DEFM14C: Channel Therapeutics to Merge with LNHC, Pivoting to Commercial-Stage Biopharma with $50 Million PIPE Financing

Channel Therapeutics Corporation is set to merge with LNHC, Inc., a Ligand Pharmaceuticals subsidiary with an FDA-approved product, in a transaction that will rename the combined entity Pelthos Therapeutics Inc. and include a $50.1 million private investment.

Summary

• Channel Therapeutics Corporation (CHRO) will merge with LNHC, Inc., a wholly-owned subsidiary of Ligand Pharmaceuticals, Inc.
• The combined company will be renamed Pelthos Therapeutics Inc. and is expected to trade on The NYSE American under the symbol PTHS.
• The merger values Channel at $15 million (excluding PIPE financing) and LNHC at $67 million.
• Ligand is expected to receive approximately 31,253.76 shares of Channel Series A Convertible Preferred Stock in the merger.
• A Private Investment in Public Equity (PIPE) financing of approximately $50.1 million gross proceeds ($50.0 million cash and $0.1 million convertible note conversion) will close immediately prior to the merger.
• Post-merger, Channel securityholders are expected to hold approximately 7.9%, Ligand (including PIPE) approximately 55.7%, and other PIPE Investors approximately 36.3% of the combined company's fully diluted capital stock.
• The combined company will focus on commercializing LNHC's FDA-approved product, ZELSUVMI (berdazimer) topical gel, 10.3%, for Molluscum contagiosum, and will not continue to develop Channel's legacy product candidates.
• A reverse stock split, with a ratio between one-for-five to one-for-twenty-five, is authorized to meet NYSE American listing requirements.
• The Amended and Restated 2023 Equity Incentive Plan was approved, increasing authorized shares for issuance from 1,944,444 to 24,000,000.
• Majority stockholders of Channel (65.04% voting power) have already approved the merger and related proposals via written consent, eliminating the need for a special meeting.

Sentiment

Score: 4

Explanation: The merger provides a lifeline for Channel, which was facing going concern issues and significant losses, by combining with a company that has an FDA-approved product and substantial new financing. However, it represents a complete abandonment of Channel's original pipeline and significant dilution for existing shareholders. The future success is heavily reliant on the commercialization of LNHC's product, which is still in its early stages and faces market acceptance and reimbursement risks. The overall sentiment is cautiously optimistic due to the new capital and approved product, but tempered by the strategic shift, dilution, and inherent risks of commercializing a new drug.

Positives

• The merger provides LNHC's current stockholder (Ligand) with greater liquidity through publicly-traded stock.
• The transaction offers potential for increased access to capital and a broader range of investors to support ZELSUVMI commercialization.
• The PIPE Financing is expected to generate approximately $50.1 million in gross proceeds, providing additional liquidity for the combined company.
• ZELSUVMI (berdazimer) topical gel, 10.3%, was approved by the U.S. FDA in January 2024 for the topical treatment of Molluscum contagiosum in adults and pediatric patients one year of age and older.
• ZELSUVMI is the first FDA-approved topically applied nitric oxide releasing agent for Molluscum contagiosum and the first and only prescription medication approved for at-home use.
• LNHC's Phase 3 clinical study for ZELSUVMI demonstrated statistically significant and clinically meaningful efficacy results and favorable safety.
• LNHC's market research indicates highly favorable opinions from physicians regarding ZELSUVMI's clinical efficacy, safety, and practicality.
• LNHC's API manufacturing facility is fully validated and qualified, with excess capacity to meet current sales forecasts and potential future demand.
• Channel's CT3000 (nerve block) pre-clinical models showed material improvement over the existing standard of care, bupivacaine, in both efficacy and duration, with one formulation remaining statistically superior to placebo for over four days.
• Channel's CT2000 (eye pain) pre-clinical studies showed significant reduction in pain surrogate (paw wipes) within 15 minutes and cumulative efficacy.
• The merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.
• Ligand and two other PIPE investors provided LNHC with bridge loans totaling up to $24 million to fund ZELSUVMI commercialization while the merger is pending, with potential for an incremental $12 million.
• The combined company will be led by an experienced senior management team from LNHC with extensive drug development, research, business, and regulatory expertise.
• The combined company's board of directors will have representation from both LNHC and Channel.
• The Amended and Restated 2023 Equity Incentive Plan was approved, increasing the number of shares authorized for issuance from 1,944,444 to 24,000,000, aiming to align employee interests with stockholders.
• Majority stockholders (65.04%) have already approved the transaction via written consent, streamlining the approval process.

