S-4/A 1 d481627ds4a.htm S-4/A S-4/A
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As filed with the Securities and Exchange Commission on December 7, 2017

Registration No. 333-221592

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1

to

FORM S-4

REGISTRATION STATEMENT

Under

The Securities Act of 1933

 

 

Neothetics, Inc.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   2834   20-8527075

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

9171 Towne Centre Drive, Suite 250

San Diego, CA 92122

(858) 750-1008

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Susan A. Knudson

Chief Financial Officer

Neothetics, Inc.

9171 Towne Centre Drive, Suite 250

San Diego, CA 92122

(858) 750-1008

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Michael S. Kagnoff, Esq.

Patrick J. O’Malley, Esq.

DLA Piper LLP (US)

4365 Executive Drive, Suite 1100

San Diego, CA 92121

Tel: (858) 677-1400

Fax: (858) 677-1401

 

Alexander A. Fitzpatrick, Esq.

General Counsel

Evofem Biosciences, Inc.

12400 High Bluff Drive, Suite 600

San Diego, CA 92130

Tel: (858) 559-1900

Fax: (858) 677-1401

 

Adam C. Lenain, Esq.

Melanie Ruthrauff Levy, Esq.

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

3580 Carmel Mountain Road, Suite 300

San Diego, CA 92130

Tel: (858) 314-1500

Fax: (858) 314-1501

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement and the satisfaction or waiver of all other conditions under the Merger Agreement described herein.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box:  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☒

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Security Being Registered

  Amount
to be
Registered(1)
  Proposed
Maximum
Offering Price
Per Share
  Proposed
Maximum
Aggregate
Offering Price(2)
  Amount of
Registration Fee(3)

Common stock, $0.0001 par value per share

  84,900,000   N/A   $5,017,000   $625(4)

 

 

(1) Relates to common stock, $0.0001 par value per share, of Neothetics, Inc., a Delaware corporation (“Neothetics”), issuable to holders of capital stock, $0.0001 par value per share, and warrants and options of Evofem Biosciences, Inc., a Delaware corporation (“Evofem”), in the proposed merger of Nobelli Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Neothetics, with and into Evofem. The amount of Neothetics common stock to be registered is based on the estimated number of shares of Neothetics common stock that are expected to be issued pursuant to the merger, assuming (1) an exchange ratio of 0.1515 shares of Neothetics common stock for each outstanding share of Evofem common stock (on an as-converted basis and for each option and warrant exercisable for shares of Evofem common stock) and (2) an exchange ratio of 515,616.2625 shares of Neothetics common stock for each outstanding share of Evofem Series D Preferred Stock, each without giving effect to a reverse stock split of Neothetics common stock immediately prior to the merger and each as subject to adjustment as set forth in Section 1.12(b) of the Merger Agreement described below. The estimated exchange ratio calculations contained herein is based upon Neothetics’ capitalization immediately prior to the date of this proxy statement/prospectus/information statement, and will be further adjusted as necessary to account for the issuance of any additional shares of Neothetics common stock prior to the consummation of the merger.
(2) Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(f) of the Securities Act of 1933, as amended, based upon the estimated book value of the Evofem securities to be exchanged in the merger, as of October 20, 2017. Evofem is a private company, and no market exists for its securities.
(3) This fee has been calculated pursuant to Section 6(b) of the Securities Act of 1933, as amended, at a rate equal to $124.50 per $1,000,000 of the proposed maximum aggregate offering price.
(4) Previously paid.

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this proxy statement/prospectus/information statement is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus/information statement is not an offer to sell and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED DECEMBER 7, 2017

 

LOGO   

LOGO

PROPOSED MERGER

YOUR VOTE IS VERY IMPORTANT

 

 

To the Stockholders of Neothetics, Inc. and Evofem Biosciences, Inc.:

Neothetics, Inc., or Neothetics, and Evofem Biosciences, Inc., or Evofem, have entered into an Agreement and Plan of Merger and Reorganization, or the Merger Agreement, pursuant to which a wholly owned subsidiary of Neothetics will merge with and into Evofem, with Evofem surviving as a wholly owned subsidiary of Neothetics, or the merger. The merger will result in a clinical-stage speciality biopharmaceutical committed to improving the health and well-being of women throughout the world by addressing women’s unmet medical needs through the discovery, development and commercialization of innovative, next generation women’s healthcare products.

Immediately prior to the effective time of the merger, each share of Evofem capital stock will be converted into shares of Neothetics common stock. Evofem’s authorized capitalization currently consists of shares of (i) Evofem common stock, (ii) Evofem Series A Preferred Stock, (iii) Evofem Series B Preferred Stock, (iv) Evofem Series C Preferred Stock, (v) Evofem Series C-1 Preferred Stock and (vi) Evofem Series D Preferred Stock. Immediately prior to the merger, each share of Evofem Series A Preferred Stock, Evofem Series B Preferred Stock, Evofem Series C Preferred Stock and Evofem Series C-1 Preferred Stock will convert into one share of Evofem common stock. At the effective time of the merger, each share of Evofem common stock (including shares issued upon conversion of shares of Evofem preferred stock and, upon exercise of the Investor Warrants described below), will be converted into the right to receive approximately 0.1515 pre-split shares of Neothetics common stock, or the common stock exchange ratio, and each share of Evofem Series D Preferred Stock will be converted into the right to receive approximately 515,616.2625 pre-split shares of Neothetics common stock, or the Series D Preferred Stock exchange ratio, subject to adjustment to account for the effect of a reverse stock split of Neothetics common stock in accordance with a ratio to be determined by mutual agreement of Neothetics and Evofem, and approved by the Neothetics board of directors, within a range of one share of Neothetics common stock for every 6 to 10 shares of Neothetics common stock (or any number in between), or the Reverse Stock Split, to be implemented prior to the consummation of the merger as discussed in this proxy statement/prospectus/information statement. The common stock exchange ratio and the Series D Preferred Stock exchange ratio are determined pursuant to formulas described in more detail in the Merger Agreement and in the attached proxy statement/prospectus/information statement, and the pre-split figures are estimates and subject to adjustment as provided in Section 1.12(b) of the Merger Agreement.

Neothetics will assume options to purchase Evofem common stock that are outstanding and unexercised as of immediately prior to the effective time of the merger, and they will be converted into options to purchase Neothetics common stock. Neothetics will assume warrants to purchase Evofem capital stock that are outstanding and unexercised as of immediately prior to the effective time of the merger, and these warrants will be amended and restated to be exercisable for up to an aggregate of 12,000,000 shares of Neothetics common stock, subject to adjustment for the Reverse Stock Split, immediately following the merger as is further discussed in this proxy statement/prospectus/information statement.

Neothetics stockholders will continue to own and hold their existing shares of Neothetics common stock. Conditioned upon and immediately following the merger, Neothetics will issue and sell in a private placement transaction, or the Financing, $20 million of Neothetics common stock to existing Evofem Investors at a price per share equal to $2.0677, subject to adjustment as provided in Section 1.12(b) of the Merger Agreement and to account for the Reverse Stock Split, and, immediately prior to the effective time of the merger, Evofem will issue warrants to purchase 158,999,371 shares, subject to adjustment as set forth in Section 1.12(b) of the Merger Agreement, of Evofem common stock, or the Investor Warrants. The Investor Warrants will be automatically exercised on a cashless basis at the effective time of the merger, and the shares of Evofem common stock issued upon exercise of the Investor Warrants will be eligible to receive shares of the Neothetics common stock in an amount equal to the common stock exchange ratio upon completion of the merger. Immediately after the merger and the Financing, Evofem stockholders will own approximately 87% of the issued and outstanding common stock of Neothetics, with Neothetics stockholders, whose Neothetics equity will remain outstanding after the merger, holding approximately 13% of the issued and outstanding common stock of Neothetics.


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Shares of Neothetics common stock are currently listed on The NASDAQ Capital Market equities market under the symbol “NEOT.” Prior to consummation of the merger, Neothetics intends to file an initial listing application for the combined company with The NASDAQ Capital Market. In connection with the merger, Neothetics will be renamed “Evofem Biosciences, Inc.” and expects to trade on The NASDAQ Capital Market or another national securities exchange under the symbol “EVFM.” On December 6, 2017, the last trading day before the date of this proxy statement/prospectus/information statement, the closing sale price of Neothetics common stock was $1.31 per share.

Neothetics is holding a special meeting of stockholders to obtain the stockholder approvals necessary to complete the merger, the Financing and related matters. At the Neothetics special meeting, which will be held at 8:00 a.m., local time, on January 5, 2018 at the offices of DLA Piper LLP (US) located at 4365 Executive Drive, Suite 1100, San Diego, CA 92121, unless postponed or adjourned to a later date, Neothetics will ask its stockholders to, among other things, adopt the Merger Agreement thereby approving the merger and the issuance of Neothetics common stock in connection with the merger, approve the issuance of Neothetics common stock in the Financing, approve an amendment of the Neothetics amended and restated certificate of incorporation in order to (i) effect the Reverse Stock Split, (ii) cause the post-merger combined entity not to be governed by or subject to Section 203 of the Delaware General Corporation Law and (iii) change the Neothetics corporate name to “Evofem Biosciences, Inc.,” approve the issuance of Neothetics common stock in the Financing, and, on a non-binding advisory vote basis, approve compensation that will or may become payable by Neothetics to its named executive officers in connection with the merger, each as described in the accompanying proxy statement/prospectus/information statement.

As described in the accompanying proxy statement/prospectus/information statement, certain Evofem stockholders holding approximately 68% of Evofem’s issued and outstanding capital stock, are parties to support agreements with Evofem, or the Support Agreements, whereby such stockholders agreed to vote in favor of the adoption of the Merger Agreement and the transactions contemplated by the Merger Agreement, respectively, subject to the terms of the Support Agreements. In addition, following the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, being declared effective by the U.S. Securities and Exchange Commission and pursuant to the conditions of the Merger Agreement, the Evofem stockholders who are party to the Support Agreements will each execute an action by written consent of the Evofem stockholders, referred to herein as the written consent, adopting the Merger Agreement and approving the merger and the transactions contemplated by the Merger Agreement. No meeting of Evofem stockholders to adopt the Merger Agreement and approve the merger and related transactions will be held; however, all Evofem stockholders will have the opportunity to elect to adopt the Merger Agreement, thereby approving the merger and related transactions, by signing and returning to Evofem a written consent.

After careful consideration, each of the Neothetics strategic transactions committee of the board of directors, or the Strategic Committee, and Evofem boards of directors has unanimously approved the Merger Agreement, and each of the Neothetics Strategic Committee and Evofem boards of directors has unanimously determined that it is advisable to enter into the merger. The board of directors of Neothetics unanimously recommends that its stockholders vote “FOR” the proposals described in the accompanying proxy statement/prospectus/information statement, and the board of directors of Evofem unanimously recommends that its stockholders sign and return the written consent indicating their approval of the merger and adoption of the Merger Agreement and related transactions to Evofem.

 

 

More information about Neothetics, Evofem and the proposed transaction is contained in this proxy statement/prospectus/information statement. Neothetics and Evofem urge you to read the accompanying proxy statement/prospectus/information statement carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “RISK FACTORS” BEGINNING ON PAGE 23.

 

 

Neothetics and Evofem are excited about the opportunities the merger brings to both Neothetics and Evofem stockholders, and thank you for your consideration and continued support.

 

Susan Knudson

   Saundra Pelletier

Chief Financial Officer

   Chief Executive Officer

Neothetics, Inc.

   Evofem Biosciences, Inc.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this proxy statement/prospectus/information statement. Any representation to the contrary is a criminal offense.

The accompanying proxy statement/prospectus/information statement is dated                    , 2017, and is first being mailed to Neothetics and Evofem stockholders on or about                    , 2017.


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LOGO

NEOTHETICS, INC.

9171 Towne Centre Drive, Suite 250

San Diego, CA 92122

(858) 750-1008

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held On January 5, 2018

Dear Stockholders of Neothetics:

On behalf of the board of directors of Neothetics, Inc., a Delaware corporation, or Neothetics, Neothetics is pleased to deliver this proxy statement/prospectus/information statement for the proposed merger between Neothetics and Evofem Biosciences, Inc., a Delaware corporation, or Evofem, pursuant to which Nobelli Merger Sub, Inc., a wholly owned subsidiary of Neothetics, or Merger Sub, will merge with and into Evofem, with Evofem surviving as a wholly owned subsidiary of Neothetics. In connection with the merger, Neothetics has also entered into a securities purchase agreement, or the Securities Purchase Agreement, with existing Evofem investors, or the Investors, and Evofem pursuant to which Evofem, immediately prior to the merger, will issue to the Investors, warrants to purchase shares of Evofem common stock, or the Investor Warrants, and, immediately following the merger, the Investors will purchase shares of Neothetics common stock in a private placement transaction for an aggregate purchase price of $20 million, or the Financing. The special meeting of stockholders of Neothetics will be held on January 5, 2018 at 8:00 a.m., local time, at the offices of DLA Piper LLP (US) located at 4365 Executive Drive, Suite 1100, San Diego, CA 92121, for the following purposes:

1. To consider and vote upon a proposal to approve the merger agreement, the merger and the issuance of Neothetics common stock pursuant to the Agreement and Plan of Merger and Reorganization, dated as of October 17, 2017, by and among Neothetics, Nobelli Merger Sub, Inc. and Evofem, a copy of which is attached as Annex A to the accompanying proxy statement/prospectus/information statement;

2. To approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to effect a reverse stock split of Neothetics common stock in accordance with a ratio to be determined by mutual agreement of Neothetics and Evofem, and approved by the Neothetics board of directors, within a range of one share of Neothetics common stock for every 6 to 10 shares of Neothetics common stock (or any number in between) in the form attached as Annex D to the accompanying proxy statement/prospectus/information statement;

3. To approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to change the name “Neothetics, Inc.” to “Evofem Biosciences, Inc.” in the form attached as Annex D to the accompanying proxy statement/prospectus/information statement;

4. To approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to elect for Neothetics not to be governed by or subject to Section 203 of the Delaware General Corporation Law in the form attached as Annex D to the accompanying proxy statement/prospectus/information statement;

5. To approve the issuance of shares of Neothetics common stock in the Financing pursuant to the Securities Purchase Agreement, a copy of which is attached as Annex E to the accompanying proxy statement/prospectus/information statement;

6. To consider and vote upon a proposal to approve, on a non-binding advisory vote basis, compensation that will or may become payable by Neothetics to its named executive officers in connection with the merger;


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7. To consider and vote upon an adjournment of the Neothetics special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Neothetics Proposal Nos. 1, 2, 3, 4, 5 and 6; and

8. To transact such other business as may properly come before the stockholders at the Neothetics special meeting or any adjournment or postponement thereof.

