreements in the future. However, the Combined Company may not be able
to negotiate any additional agreements successfully. Even if established, these relationships may not be scientifically or commercially
successful.
The Combined Company’s manufacturing
process is reliant upon the specialized equipment, and other specialty materials, which may not be available to the Combined Company
on acceptable terms or at all. For some of this equipment and materials, the Combined Company relies or may rely on sole source
vendors or a limited number of vendors, which could impair its ability to manufacture and supply its products.
The Combined Company
will depend on a limited number of vendors for supply of certain materials and equipment used in the manufacture of its product
candidates. For example, the Combined Company will purchase equipment and reagents critical for the manufacture of its product
candidates from Wilson Wolf Manufacturing Corporation (a company controlled by a Marker stockholder, John Wilson, who will become
a director of the Combined Company), JPT Peptide Technologies and other suppliers. Some of the Combined Company’s suppliers
may not have the capacity to support commercial products manufactured under cGMP by biopharmaceutical firms or may otherwise be
ill-equipped to support the Combined Company’s needs. The Combined Company also may not have supply contracts with many of
these suppliers,and may not be able to obtain supply contracts with them on acceptable terms or at all. Accordingly, the Combined
Company may not be able to obtain key materials and equipment to support clinical or commercial manufacturing.
For some of this equipment
and materials, the Combined Company will rely, and may in the future rely, on sole-source vendors or a limited number of vendors.
An inability to continue to source product from any of these suppliers, which could be due to regulatory actions or requirements
affecting the supplier, adverse financial, or other strategic developments experienced by a supplier, labor disputes or shortages,
unexpected demands, or quality issues, could adversely affect the Combined Company’s ability to satisfy demand for its product
candidates, which could adversely and materially affect the Combined Company’s operating results or its ability to conduct
clinical trials, either of which could significantly harm its business.
As the Combined Company
continues to develop and scale its manufacturing process, it may need to obtain rights to and supplies of specific materials and
equipment to be used as part of that process. For example, Marker’s manufacturing process is based, in part, upon the G-Rex®
cell culture device manufactured by Wilson Wolf Manufacturing Corporation, which is used by many cell therapy developers, both
in commercial and academic settings. The Combined Company will not own any exclusive rights to the G-Rex® that could be used
to prevent third parties from developing similar and competing processes. The Combined Company may not be able to obtain rights
to such materials and equipment on commercially reasonable terms, or at all, and if the Combined Company is unable to alter its
process in a commercially viable manner to avoid the use of such materials or find a suitable substitute, it would have a material
adverse effect on its business.
The Combined Company may enter into
one or more transactions with entities controlled by one of its directors, which could pose a conflict of interest.
John Wilson, currently
a significant stockholder in Marker and who will be a director of the Combined Company, is also CEO and co-founder of Wilson Wolf
Manufacturing Corporation, which is the sole source vendor that provides Marker with the G-Rex® cell culture device for the
large-scale production of T cells used in Marker’s manufacturing process. Marker does not currently have a supply contract
with Wilson Wolf Manufacturing for the G-Rex®. The Combined Company plans to negotiate a supply contract with Wilson Wolf Manufacturing
for the purchase of G-Rex® devices. The Combined Company also plans to engage Wilson Wolf Manufacturing in discussions to customize
the G-Rex® further to optimally match the Combined Company’s manufacturing requirements, as well as to develop a scalability
plan to drive efficiencies for a commercial product. There may be conflicts of interest between the Combined Company and Wilson
Wolf Manufacturing. There can be no assurance that Wilson Wolf Manufacturing will agree to enter into any contract with the Combined
Company, or that the terms of any such agreements will be in the best interests of the Combined Company, or will have terms no
less favorable to the Combined Company than could have been obtained from unaffiliated third parties.
The future
results of the Combined Company will suffer if the Combined Company does not effectively manage its expanded operations following
the completion of the merger.