Negatives

• Channel's legacy product candidates (CC8464, CT2000, CT3000), which were the company's primary focus, are not expected to be continued by the combined company, indicating a complete strategic pivot away from its original pipeline.
• Channel has incurred net losses since inception and expects to incur losses for the foreseeable future, with an accumulated deficit of approximately $23.4 million as of March 31, 2025.
• Channel's independent registered public accounting firm's report on its 2024 and 2023 financial statements contains a 'going concern' qualification.
• LNHC has incurred significant losses since its inception and expects to incur losses until revenue from ZELSUVMI is sufficient to fund operations.
• LNHC has a limited operating history and no prior history of commercializing products, which may make it difficult to evaluate the success of its business to date and to assess its future viability.
• Commercialization success of ZELSUVMI is not assured, and it has not yet launched in the United States.
• LNHC's products may become subject to unfavorable third-party coverage or reimbursement policies.
• Delays or disruptions in LNHC's supply chain and manufacturing could adversely affect sales and development timelines.
• LNHC has never produced NITRICIL technology products at a commercial scale, posing risks to manufacturing qualification and supply.
• LNHC relies on in-licenses from third parties, and losing these rights could materially and adversely affect its business.
• The market price of the combined company's common stock is expected to be volatile.
• Even if the merger and PIPE financing are successful, the combined company will need substantial additional funding to finance operations and commercialize ZELSUVMI.
• The combined company will incur additional costs and increased demands on management due to public company compliance.
• Channel stockholders will experience substantial ownership dilution, holding approximately 7.9% of the combined company's capital stock post-merger.
• The fixed exchange ratio means the value of merger consideration at closing may differ from the value at signing, without adjustment for Channel's stock price changes.
• Failure to complete the merger could harm Channel's common stock price and future business operations.
• The PIPE Financing may not be completed, which is a condition to the merger.
• Some Channel and LNHC directors and executive officers have interests in the merger that are different from, or in addition to, the interests of general stockholders, creating potential conflicts of interest.
• Lawsuits could delay or prevent the merger.
• Unaudited financial projections for LNHC are inherently uncertain and reflect numerous estimates and assumptions that may prove wrong.
• Channel's stock price has experienced rapid and substantial volatility, ranging from $0.45 to $3.80 in the 12 months prior to April 23, 2025.
• Channel has identified material weaknesses in its internal control over financial reporting.
• Channel is subject to ongoing litigation (Mr. Kopfli, Parexel).
• Rizatriptan, one of Channel's licensed spray formulations, is an off-patent generic, potentially increasing competition.
• LNHC's estimates for the molluscum contagiosum market may be smaller than expected.
• FDA and other regulatory agencies actively enforce prohibitions on off-label promotion.
• LNHC's product liability insurance may not be sufficient to cover all potential losses.
• LNHC's business involves hazardous materials, posing environmental and safety risks.
• LNHC may be adversely affected by inflation or trade tariffs.
• Catastrophic disasters could disrupt LNHC's business and damage facilities.
• Impairment charges related to goodwill or intangible assets could adversely impact LNHC's results.
• The biopharmaceutical industry may be negatively affected by federal government deficit reduction policies.
• The concentrated ownership of the combined company's common stock (Ligand ~49.9% voting power) will prevent other stockholders from significantly influencing decisions.
• Disputes may arise between the combined company and Ligand regarding past and ongoing relationships.
• The combined company may not have sufficient assets and resources to operate independently from Ligand.
• LNHC's historical financial information may not be representative of its results as a separate company.
• Channel's articles of incorporation designate Nevada courts as the exclusive forum for certain actions, potentially limiting stockholders' ability to choose a favorable judicial forum.
• Anti-takeover provisions in the combined company's organizational documents could make acquisitions more difficult.
• The combined company's ability to utilize net operating loss carryforwards may be subject to limitations due to ownership changes.
• The combined company does not anticipate paying any cash dividends in the foreseeable future.