The board of directors of Neothetics has fixed January 5, 2018 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Neothetics special meeting and any adjournment or postponement thereof. Only holders of record of shares of Neothetics common stock at the close of business on the record date are entitled to notice of, and to vote at, the Neothetics special meeting.

Your vote is important. The affirmative vote of the holders of a majority of the shares of Neothetics common stock having voting power present in person or represented by proxy at the Neothetics special meeting, presuming a quorum is present, is required for approval of Neothetics Proposal Nos. 1, 5, 6 and 7. The affirmative vote of the holders of a majority of shares of Neothetics common stock having voting power outstanding on the record date for the Neothetics special meeting is required for approval of Neothetics Proposal Nos. 2, 3 and 4. Each of Proposal Nos. 1, 2 and 3 are conditioned upon each other. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1, 2 and 3.

Even if you plan to attend the Neothetics special meeting in person, Neothetics requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the Neothetics special meeting if you are unable to attend.

By Order of the Neothetics Board of Directors,

Susan Knudson

Chief Financial Officer

San Diego, California

                    , 2017

THE NEOTHETICS BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT EACH OF THE PROPOSALS OUTLINED ABOVE IS ADVISABLE TO, AND IN THE BEST INTERESTS OF, NEOTHETICS AND ITS STOCKHOLDERS AND HAS APPROVED EACH SUCH PROPOSAL. THE NEOTHETICS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT NEOTHETICS STOCKHOLDERS VOTE “FOR” EACH SUCH PROPOSAL.


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REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus/information statement incorporates important business and financial information about Neothetics that is not included in or delivered with this document. You may obtain this information without charge through the Securities and Exchange Commission, or the SEC, website (www.sec.gov) or upon your written or oral request by contacting the Chief Financial Officer of Neothetics, Inc., 9171 Towne Centre Drive, Suite 250, San Diego, CA 92122, or by calling (858) 750-1008.

To ensure timely delivery of these documents, any request should be made no later than December 27, 2017 to receive them before the special meeting.

For additional details about where you can find information about Neothetics, please see the section entitled “Where You Can Find More Information” beginning on page 243 of this proxy statement/prospectus/information statement.


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TABLE OF CONTENTS

 

     Page  

QUESTIONS AND ANSWERS ABOUT THE MERGER

     1  

PROSPECTUS SUMMARY

     6  

The Companies

     6  

The Merger

     7  

Opinion of the Neothetics Financial Advisor

     7  

Overview of the Merger Agreement and Agreements Related to the Merger Agreement

     8  

Management Following the Merger

     11  

Interests of Certain Directors, Officers and Affiliates of Neothetics and Evofem

     12  

Considerations with Respect to U.S. Federal Income Tax Consequences of the Merger

     12  

Risk Factors

     13  

Regulatory Approvals

     14  

National Securities Exchange Listing

     14  

Anticipated Accounting Treatment

     14  

Appraisal Rights and Dissenters’ Rights

     14  

Comparison of Stockholder Rights

     14  

SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION AND DATA

     16  

Selected Historical Financial Data of Neothetics

     16  

Selected Historical Consolidated Financial Data of Evofem

     18  

Selected Unaudited Pro Forma Condensed Consolidated Financial Information and Data of Neothetics and Evofem

     19  

Comparative Historical and Unaudited Pro Forma Per Share Data

     20  

MARKET PRICE AND DIVIDEND INFORMATION

     22  

RISK FACTORS

     23  

Risks Related to the Merger

     23  

Risks Related to Neothetics

     26  

Risks Related to Evofem

     31  

Risks Related to Evofem’s Financial Condition and Capital Requirements

     31  

Risks Related to the Development of Evofem’s Product Candidates

     34  

Risks Related to Regulatory Approval of Evofem’s Product Candidates and Other Legal Compliance Matters

     37  

Risks Related to Evofem’s Intellectual Property

     42  

Risks Related to Evofem’s Reliance on Third Parties

     53  

Risks Related to Commercialization of Evofem’s Product Candidate

     57  

Risks Related to Evofem’s Business Operations

     62  

Risks Related to the Combined Organization

     63  

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

     70  

THE SPECIAL MEETING OF NEOTHETICS STOCKHOLDERS

     72  

Date, Time and Place

     72  

Purposes of the Neothetics Special Meeting

     72  

Recommendations of the Neothetics Board

     72  

Record Date and Voting Power

     73  

Voting and Revocation of Proxies

     73  

Required Vote

     75  

Solicitation of Proxies

     75  

Other Matters

     75  

THE MERGER

     76  

Background of the Merger

     76  

Neothetics Reasons for the Merger

     82  

Evofem Reasons for the Merger

     84  


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Interests of the Evofem Directors and Executive Officers in the Merger

     86  

Limitations on Liability and Indemnification

     89  

Stock Options and Warrants

     89  

Form of Merger

     90  

Merger Consideration

     90  

Regulatory Approvals

     91  

Tax Treatment of the Merger

     91  

Material U.S. Federal Income Tax Consequences of the Merger

     92  

Information Reporting and Backup Withholding

     94  

NASDAQ Stock Market Listing

     95  

Anticipated Accounting Treatment

     95  

Appraisal Rights and Dissenters’ Rights

     95  

Opinion of Oppenheimer  & Co. Inc. as Neothetics’ Financial Advisor

     98  

Consideration to be Paid in the Merger

     101  

Estimated Neothetics Stand-Alone Valuation

     102  

Estimated Evofem Stand-Alone Valuation

     102  

Information Regarding Financial Projections Used for Fairness Opinion Analysis

     105  

Interests of the Neothetics Directors and Executive Officers in the Merger

     105  

THE MERGER AGREEMENT

     108  

General

     108  

Merger Consideration

     108  

Exchange Ratios

     109  

Procedures for Exchanging Evofem Stock Certificates

     110  

Treatment of Evofem Options

     110  

Treatment of Evofem Warrants

     111  

Directors and Executive Officers of Neothetics Following the Merger

     112  

Amendment to the Amended and Restated Certificate of Incorporation of Neothetics

     112  

Conditions to the Completion of the Merger

     112  

Representations and Warranties

     115  

No Solicitation

     117  

Meetings of Stockholders

     119  

Covenants; Conduct of Business Pending the Merger

     119  

Regulatory Approvals

     122  

Access to Information

     123  

Other Agreements

     123  

Termination of the Merger Agreement

     125  

Termination Fees

     126  

Amendment

     127  

AGREEMENTS RELATED TO THE MERGER

     128  

Support Agreements

     128  

Lock-Up Agreements

     128  

Securities Purchase Agreement

     128  

Post-Merger Registration Rights Agreement

     129  

Post-Merger Voting Agreement

     129  

MATTERS BEING SUBMITTED TO A VOTE OF NEOTHETICS STOCKHOLDERS

     130  

Neothetics Proposal No.  1: Approval of the Merger Agreement, the Merger and the Issuance of Common Stock in the Merger

     130  

Neothetics Proposal No.  2: Approval of the Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Neothetics Effecting the Reverse Stock Split

     131  

Neothetics Proposal No. 3: Approval of Name Change

     137  

Neothetics Proposal No.  4: To Approve the Certificate of Amendment to the Amended and Restated Certificate of Incorporation Causing Neothetics as the Post-Merger Combined Entity Not to be Subject to Section 203 of the DGCL

     138  


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Neothetics Proposal No.  5: Approval of the Issuance of Neothetics Common Stock in the Financing

     139  

Neothetics Proposal No.  6: Advisory Non-Binding Vote on Merger-Related Executive Compensation Arrangements

     141  

Neothetics Proposal No.  7: Approval of Possible Adjournment of the Neothetics Special Meeting

     142  

NEOTHETICS BUSINESS

     143  

EVOFEM BUSINESS

     146  

NEOTHETICS MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     170  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT NEOTHETICS’ MARKET RISK

     177  

EVOFEM  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     178  

MANAGEMENT FOLLOWING THE MERGER

     189  

Executive Officers and Directors

     189  

Composition of the Board of Directors

     194  

Director Independence

     194  

Committees of the Board of Directors

     195  

2016 Evofem Director Compensation

     199  

Compensation Committee Interlocks and Insider

     199  

Executive Compensation

     200  

Employment Benefit Plans

     204  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS OF EVOFEM

     208  

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     214  

Unaudited Pro Forma Condensed Consolidated Balance Sheet

     216  

Unaudited Pro Forma Condensed Consolidated Statements of Operations

     217  

Unaudited Pro Forma Condensed Consolidated Statements of Comprehensive Loss

     218  

Notes to the Unaudited Pro Forma Condensed Consolidated Financial Information

     218  

DESCRIPTION OF NEOTHETICS CAPITAL STOCK

     221  

COMPARISON OF RIGHTS OF HOLDERS OF NEOTHETICS STOCK AND EVOFEM STOCK

     225  

PRINCIPAL STOCKHOLDERS OF NEOTHETICS

     236  

PRINCIPAL STOCKHOLDERS OF EVOFEM

     238  

LEGAL MATTERS

     243  

EXPERTS

     243  

WHERE YOU CAN FIND MORE INFORMATION

     243  

TRADEMARK NOTICE

     244  

OTHER MATTERS

     244  

INDEX TO FINANCIAL STATEMENTS

     F-1  

ANNEX A – AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

     A-1  

ANNEX B – OPINION OF OPPENHEIMER & CO. INC.

     B-1  

ANNEX C – SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW

     C-1  

ANNEX D – CERTIFICATE OF AMENDMENT TO THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF NEOTHETICS, INC.

     D-1  

ANNEX E – SECURITIES PURCHASE AGREEMENT

     E-1  


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QUESTIONS AND ANSWERS ABOUT THE MERGER

Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus/information statement does not give effect to the proposed reverse stock split described in Neothetics Proposal No. 2.

Neothetics, Inc., or Neothetics, Nobelli Merger Sub, Inc., a wholly owned subsidiary of Neothetics, or the Merger Sub, and Evofem Biosciences, Inc., or Evofem®, have entered into an Agreement and Plan of Merger and Reorganization, dated as of October 17, 2017, or the Merger Agreement. The Merger Agreement contains the terms and conditions of the proposed business combination of Neothetics and Evofem. Under the Merger Agreement, the Merger Sub will merge with and into Evofem, with Evofem surviving as a wholly owned subsidiary of Neothetics. This transaction is referred to as “the merger.” Evofem may also be referred to as “Evofem Biosciences.”

The following section provides answers to frequently asked questions about the merger. This section, however, provides only summary information. For a more complete response to these questions and for additional information, please refer to the cross-referenced sections.

 

Q: Why are the two companies proposing to merge?

 

A: Following the merger, Neothetics and Evofem believe the combined organization will be a clinical-stage specialty biopharmaceutical company committed to improving the health and well-being of women throughout the world by addressing women’s unmet medical needs through the discovery, development and commercialization of innovative, next generation women’s healthcare products. Evofem’s multipurpose prevention technology is a vaginal gel being developed for multiple indications, including contraception, sexually transmitted infections and bacterial vaginosis. For a discussion of Neothetics and Evofem reasons for the merger, please see the sections entitled “The Merger — Neothetics Reasons for the Merger” beginning on page 82 of this proxy statement/prospectus/information statement and “The Merger — Evofem Reasons for the Merger” beginning on page 84 of this proxy statement/prospectus/information statement.

 

Q: As a stockholder of Neothetics or Evofem, what will happen to my stock?

 

A:

Immediately prior to the effective time of the merger, each share of outstanding Evofem preferred stock (other than shares of Evofem Series D Preferred Stock) will be converted into one share of Evofem common stock in accordance with the Evofem certificate of incorporation. At the effective time of the merger, each share of Evofem common stock issued and outstanding immediately prior to the effective time of the merger (including shares of Evofem common stock issued upon conversion of shares of Evofem preferred stock and upon exercise of the Investor Warrants described in the section entitled “Agreements Related to the Merger — Securities Purchase Agreement” beginning on page 128 of this proxy statement/prospectus/information statement), will be converted into and represent the right to receive a number of shares of Neothetics common stock equal to the common stock exchange ratio. See the section entitled “The Merger Agreement — Exchange Ratios” beginning on page 109 of this proxy statement/prospectus/information statement. Each share of Evofem Series D Preferred Stock issued and outstanding immediately prior to the effective time of the merger will be converted into and represent the right to receive a number of shares of Neothetics common stock equal to the Evofem Series D Preferred Stock exchange ratio. See the section entitled “The Merger Agreement — Exchange Ratios” beginning on page 109 of this proxy statement/prospectus/information statement. Shares of Evofem capital stock held by stockholders who have exercised and perfected appraisal or dissenters’ rights will be treated as described in the section entitled “The Merger — Appraisal Rights and Dissenters’ Rights” beginning on page 95 of this proxy information/prospectus/information statement. The exchange ratios will be subject to adjustment as set forth in Section 1.12(b) of the Merger Agreement and to account for a reverse stock split of Neothetics common stock, or the Reverse Stock Split, in accordance with a ratio to be determined by mutual agreement of Neothetics and Evofem, subject to approval by the Neothetics board of directors, or the Neothetics Board, within a range of one

 

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  share of Neothetics common stock for every 6 to 10 shares of Neothetics common stock (or any number in between) to be implemented prior to the consummation of the merger. As a result of the merger and assuming completion of the Financing (as defined below) (see the section entitled “Agreements Related to the Merger — Securities Purchase Agreement” beginning on page 128 of this proxy statement/prospectus/information statement), Evofem stockholders are expected to own in the aggregate approximately 87% of Neothetics, and the Neothetics stockholders are expected to own in the aggregate approximately 13% of Neothetics. The exchange ratios are determined pursuant to formulas described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement, and the pre-split figure and percentage ownership figures are estimates.