Following the completion
of the merger, the size of the business of the Combined Company will increase significantly beyond the current size of either us
or Marker. The Combined Company’s future success depends, in part, upon its ability to manage this expanded business, which
will pose substantial challenges for management, including challenges related to the management and monitoring of new operations
and associated increased costs, complexity and allocation of financial resources. If the Combined Company is unsuccessful in managing
its integrated operations, or if it does not realize the expected operating efficiencies, cost savings and other benefits currently
anticipated from the merger, the operations and financial condition of the Combined Company could be adversely affected and the
Combined Company may not be able to take advantage of business development opportunities.
The Combined
Company may be unable to fully realize the competitive synergies that are projected to be achieved through the combination of our
services and Marker’s offerings.
Part of the strategic
rationale for the merger is the opportunity for the Combined Company to potentially drive additional value through the utilization
by us of Marker’s capabilities. However, the utilization of Marker’s offerings is still evolving and subject to a number
of risks and uncertainties, including the following:
·
government
regulatory agencies and legislative bodies, including agencies and legislatures regulating the use of clinical trials, may impose
new conditions or restrictions which affect the Combined Company’s use of Marker’s data;
·
implementation
of any operational plans to develop new cancer treatments from the Marker offerings will likely be complex and challenging to achieve,
and may be subject to delays and cost overruns and there is no assurance that the research and development can be carried out effectively;
·
clinical
research is a complex and evolving area, and creating effective approaches to drive more effective and efficient research outcomes
is difficult and challenging; and
·
third
parties outside of our control (including suppliers and regulators) may impose restrictions or conditions which affect the projected
timing and successful achievement of our benefits from the transaction.
The Combined Company
is unable to predict the extent to which these factors will inhibit its business plans and any one of them could result in decreased
or delays in post-closing performance by the Combined Company.
We may fail
to realize all of the anticipated benefits of the merger or those benefits may take longer to realize than expected. The Combined
Company may also encounter significant difficulties in integrating the two businesses.
Our ability to realize
the anticipated benefits of the transaction will depend, to a large extent, on the Combined Company’s ability to integrate
the two businesses. The combination of two independent businesses is a complex, costly and time-consuming process. As a result,
we and Marker will be required to devote significant management attention and resources to integrating the business practices and
operations. The integration process may disrupt the businesses and, if implemented ineffectively, would restrict the realization
of the full-expected benefits. The failure to meet the challenges involved in integrating the two businesses and to realize the
anticipated benefits of the transaction could cause an interruption of or a loss of momentum in, the activities of the Combined
Company and could adversely affect the results of operations of the Combined Company.
In addition, the overall
integration of the businesses may result in material unanticipated problems, expenses, liabilities, competitive responses, and
diversion of management’s attention. The difficulties of combining the operations of the companies include, among others:
·
difficulties
in achieving successful development of Marker’s offerings, business opportunities and growth prospects from the combination;
·
difficulties
in the integration of the companies’ businesses;
·
difficulties
in managing the expanded operations of a significantly larger and more complex company;
·
challenges
in attracting and retaining key personnel; and
·
potential
unknown liabilities and unforeseen increased expenses or delays associated with the merger.
Many of these factors
will be outside of the control of the Combined Company and any one of them could result in increased costs, and diversion of management’s
time and energy, which could materially impact the business, financial condition and results of operations of the Combined Company.
In addition, even if the operations of the businesses are integrated successfully, the full benefits of the transaction may not
be realized, including growth opportunities that are expected. These benefits may not be achieved within the anticipated time frame,
or at all. Further, additional unanticipated costs may be incurred in the integration of the businesses of ours and Marker. All
of these factors could negatively impact or decrease or delay the expected benefits of the transaction and negatively impact the
price of the Combined Company’s shares. As a result, there is no assurance that the combination of us and Marker will result
in the realization of the full benefits anticipated from the merger.
Risks Related to Combined Company’s
Financial Condition and Need for Additional Capital
Management will have broad discretion
as to the use of the proceeds from the private placement transaction, and the Combined Company may not use the proceeds effectively.