Risks

• The exchange ratio will not be adjusted based on the market price of Channel common stock, so the merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed.
• Failure to complete the Merger may result in harm to the common stock price of Channel and future business and operations of either Channel or LNHC.
• If the conditions to the Merger are not satisfied or waived, the Merger may not occur.
• Certain conditions to LNHCs or Channels obligations to complete the Merger may be waived by the LNHC and Channel, and in the event such waiver is determined not to require approval of its stockholders, Channel will have discretion to complete the Merger without seeking further stockholder approval, which decision may have a material adverse effect on Channel stockholders.
• The Merger may be completed even though a material adverse effect may result from the announcement of the Merger, industry-wide changes or other causes.
• The PIPE Financing may not be completed.
• Even if the Merger and the PIPE Financing are successful, the combined company will need substantial additional funding to finance its operations and pursue its business objectives, including the commercialization of ZELSUVMI. If the combined company is unable to raise capital when needed, or on acceptable terms, the combined company could be forced to curtail its planned operations and the pursuit of its growth strategy.
• Some Channel and LNHC directors and executive officers may have interests in the Merger that are different from yours and that may influence them to support or approve the Merger without regard to your interests.
• Channel stockholders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with the Merger.
• If the Merger is not completed, Channels stock price may fluctuate significantly.
• Channels current stockholders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined company following the completion of the Merger as compared to their current ownership and voting interests in the respective companies.
• During the pendency of the Merger, Channel and LNHC may not be able to enter into a business combination with another party on more favorable terms because of restrictions in the Merger Agreement, which could adversely affect their respective business prospects.
• Certain provisions of the Merger Agreement may discourage third parties from submitting competing proposals, including proposals that may be superior to the transactions contemplated by the Merger Agreement.
• Because the lack of a public market for LNHC capital stock makes it difficult to evaluate the fair market value of LNHC capital stock, Channel may pay more than the fair market value of LNHC capital stock and/or Ligand may receive consideration in the Merger that is less than the fair market value of LNHC capital stock.
• Lawsuits could delay or prevent the Merger.
• The financial projections for LNHC included in the section entitled The Merger-Certain Unaudited Financial Projections, which were considered by the Channel board of directors in evaluating the Merger and used by M&N Sarchet in rendering the Fairness Opinion and performing its related financial analyses, reflect numerous variables, estimates and assumptions and are inherently uncertain. If any of these variables, estimates and assumptions prove to be wrong, such as the assumptions relating to the approval of LNHCs product candidates, the actual results for the combined companys business may be materially different from the results reflected in the financial projections.
• If the Merger is not completed, Channel will reconsider its strategic alternatives, including dissolving and liquidating its assets, pursuing another strategic transaction, or operating its business.
• The report of the independent registered public accounting firm on our 2024 and 2023 financial statements contains a going concern qualification.
• Channel has incurred net losses since inception. Channel expects to incur losses for the foreseeable future and may never achieve or maintain profitability.
• Channel is a clinical stage biopharmaceutical company with a limited operating history.
• Channels business could be adversely impacted if there are deficiencies in its disclosure controls and procedures or its internal control over financial reporting.
• Channel has identified material weaknesses in its internal control over financial reporting.
• Channel will need to raise additional funding to receive approval for CC8464, CT2000, CT3000 or any other future compound. Such funding may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force Channel to delay, limit, sell or terminate certain of its product development efforts or other operations.
• Channel may be subject to litigation for a variety of claims, which could adversely affect its results of operations, harm its reputation or otherwise negatively impact its business.
• Channel is early in its efforts to develop CC8464, which is the only compound that it has advanced into clinical development. If it is unable to advance CC8464 through clinical trials, obtains regulatory approval and ultimately commercializes CC8464, or if it experiences significant delays in doing so, its business will be materially harmed.
• Channel is early in its efforts to develop CT2000 and have not moved into clinical trials. If it is unable to advance CT2000 through clinical trials, obtains regulatory approval and ultimately commercializes CT2000, or if it experiences significant delays in doing so, its business will be materially harmed.
• Channel is early in its efforts to develop CT3000 and have not moved into clinical trials. If it is unable to advance CT3000 through clinical trials, obtains regulatory approval and ultimately commercializes CT3000, or if it experiences significant delays in doing so, its business will be materially harmed.
• CC8464 is in early-stage development, and there is no guarantee that the results from prior clinical and preclinical studies will be indicative of Channels ability to complete or the results to be obtained in the current or future studies and clinical trials.
• Channel may encounter substantial delays in its pre-clinical and clinical trials, or it may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities.
• Even if Channel completes the necessary clinical trials, it cannot predict when, or if, it will obtain regulatory approval to commercialize CC8464, CT2000 and CT3000 and the approval may be for a narrower indication than it seek.
• CC8464, CT2000 and CT3000 may cause undesirable side effects or have other properties that could delay or prevent its regulatory approval, limit the commercial potential or result in significant negative consequences following any potential marketing approval.
• CC8464, CT2000 and CT3000 are based on specific modes of administration (dose escalation regime, eye drops and injection, respectively), which makes it difficult to predict the time and cost of development and of subsequently obtaining regulatory approval.
• Even if Channel obtains regulatory approval for CC8464, CT2000 and CT3000, its compounds will remain subject to regulatory oversight.
• The FDAs policies, and those of equivalent foreign regulatory agencies, may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of CC8464, CT2000 and CT3000.
• Even if Channel obtains and maintains approval for CC8464, CT2000 and CT3000 from the FDA, Channel may never obtain approval for them outside of the United States, which would limit its market opportunities and adversely affect its business.
• While Channel plans to apply for orphan drug designation for CC8464 in the future, it may not effectively protect Channel from competition, and Channel may be unable to obtain similar designations for its future compounds.
• FDA designations to expedite drug development and review, including orphan drug designation, Breakthrough Therapy designation, and/or Fast Track designation, even if granted for any of Channels compounds, may not lead to a faster development, regulatory review or approval process and do not increase the likelihood that any of its compounds will receive marketing approval in the United States.
• Channel may expend its limited resources to pursue a compound or indication and fail to capitalize on its compounds or indications that may be more profitable or for which there is a greater likelihood of success.
• If Channel is not successful in discovering, developing and commercializing additional compounds, its ability to expand its business and achieve its strategic objectives would be impaired.
• Channel faces significant competition in an environment of rapid technological change and the possibility that its competitors may achieve regulatory approval before it or develop therapies that are more advanced or effective than Channels, which may adversely affect its financial condition and its ability to successfully market or commercialize CC8464, CT2000 and CT3000.
• On December 23, 2023, Channel entered into the Benuvia License Agreement. Channel is dependent on the Benuvia License Agreement, and the termination of the Benuvia License Agreement could have an adverse effect on our business.
• Rizatriptan is an off-patent branded generic that can be manufactured and sold by other pharmaceutical manufacturers, which may increase the competition Channel faces and reduce its ability to diversify its pipeline of non-opioid pain treatment therapies, while adding therapeutic options for related conditions under the Benuvia License Agreement.
• Delays in obtaining regulatory approvals of the process and facilities needed to manufacture CC8464, CT2000, CT3000 or any of Channels other compounds or disruptions in its manufacturing process may delay or disrupt its product development and commercialization efforts.
• If Channel is unable to expand its market development capabilities or enter into agreements with third parties to market and sell its compounds, it may be unable to generate any revenue.
• If the market opportunities for CC8464, CT2000, CT3000 or our future compounds are smaller than Channel believes they are, its revenues may be adversely impacted, and its business may suffer.
• Government price controls or other changes in pricing regulation could restrict the amount that Channel is able to charge for CC8464, CT2000 and CT3000, if approved, or any of its other future compounds that may be approved in the future, which would adversely affect its revenue and results of operations.
• The insurance coverage and reimbursement status of newly approved products is uncertain. Failure to obtain or maintain adequate coverage and reimbursement for Channels products, if approved, could limit its ability to market those products and decrease its ability to generate product revenue.