For a more complete description of what Evofem stockholders, warrant holders and option holders will receive in the merger, please see the sections entitled “Market Price and Dividend Information” beginning on page 22 of this proxy statement/prospectus/information statement and “The Merger Agreement — Merger Consideration” beginning on page 108 of this proxy statement/prospectus/information statement.

Neothetics stockholders, warrant holders and holders of Neothetics equity awards will not receive anything as a result of the merger, but will continue to hold the same amount of Neothetics common stock, warrants to purchase Neothetics common stock and Neothetics equity awards held immediately prior to the merger, as appropriately adjusted for the Reverse Stock Split.

 

Q: What is required to consummate the merger?

 

A: To consummate the merger, Neothetics stockholders must approve the issuance of Neothetics common stock pursuant to the Merger Agreement. In addition, the Merger Agreement anticipates approval of an amendment to the amended and restated certificate of incorporation of Neothetics (effecting (i) the Reverse Stock Split, (ii) Neothetics’ opt out of Section 203 of the Delaware General Corporation Law, or the DGCL, and (iii) the change in Neothetics’ name to “Evofem Biosciences, Inc.”) and the approval of the issuance of shares of Neothetics common stock pursuant to a private placement where accredited existing investors of Evofem, or the Investors, have agreed to purchase in a private placement, or the Financing, shares of Neothetics common stock at an aggregate purchase price of $20 million subject to and upon the completion of the merger. See the section entitled “Agreements Related to the Merger — The Securities Purchase Agreement” beginning on page 128 of this proxy statement/prospectus/information statement. Moreover, Evofem stockholders must approve the merger and the transactions contemplated by the Merger Agreement and the Financing.

For a more complete description of the closing conditions under the Merger Agreement, you are urged to read the section entitled “The Merger Agreement — Conditions to the Completion of the Merger” beginning on page 112 of this proxy statement/prospectus/information statement.

 

Q: When do you expect the merger to be consummated?

 

A: The merger is anticipated to occur promptly after the Neothetics special meeting to be held on January 5, 2018. For more information, please see the section entitled “The Merger Agreement — Conditions to the Completion of the Merger” beginning on page 112 of this proxy statement/prospectus/information statement.

 

Q: What will happen to Neothetics if, for any reason, the merger does not close?

 

A: If, for any reason, the merger does not close, the Neothetics Board may elect to, among other things, attempt to complete another strategic transaction like the merger, attempt to sell or otherwise dispose of the various assets of Neothetics or continue to operate the business of Neothetics. If Neothetics decides to dissolve and liquidate its assets, Neothetics would be required to pay all of its debts and contractual obligations, and to set aside certain reserves for potential future claims, and there can be no assurances as to the amount or timing of available cash left to distribute to stockholders after paying the debts and other obligations of Neothetics and setting aside funds for reserves.

 

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Q: As a Neothetics stockholder, how does the Neothetics Board recommend that I vote?

 

A: After careful consideration, the Neothetics Board unanimously recommends that Neothetics stockholders vote:

 

    FOR” Proposal No. 1 to approve the Merger Agreement, the merger and the issuance of shares of common stock of Neothetics in the merger;

 

    FOR” Proposal No. 2 to approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to effect a reverse stock split of Neothetics common stock in accordance with a ratio to be determined by mutual agreement of Neothetics and Evofem, and approved by the Neothetics Board, within a range of one share of Neothetics common stock for every 6 to 10 shares of Neothetics common stock (or any number in between);

 

    FOR” Proposal No. 3 to approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to change the name of “Neothetics, Inc.” to “Evofem Biosciences, Inc.”;

 

    FOR Proposal No. 4 to approve the certificate of amendment to the amended and restated certificate of incorporation causing the post-merger combined entity not to be governed by or subject to Section 203 of the DGCL;

 

    FOR” Proposal No. 5 to approve the issuance of the shares of Neothetics common stock in the Financing;

 

    FOR” Proposal No. 6 to consider and vote upon a proposal to approve, on a non-binding advisory vote basis, compensation that will or may become payable by Neothetics to its named executive officers in connection with the merger; and

 

    FOR” Proposal No. 7 to adjourn the special meeting, if necessary, if a quorum is present, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2, 3, 4, 5 and 6.

 

Q: As an Evofem stockholder, how does the Evofem board of directors recommend that I vote?

 

A: After careful consideration, the Evofem board of directors, or the Evofem Board, unanimously recommends that Evofem stockholders execute the written consent indicating their vote in favor of the adoption of the Merger Agreement and the approval of the merger and the transactions contemplated thereby.

 

Q: What risks should I consider in deciding whether to vote in favor of the merger or to execute and return the written consent, as applicable?

 

A: You should carefully review the section beginning on page 23 of this proxy statement/prospectus/information statement entitled “Risk Factors” which sets forth certain risks and uncertainties related to the merger, risks and uncertainties to which the combined organization’s business will be subject, and risks and uncertainties to which each of Neothetics and Evofem, as an independent company, is subject.

 

Q: What do I need to do now?

 

A: Neothetics and Evofem urge you to read this proxy statement/prospectus/information statement carefully, including its annexes, and to consider how the merger affects you.

If you are a stockholder of Neothetics, you may provide your proxy instructions in one of two different ways. First, you can mail your signed proxy card in the enclosed return envelope. Second, you may also provide your proxy instructions via the Internet or telephone by following the instructions on your proxy card or voting instruction form. Please provide your proxy instructions only once, unless you are revoking a previously delivered proxy instruction, and, even if you are planning to attend the special meeting in person, do so as soon as possible so that your shares can be voted at the special meeting of Neothetics stockholders.

 

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If you are a stockholder of Evofem, you may execute and return your written consent to Evofem in accordance with the instructions provided.

 

Q: When and where is the special meeting of Neothetics stockholders being held?

 

A: The special meeting of Neothetics stockholders will be held at the offices of DLA Piper LLP (US) located at 4365 Executive Drive, Suite 1100, San Diego, CA 92121, at 8:00 a.m. local time, on January 5, 2018. Subject to space availability, all Neothetics stockholders as of the record date, or their duly appointed proxies, may attend the meeting. Since seating is limited, admission to the meeting will be on a first-come, first-serve basis.

 

Q: May I vote in person at the special meeting of stockholders of Neothetics?

 

A: If your shares of Neothetics common stock are registered directly in your name with the Neothetics transfer agent, you are considered to be the stockholder of record with respect to those shares, and the proxy materials and proxy card are being sent directly to you by Neothetics. If you are a Neothetics stockholder of record, you may attend the special meeting of Neothetics stockholders and vote your shares in person. Even if you plan to attend the Neothetics special meeting in person, Neothetics requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the Neothetics special meeting if you are unable to attend. If your shares of Neothetics common stock are held in a brokerage account or by another nominee, you are considered the beneficial owner of shares held in “street name,” and the proxy materials are being forwarded to you by your broker or other nominee together with a voting instruction card. As the beneficial owner, you are also invited to attend the special meeting of Neothetics stockholders. Because a beneficial owner is not the stockholder of record, you may not vote these shares in person at the Neothetics special meeting unless you obtain a proxy from the broker, trustee or nominee that holds your shares, giving you the right to vote the shares at the meeting.

 

Q: If my Neothetics shares are held in “street name” by my broker, will my broker vote my shares for me?

 

A: Unless your broker has discretionary authority to vote on certain matters, your broker will not be able to vote your shares of Neothetics common stock on matters requiring discretionary authority without instructions from you. Brokers are not expected to have discretionary authority to vote for Neothetics Proposal Nos. 1, 2, 3, 4, 5 or 6. To make sure that your vote is counted, you should instruct your broker to vote your shares, following the procedures provided by your broker.

 

Q: May I change my vote after I have submitted a proxy or provided proxy instructions?

 

A: Neothetics stockholders of record may change their vote at any time before their proxy is voted at the Neothetics special meeting in one of three ways. First, a stockholder of record of Neothetics can send a written notice to the Secretary of Neothetics stating that it would like to revoke its proxy. Second, a stockholder of record of Neothetics can submit new proxy instructions either on a new proxy card or via the Internet or telephone. Third, a stockholder of record of Neothetics can attend the Neothetics special meeting and vote in person. Attendance alone will not revoke a proxy. If a Neothetics stockholder of record or a stockholder who owns Neothetics shares in “street name” has instructed a broker to vote its shares of Neothetics common stock, the stockholder must follow directions received from its broker to change those instructions.

 

Q: What happens if I do not return a proxy card or otherwise provide proxy instructions, as applicable?

 

A: If you are a Neothetics stockholder, the failure to return your proxy card or otherwise provide proxy instructions will reduce the aggregate number of votes required to approve Neothetics Proposal Nos. 1, 5, 6 and 7 and will have the same effect as voting against Neothetics Proposal Nos. 2, 3 and 4, and your shares will not be counted for purposes of determining whether a quorum is present at the Neothetics special meeting.

 

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Q: Who is paying for this proxy solicitation?

 

A: Neothetics and Evofem will share equally the cost of printing and filing of this proxy statement/prospectus/information statement and the proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of Neothetics common stock for the forwarding of solicitation materials to the beneficial owners of Neothetics common stock. Neothetics will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials. Neothetics has retained Philadelphia Stock Transfer to assist it in soliciting proxies using the means referred to above. Neothetics will pay the fees of Philadelphia Stock Transfer, which Neothetics expects to be approximately $10,000, plus reimbursement of out-of-pocket expenses.

 

Q: Who can help answer my questions?

 

A: If you are a Neothetics stockholder and would like additional copies, without charge, of this proxy statement/prospectus/information statement or if you have questions about the merger, including the procedures for voting your shares, you should contact Neothetics’ proxy solicitor:

PHILADELPHIA STOCK TRANSFER

(866) 223-0448 (toll free)

(484) 416-3124 (collect)

If you are an Evofem stockholder and would like additional copies, without charge, of this proxy statement/prospectus/information statement or if you have questions about the merger, including the procedures for voting your shares, you should contact:

Evofem Biosciences, Inc.

12400 High Bluff Drive, Suite 600

San Diego, CA 92130

Tel: (858) 550-1900

Attn: Investor Relations

investor@evofem.com

 

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PROSPECTUS SUMMARY

This summary highlights selected information from this proxy statement/prospectus/information statement and may not contain all of the information that is important to you. To better understand the merger, the proposals being considered at the Neothetics special meeting and the Evofem stockholder actions that are the subject of the written consent, you should read this entire proxy statement/prospectus/information statement carefully, including the Merger Agreement and the other annexes to which you are referred herein. For more information, please see the section entitled “Where You Can Find More Information” beginning on page 243 of this proxy statement/prospectus/information statement.

The Companies

Neothetics, Inc.

9171 Towne Centre Drive, Suite 250

San Diego, CA 92122

(858) 750-1008

Neothetics, Inc., or Neothetics, is a biopharmaceutical company headquartered in San Diego, California. Neothetics’ lead product candidate, LIPO-202, is a first-in-class injectable formulation of the long-acting ß2-adrenergic receptor agonist, salmeterol xinafoate, which is an active ingredient in the U.S. Food and Drug Administration, or FDA, approved inhaled products SEREVENT DISKUS®, ADVAIR HFA® and ADVAIR DISKUS®. Neothetics has temporarily suspended further research and development of LIPO-202.

Evofem Biosciences, Inc.

12400 High Bluff Drive, Suite 600

San Diego, CA 92130

(858) 550-1900

Evofem Biosciences, Inc., or Evofem, is headquartered in San Diego, California and is a clinical-stage specialty biopharmaceutical company committed to improving the health and well-being of women throughout the world by addressing women’s unmet medical needs through the discovery, development and commercialization of innovative, next generation women’s healthcare products. Evofem’s multipurpose prevention technology, or MPT, is a vaginal gel being developed for multiple indications, including contraception, sexually transmitted infections, or STIs, and bacterial vaginosis, or BV.

Evofem’s lead product candidate, Amphora®, is a hormone-free, on demand, woman-controlled vaginal gel currently in Phase 3 clinical trials as a contraceptive and in a Phase 2b/3 trial for the prevention of certain STIs. In addition, Evofem recently completed a Phase 1 trial of its MPT vaginal gel for the reduction of recurrence of BV and is currently designing a Phase 2b/3 trial.

Nobelli Merger Sub, Inc.

9171 Towne Centre Drive, Suite 250

San Diego, CA 92122

(858) 750-1008

Nobelli Merger Sub, Inc., or Merger Sub, is a wholly owned subsidiary of Neothetics and was formed solely for the purposes of carrying out the merger.

 



 

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The Merger (see page 76)

If the merger is completed, Merger Sub will merge with and into Evofem, with Evofem surviving as a wholly owned subsidiary of Neothetics.

Immediately after the merger and the Financing, Evofem stockholders will own approximately 87% of the issued and outstanding common stock of post-merger Neothetics, with Neothetics stockholders holding approximately 13% of the issued and outstanding common stock of post-merger Neothetics. Neothetics will assume options to purchase Evofem common stock that are outstanding and unexercised as of immediately prior to the effective time of the merger, and these options will be converted into options to purchase Neothetics common stock. Warrants to purchase capital stock of Evofem will be assumed by Neothetics in connection with the merger and then immediately amended and restated to be warrants, or the Neothetics Post-Merger Warrants, to purchase up to an aggregate of 12,000,000 shares (subject to adjustment for the Reverse Stock Split) of Neothetics common stock. The Neothetics Post-Merger Warrants will have an exercise price equal to the average of the closing sale prices of shares of Neothetics common stock as quoted on The NASDAQ Capital Market for the 30 consecutive trading day period immediately following the effective time of the merger and will be exercisable commencing on the first anniversary of the effective time of the merger and ending on the fourth anniversary of the merger. Each of the three Neothetics Post-Merger Warrants will be issued as a unit with one share of Neothetics common stock, or the Unit Share. Per the terms of the Neothetics Post-Merger Warrants, the Unit Shares may not be transferred separately from the Neothetics Post-Merger Warrants.

