8-K: Virpax Pharmaceuticals Announces Reverse Stock Split and Settles Litigation

Virpax Pharmaceuticals will enact a 1-for-10 reverse stock split to regain Nasdaq compliance and has settled a lawsuit with Sorrento and Scilex for $6 million plus royalties.

Summary

• Virpax Pharmaceuticals is implementing a 1-for-10 reverse stock split of its common stock, effective March 1, 2024, to meet Nasdaq's minimum bid price requirement.
• The reverse split will reduce the number of outstanding shares from approximately 11.7 million to 1.2 million, with proportional adjustments to equity awards and warrants.
• The company has also reached a settlement agreement with Sorrento Therapeutics and Scilex Pharmaceuticals, resolving a litigation for a total of $6 million in cash payments and a 6% royalty on net sales of certain products.
• The cash payment includes $3.5 million due shortly after the settlement order is approved and $2.5 million due by July 1, 2024.
• The settlement is contingent on approval by the United States Bankruptcy Court for the Southern District of Texas by April 1, 2024.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive. The reverse stock split is a necessary step for compliance, and the settlement resolves a legal issue, but the financial obligations and the need for the reverse split indicate underlying challenges.

Positives

• The reverse stock split is expected to help Virpax regain compliance with Nasdaq's minimum bid price requirement.
• The settlement agreement resolves a significant legal issue, removing uncertainty and potential future costs.
• The company has made continued progress on the development of its product candidates.
• The settlement includes a mutual release of claims, preventing future litigation related to the case.

Negatives

• The reverse stock split reduces the number of outstanding shares, which may be perceived negatively by some investors.
• The company is required to pay $6 million in cash and ongoing royalties, which will impact its cash flow.
• The settlement is contingent on bankruptcy court approval, which introduces some uncertainty.
• The company has faced a challenging capital markets environment, similar to other micro-cap and biotech companies.

Risks

• There is no guarantee that the reverse stock split will sufficiently raise the bid price of the common stock for the required period.
• The settlement agreement is subject to bankruptcy court approval, and if not approved by April 1, 2024, the agreement will terminate.
• The company's ability to obtain FDA approval for its drug candidates is uncertain.
• The company's ability to obtain capital to meet its long-term liquidity needs is a risk.
• The company faces risks related to completing clinical trials and commercializing its drug candidates.

Future Outlook

The company remains highly encouraged by the outlook for the business and looks forward to providing updates on its progress. They are focused on developing their product candidates and obtaining regulatory approvals.

Management Comments

• We have made continued progress on the development of our product candidates, stated Gerald Bruce, CEO of Virpax Pharmaceuticals.
• We believe this reverse split will allow us to regain compliance with Nasdaqs minimum bid price requirement and to make our bid price more attractive to a broader universe of investors.

Industry Context

The reverse stock split is a common strategy for micro-cap and biotech companies facing challenges in maintaining Nasdaq listing compliance. The settlement resolves a legal dispute, which is a positive step for the company's stability and future operations.

Comparison to Industry Standards

• Reverse stock splits are frequently used by companies listed on the Nasdaq Capital Market to maintain compliance with minimum bid price requirements, especially in the biotech sector where stock prices can be volatile.
• The 1-for-10 ratio is within the typical range for reverse stock splits, which can range from 1-for-2 to 1-for-20.
• Settlements of litigation are common in the pharmaceutical industry, and the terms of this settlement, including cash payments and royalties, are not unusual.
• Companies like Cassava Sciences (SAVA) and Ocugen (OCGN) have also recently undertaken reverse stock splits to maintain Nasdaq compliance, demonstrating the prevalence of this strategy in the biotech sector.
• The royalty rate of 6% is within the typical range for pharmaceutical product royalties, which can vary based on the stage of development and market potential of the product.

Corporate Governance

Legal Proceedings

• The company has settled a lawsuit with Sorrento Therapeutics and Scilex Pharmaceuticals for $6 million in cash and a 6% royalty on net sales of certain products.

Stakeholder Impact

• Shareholders will experience a reduction in the number of shares they own due to the reverse stock split, but their ownership percentage will remain the same.
• The reverse stock split is intended to make the company's stock more attractive to a broader range of investors.
• The settlement agreement resolves a legal issue, which is a positive step for the company's stability and future operations.
• The company's ability to continue developing its product candidates and seek regulatory approvals will impact its long-term value for shareholders.

Next Steps

• The company will implement the reverse stock split on March 1, 2024.
• The company will seek approval of the settlement agreement from the bankruptcy court.
• The company will make the initial payment of $3.5 million to Sorrento and Scilex after the settlement order is approved.
• The company will make the final payment of $2.5 million to Sorrento and Scilex by July 1, 2024.
• The company will continue to develop its product candidates and seek regulatory approvals.

Key Dates

Keywords

reverse stock split, Nasdaq compliance, settlement agreement, litigation, royalties, biotech, pharmaceuticals, minimum bid price, Epoladerm, Probudur, Envelta