• If Channel is unable to manage expected growth in the scale and complexity of its operations, its performance may suffer.
• Channels future success depends on our ability to retain key employees and scientific advisors and to attract, retain and motivate qualified personnel.
• Channels employees, principal investigators and advisors may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.
• Channel may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws and health information privacy and security laws. If Channel is unable to comply, or has not fully complied, with such laws, it could face substantial penalties.
• If Channel fails to comply with environmental, health and safety laws and regulations, it could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of its business.
• Unfavorable global economic conditions could adversely affect Channels business, financial condition or results of operations.
• Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and financial condition and results of operations.
• Channels internal computer systems, or those of its collaborators or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of its product development programs.
• Cyber-security incidents, including data security breaches or computer viruses, could harm Channels business by disrupting its delivery of services, damaging its reputation or exposing it to liability.
• Product liability lawsuits against Channel could cause it to incur substantial liabilities and to limit commercialization of any products that it may develop.
• If Channel is unable to obtain and maintain adequate U.S. and foreign patent protection for its compounds, including CC8464, CT2000 and CT3000, or if the scope of the patent protection obtained is not sufficiently broad, its competitors could develop and commercialize products and technologies similar or identical to Channels, and its ability to successfully commercialize CC8464, CT2000, CT3000 and any of its other current or future compounds may be adversely affected.
• Channel may not be able to protect its intellectual property or enforce its intellectual property rights adequately throughout the world.
• Third parties may initiate legal proceedings alleging that Channel is infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of its business.
• Changes in United States patent law and its administrative and judicial interpretation could diminish the value of patents in general, thereby impairing Channels ability to protect its compounds.
• Intellectual property rights and regulatory exclusivity rights do not necessarily address all potential threats.
• If Channel is unable to protect the confidentiality of its trade secrets, its business and competitive position would be harmed.
• The market price and trading volume of Channel common stock may experience rapid and substantial price volatility, which could cause purchasers of Channel common stock to incur substantial losses.
• Channel common stock is currently listed on NYSE American. NYSE American may delist Channel common stock from trading, which could limit investors ability to make transactions in its securities and subject it to additional trading restrictions.
• Channel could issue blank check preferred stock without stockholder approval with the effect of diluting then current stockholder interests and impairing their voting rights; and provisions in its charter documents could discourage a takeover that stockholders may consider favorable.
• Channels Articles of Incorporation designate the Second Judicial District Court, in and for the State of Nevada, located in Washoe County, Nevada, as the exclusive forum for certain types of actions and proceedings that may be initiated by its stockholders, which could limit stockholders ability to obtain a favorable judicial forum for disputes with it or its directors, officers, employees or agents.
• A significant portion of Channels total outstanding shares are restricted from immediate resale but may be sold into the market in the near future, which could cause the market price of Channel common stock to drop significantly, even if our business is performing well.
• The Channel Series C Preferred Stock has a liquidation preference over Channel common stock.
• If securities analysts do not publish research or reports about Channels business or if they publish negative evaluations of its stock, the price of Channel common stock could decline.
• The price of Channel common stock may be volatile and fluctuate substantially, which could result in substantial losses for purchasers of Channel common stock.
• Channel may incur significant costs from class action litigation due to its expected stock volatility.
• Channel has broad discretion in the use of its cash and may not use them effectively.
• Raising additional capital may cause dilution to existing stockholders of Channel, restrict its operations or require Channel to relinquish rights to its technologies, CC8464, CT2000 and CT3000.
• Channel is an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies may make Channel common stock less attractive to investors.
• The requirements of being a public company may strain our resources and divert managements attention.
• Because Channel does not anticipate paying any cash dividends on its capital stock in the foreseeable future, capital appreciation, if any, will be your sole source of gain.
• Anti-takeover provisions in Channels organizational documents could delay or prevent a change of control.
• It is not possible to predict the actual number of Purchase Shares Channel will sell under the CEF Purchase Agreement, or the actual gross proceeds resulting from those sales. Channel may not have access to the full amount available under the CEF Purchase Agreement with Tikkun.
• Sales of a substantial number of Channel common stock in the public market by its existing stockholders could cause the price of Channel common stock to fall.
• Investors who buy shares of Channel common stock at different times will likely pay different prices.
• Channel may require additional financing to sustain its operations and, without it, Channel will not be able to continue operations.
• The terms of the CEF Purchase Agreement limit the amount of shares of Channel common stock Channel may issue to Tikkun, which may have an adverse effect on its liquidity.
• Future sales of substantial amounts of Channel common stock, or the possibility that such sales could occur, could adversely affect the market price of Channel common stock.
• Management will have broad discretion as to the use of the proceeds from Channels sale of Purchase Shares to Tikkun under the CEF Purchase Agreement, and such uses may not improve our financial condition or market value.
• LNHC has incurred significant losses since its inception. LNHC expects to incur losses until revenue from ZELSUVMI is sufficient to fund LNHCs operations, if ever, and may never achieve or maintain profitability. If LNHC does not achieve or maintain profitability, it may need additional funding to continue its business operations.
• LNHC has a limited operating history and no prior history of commercializing products, which may make it difficult for you to evaluate the success of its business to date and to assess its future viability.
• LNHC depends heavily on the commercial success of ZELSUVMI, which was approved by the FDA in January 2024 and has not yet launched in the United States. There is no assurance that LNHCs commercialization efforts in the United States with respect to ZELSUVMI will be successful or that LNHC will be able to generate profit at the levels or within the timing it expects.
• ZELSUVMI and any of LNHCs product candidates that receive regulatory approval, may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success.
• If LNHC is unable to establish effective sales, marketing and distribution capabilities for ZELSUVMI for the treatment of molluscum contagiosum or any product candidate that may receive regulatory approval, LNHC may not be successful in commercializing ZELSUVMI for the treatment of molluscum contagiosum or LNHCs product candidates if and when they are approved.
• LNHC faces substantial competition, which may result in a smaller than expected commercial opportunity and/or others discovering, developing or commercializing products before or more successfully than LNHC does.
• LNHC's products may become subject to unfavorable third-party coverage or reimbursement policies, which would harm its business.
• The market for ZELSUVMI for the treatment of molluscum contagiosum and LNHCs future product candidates may not be as large as LNHC expects.
• The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.
• Product liability lawsuits could cause LNHC to incur substantial liabilities and limit commercialization of any products that it may develop.
• Delays or disruptions in LNHC's supply chain and manufacturing of LNHCs products, including ZELSUVMI, and potential product candidates could adversely affect LNHCs sales and marketing efforts and LNHCs development and commercialization timelines and could result in increased costs or in LNHC breaching its obligations to others.
• LNHC has never produced at a commercial scale any products that utilize the NITRICIL technology, and any delay or disruptions in the on-going qualification of manufacturing facilities and process or in the manufacture of LNHCs (i) API, including berdazimer sodium, the API of LNHCs ZELSUVMI product, or (ii) potential future clinical trial materials or commercial supplies of any other potentially approved product candidates utilizing the NITRICIL technology, could adversely affect LNHCs development and commercialization timelines and results or result in increased costs or in LNHC breaching its obligations to others.
• Unexpected results in the analysis of raw materials, the API or drug product or problems with the execution of or quality systems supporting the analytical testing work, whether conducted internally or by third-party service providers, could adversely affect LNHCs development and commercialization timelines and result in increased costs of potential development programs initiated by LNHC.
• LNHC's business involves the use of hazardous materials and LNHC and its third-party suppliers and manufacturers must comply with environmental laws and regulations, which can be expensive and restrict how it does business.
• LNHC may be adversely affected by the effects of inflation or trade tariffs.
• The occurrence of a catastrophic disaster could disrupt LNHC's business, damage its facilities beyond insurance limits, increase its costs and expenses, or it could lose key data which could cause it to curtail or cease operations.