The common stock exchange ratio and Series D Preferred Stock exchange ratio are determined pursuant to formulas described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement. The foregoing percentages assume that the exchange ratios are not adjusted.

For a more complete description of the merger exchange ratios, please see the section entitled “The Merger Agreement—Exchange Ratios” beginning on page 109 of this proxy statement/prospectus/information statement.

The closing of the merger will occur no later than three business days after the last of the conditions to the merger has been satisfied or waived, or at another time as Neothetics and Evofem agree. Neothetics and Evofem anticipate that the consummation of the merger will occur promptly after the Neothetics special meeting assuming Neothetics stockholder approval is received. However, because the merger is subject to a number of conditions, neither Neothetics nor Evofem can predict exactly when the closing will occur or if it will occur at all. In connection with the merger, assuming that Neothetics receives the required stockholder approval of Neothetics Proposal No. 3, Neothetics will be renamed “Evofem Biosciences, Inc.”

The reasons for the merger are described on pages 82 and 84 of this proxy statement/prospectus/information statement.

Opinion of the Neothetics’ Financial Advisor (see page 98)

Oppenheimer & Co. Inc., or Oppenheimer, the financial advisor of Neothetics, delivered to the Strategic Transactions Committee, or the Strategic Committee, of the Neothetics Board, a written opinion dated October 16, 2017, addressed to the Strategic Committee, to the effect that, as of such date and based on and subject to the assumptions, factors, qualifications and limitations set forth in the opinion, the merger consideration to be paid by Neothetics in the merger was fair, from a financial point of view, to Neothetics. The full text of this written opinion to the Strategic Committee, which set forth, among other things, the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Oppenheimer in preparing its opinion, is attached as Annex B to this proxy statement/prospectus/information statement and is incorporated by reference in its entirety into this proxy statement/prospectus/

 



 

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information statement. Holders of Neothetics common stock are encouraged to read the opinion carefully in its entirety. The Oppenheimer opinion was prepared for the information of the Strategic Committee for its use in connection with its consideration of the merger. It does not address any other aspect of the proposed merger or any alternative to the merger. Neither Oppenheimer’s written opinion nor the summary of its opinion and the related analyses set forth in this proxy statement/prospectus/information statement are intended to be, and they do not constitute, a recommendation to any stockholder as to how such stockholder should act or vote with respect to any matter relating to the merger or any other matter.

Overview of the Merger Agreement and Agreements Related to the Merger Agreement

Merger Consideration (see page 90)

Immediately prior to the effective time of the merger, each share of Evofem preferred stock (other than shares of Evofem Series D Preferred Stock) outstanding at such time will be converted into one share of Evofem common stock in accordance with the Evofem certificate of incorporation then in effect. At the effective time of the merger:

 

    each share of Evofem common stock issued and outstanding immediately prior to the effective time of the merger (including shares of Evofem common stock issued upon conversion of shares of Evofem preferred stock and upon exercise of the Investor Warrants described in the section entitled “Agreements Related to the Merger — Securities Purchase Agreement” beginning on page 128 of this proxy statement/prospectus/information statement) will be converted into and represent the right to receive a number of shares of Neothetics common stock equal to the common stock exchange ratio, as described below;

 

    each share of Evofem Series D Preferred Stock issued and outstanding immediately prior to the effective time of the merger will be converted into and represent the right to receive a number of shares of Neothetics common stock equal to the Series D Preferred Stock exchange ratio, as described below;

 

    each option to purchase common stock of Evofem, or Evofem Option, will be assumed by Neothetics and will become an option to that number of shares of the common stock of Neothetics, or Neothetics Option, multiplied by the common stock exchange ratio (and rounding the resulting number down to the nearest whole share), at an exercise price equal to the per share exercise price of such Evofem Option divided by the common stock exchange ratio (and rounding the resulting number up to the nearest whole cent); and

 

    warrants to purchase Evofem capital stock, or the Evofem Warrants, will be assumed by Neothetics and then immediately amended and restated to become the Neothetics Post-Merger Warrants.

Immediately after the merger and after giving effect to the Financing, based on the exchange ratios, Evofem stockholders will own approximately 87% of the issued and outstanding common stock of Neothetics and the Neothetics stockholders will own approximately 13% of the issued and outstanding common stock of Neothetics. The exchange ratios are determined pursuant to a formula described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement and are subject to adjustment as set forth in Section 1.12(b) of the Merger Agreement.

There will be no adjustment to the total number of shares of Neothetics common stock that Evofem stockholders will be entitled to receive for changes in the market price of Neothetics common stock. Accordingly, the market value of the shares of Neothetics common stock issued pursuant to the merger will depend on the market value of the shares of Neothetics common stock at the time the merger closes, and could vary significantly from the market value on the date of this proxy statement/prospectus/information statement.

In connection with the Merger Agreement and the Securities Purchase Agreement, upon consummation of the Financing, Neothetics will terminate its existing Fourth Amended and Restated Investors’ Rights Agreement,

 



 

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dated September 22, 2014, by and between Neothetics and the investors listed therein, or the Existing Investors, and enter into a registration rights agreement with certain of the Existing Investors and certain investors of Evofem.

Treatment of Evofem Options (see page 110)

At the effective time of the merger, each Evofem Option, whether vested or not vested, will be converted into a Neothetics Option and each Neothetics Option may be exercised solely for shares of Neothetics common stock. Neothetics will fully assume the Evofem Amended and Restated 2012 Equity Incentive Plan, or the Evofem Equity Incentive Plan. The number of shares of Neothetics common stock subject to each Neothetics Option will be determined by multiplying (i) the number of shares of Evofem common stock that were subject to the underlying Evofem Option by (ii) the common stock exchange ratio, with the resulting number rounded down to the nearest whole number of shares of Neothetics common stock. The per share exercise price for the Neothetics common stock subject to such Neothetics Option will be determined by dividing (i) the per share exercise price of the underlying Evofem Option by (ii) the common stock exchange ratio, with the resulting number rounded up to the nearest whole cent.

Any restrictions on the exercise of assumed Evofem Options will continue in full force and effect following the conversion and the term, exercisability, vesting schedules, status as an “incentive stock option” under Section 422 of the Code, if applicable, and other provisions of the assumed Evofem Options will generally remain unchanged, provided, that any Evofem Options assumed by Neothetics may be subject to adjustment to reflect changes in Neothetics’ capitalization after the effective time of the merger and that the Neothetics Board or any committee thereof will succeed to the authority of the Evofem Board with respect to each assumed Evofem Option.

Treatment of Evofem Warrants (see page 111)

The Evofem Warrants will be assumed by Neothetics at the effective time of the merger and then immediately amended and restated to become the Neothetics Post-Merger Warrants. The exercise price for the Neothetics Post-Merger Warrants will be equal to the average of the closing sale prices of the Neothetics common stock as quoted on The NASDAQ Capital Market for the 30-consecutive trading day period commencing immediately following the effective time of the merger and will be exercisable for a period commencing on the one year anniversary of the effective time of the merger and ending on the fourth anniversary of the effective time of the merger. Each of the three Neothetics Post-Merger Warrants will be issued as a unit with one Unit Share. Per the terms of the Neothetics Post-Merger Warrants, the Unit Shares may not be transferred separately from the Neothetics Post-Merger Warrants. The Neothetics Post-Merger Warrants will be subject to adjustment for the Reverse Stock Split as well as any other changes in Neothetics’ capitalization after the effective time of the merger.

Conditions to the Completion of the Merger (see page 112)

To consummate the merger, Neothetics stockholders must approve the merger and the issuance of shares of Neothetics common stock in the merger. In addition, the Merger Agreement anticipates approval of a certificate of amendment to the amended and restated certificate of incorporation of Neothetics (i) effecting the Reverse Stock Split, (ii) effecting a change of the Neothetics name to “Evofem Biosciences, Inc.” and (iii) causing the post-merger combined entity not to be subject to or governed by Section 203 of the DGCL. Moreover, the Evofem stockholders must adopt the Merger Agreement and approve the merger. In addition to obtaining such stockholder approvals and appropriate regulatory approvals, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived.

 



 

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No Solicitation (see page 117)

Each of Neothetics and Evofem agreed that, subject to limited exceptions, Neothetics and Evofem will not, and will not authorize or permit any of their respective subsidiaries or any of their respective controlled affiliates, officers, directors, employees, partners, attorneys, accountants, advisors, agents or representatives of such parties or of any such party’s subsidiaries or other controlled affiliates to, directly or indirectly:

 

    solicit, initiate, knowingly encourage, induce or facilitate the making, submission or announcement of any “acquisition proposal,” as defined below, or take any action that would reasonably be expected to lead to an acquisition proposal;

 

    furnish any nonpublic information regarding it to any person in connection with or in response to an acquisition proposal or an inquiry or indication of interest that could lead to an acquisition proposal;

 

    engage in discussions or negotiations with any person with respect to any acquisition proposal;

 

    approve, endorse or recommend an acquisition proposal; or

 

    enter into any letter of intent or similar document or any agreement contemplating or otherwise relating to an “acquisition transaction,” as defined in the Merger Agreement.

However, before obtaining the applicable Neothetics or Evofem stockholder approvals required to adopt the Merger Agreement, each party may furnish nonpublic information regarding such party and its respective subsidiaries to, may enter into discussions with, or facilitate or cooperate with the submission of an acquisition proposal made by any person in response to any such acquisition proposal, that after consultation with a financial advisor and outside legal counsel, such party’s board of directors determines in good faith is, or would reasonably be expected to result in a “superior offer,” as defined in the Merger Agreement, if:

 

    such acquisition proposal did not result from a breach of the no solicitation provisions of the Merger Agreement described above such party’s board of directors concludes in good faith, after having taken into account the advice of its outside legal counsel, that such action is required in order for the board of directors to comply with its fiduciary duty obligations to its stockholders under applicable legal requirements;

 

    at least two business days prior to furnishing any information or entering into discussions with a third party, such party must (i) give the other party written notice of the identity of the third party, the terms and conditions of any proposals or offers (including, if applicable, copies of any written requests, proposals or offers, including proposed agreements) made thereby and of that party’s intention to furnish information to, or enter into discussions with such third party and (ii) such party must receive from the third party an executed confidentiality agreement on terms no less favorable to such party than those in the confidentiality agreement between Neothetics and Evofem, with such new confidentiality agreement to contain customary limitations on the use and disclosure of all nonpublic written and oral information furnished to such third party on or behalf of such party (as well as customary “standstill” provisions if Neothetics is the party entering into a new confidentiality agreement with the third party); and

 

    substantially contemporaneous with furnishing of any information to a third party, such party furnishes the same information to the other party to the extent not previously furnished.

Termination of the Merger Agreement (see page 125)

Either Neothetics or Evofem can terminate the Merger Agreement under certain circumstances, which would prevent the merger from being consummated.

 



 

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Termination Fees (see page 126)

If the Merger Agreement is terminated under certain circumstances, by either Neothetics or Evofem, the terminating party will be required to pay the other party up to $1.5 million in termination fees. In addition, Neothetics or Evofem will be required in some circumstances, to reimburse the other party for expenses incurred in connection with the merger, up to a maximum of $250,000.

Support Agreements (see page 128)

Certain Evofem stockholders holding approximately 68% of Evofem’s issued and outstanding capital stock entered into support agreements, or the Support Agreements, pursuant to which, among other things, they agreed to vote all of their shares of Evofem capital stock in favor of the adoption of the Merger Agreement and the approval of the merger, the other transactions contemplated by the Merger Agreement, and any other matter that is reasonably necessary to facilitate the consummation of the merger and the other transactions contemplated by the Merger Agreement, against any “Adverse Proposal,” as defined in the Support Agreements, and against any other matter that would reasonably be expected to impede, interfere with, delay, postpone or adversely affect the merger or any of the transactions contemplated by the Merger Agreement.

Lock-Up Agreements (see page 128)

Certain officers and directors of Evofem entered into lock-up agreements, or the Lock-Up Agreements, with Evofem and Neothetics pursuant to which the Evofem officers and directors agreed, except in certain limited circumstances, to refrain from the following items, or the Lock-Up Restrictions, (i) offering, pledging, selling, contracting to sell, selling any option or contract purchase, purchasing any option or contract to sell, granting any option, right or warrant to purchase, making any short sale or otherwise transferring or disposing of or lending any shares of Neothetics common stock or securities convertible into, exercisable or exchangeable for or that represent the right to receive Neothetics common stock whether then owned or thereafter acquired, or the Lock-Up Securities, (ii) entering into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities, (iii) making any demanded for or exercise any right with respect to the registration of any Neothetics common stock or any security convertible into or exercisable or exchangeable for Neothetics common stock or (iv) publicly disclosing the intention to do any of the foregoing.

The restrictions in the Lock-Up Agreements automatically terminate 180 days following the effective time of the merger.

Management Following the Merger (see page 189)

Effective as of the closing of the merger, Neothetics’ executive officers are expected to be the current Evofem management team:

 

Name

  

Title

Saundra Pelletier

   Chief Executive Officer

Justin J. File

   Chief Financial Officer

Kelly Culwell, M.D.

   Chief Medical Officer

Russ Barrans

   Chief Commercial Officer

David R. Friend, Ph.D.

   Chief Scientific Officer

Alexander A. Fitzpatrick, Esq.

   General Counsel and Secretary

 



 

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Interests of Certain Directors, Officers and Affiliates of Neothetics and Evofem (see pages 105 and 86)

When considering the recommendation of the Neothetics Board, you should be aware that Neothetics’ executive officers and directors have interests in the merger that are different from, or in addition to, your interests as a stockholder. The Neothetics Strategic Committee was aware of and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement and the merger, and in recommending that the Merger Agreement be adopted by the stockholders of Neothetics. For example, Neothetics previously entered into an executive employment agreement with its Chief Financial Officer that provide her with cash severance payments, cash payments intended to cover certain health insurance costs and the acceleration of her outstanding equity awards in the event her employment is terminated without cause following a change of control of Neothetics. In addition, certain of Neothetics’ directors and executive officers have options, which shall vest immediately prior to the consummation of the merger, and certain officers of Neothetics are eligible for a cash bonus award upon the consummation of the merger. None of Neothetics’ directors and executive officers are expected to continue with the combined company following the merger except for one member of the Neothetics Board who is expected to continue as a director of Neothetics upon the closing of the merger. All of Neothetics’ directors and executive officers are entitled to certain indemnification and liability insurance coverage pursuant to the terms of the Merger Agreement and coverage pursuant to insurance policies maintained by Neothetics.