The Combined Company’s
management will have broad discretion as to the application of the net proceeds from the private placement transaction for general
corporate purposes and working capital to advance the development of the Combined Company’s product candidates. Management
may spend the proceeds in ways that do not necessarily improve its operating results or enhance the value of its common stock.
The Combined Company will require
additional financing before it can generate any revenue from operations.
After consummation of
the merger and the private placement transaction, the Combined Company anticipates having sufficient cash on hand to fund its operations
for at least the next thirty months. The product candidates of the Combined Company, however, remain in the early stages of development
and the Combined Company anticipates it will be years before it is able to generate any revenue from operations. Accordingly, the
Combined Company will need additional debt or equity financing in the future to execute its business plan, complete its future
clinical trials, and to add manufacturing, sales, marketing, and customer support personnel in the future to advance the commercialization
of its products. The Combined Company will operate in a market that makes its prospects difficult to evaluate, and achievement
of positive cash flow from operations will depend upon revenue resulting from the successful development of its product candidates,
which depend upon regulatory clearance.
In the future, if the
Combined Company fails to satisfy the continued listing standards of NASDAQ, it may not be able to sell shares of its common stock
to raise additional capital. In addition, future market conditions may limit the ability of the Combined Company to raise capital
on favorable terms, or at all, and the terms of any public or private offerings of debt or equity securities likely would be significantly
dilutive to existing stockholders at such time. There is no guarantee that the Combined Company will be able to obtain any of the
additional debt or equity financing that will be required after completion of the merger and the private placement transaction
on commercially reasonable terms or at all. If the Combined Company fails to obtain the necessary debt or equity financing when
needed, it may not be able to execute its planned development and commercialization efforts, which would have a material adverse
effect on the Combined Company’s growth strategy, the results of its operations and financial condition and stock price.
If the Combined Company is unable to generate sufficient capital from operations or raise additional funds, it may need to consider
other alternative actions, including one or more of the following:
·
delay,
scale-back, or eliminate research and development of some or all of the Combined Company’s product candidates;
·
license
third parties to develop and commercialize products or technologies that TapImmune would otherwise seek to develop and commercialize
ourselves;
·
attempt
to sell the company;
·
cease
operations; or
·
declare
bankruptcy.
The occurrence of any
of the foregoing events would have a material adverse effect on the Combined Company’s growth strategy, the results of its
operations and financial condition, and stock price, and there can be no assurance that it would be able to continue as a going
concern.
The issuance of additional equity
securities may negatively impact the trading price of the Combined Company’s common stock.
TapImmune has issued
equity securities in the past, will issue equity securities in the merger and private placement transaction, and expects to continue
to issue equity securities to finance the activities of the Combined Company in the future. In addition, outstanding options and
warrants to purchase its common stock may be exercised, and additional options and warrants may be issued, resulting in the issuance
of additional shares of common stock. The issuance by the Combined Company of additional equity securities, including the shares
of common stock issuable upon exercise of the warrants issued by TapImmune in the private placement transaction, would result in
dilution to the Combined Company’s stockholders, and even the perception that such an issuance may occur could have a negative
impact on the trading price of the Combined Company’s common stock.
The Combined Company will have a
significant number of outstanding warrants and options, and future sales of the shares obtained upon exercise of these options
or warrants could adversely affect the market price of the Combined Company’s common stock.
Upon completion of
the merger and private placement transaction, the Combined Company will have outstanding warrants to purchase up to 23,657,372
shares of its common stock at a weighted average exercise price of $4.74 per share, and options exercisable for an aggregate
of 439,467 shares of common stock at a weighted average exercise price of $6.77 per share, in each case calculated as if
the merger had been consummated as of June 29, 2018. TapImmune has committed to register the resale of all the shares issuable
upon exercise of these warrants, and they will be freely tradable by the exercising party upon issuance. Upon such registration,
the holders may sell these shares in the public markets from time to time, without limitations on the timing, amount, or method
of sale. If the Combined Company’s stock price rises, the holders may exercise their warrants and options and sell a large
number of shares. This could cause the market price of the Combined Company’s common stock to decline and cause existing
stockholders to experience significant further dilution.