• Impairment charges pertaining to goodwill, identifiable intangible assets or other long-lived assets from LNHCs mergers and acquisitions could have an adverse impact on LNHCs results of operations and the market value of it.
• LNHC's results of operations and liquidity needs could be materially negatively affected by market fluctuations and economic downturn.
• LNHC's business is subject to risks arising from pandemic and epidemic diseases.
• The biopharmaceutical industry may be negatively affected by federal government deficit reduction policies, which could reduce the value of ZELSUVMI for the treatment of molluscum contagiosum.
• If LNHC is unable to successfully develop, receive regulatory approval for and commercialize any future product candidate it may potentially acquire, or experiences significant delays in doing so, its business will be harmed.
• Clinical product development involves a lengthy and expensive process, with an uncertain outcome. LNHC may incur additional costs or experience delays in completing, or ultimately be unable to complete, potential development and commercialization of any future product candidates.
• Use of ZELSUVMI and any future product candidates could be associated with adverse side effects, adverse events or other properties or safety risks, which could delay or preclude approval, cause LNHC to suspend or discontinue clinical trials, abandon a product candidate, limit the commercial profile of ZELSUVMI or any other approved product or result in other significant negative consequences that could severely harm LNHC's business, prospects, operating results and financial condition.
• If LNHC experiences delays or difficulties in the enrollment and/or maintenance of patients in any clinical trials it may initiate, its receipt of necessary regulatory approvals could be delayed or prevented.
• Interim top-line and preliminary results from LNHC's future clinical trials that LNHC announces or publishes from time to time may change as more patient data becomes available and is subject to audit and verification procedures that could result in material changes in the final data.
• LNHC may expend its limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
• The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable. If LNHC is not able to obtain required regulatory approval for any product candidates, its business will be substantially harmed.
• LNHC will be subject to ongoing regulatory obligations and continued regulatory review with respect to ZELSUVMI and any future product candidates that receive regulatory approval, which may result in significant additional expense.
• The FDA's and other regulatory authorities policies may change and additional government regulations may be promulgated that could prevent, limit or delay marketing authorization of any future product candidates LNHC may develop.
• Disruptions at the FDA and other government agencies caused by funding shortages, staffing limitations, or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, prevent new or modified products from being developed, review, approved or commercialized in a timely manner or at all, which could negatively impact LNHC's business.
• LNHC will rely on third parties to conduct any preclinical studies and clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, LNHC may be unable to obtain regulatory approval for or commercialize any of its future product candidates.
• LNHC's employees, independent contractors, principal investigators, CMOs, CROs, consultants, commercial partners and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could expose it to liability and hurt its reputation.
• Third party intellectual property may prevent LNHC from developing its potential products; LNHC's intellectual property may not prevent competition; and any intellectual property issues may be expensive and time consuming to resolve.
• If LNHC is unable to obtain and maintain sufficient intellectual property protection for its products, platform and technology, or if the scope of the intellectual property protection obtained is not sufficiently broad, LNHC's competitors could develop and commercialize technologies or a platform similar or identical to its, and LNHC's ability to successfully sell its platform and services may be impaired.
• Issued patents directed to the NITRICIL platform and technology could be found invalid or unenforceable if challenged in court or before administrative bodies in the United States or abroad.
• LNHC may not be aware of all third party intellectual property rights potentially relating to its products, platform and technology.
• Changes in patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing Ligands ability to protect its products, platform and technology on which LNHC relies.
• LNHC relies on in-licenses from third parties. If LNHC loses these rights, its business may be materially and adversely affected, its ability to develop improvements to its technology platform may be negatively and substantially impacted, and if disputes arise, LNHC may be subjected to future litigation, as well as the potential loss of or limitations on its ability to incorporate the technology covered by these license agreements.
• LNHC may be subject to claims challenging the inventorship of the patents and other intellectual property on which it relies.
• If LNHC is unable to protect the confidentiality of its information and its trade secrets, the value of its technology could be materially and adversely affected and its business could be harmed.
• If LNHC's trademarks and trade names are not adequately protected, LNHC may not be able to build name recognition in its markets of interest and its competitive position may be harmed.
• Current and future healthcare reform legislation or regulation may increase the difficulty and cost for LNHC to commercialize ZELSUVMI and may adversely affect the prices LNHC may obtain and may have a negative impact on LNHC's business and results of operations.
• If LNHC fails to comply with its reporting and payment obligations under the Medicaid Drug Rebate Program or other governmental pricing programs in which it participates, LNHC could be subject to additional reimbursement requirements, penalties, sanctions and fines, which could have a material adverse effect on LNHC's business, financial condition, results of operations and growth prospects.
• LNHC is subject to federal, state and foreign healthcare laws and regulations, including fraud and abuse laws. If LNHC is unable to comply or has not fully complied with such laws and regulations, LNHC could face criminal sanctions, damages, substantial civil penalties, reputational harm and diminished profits and future earnings.
• Changes in and actual or perceived failures to comply with applicable data privacy, security and protection laws, regulations, standards and contractual obligations may adversely affect LNHC's business, operations and financial performance.
• If plaintiffs bring product liability lawsuits against LNHC or its partners, LNHC or its partners may incur substantial liabilities and may be required to limit commercialization of LNHC's approved products and product candidates.
• LNHC faces risks related to handling of hazardous materials and other regulations governing environmental safety.
• LNHC may also be subject to other laws and regulations not specifically targeting the healthcare industry.
• If any of the events described in Risks Related to Channel or Risks Related to LNHC occur, those events could cause potential benefits of the Merger not to be realized.
• The market price of the combined company common stock is expected to be volatile, and the market price of the common stock may drop following the Merger.
• The combined company will incur additional costs and increased demands upon management as a result of complying with the laws and regulations affecting public companies.
• If the combined company no longer qualifies as a smaller reporting company or otherwise does not qualify for applicable exemptions, the combined company will be subject to additional laws and regulations affecting public companies that will increase the combined companys costs and the demands on management and could harm the combined companys operating results.
• The unaudited pro forma condensed combined financial data for Channel and LNHC included in this information statement is preliminary, and the combined companys actual financial position and operations after the Merger may differ materially from the unaudited pro forma financial data included in this information statement.
• Channel and LNHC are expected to incur significant transaction costs in connection with the Merger, which may be in excess of those anticipated by them.
• Provisions that will be in the combined companys articles of incorporation and bylaws and provisions under Nevada law could make an acquisition of the combined company, which may be beneficial to its stockholders, more difficult and may prevent attempts by its stockholders to replace or remove its management.
• The combined company's ability to utilize its net operating loss carryforwards and tax credit carryforwards may be subject to limitations.
• The combined company will have broad discretion in the use of proceeds from the PIPE Financing (if completed) and may invest or spend the proceeds in ways with which you do not agree and in ways that may not increase the value of your investment.
• The concentrated ownership of the combined companys common stock will prevent you and other stockholders from influencing significant decisions.
• The management of and beneficial ownership in Ligand by the combined companys executive officers and directors may create, or may create the appearance of, conflicts of interest.
• The License Agreement and MSA were prepared while Ligand owned 100% of LNHCs common stock. Accordingly, at the time this agreement was prepared LNHC did not have a separate or independent board of directors or a management team that was independent of Ligand. As a result, the terms of those agreements may not reflect terms that would have resulted from arms-length negotiations between unaffiliated third parties.
• Any disputes that arise between the combined company and Ligand with respect to its past and ongoing relationships could harm its business operations.
• The combined company may not have sufficient assets and resources for it to operate as an independent company, and it may experience difficulty in separating its assets, resources and operations from Ligand.
• You may have difficulty evaluating LNHC's business because it has no history as a separate company and its historical financial information may not be representative of its results as a separate company from Ligand.