As of October 20, 2017, the directors and executive officers of Neothetics, together with their affiliates, owned approximately 42% of the outstanding shares of Neothetics common stock.

In considering the recommendation of the Evofem Board with respect to approving the merger and related transactions by written consent, Evofem stockholders should be aware that certain members of the board of directors and executive officers of Evofem have interests in the merger that may be different from, or in addition to, interests they have as Evofem stockholders. For example, certain of Evofem’s directors and executive officers have options subject to vesting, which options to purchase shares of Evofem common stock which will be converted into and become options to purchase shares of Neothetics common stock, Evofem’s directors and executive officers are expected to become directors and executive officers of Neothetics upon the closing of the merger and all of Evofem’s directors and executive officers are entitled to certain indemnification and liability insurance coverage pursuant to the terms of the Merger Agreement.

As of October 20, 2017, the directors and executive officers of Evofem, together with their affiliates, owned approximately 12.8% of the outstanding shares of Evofem capital stock, on an as converted to common stock basis. Certain Evofem stockholders have also entered into Support Agreements in connection with the merger.

Considerations with Respect to U.S. Federal Income Tax Consequences of the Merger (see page 92)

Each of Neothetics and Evofem intends the merger to qualify as a reorganization within the meaning of Section 368(a) of the United States Internal Revenue Code, as amended, or the Code. Assuming the merger qualifies as a reorganization, in general, and subject to the qualifications and limitations set forth in the section entitled “The Merger — Material U.S. Federal Income Tax Consequences of the Merger,” the material U.S. federal income tax consequences to U.S. Holders (as defined herein) of Evofem common stock should be as follows:

 

    an Evofem stockholder should not recognize gain or loss upon the exchange of Evofem common stock for Neothetics common stock pursuant to the merger, except to the extent of cash received in lieu of a fractional share of Neothetics common stock as described below;

 

    an Evofem stockholder’s aggregate tax basis for the shares of Neothetics common stock received in the merger (including any fractional share interest for which cash is received) should equal the stockholder’s aggregate tax basis in the shares of Evofem common stock surrendered upon completion of the merger;

 



 

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    the holding period of the shares of Neothetics common stock received by an Evofem stockholder in the merger should include the holding period of the shares of Evofem common stock surrendered in exchange therefor provided the surrendered Evofem common stock is held as a capital asset (generally, property held for investment) at the time of the merger; and

 

    an Evofem stockholder who receives cash in lieu of a fractional share of Neothetics common stock in the merger should recognize capital gain or loss in an amount equal to the difference between the amount of cash received instead of a fractional share and the stockholder’s tax basis allocable to such fractional share.

Tax matters are very complicated, and the tax consequences of the merger to a particular Evofem stockholder will depend on such stockholder’s circumstances. Accordingly, you should consult your tax advisor for a full understanding of the tax consequences of the merger to you, including the applicability and effect of federal, state, local and non-U.S. income and other tax laws. For more information, please see the section entitled “The Merger — Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 92 of this proxy statement/prospectus/information statement.

Risk Factors (see page 23)

Both Neothetics and Evofem are subject to various risks associated with their businesses and their industries. In addition, the merger, including the possibility that the merger may not be completed, poses a number of risks to each company and its respective stockholders, including the following risks:

 

    The exchange ratios are not adjustable based on the market price of Neothetics 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 Neothetics and Evofem paying a termination fee or expenses to the other and could harm the common stock price of Neothetics and the future business, liquidity and operations of each company;

 

    If the conditions to the merger are not met, the merger may not occur;

 

    The merger may be completed even though material adverse changes may result from the announcement of the merger, industry-wide changes and other causes;

 

    Some Neothetics and Evofem executive officers and directors 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;

 

    The market price of the combined organization common stock may decline as a result of the merger;

 

    Neothetics and Evofem stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger;

 

    During the pendency of the merger, Neothetics and Evofem may not be able to enter into a business combination with another party at a favorable price (subject to certain exceptions) because of restrictions in the Merger Agreement, which could adversely affect their respective businesses;

 

    Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement; and

 

    Because the lack of a public market for Evofem shares makes it difficult to evaluate the fairness of the merger, the stockholders of Evofem may receive consideration in the merger that is less than the fair market value of the Evofem shares or Neothetics may pay more than the fair market value of the Evofem shares.

 



 

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These risks and other risks are discussed in greater detail under the section entitled “Risk Factors” in this proxy statement/prospectus/information statement. Neothetics and Evofem both encourage you to read and consider all of these risks carefully.

Regulatory Approvals (see page 122)

In the United States, Neothetics must comply with applicable federal and state securities laws and the rules and regulations of The NASDAQ Capital Market in connection with the issuance of shares of Neothetics common stock and the filing of this proxy statement/prospectus/information statement with the SEC. As of the date hereof, the registration statement of which this proxy statement/prospectus/information statement is a part has not become effective.

National Securities Exchange Listing (see page 95)

Prior to consummation of the merger, Neothetics intends to file an initial listing application for the combined company with The NASDAQ Capital Market or another national securities exchange. If such application is accepted, Neothetics anticipates that Neothetics’ common stock will be listed on The NASDAQ Capital Market or such other national securities exchange following the closing of the merger under the trading symbol “EVFM.”

Anticipated Accounting Treatment (see page 95)

Although Neothetics is the legal acquirer and will issue shares of its common stock to affect the merger with Evofem, Evofem is considered the accounting acquirer. In accordance with the accounting guidance under ASU 2017-01, the merger is considered an asset acquisition. Accordingly, the assets and liabilities of Private Evofem will be recorded as of the merger closing date at the purchase price of the accounting acquirer, Evofem. Evofem will have to allocate the total purchase price among the individual net assets acquired on a fair value basis. Determination of fair value of certain assets acquired is dependent upon certain valuations that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. A final determination of these estimated fair values, which cannot be made prior to the completion of the transaction, will be based on the actual net tangible assets of Neothetics that exist as of the date of the completion of the transaction. Therefore, the actual purchase price allocation may differ from the amounts reflected in the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed consolidated financial statements include the accounts of Evofem since the effective date of merger and Neothetics since inception.

Appraisal Rights and Dissenters’ Rights (see page 95)

Holders of Neothetics common stock are not entitled to appraisal rights in connection with the merger. Evofem stockholders are entitled to appraisal rights in connection with the merger under Delaware law. For more information about such rights, see the provisions of Section 262 of the DGCL, attached hereto as Annex C, and the section entitled “The Merger — Appraisal Rights and Dissenters’ Rights” in this proxy statement/prospectus/information statement.

Comparison of Stockholder Rights (see page 225)

Both Neothetics and Evofem are incorporated under the laws of the State of Delaware and, accordingly, the rights of the stockholders of each are currently, and will continue to be, governed by the DGCL. If the merger is completed, Evofem stockholders will become stockholders of Neothetics, and their rights will be governed by the DGCL, the bylaws of Neothetics and, assuming Neothetics Proposals Nos. 2, 3 and 4 are approved by Neothetics stockholders at the Neothetics special meeting, the amended and restated certificate of incorporation of

 



 

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Neothetics, as amended by the certificate of amendment attached to this proxy statement/prospectus/information statement as Annex D. The rights of Neothetics stockholders contained in the amended and restated certificate of incorporation and bylaws of Neothetics differ from the rights of Evofem stockholders under the amended and restated certificate of incorporation and bylaws of Evofem, as more fully described under the section entitled “Comparison of Rights of Holders of Neothetics Stock and Evofem Stock” in this proxy statement/prospectus/information statement.

 



 

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SELECTED HISTORICAL AND UNAUDITED PRO FORMA

CONDENSED CONSOLIDATED FINANCIAL INFORMATION AND DATA

The following tables present summary historical financial data for Neothetics and Evofem, summary unaudited pro forma condensed consolidated financial data for Neothetics and Evofem, and comparative historical and unaudited pro forma per share data for Neothetics and Evofem.

Selected Historical Financial Data of Neothetics

The selected statements of operations data for the years ended December 31, 2016, 2015 and 2014 and the selected balance sheet data as of December 31, 2016 and 2015 are derived from Neothetics’ audited financial statements beginning on page F-2 of this proxy statement/prospectus/information statement. The selected statements of operations data for the nine months ended September 30, 2017 and 2016 and the selected balance sheet data as of September 30, 2017 are derived from Neothetics’ unaudited condensed financial statements beginning on page F-21 of this proxy statement/prospectus/information statement. Neothetics’ unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, on the same basis as its audited annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal, recurring adjustments, necessary for the fair statement of those unaudited condensed financial statements. Neothetics’ historical results are not necessarily indicative of results that may be expected in any future period and the results for the nine months ended September 30, 2017 are not necessarily indicative of results to be expected for the full year ending December 31, 2017 or any other period.

The selected historical financial data below should be read in conjunction with the sections entitled “Neothetics Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 170 of this proxy statement/prospectus/information statement, “Risk Factors — Risks Related to Neothetics” beginning on page 26 of this proxy statement/prospectus/information statement and Neothetics’ financial statements and related notes beginning on page F-2 of this proxy statement/prospectus/information statement.

Condensed Statements of Operations:

(In thousands, except for share and per share data)

 

     Year ended December 31,     Nine Months Ended
September 30,
 
     2016     2015     2014     2017     2016  

Expenses:

          

Research and development

   $ 6,579     $ 34,410     $ 5,175     $ 3,593     $ 5,653  

General and administrative

     5,463       7,639       4,416       4,081       4,408  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     12,042       42,049       9,591       7,674       10,061  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (12,042     (42,049     (9,591     (7,674     (10,061

Interest income

     59       26       8       40       50  

Interest expense

     (1,036     (1,134     (375     —         (1,036

Loss on change in fair value of preferred stock warrants

     —         —         (861     —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (13,019   $ (43,157   $ (10,819   $ (7,634   $ (11,047
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share, basic and diluted

   $ (0.94   $ (3.15   $ (5.36   $ (0.55   $ (0.80
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares used to compute basic and diluted net loss per share

     13,801,003       13,696,033       2,017,601       13,830,981       13,786,207  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 



 

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Balance Sheet Data

(In thousands)

 

     September 30,
2017
    December 31,
2016
    December 31,
2015
 

Cash and cash equivalents

   $ 5,750     $ 11,478     $ 37,749  

Restricted cash

     93       200       200  

Total assets

     6,246       12,817       40,112  

Long-term debt, current portion

     —         —         2,756  

Total current liabilities

     1,396       902       9,100  

Long-term debt, net of current portion

     —         —         7,205  

Accumulated deficit

     (133,484     (125,850     (112,832

Total stockholders’ equity

     4,850       11,915       23,807  

Total liabilities and stockholders’ equity

     6,246       12,817       40,112  

 



 

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Selected Historical Consolidated Financial Data of Evofem

The selected consolidated statements of operations data for the years ended December 31, 2016 and 2015 are derived from Evofem’s audited consolidated financial statements beginning on page F-33 of this proxy statement/prospectus/information statement. The selected consolidated statements of operations data for the nine months ended September 30, 2017 and the selected consolidated balance sheet data as of September 30, 2017 are derived from Evofem’s unaudited condensed consolidated financial statements beginning on page F-66 of this proxy statement/prospectus/information statement. Evofem’s unaudited condensed consolidated financial statements have been prepared in accordance with GAAP on the same basis as its audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal, recurring adjustments, necessary for the fair statement of those unaudited condensed consolidated financial statements. Evofem’s historical results are not necessarily indicative of results that may be expected in any future period and the results for the nine months ended September 30, 2017 are not necessarily indicative of results to be expected for the full year ending December 31, 2017 or any other period.

The selected historical financial data below should be read in conjunction with the sections entitled “Evofem’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 178 of this proxy statement/prospectus/information statement, “Risk Factors — Risks Related to Evofem’s Financial Condition and Capital Requirements” beginning on page 31 of this proxy statement/prospectus/information statement and Evofem’s financial statements and related notes beginning on page F-33 of this proxy statement/prospectus/information statement.

 

     Nine Months Ended 
September 30,

2017
    Year Ended 
December 31,
 
       2016     2015  
    

(in thousands)

 

Statement of Operations Data:

      

Research and development

   $ 12,323     $ 14,855     $ 17,196  

Abandoned initial public offering costs

     —         4,705       —    

General and administrative

     8,018       15,083       15,019  

Loss on issuance of Series D redeemable convertible preferred stock

     (5,740     (26,635     —    

Loss on extinguishment of related-party note payable

     —         (6,651     —    

Change in fair value of Series D 2X liquidation preference

     (59,811     (543     —    

Loss from continuing operations, net of tax

     (85,809     (67,744     (32,363

Net gain (loss) from discontinued operations

     —         1,077       (257

Net loss

     (85,812     (66,667     (32,620

Accretion of Series D redeemable convertible preferred stock dividends

     (2,839     (1,144     —    

Net loss attributable to common stock stockholders

     (88,651     (67,811     (32,620
     September 30, 2017     December 31,  
           2016     2015  
     (in thousands)  

Balance Sheet Data:

      

Cash

   $ 3,660     $ 10,937     $ 16,522  

Total assets

     6,488       14,371       22,409  

Series D 2X liquidation preference

     70,610       8,030       —    

Total liabilities

     84,270       17,384       20,799  

Convertible preferred stock

     121,315       121,315       121,315  

Redeemable convertible preferred stock

     69,992       56,757       —    

Accumulated deficit

     (287,784     (201,972     (135,305

Total stockholders’ deficit

     (269,089     (181,085     (119,705

 



 

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Selected Unaudited Pro Forma Condensed Consolidated Financial Information and

Data of Neothetics and Evofem

The following information does not give effect to the proposed Reverse Stock Split of Neothetics common stock described in Neothetics Proposal No. 2.

The following selected unaudited pro forma condensed consolidated financial information has been prepared to reflect the acquisitions of Neothetics by Evofem using the acquisition method of accounting and the Invesco financing. On October 17, 2017, Evofem and Neothetics entered into the Merger Agreement pursuant to which a wholly owned subsidiary of Neothetics will merge with and into Evofem, with Evofem becoming a wholly owned subsidiary of Neothetics and the surviving corporation of the merger. For accounting purposes, Evofem is considered to be acquiring Neothetics in the merger.

The unaudited pro forma condensed combined financial information was prepared in accordance with the regulations of the U.S. Securities and Exchange Commission, or the SEC. The unaudited pro forma condensed combined balance sheet as of September 30, 2017 is presented as if the merger had been completed on September 30, 2017. The unaudited pro forma condensed combined statements of operations for nine months ended September 30, 2017 and for the year ended December 31, 2016 assume that the merger took place as of January 1, 2016, and combines the historical results of Neothetics and Evofem.

The selected unaudited pro forma condensed consolidated financial data are presented for illustrative purposes only and are not necessarily indicative of the combined financial position or results of operations of future periods or the results that actually would have been realized had the entities been a single entity during these periods. The selected unaudited pro forma condensed consolidated financial data as of and for the nine months ended September 30, 2017 are derived from the unaudited condensed consolidated financial information included elsewhere in this prospectus and should be read in conjunction with that information. The selected unaudited pro forma condensed consolidated financial data for the year ended December 31, 2016 is derived from the audited consolidated financial information included elsewhere in this prospectus and should be read in conjunction with that information. For more information, please see the section entitled “Unaudited Pro Forma Condensed Consolidated Financial Statements” beginning on page 214 of this proxy statement/prospectus/information statement.

The unaudited pro forma condensed consolidated financial information assumes that, at the effective time of the merger, each share of Evofem common stock, including shares of Evofem Series A, Series B, Series C and Series C-1 convertible preferred stock which will convert to Evofem common stock on a 1:1 basis, will convert into the right to receive approximately 0.1515 shares of Neothetics common stock and that each share of Evofem Series D Preferred Stock will convert into the right to receive approximately 515,616.2625 shares of Neothetics common stock, subject to adjustment as contemplated by Section 1.12(b) of the Merger Agreement. The estimated exchange ratio calculations used herein is based upon Neothetics’ and Evofem’s capitalization numbers immediately prior to the date of this proxy statement/prospectus/information statement, and will be adjusted to account for the issuance of any additional shares of Neothetics common stock prior to the consummation of the merger or for the issuance of any additional shares of Evofem capital stock in a manner not contemplated by the Merger Agreement or the Securities Purchase Agreement prior to the consummation of the merger.

 



 

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Selected Pro Forma Condensed Consolidated Statements of Operations Data (in thousands, except share and per share data):

 

     Nine Months
Ended
September 30,
2017
    Year Ended
December 31,
2016
 

Research and development

   $ 15,916     $ 21,434  

General and administrative

   $ 11,728     $ 20,546  

Net loss

   $ (27,524   $ (46,934

Basic and diluted net loss per share from continuing operations

   $ (0.28   $ (0.55

Weighted-average shares used in computing net loss per share, basic and diluted

     99,517,259       85,491,311  

Selected Pro Forma Condensed Consolidated Balance Sheet Data (in thousands):

 

     September 30,  
     2017  

Cash

   $ 29,410  

Total assets

     32,734  

Total liabilities

     20,153  

Accumulated deficit

     (297,729

Total stockholders’ equity

     12,581  

Comparative Historical and Unaudited Pro Forma Per Share Data

The information below reflects the historical net loss and book value per share of Neothetics common stock and the historical net loss and book value per share of Evofem common stock in comparison with the unaudited pro forma net loss and book value per share after giving effect to the proposed merger of Neothetics with Evofem on a pro forma basis. The unaudited pro forma net loss and book value per share does not give effect to the proposed reverse stock split of Neothetics common stock described in Neothetics Proposal No. 2.

You should read the tables below in conjunction with the audited financial statements of Neothetics included in this proxy statement/prospectus/information statement and the audited financial statements of Evofem included in this proxy statement/prospectus/information statement and the related notes and the unaudited pro forma condensed consolidated financial information and notes related to such financial statements included elsewhere in this proxy statement/prospectus/information statement.

 



 

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NEOTHETICS

 

     Nine Months
Ended
September 30,
2017
    Year Ended
December 31,
2016
 

Historical Per Common Share Data:

    

Basic and diluted net loss per share

   $ (0.55   $ (0.94

Tangible book value per share

   $ 0.35     $ 0.86  

EVOFEM

 

     Nine Months
Ended
September 30,
2017
    Year Ended
December 31,
2016
 

Historical Per Common Share Data:

    

Basic and diluted net loss per share from continuing operations

   $ (1.12   $ (0.88

Basic and diluted net loss per share attributable to common stockholders

   $ (1.16   $ (0.89

Tangible book (deficit) value per share

   $ (0.09   $ 0.06  

NEOTHETICS AND EVOFEM

 

     Nine Months
Ended
September 30,
2017
    Year Ended
December 31,
2016
 

Pro Forma Per Common Share Data:

    

Pro forma basic and diluted net loss per share from continuing operations

   $ (0.28   $ (0.55

Pro forma tangible book value per share

   $ 0.12     $ 0.30  

 



 

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MARKET PRICE AND DIVIDEND INFORMATION

Market Information

Neothetics’ common stock trades under the symbol “NEOT” on The NASDAQ Capital Market equities market. Neothetics’ common stock began trading on November 20, 2014. Prior to November 20, 2014, there was no public market for Neothetics’ common stock. The following table sets forth the high and low sale prices for Neothetics common stock in each full quarterly period within the three most recent fiscal years.

 

     Sales Price  
     High      Low  

Year ended December 31, 2014

     

Fourth Quarter (beginning November 20, 2014)

   $ 14.10      $ 6.11  

Year ended December 31, 2015

     

First Quarter

   $ 8.88      $ 6.42  

Second Quarter

     9.05        5.92  

Third Quarter

     15.05        7.77  

Fourth Quarter

     10.78        1.24  

Year ended December 31, 2016

     

First Quarter

   $ 1.62      $ 0.53  

Second Quarter

     1.56        0.56  

Third Quarter

     1.50        0.72  

Fourth Quarter

     1.44        0.80  

Year ended December 31, 2017

     

First Quarter

   $ 1.98      $ 1.03  

Second Quarter

     2.63        0.50  

Third Quarter

     0.64        0.30  

Fourth Quarter (through December 6, 2017)

     1.99        0.42  

On December 6, 2017, the last reported sale price of Neothetics’ common stock on The NASDAQ Capital Market was $1.31 per share. As of December 6, 2017, Neothetics had approximately 6 record holders of its common stock. The number of beneficial owners is substantially greater than the number of record holders because a large majority of Neothetics’ outstanding common stock is held of record through brokerage firms in “street name.”

Dividend Policy

Neothetics has never declared or paid any cash dividends on its common stock and does not anticipate declaring or paying any cash dividends on its common stock in the foreseeable future. Neothetics expects to retain all available funds and any future earnings to support operations and fund the development and growth of its business.

 

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RISK FACTORS

The combined organization will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained in this proxy statement/prospectus/information statement, you should carefully consider the material risks described below before deciding how to vote your shares of stock. In addition, you should read and consider the risks associated with the business of Neothetics because these risks may also affect the combined company — these risks can be found in Neothetics’ Annual Report on Form 10-K, as updated by subsequent Quarterly Reports on Form 10-Q, all of which are filed with the SEC. You should also read and consider the other information in this proxy statement/prospectus/information statement and the other documents incorporated by reference into this proxy statement/prospectus/information statement. Please see the section entitled “Where You Can Find More Information” in this proxy statement/prospectus/information statement.

Risks Related to the Merger

The exchange ratios are not adjustable based on the market price of Neothetics 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.

The Merger Agreement has set the common stock exchange ratio and Series D Preferred Stock exchange ratio, and these exchange ratios are adjustable upward or downward under certain circumstances as described in “The Merger — Merger Consideration” beginning on page 108 of this proxy statement/prospectus/information statement. Any changes in the market price of Neothetics common stock before the completion of the merger will not affect the number of shares Evofem securityholders will be entitled to receive pursuant to the Merger Agreement. Therefore, if before the completion of the merger the market price of Neothetics common stock declines from the market price on the date of the Merger Agreement, then Evofem securityholders could receive merger consideration with substantially lower value. Similarly, if before the completion of the merger the market price of Neothetics common stock increases from the market price on the date of the Merger Agreement, then Evofem securityholders could receive merger consideration with substantially more value for their shares of Evofem capital stock than the parties had negotiated for in the establishment of the exchange ratios. Because the exchange ratios do not adjust as a result of changes in the value of Neothetics common stock, for each one percentage point that the market value of Neothetics common stock rises or declines, there is a corresponding one percentage point rise or decline, respectively, in the value of the total merger consideration issued to Evofem securityholders.

Failure to complete the merger may result in Neothetics and Evofem paying a termination fee or expenses to the other party and could harm the common stock price of Neothetics and future business and operations of each company.

If the merger is not completed, Neothetics and Evofem are subject to the following risks:

 

    if the Merger Agreement is terminated under certain circumstances, Neothetics will be required to pay Evofem termination fees of $1.5 million;

 

    if the Merger Agreement is terminated under certain circumstances, Evofem will be required to pay Neothetics termination fees of $1.5 million;

 

    the price of Neothetics stock may decline and remain volatile, which may result in Neothetics being delisted from The NASDAQ Capital Market; and

 

    costs related to the merger, such as legal and accounting fees, and with respect to Neothetics, tail insurance premiums, which Neothetics and Evofem estimate will total approximately $610,000 and $550,000, respectively, some of which must be paid even if the merger is not completed.

In addition, if the Merger Agreement is terminated and the Neothetics Board or Evofem Board determines to seek another business combination, there can be no assurance that either Neothetics or Evofem will be able to find a partner willing to provide equivalent or more attractive strategic alternative than the proposed merger.

 

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If the conditions to the merger are not met, the merger may not occur.

Even if the merger is approved by the stockholders of Neothetics and Evofem, specified conditions must be satisfied or waived to complete the merger. These conditions are set forth in the Merger Agreement and described in the section entitled “The Merger Agreement — Conditions to the Completion of the Merger” beginning on page 112 of this proxy statement/prospectus/information statement. Neothetics and Evofem cannot assure you that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the merger may not occur or will be delayed, and Neothetics and Evofem each may lose some or all of the intended benefits of 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 Neothetics or Evofem can refuse to complete the merger if there is a material adverse change affecting the other party between the date of the Merger Agreement, and the closing. However, certain types of changes do not permit either party to refuse to complete the merger, even if such change could be said to have a material adverse effect on Neothetics or Evofem, including:

 

    any effect, change, event, circumstance or development in the conditions generally affecting the industries in which Evofem and Neothetics operate or the United States or global economy or capital markets as a whole;

 

    any natural disaster or any acts of terrorism, sabotage, military action or war or any escalation of worsening thereof;

 

    any failure by Neothetics or Evofem to meet internal projections or forecasts or third party revenue or earnings predictions for any period ending on or after October 17, 2017;

 

    any changes in GAAP or applicable legal requirements after October 17, 2017; or

 

    with respect to Neothetics, any change in the price or trading volume of Neothetics common stock.

If adverse changes occur and Neothetics and Evofem still complete the merger, the combined organization stock price may suffer. This in turn may reduce the value of the merger to the stockholders of Neothetics, Evofem or both.

Some Neothetics and Evofem executive officers and directors 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.

Certain officers and directors of Neothetics and Evofem participate in arrangements that provide them with interests in the merger that are different from yours, including, among others, the continued service as an officer or director of the combined organization, severance benefits, cash bonuses contingent upon the closing of the merger, continued indemnification and the potential ability to sell an increased number of shares of common stock of the combined organization in accordance with Rule 144 under the Securities Act of 1933, as amended, or the Securities Act. For example, Neothetics previously entered into an employment agreement with its chief financial officer that provides her with cash severance payments, cash payments intended to cover certain health insurance costs and the acceleration of their outstanding equity awards in the event her employment is terminated without cause following a change of control of Neothetics. In addition, certain of Neothetics’ directors and executive officers have options, certain of which shall vest immediately prior to the date the merger is consummated, and certain officers of Neothetics are eligible for a cash bonus award upon the closing of the merger. One member of the Neothetics Board is expected to continue as a director of Neothetics upon the closing of the merger, and all of Neothetics’ directors and executive officers are entitled to certain indemnification and liability insurance coverage pursuant to the terms of the Merger Agreement and coverage pursuant to insurance policies maintained by Neothetics.

 

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The market price of Neothetics common stock following the merger may decline as a result of the merger.

The market price of Neothetics common stock may decline as a result of the merger for a number of reasons including if:

 

    investors react negatively to the prospects of the combined organization’s business and prospects from the merger;

 

    the effect of the merger on the combined organization’s business and prospects is not consistent with the expectations of financial or industry analysts; or

 

    the combined organization does not achieve the perceived benefits of the merger as rapidly or to the extent anticipated by financial or industry analysts.

Neothetics and Evofem 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 organization is unable to realize the full strategic and financial benefits currently anticipated from the merger, Neothetics and Evofem stockholders will have experienced substantial dilution of their ownership interests in their respective companies without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined organization is able to realize only part of the strategic and financial benefits currently anticipated from the merger.

During the pendency of the merger, Neothetics and Evofem may not be able to enter into a business combination with another party at a favorable price because of restrictions in the Merger Agreement, which could adversely affect their respective businesses.

Covenants in the Merger Agreement impede the ability of Neothetics and Evofem to make acquisitions, subject to certain exceptions relating to fiduciaries duties, as set forth below, 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 during that period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting, initiating, encouraging or entering into certain extraordinary transactions, such as a merger, sale of assets or other business combination outside the ordinary course of business, with any third party, subject to certain exceptions described below. These restrictions apply even if such transactions could be favorable to such party’s stockholders.

Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.