Future Outlook

The combined company, Pelthos Therapeutics Inc., will primarily focus on the commercialization of ZELSUVMI, an FDA-approved topical gel for Molluscum contagiosum, with initial revenue projections starting in 2025 and reaching peak penetration within 8 years of launch. The company anticipates incurring significant expenses and operating losses for the foreseeable future as it invests in commercialization activities and operates as a public entity, requiring additional capital beyond the initial PIPE financing. While Channel's legacy pain programs will not be continued, the combined entity aims to leverage LNHC's NITRICIL technology platform for potential future product candidates.

Management Comments

• "Channels and LNHCs management believe that combining the two companies will result in a company with a strong leadership team and substantial capital resources, positioning it to focus on the commercialization of ZELSUVMI following consummation of the Merger and potentially developing and, if approved, commercializing novel therapies to treat patients suffering from dermatological and/or pain related indications for which there are no good therapeutic options."
• "The Special Committees and Channel board of directors belief, after a thorough review of strategic alternatives and discussions with Channels senior management, financial advisors and legal counsel, that the Merger is more favorable to Channel stockholders than the potential value that might have resulted from other strategic alternatives available to Channel, including continuing to operate Channel on a stand-alone basis or conducting a dissolution and liquidation of Channel and distributing any available cash to its stockholders."
• "The belief of the LNHC board of directors, after a thorough review of strategic alternatives, that the Merger has a better return on investment for LNHCs sole stockholder than the potential value that might have resulted from other strategic alternatives available to LNHC, including continuing to operate LNHC as a wholly-owned subsidiary of Ligand."
• "The LNHC board of directors view that the combined company will be led by an experienced senior management team, many members of which have extensive drug development, research and development, business and regulatory expertise and a board of directors with representation from each of the current boards of directors of LNHC and Channel."
• "Channel believes that it has a sound scientific basis for its ability to treat a multitude of eye pain indications."
• "Channel believes that CT3000 has the potential to become a drug for treatment of acute post operative surgical pain for knee and shoulder surgery where nerve blocks are appropriate, potentially delivering meaningful clinical benefits over the currently available standard of care."
• "Channel believes that CC8464, if approved, could become an attractive option for both patients and physicians as a treatment for moderate-to-severe pain in Erythromelalgia (EM) and idiopathic small fiber neuropathy (iSFN)."
• "Channel expects that the slow dose escalation study will also help determine the need for dose escalation in the final treatment regime."
• "Even if it is ultimately determined that Channel will need an escalation period for chronic pain treatment therapy, which patients could well take for the remainder of their lives, Channel does not believe the dose escalation approach will be consequential."
• "Channel expects patients would potentially take its drug for the remainder of their lives, and given the lack of good therapeutic alternatives, Channel expects to have a robust, ongoing, and durable market."
• "Channel believes that positive results from the Phase 2a study could not only act as support for CC8464s potential in EM and iSFN but may also provide guidance of its potential for other indications of peripheral neuropathic pain."
• "The Company believes the NITIRCIL technology platform could generate other potential product candidates that could be further developed."
• "The Company believes the current API theoretical manufacturing capacity could be roughly doubled, if needed due to one or more of the following: a higher than expected sales demand for ZELSUVMI, demand from current partnerships such as Sato and Ligand, and potential future partnerships for ZELSUVMI and/or the NITRICIL platform."
• "The Company believes ZELSUVMI will enhance and complement current non-prescription treatment options and referral patterns."
• "Based on the Companys interactions with healthcare professionals (HCPs) to date, the Company believes HCPs would welcome this positioning of ZELSUVMI."
• "ZELSUVMI fills a medical need in the market as the first safe and efficacious prescription medication for molluscum contagiosum that can be administered outside of medical settings."
• "Management believes that methodology applied to the Company corporate expenses allocations are reasonable and consistent across the Companys reporting periods."
• "Based on the Companys current projections, management believes there is substantial doubt about its ability to continue to operate as a going concern and fund its operations through at least the next twelve months following the issuance of these consolidated financial statements."

Industry Context

The biopharmaceutical industry is highly competitive, characterized by rapid technological change and a strong emphasis on proprietary products. The merger positions the combined entity, Pelthos Therapeutics Inc., to focus on the commercialization of ZELSUVMI, an FDA-approved product for Molluscum contagiosum, a viral skin infection with a large unmet need, particularly for at-home treatment options. This strategic pivot moves Channel from its previous focus on early-stage pain therapeutics to a commercial-stage dermatology company. The industry faces increasing pressure on healthcare costs, with government and third-party payors implementing measures to limit prices and reimbursement, which could impact ZELSUVMI's market acceptance and profitability. Competition exists from major pharmaceutical companies, specialty pharmaceutical companies, and compounding facilities, as well as off-label drug uses and procedural treatments for molluscum contagiosum.