The terms of the Merger Agreement prohibit each of Neothetics and Evofem from soliciting alternative takeover proposals or cooperating with persons making unsolicited takeover proposals, except in limited circumstances when such party’s board of directors determines in good faith that an unsolicited alternative takeover proposal is or is reasonably likely to lead to a superior takeover proposal and is reasonably capable of being consummated and that failure to cooperate with the proponent of the proposal is reasonably likely to result in a breach of the board’s fiduciary duties. If the Merger Agreement is terminated under certain circumstances by either Neothetics or Evofem, the terminating party will be required to pay the other party up to $1.5 million in termination fees. In addition, Neothetics or Evofem will be required in some circumstances to reimburse the other party for expenses incurred in connection with the merger, up to a maximum of $250,000. These termination fees may discourage third parties from submitting alternative takeover proposals to Neothetics or Evofem or their stockholders, and may cause the respective boards of directors to be less inclined to recommend an alternative proposal.

 

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Because the lack of a public market for Evofem shares makes it difficult to evaluate the fairness of the merger, the stockholders of Evofem may receive consideration in the merger that is less than the fair market value of the Evofem shares and/or Neothetics may pay more than the fair market value of the Evofem shares.

The outstanding capital stock of Evofem 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 Evofem. Because the percentage of Neothetics equity to be issued to Evofem securityholders was determined based on negotiations between the parties, it is possible that the value of the Neothetics common stock to be received by Evofem securityholders will be less than the fair market value of Evofem, or Neothetics may pay more than the aggregate fair market value for Evofem.

If the merger does not qualify as a tax-free reorganization, the receipt of Neothetics common stock pursuant to the merger could be fully taxable to all Evofem stockholders.

Each of Neothetics and Evofem intends the merger to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. However, completion of the merger is not conditioned upon receipt of an opinion from counsel dated as of the closing date that the merger qualifies as a reorganization. The tax opinions received by Evofem and Neothetics as of the effective date of this proxy statement/prospectus/information statement are based on representation letters delivered as of such date by Evofem and Neothetics pertaining to factual matters and on certain factual assumptions, including with respect to the number of Evofem shares held by, and the amount of consideration payable to, Evofem stockholders, if any, that exercise dissenters’ rights. If any of these assumptions or representations proves incorrect, for example, if there is a change in applicable law or if consideration paid to Evofem stockholders exercising dissenters’ rights is significant, the merger could be fully taxable to all Evofem stockholders. Further, no ruling from the IRS has been or will be requested with respect to the tax consequences of the merger. Opinions of counsel do not bind the courts or the IRS, nor will they preclude the IRS from adopting the position contrary to those expressed in the opinions. See the section entitled “The Merger — Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 92 of this proxy statement/prospectus/information statement.

Risks Related to Neothetics

If Neothetics does not consummate the merger or another strategic transaction, the Neothetics Board may decide to pursue a dissolution and liquidation of the company. In such an event, the amount of cash available for distribution to its shareholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.

There can be no assurance that Neothetics will complete the merger or successfully identify an alternative strategic transaction. If Neothetics is unable to complete the merger or another strategic transaction, the Neothetics Board may decide to pursue a dissolution and liquidation of the company. In such an event, the amount of cash available for distribution to the Neothetics shareholders will depend heavily on the timing of such decision, as with the passage of time the amount of cash available for distribution will be reduced as Neothetics continues to fund its operations while it seeks an alternative strategic acquisition, business combination or partnership. In addition, if the Neothetics Board were to approve and recommend, and its shareholders were to approve, a dissolution and liquidation of the company, Neothetics would be required under Delaware corporate law to pay its outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to its shareholders. Neothetics’ commitments and contingent liabilities may include (i) obligations under our employment agreements with certain employees that provide for severance and other payments following a termination of employment occurring for various reasons, including a change in control of the company; and (ii) non-cancelable lease obligations. As a result of this requirement, a portion of Neothetics’ assets may need to be reserved pending the resolution of such obligations. In addition, Neothetics may be subject to litigation or other claims related to a dissolution and liquidation of the

 

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company. If a dissolution and liquidation were pursued, the Neothetics Board, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of Neothetics common stock could lose all or a significant portion of their investment in the event of a liquidation, dissolution or winding up of the company.

Neothetics’ business to date has been almost entirely dependent on the success of LIPO-202, which recently failed to demonstrate efficacy measurements in its Phase 2 proof-of-concept clinical trial. Following the analysis of the data from its Phase 2 trial, Neothetics decided to temporarily suspend further research and development while it seeks a strategic acquisition, business combination or partnership, and there is no guarantee that this strategic path will be successful.

On June 26, 2017, Neothetics announced that top-line safety and efficacy results from its Phase 2 proof-of-concept clinical trial, LIPO-202-CL-31, did not demonstrate improvement on any efficacy measurements or separation from placebo. Neothetics had previously devoted substantially all of its research, development and clinical efforts and financial resources toward the development of LIPO-202. As a result of the negative results from its Phase 2 trial, Neothetics has temporarily suspended further research and development of LIPO-202 and its pre-clinical programs to reduce operating expenses while it sought a strategic alternative. There also can be no assurance that Neothetics will conduct new clinical trials or drug development activities in the future.

On October 17, 2017, Neothetics entered into the Merger Agreement with Evofem. There can be no assurance that the merger will be consummated. In addition, there can be no assurance that the merger, if consummated, will enhance shareholder value.

If Neothetics fails to continue to meet all applicable NASDAQ Capital Market requirements and NASDAQ determines to delist its common stock, the delisting could adversely affect the ability to consummate the merger, the market liquidity of its common stock and the market price of its common stock could decrease.

Neothetics’ common stock is listed on The NASDAQ Capital Market. In order to maintain its listing, Neothetics must meet minimum financial and other requirements, including requirements for a minimum amount of capital, a minimum price per share and continued business operations so that Neothetics’ is not characterized as a “public shell company”. If Neothetics is unable to complete the merger for any reason, the Neothetics stock price may fall below the minimum price per share requirement. If Neothetics is unable to comply with NASDAQ’s listing standards, NASDAQ may determine to delist its common stock from The NASDAQ Capital Market. If Neothetics’ common stock is delisted for any reason, it could reduce the value of its common stock and its liquidity and adversely affect the ability to consummate the merger.

As a result of the Phase 2 clinical trial data and the reductions in its workforce that was announced in July 2017, Neothetics will have a limited number of full-time employees and may not be successful in retaining these key employees. If Neothetics is unable to retain these key employees, its ability to consummate the merger or another strategic transaction will be seriously jeopardized.

On July 10, 2017, Neothetics announced workforce reductions, which decreased its headcount to three full-time employees during the third quarter. Neothetics intends to further reduce its headcount to two full-time employees which reduction is expected to occur during the fourth quarter of 2017 or first quarter of 2018. Competition among biotechnology companies for qualified employees is intense, and the ability to retain the remaining key employees is critical to Neothetics’ ability to effectively manage its resources in order to consummate the merger. Additional attrition could have a material adverse effect on its business. In addition, as a result of the reduction in our workforce, Neothetics faces an increased risk of employment litigation.

 

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Based on its operating plans, Neothetics management believes its current cash and cash equivalents will not be sufficient to fund its operations beyond second half of 2018, and as a result, there is substantial doubt about Neothetics’ ability to continue as a going concern within one year after the date that the financial statements for the quarter ended September 30, 2017 are issued.

Neothetics’ recurring losses from operations, liquidity position, and debt service requirements raises substantial doubt about its ability to continue as a going concern within one year after the date that the financial statements for the quarter ended September 30, 2017 are issued. Neothetics’ ability to continue as a going concern could materially limit its ability to raise additional funds through the issuance of new debt or equity securities or otherwise in the event the merger is not completed. Future audit reports from Neothetics’ independent registered public accounting firm on its financial statements may also include an explanatory paragraph with respect to its ability to continue as a going concern. To date, Neothetics’ operating losses have been funded primarily from outside sources of invested capital and gross profits. Neothetics has had, and it will likely continue to have, an ongoing need to raise additional cash from outside sources to fund its future operations if the merger is not completed. However, no assurance can be given that additional capital will be available when required or on acceptable terms. If Neothetics is unsuccessful in its efforts to raise any such additional capital, it would be required to take actions that could materially and adversely affect our business, including curtailing or ceasing operations. The perception that Neothetics may not be able to continue as a going concern may cause third parties to choose not to deal with it due to concerns about our ability to meet its contractual obligations, which could have a material adverse effect on its business.

Neothetics is an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.

Neothetics is an “emerging growth company,” as defined in the Jumpstart our Business Startups Act of 2012, or JOBS Act, and may remain an emerging growth company for up to five years. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

 

    being permitted to provide only two years of audited financial statements, in addition to any required unaudited condensed consolidated financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

 

    not being required to comply with the auditor attestation requirements in the assessment of the company’s internal control over financial reporting;

 

    not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

    reduced disclosure obligations regarding executive compensation; and

 

    exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.

Neothetics has taken advantage of certain reduced reporting burdens in this document. Neothetics cannot predict whether investors will find its common stock less attractive if it relies on these exemptions. If some investors find Neothetics common stock less attractive as a result, there may be a less active trading market for Neothetics common stock and its stock price may be more volatile.

In addition, the JOBS Act also provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to

 

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private companies. Neothetics has irrevocably elected not to avail itself of this extended transition period and, as a result, Neothetics will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

Neothetics’ officers and directors own a significant percentage of its stock and will be able to exert significant control over matters subject to stockholder approval.

As of October 20, 2017, Neothetics’ executive officers, directors and their respective affiliates beneficially owned approximately 42% of its outstanding voting stock. Therefore, these stockholders have the ability to influence us through this ownership position and may be able to determine all matters requiring stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of Neothetics organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for Neothetics common stock that stockholders may feel are in their best interest as one of its stockholders.

Anti-takeover provisions in Neothetics’ charter documents and under Delaware law could make an acquisition of us more difficult, limit attempts by its stockholders to replace or remove Neothetics’ current directors and management team, and limit the market price of its common stock.

Neothetics’ amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent changes in control or changes in its management without the consent of the Neothetics Board. These provisions include the following:

 

    a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of the board of directors;

 

    prohibiting stockholders from calling a special meeting of stockholders or acting by non-unanimous written consent;

 

    permitting the board to issue additional shares of preferred stock, with such rights, preferences and privileges as they may designate, including the right to approve an acquisition or other changes in control;

 

    establishing an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to the board of directors;

 

    providing that directors may be removed only for cause;

 

    providing that vacancies on the board of directors may be filled only by a majority of directors then in office, even though less than a quorum; and

 

    requiring the approval of the board of directors or the holders of a supermajority of the outstanding shares of capital stock to amend the bylaws and certain provisions of the certificate of incorporation.

Although Neothetics believes these provisions collectively provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate with the board, they would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by Neothetics stockholders to replace or remove its current management team by making it more difficult for stockholders to replace members of the Neothetics Board, which is responsible for appointing the members of its management.

Moreover, because Neothetics is incorporated in Delaware, it is governed by the provisions of Section 203 of the DGCL, which prohibits a person who owns in excess of 15% of its outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed

 

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manner. The restrictions contained in Section 203 are not applicable to any of our existing stockholders prior to our IPO that owned 15% or more of our outstanding voting stock upon the completion of our IPO. As discussed in Proposal No. 4, the Neothetics Board has recommended that its stockholders opt out of Section 203 of the DGCL.

Claims for indemnification by Neothetics’ directors and officers may reduce its available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.

Neothetics amended and restated certificate of incorporation and amended and restated bylaws provides that it will indemnify its directors and officers, in each case to the fullest extent permitted by Delaware law.

In addition, as permitted by Section 145 of the Delaware General Corporation Law, Neothetics amended and restated bylaws and its indemnification agreements that it has entered into with its directors and officers provide that:

 

    Neothetics will indemnify its directors and officers for serving it in those capacities or for serving other business enterprises at Neothetics’ request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful.

 

    Neothetics may, in its discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law.

 

    Neothetics is required to advance expenses, as incurred, to its directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.

 

    Neothetics will not be obligated pursuant to its amended and restated bylaws to indemnify a person with respect to proceedings initiated by that person against Neothetics or its other indemnitees, except with respect to proceedings authorized by the Neothetics Board or brought to enforce a right to indemnification.

 

    The rights conferred in the Neothetics amended and restated bylaws are not exclusive, and Neothetics is authorized to enter into indemnification agreements with its directors, officers, employees and agents and to obtain insurance to indemnify such persons.

 

    Neothetics may not retroactively amend its bylaw provisions to reduce its indemnification obligations to directors, officers, employees and agents.

Neothetics does not currently intend to pay dividends on its common stock, and, consequently, its ability to achieve a return on its investment will depend on appreciation in the price of its common stock.

Neothetics does not currently intend to pay any cash dividends on its common stock for the foreseeable future. Neothetics currently intends to invest its future earnings, if any, to fund its growth. Therefore, Neothetics stockholders are not likely to receive any dividends on their common stock for the foreseeable future. Since Neothetics does not intend to pay dividends, stockholders’ ability to receive a return on their investment will depend on any future appreciation in the market value of Neothetics common stock. There is no guarantee that Neothetics common stock will appreciate or even maintain the price at which its holders have purchased it.

 

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Risks Related to Evofem

Risks Related to Evofem’s Financial Condition and Capital Requirements

Evofem has incurred losses since its inception and anticipates that it will continue to incur significant losses for the foreseeable future.

Evofem is a specialty clinical development-stage biopharmaceutical company with a limited operating history. Evofem has incurred net losses in each year since its inception in 2009, including net losses of $66.7 million and $32.6 million for the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016, Evofem had an accumulated deficit of $202.0 million. Negative cash flows from its operations are expected to continue for the foreseeable future. Evofem’s utilization of cash has been and will continue to be highly dependent on its product development programs, particularly its programs for the development of its MPT vaginal gel and its lead product candidate, Amphora. Evofem’s cash expenses will be highly dependent on the product development programs it chooses to pursue, the progress of these product development programs, the results of its preclinical studies and clinical trials, the cost, timing and outcomes of regulatory decisions regarding potential approval for its product candidate or any future product candidate it may choose to develop, the terms and conditions of its contracts with service providers and license partners, and the rate of recruitment of patients in its clinical trials. In addition, the continuation of Evofem’s clinical trials, and quite possibly its entire business, will depend on results of upcoming clinical data analyses and its financial resources at the time. Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on Evofem’s financial condition and its ability to develop its product candidates.