Comparison to Industry Standards

• Channel's CT3000 (nerve block) pre-clinical models showed material improvement over the existing standard of care, bupivacaine, in both efficacy and duration.
• ZELSUVMI is the first FDA approved topically applied nitric oxide releasing agent indicated for the treatment of molluscum contagiosum in people ages one year and older and the first and only prescription medication FDA approved for use in non-medical settings that can be safely applied by patients, parents and caregivers.
• Current options for the treatment of ocular pain, such as corticosteroids and non-steroidal anti-inflammatory drug (NSAID) based therapeutics, suffer from sight-threatening complications like Glaucoma and corneal melting, highlighting a large unmet need that Channel's CT2000 aims to address.
• Rizatriptan, whose brand name is Maxalt, is used for the acute treatment of migraines as a pill and is thought to be superior to Sumatriptan by a number of clinical measures, providing context for Channel's Rizatriptan Spray Formulation.
• The estimated molluscum contagiosum patient population in the United States is approximately 17 million people, with an annual incidence of 3-6 million, indicating a significant market opportunity for ZELSUVMI.
• Based on 2023 Veeva Compass data, over 390,000 unique patients are affected by molluscum contagiosum and over 100,000 unique HCPs are treating the disease in the United States, though the company believes this underestimates the true number of cases due to a lack of treatment options.

Management Changes

Corporate Governance

Legal Proceedings

• Demand Letter from Mr. Kopflis Attorney: On February 14, 2024, Channel's board received a demand letter from an attorney representing Chromocell Holdings and its former Chief Executive Officer, Mr. Christian Kopfli, alleging improper termination for cause and seeking $479,169 in monetary damages. Channel denied liability and commenced a lawsuit against Mr. Kopfli and Chromocell Holdings in New York on June 7, 2024, asserting breach of employment agreement, breach of fiduciary duty, and a faithless servant claim, seeking monetary damages and disgorgement of compensation. On October 3, 2024, the court awarded Channel a default judgment, with damages assessment scheduled for May 2025. Channel has removed the $363,091 accrual for compensation expenses and recorded a gain.
• Parexel Claim: On July 31, 2024, Channel received a demand letter from Parexel International (IRL) Limited, addressed to both Channel and Chromocell Holdings, seeking payment of allegedly unpaid principal of $682,551.49 plus over $177,000 in interest under a promissory note between Chromocell Holdings and Parexel. Channel denies liability, stating it is not a party to the note, and intends to defend itself vigorously.

Related Party Transactions

• Chromocell Holdings Advances and Contribution Agreement: From May 2021 through August 2022, Chromocell Holdings provided multiple advances to Channel for its operations. On August 10, 2022, Channel acquired assets and liabilities related to Chromocell Holdings' therapeutics business, including patents and trade secrets for CC8464, in exchange for 1,111,112 shares of Channel common stock and 600,000 shares of Series A preferred stock. Channel also assumed $1,556,323 in direct liabilities and was to make a $597,038 cash payment.
• Holdings Side Letter and Series C Preferred Stock Issuance: On August 2, 2023, Chromocell Holdings re-assumed all $1.6 million in direct liabilities previously assumed by Channel and waived Channel's obligation for a $0.6 million cash payment. In consideration, Channel issued 2,600 shares of Series C Preferred Stock to Chromocell Holdings.
• Chromocell Holdings Share Forfeiture: On April 17, 2023, Chromocell Holdings forfeited 133,745 shares of Channel common stock due to not funding its pro rata allocation in the April Bridge Financing.
• Chromocell Holdings Share Transfers to AWI: On December 18, 2024, 747,187 shares of Channel common stock and 2,600 shares of Series C Preferred Stock held by Chromocell Holdings were transferred to Alexandra Wood (Canada) Inc. (AWI) to satisfy a default judgment against Chromocell Holdings. AWI subsequently transferred 173,000 shares, now owning 574,187 shares of the original Chromocell Holdings shares.
• Director Note (Todd Davis): On December 6, 2022, Channel entered into a promissory note for $175,000 with Mr. Todd Davis, a Channel director. The note had an original issuance discount of $75,000 and was extended multiple times. On February 21, 2024, the principal and accrued interest converted into 29,167 shares of Channel common stock.
• April Bridge Financing: On April 17, 2023, Channel entered into a bridge loan for $393,808 with various accredited investors, including pre-existing stockholders like Chromocell Holdings, Boswell Prayer Ltd., Motif Pharmaceuticals Ltd, Aperture Healthcare Ventures Ltd., MDB Merchants Park LLC, Balmoral, and AME Equities LLC (all related parties). These notes converted into 87,109 shares of Channel common stock on February 21, 2024.
• September Bridge Financing: On September 1, 2023, Channel entered into a bridge loan for $198,128 with various accredited investors, including pre-existing stockholders like Aperture Healthcare Ventures Ltd., MDB Merchants Park LLC, Balmoral, and AME Equities LLC (all related parties). These notes converted into 43,385 shares of Channel common stock on February 21, 2024.
• October Promissory Notes: On October 12, 2023, Channel and four existing investors entered into promissory notes totaling $210,000 (purchase price $175,000). These notes were repaid in cash on February 26-28, 2024.
• Rights Offering: On November 22, 2023, Channel commenced a rights offering where pre-existing stockholders, including Aperture Healthcare Ventures Ltd., MDB Merchants Park LLC, Balmoral, and AME Equities LLC (all related parties), participated and exercised rights to purchase 1,211,238 shares of Channel common stock. Mr. Knuettel's trust also received rights for 158,731 shares.
• Benuvia License Agreement: On December 23, 2023, Channel entered into an exclusive licensing agreement with Benuvia Operations LLC for Diclofenac, Rizatriptan, and Ondansetron spray formulations. Channel agreed to pay Benuvia a 6.5% royalty on net sales for up to 15 years. Channel issued 384,226 shares of Channel common stock to Benuvia. Mr. Todd Davis, a Channel director, serves as Chairman and CEO of Benuvia Holdings, LLC, Benuvia's parent company.
• Stock Rescission Agreement: On February 10, 2024, Channel rescinded 111,129 shares of common stock held by certain affiliates of A.G.P. and agreed to refund $91,512.
• May Promissory Note (Professional Advisor): On May 10, 2024, Channel converted accounts payable with a professional advisor into a promissory note for $1,455,416. As of March 31, 2025, the note was in default.
• Camden Capital LLC Promissory Note: On May 10, 2024, Channel converted payables with Camden Capital LLC (controlled by Mr. Knuettel) into a promissory note for $131,868. As of March 31, 2025, the note was in default.
• February Bridge Note (3i, L.P.): On February 25, 2025, Channel issued an unsecured promissory note for $325,000 (purchase price $250,000) to 3i, L.P. (a PIPE Investor). This note's maturity was extended to September 30, 2025, on May 12, 2025.
• May Bridge Note (3i, L.P.): On May 8, 2025, Channel issued an unsecured promissory note for $325,000 (purchase price $250,000) to 3i, L.P. (a PIPE Investor), maturing September 30, 2025.
• Ligand Bridge Loan (LNHC): Effective January 1, 2025, LNHC entered into a revolving bridge promissory note with Ligand for up to $18.0 million, with approximately $6.6 million funded through April 30, 2025. Repayment will offset Ligand's PIPE commitment.
• PIPE Investor Bridge Loans (LNHC): On April 16, 2025, LNHC entered into a bridge loan agreement with two PIPE Investors for an aggregate of $6.0 million.
• IP Assignment and License Agreement (Ligand & LNHC): On March 24, 2025, LNHC assigned its IP portfolio (including NITRICIL technology) to Ligand, and Ligand then licensed back to LNHC the IP rights necessary for ZELSUVMI for molluscum contagiosum worldwide (except Japan). LNHC will pay Ligand royalties and milestones.
• Master Services Agreement (Ligand & LNHC): On March 24, 2025, LNHC and Ligand entered into an MSA for LNHC to provide development and manufacturing services for Ligand's NITRICIL products, and potentially transfer manufacturing technology.

Stakeholder Impact

• Shareholders (Channel): Will experience significant dilution (ownership reduced to ~7.9%) but gain exposure to an FDA-approved commercial-stage product (ZELSUVMI) and new capital. Their existing equity awards will remain outstanding and unaffected by the merger. However, their legacy product pipeline will be discontinued.
• Shareholders (Ligand, as sole LNHC stockholder): Will become the majority shareholder of the combined public company (~55.7% including PIPE participation), gaining liquidity through publicly-traded stock and a better return on investment compared to continuing LNHC as a private subsidiary.
• PIPE Investors: Will acquire a significant stake (~36.3%) in the combined company, providing substantial capital for ZELSUVMI commercialization.
• Employees (Channel): Executive officer Francis Knuettel II will continue as CFO. Dr. Eric Lang (CMO) is not listed as continuing. Certain directors will continue. Some executives may receive severance or accelerated vesting. The combined company will be led by an experienced senior management team from LNHC.
• Employees (LNHC): Scott Plesha (LNHC CEO) will become CEO of the combined company. Sai Rangarao (LNHC SVP) will receive a transaction bonus. Most LNHC executive officers are expected to continue in the combined company. The combined company aims to use equity-based compensation more effectively to attract and retain talent.
• Customers (ZELSUVMI): Will benefit from the commercialization of the first FDA-approved at-home topical prescription for Molluscum contagiosum, potentially expanding access to treatment.
• Suppliers/Vendors: Existing relationships may be affected by the merger and the combined company's new strategic focus and supply chain management.
• Creditors: Existing loan payables for Channel will be settled or converted as part of the financing. LNHC's bridge loans will be offset by PIPE financing. The combined company will need additional funding, potentially through debt, which could impact future creditor relationships.

Next Steps

• The Merger is expected to be completed in the mid-2025, subject to the satisfaction of closing conditions.
• Channel intends to file a listing application for the combined company with The NYSE American.
• After completion of the Merger, the combined company will be renamed Pelthos Therapeutics Inc. and, assuming approval of the listing application, the common stock of the combined company will trade on The NYSE American under the symbol PTHS.
• Channel intends to file a resale registration statement on Form S-1 with the SEC within 30 days following the closing of the PIPE Financing.
• Channel shall use its commercially reasonable efforts to cause such resale registration statement to be declared effective by the SEC within 120 days following the closing of the PIPE Financing (or within 150 days if the SEC reviews).
• Following the close of the Merger, Channel will review the timing and budget related to commencement of toxicology and CMC work and a subsequent human POC trial for CT3000.
• Channel plans to conduct the POC study for CT2000 in a clinic in Brisbane, Australia, and is in the process of contracting services.
• When the dose escalation trial is funded, Channel will enroll approximately 20 healthy volunteers for CC8464, expected to take approximately 9-12 months.
• In parallel with the dose escalation study, Channel expects to run a pilot efficacy study on approximately ten EM patients.
• Channel is currently working on the development of the Phase 2a POC plan and expects to launch the Phase 2a POC study following the dose escalation study and EM pilot study, to assess the potential efficacy of CC8464 in iSFN patients.
• Channel plans to apply for orphan drug designations for EM and iSFN for CC8464.
• The combined company will need to acquire additional financial resources, assets and resources to support its operations as an independent company.
• LNHC is in the initial stages of exploring ex-U.S. distribution opportunities and indicative distribution offers for ZELSUVMI.
• The combined company expects any future indebtedness, including the proposed debt financing, to contain covenants that could limit its operations.
• The combined company expects to continue to incur significant expenses and operating losses for the foreseeable future.
• The combined company's board of directors will adopt a non-employee director compensation policy.
• The combined company will adopt a written code of business conduct and ethics.

Key Dates

Keywords

biotechnology, pharmaceuticals, merger, PIPE financing, Molluscum contagiosum, ZELSUVMI, pain therapeutics, NaV1.7, clinical stage, FDA approval, reverse stock split, corporate governance, SEC filing, CHRO, LNHC, Pelthos Therapeutics