Evofem has devoted substantially all of its financial resources to develop its product candidates, including conducting clinical trials and providing general and administrative support for its operations. To date, Evofem has financed its operations primarily through the sale of equity securities. The amount of its future net losses will depend, in part, on the rate of its future expenditures and its ability to obtain funding through equity or debt financings, strategic collaborations or grants. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk.

Evofem expects to continue to incur significant expenses and increasing operating losses for the foreseeable future and its expenses will increase substantially if and as Evofem:

 

    continues the clinical development of its MPT vaginal gel and its lead product candidate, Amphora;

 

    continues efforts to discover new product candidates;

 

    undertakes the manufacturing of its product candidates or increases volumes manufactured by third parties;

 

    advances its programs into larger, more expensive clinical trials;

 

    initiates additional preclinical, clinical, or other trials or studies for its product candidate or any product candidates Evofem may choose to develop in the future;

 

    seeks regulatory and marketing approvals and reimbursement for its product candidate or any product candidates Evofem may choose to develop in the future;

 

    establishes a sales, marketing, and distribution infrastructure to commercialize any products for which Evofem may obtain marketing approval and market for itself;

 

    seeks to identify, assess, acquire, and/or develop other product candidates;

 

    makes milestone, royalty or other payments under third-party license agreements;

 

    seeks to maintain, protect, and expand its intellectual property portfolio;

 

    seeks to attract and retain skilled personnel; and

 

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    experiences any delays or encounters issues with the development and potential for regulatory approval of its clinical candidates such as safety issues, clinical trial accrual delays, longer follow-up for planned studies, additional major studies or supportive studies necessary to support marketing approval.

Further, the net losses Evofem incurs may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of its results of operations may not be a good indication of its future performance.

The opinion of Evofem’s accountant assumed Evofem’s ability to continue as a going concern, and Evofem must raise additional funds to finance its operations to remain a going concern.

Based on its cash balances, recurring losses since inception and inadequacy of existing capital resources to fund planned operations for a twelve-month period, Evofem’s independent auditors have included an emphasis-of-matter paragraph in its report on Evofem’s financial statements as of and for the years ended December 31, 2016 and December 31, 2015 assuming Evofem’s ability to continue as a going concern. Evofem will, during the remainder of 2017 and 2018, require significant additional funding to continue operations even after taking into account the Financing that will take place immediately after completion of the merger. If Evofem is unable to raise additional funds when needed, it will not be able to continue development of its MPT vaginal gel or its lead product candidate, Amphora, or Evofem will be required to delay, scale back or eliminate some or all of its development programs or cease operations. Any additional equity or debt financing that Evofem is able to obtain may be dilutive to its current stockholders and debt financing, if available, may involve restrictive covenants or unfavorable terms. If Evofem raises funds through collaborative or licensing arrangements, it may be required to relinquish, on terms that are not favorable to Evofem, rights to some of its technologies or product candidates that it would otherwise seek to develop or commercialize. Moreover, if Evofem is unable to continue as a going concern, it may be forced to liquidate its assets and the values it receives for its assets in liquidation or dissolution could be significantly lower than the values reflected in its financial statements.

Evofem has never generated any revenue from product sales and may never be profitable.

Evofem has no products approved for commercialization and has never generated any material amount of revenue from product sales. Evofem’s ability to generate revenue and achieve profitability depends on its ability, alone or with strategic collaborators, to successfully complete the development of, and obtain the regulatory and marketing approvals necessary to commercialize one or more of its current or future product candidates. Evofem does not anticipate generating revenue from product sales for the foreseeable future. Evofem’s ability to generate future revenue from product sales depends heavily on its success in many areas, including, but not limited to:

 

    completing research and development of its MPT vaginal gel, Amphora, its lead product candidate, and one or more of its current or future product candidates;

 

    obtaining regulatory and marketing approvals for one or more of its current or future product candidates;

 

    manufacturing one or more product candidates and establishing and maintaining supply and manufacturing relationships with third parties that are commercially feasible, meet regulatory requirements and Evofem’s supply needs in sufficient quantities to meet market demand for its product candidates, if approved;

 

    marketing, launching and commercializing one or more product candidates for which Evofem obtains regulatory and marketing approval, either directly or with a collaborator or distributor;

 

    gaining market acceptance of one or more of its product candidates as treatment options;

 

    addressing any competing products;

 

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    protecting, maintaining and enforcing its intellectual property rights, including patents, trade secrets and know-how;

 

    negotiating favorable terms in any collaboration, licensing or other arrangements into which Evofem may enter;

 

    obtaining reimbursement or pricing for its MPT vaginal gel, its lead product candidate, Amphora, or one or more of its current or future product candidates that supports profitability; and

 

    attracting, hiring and retaining qualified personnel.

Even if one or more of the product candidates that Evofem develops is approved for commercial sale, Evofem anticipates incurring significant costs associated with launching and commercializing any approved product candidate. Evofem also will have to develop or acquire manufacturing capabilities or continue to contract with contract manufacturers in order to continue development and potential commercialization of its product candidates. If Evofem is not able to generate revenue from the sale of any approved products, Evofem may never become profitable.

Raising additional capital may cause dilution to Evofem’s stockholders, restrict its operations or require Evofem to relinquish rights.

In order to complete the development of its MPT vaginal gel and its lead product candidate, Amphora, Evofem must raise significant additional capital in addition to the Financing. To the extent that Evofem raises additional capital through the sale of equity, convertible debt or other securities convertible into equity, the ownership interest of Evofem’s stockholders will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect rights of Evofem’s stockholders. Debt financing, if available at all, would likely involve agreements that include covenants limiting or restricting Evofem’s ability to take specific actions, such as incurring additional debt, making capital expenditures, making additional product acquisitions or declaring dividends. If Evofem raises additional funds through strategic collaborations or licensing arrangements with third parties, Evofem may have to relinquish valuable rights to its product candidates or future revenue streams or grant licenses on terms that are not favorable to Evofem. Evofem does not know if it will be able to obtain additional funding if and when necessary to fund its entire portfolio of product candidates to meet its projected plans. If Evofem is unable to obtain funding on a timely basis, Evofem may be required to delay or discontinue one or more of its development programs or the commercialization of any product candidates or be unable to expand its operations or otherwise capitalize on potential business opportunities, which could materially harm Evofem’s business, financial condition, and results of operations.

Evofem’s limited operating history makes it difficult to evaluate the success of Evofem’s business to date and to assess its future viability.

Evofem commenced operations in 2009. To date, its activities have been largely limited to staffing, business planning, raising capital, developing its technology, identifying potential products and undertaking pre-clinical and clinical studies of Amphora. Evofem has a limited operating history which makes it difficult to evaluate its business and prospects. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of uncertainty. As a largely development stage company, Evofem has not yet demonstrated its ability to obtain regulatory approvals, generate significant revenue and conduct biopharmaceutical marketing activities necessary for successful product commercialization. In addition, given its limited operating history, Evofem may encounter unforeseen expenses, difficulties, complications, delays, and other known and unknown factors. Evofem’s likelihood of success must be evaluated in light of such challenges and variables associated with a clinical-stage biopharmaceutical product development company and Evofem may not be successful in its commercialization efforts or may incur greater costs than expected, both of which would materially adversely affect Evofem’s business, results of operations or financial condition.

 

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Risks Related to the Development of Evofem’s Product Candidates

Evofem’s success will depend heavily on whether it can develop its lead product candidate, Amphora, as a contraceptive. Failure to develop Amphora as a contraceptive would likely cause its business to fail.

Evofem currently has a single platform technology, its MPT vaginal gel, from which it intends to create multiple product candidates. However, Evofem will rely primarily on its lead product candidate, Amphora, for use as a contraceptive for the company’s commercial success. Amphora is currently the subject of an ongoing Phase 3 clinical trial intended to demonstrate efficacy as a contraceptive. While Evofem believes that its MPT vaginal gel may also be useful in preventing other indications, currently Evofem’s business depends almost entirely on the successful clinical development and regulatory approval of Amphora for use as a contraceptive, which may never occur. Evofem has never received a regulatory approval for any product. Accordingly, even if Evofem is able to successfully complete its clinical trial for Amphora as a contraceptive, it may be unable to obtain regulatory approval for Amphora as a contraceptive which would have a material adverse effect on its business and operations.

Evofem’s ability to develop its MPT vaginal gel for additional indications could have an adverse effect on its business and its ability to successfully market Amphora as a contraceptive.

Evofem believes that Amphora may also be useful in the prevention of certain other indications, and Evofem is designing a Phase 2b/3 clinical trial for the prevention of certain STIs, including gonorrhea and chlamydia. In addition, Evofem is currently designing a Phase 2b/3 trial of its MPT vaginal gel for the reduction of recurrence of BV. Evofem does not know if it will successfully complete either of these clinical trials. Even if Evofem does complete these clinical trials, there is no assurance that it will obtain regulatory approval of Amphora or its MPT vaginal gel for additional indications. Such a failure could impede the ability of the company to market Amphora as a contraceptive because these product candidates are based on the same chemical formulation. Also, any failure to obtain regulatory approvals for additional indications will likely have a material adverse effect on the company’s business and operations.

Indemnity claims from lawsuits or damages against Evofem’s clinical trial sites could cause Evofem to incur substantial liabilities and to limit commercialization of Amphora, and any future product candidate that Evofem may develop.

In connection with its clinical trials, Evofem’s third party clinical sites face inherent risk of liability exposure from patients enrolled in Evofem’s clinical trials. Evofem has entered into indemnification agreements with each of these clinical trial sites obligating Evofem to reimburse these sites should they incur certain liability in connection with Evofem’s clinical trials. If Evofem or its clinical trial sites cannot successfully defend against these product liability and other health related claims, Evofem may incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in decreased demand for its MPT vaginal gel and its lead product candidate, Amphora or, as applicable, any future product candidate Evofem may develop, injury to Evofem’s reputation, negative media attention and the diversion of Evofem management’s time and attention from Evofem’s product development and commercialization efforts to address claim related matters.

The success of Evofem’s business is also expected to depend in part upon its ability to identify, license, discover, develop or commercialize additional product candidates. Failure to identify additional product candidates would have a negative impact on Evofem’s business and operations.

Although a substantial amount of Evofem’s effort will focus on the continued clinical testing, potential approval and commercialization of its MPT vaginal gel as a contraceptive and as a possible preventative for certain STIs and prevention of recurrence of BV, the success of Evofem’s business is also expected to depend in part upon its ability to identify, license, discover, develop or commercialize additional product candidates. Evofem is seeking to license, or otherwise obtain, product and technology rights to a variety of products and product candidates in the field of women’s health, but there can be no assurance it will be able to do so, or do so on favorable terms.

 

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Research programs to identify new product candidates require substantial technical, financial and human resources. There are risks, uncertainties and costs associated with identifying, licensing and advancing product candidates through successful clinical development. Evofem may focus its efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful. Evofem’s research programs or licensing efforts may fail to yield additional product candidates for clinical development and commercialization for a number of reasons, including but not limited to the following:

 

    Evofem’s research or business development methodology or search criteria and process may be unsuccessful in identifying potential product candidates;

 

    Evofem may not be able or willing to assemble sufficient resources to acquire or discover additional product candidates;

 

    its product candidates may not succeed in preclinical or clinical testing;

 

    its potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval;

 

    competitors may develop alternatives that render Evofem’s product candidates obsolete or less attractive;

 

    product candidates Evofem develops may be covered by third parties’ patents or other exclusive rights;

 

    the market for a product candidate may change during Evofem’s program so that such a product may become unreasonable to continue to develop;

 

    research and development programs are quite costly and the company may be unable to obtain the financing and resources to do so;

 

    a product candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and

 

    a product candidate may not be accepted as safe and effective by patients, the medical community or third-party payors.

If any of these events occur, Evofem may be forced to abandon its development efforts for a program or programs, or Evofem may not be able to identify, license, partner, discover, develop or commercialize additional product candidates, which would have a material adverse effect on its business, financial condition or results of operations and could potentially cause Evofem to cease operations. Moreover, even if Evofem were able to obtain the rights to additional product candidates, there can be no assurance that these candidates will ever be advanced successfully through clinical development.

Clinical trials are costly, time consuming and inherently risky, and Evofem may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities.

Clinical development is expensive, time consuming and involves significant risk. Evofem cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. In addition, the company’s product candidates are targeted toward pregnancy prevention and the prevention of certain infectious diseases. Therefore, it may be especially difficult to recruit patients to participate in its clinical trials when doing so will require that patients refrain from other methods of contraception and disease prevention. A failure of one or more clinical trials can occur at any stage of development. Events that may prevent successful or timely completion of clinical development include but are not limited to:

 

    inability to obtain the funding necessary to initiate or complete any clinical trial;

 

    inability to generate satisfactory preclinical, toxicology or other in vivo or in vitro data or to develop diagnostics capable of supporting the initiation or continuation of clinical trials;

 

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    delays in reaching agreement on acceptable terms with clinical research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites;

 

    delays or failure in obtaining required institutional review board, or IRB, approval at each clinical trial site;

 

    failure to obtain or delays in obtaining a permit from regulatory authorities to conduct a clinical trial;

 

    delays in recruiting or failure to recruit sufficient eligible patients in its clinical trials;

 

    failure by clinical sites or CROs or other third parties to adhere to clinical trial requirements;

 

    failure by clinical sites, CROs or other third parties to perform in accordance with the good clinical practices requirements of the FDA or applicable foreign regulatory guidelines;

 

    patients withdrawing from Evofem’s clinical trials;

 

    adverse events or other issues of concern significant enough for the FDA, or comparable foreign regulatory authority, to put an Investigational New Drug, or IND, on clinical hold;

 

    occurrence of adverse events associated with Evofem’s product candidates;

 

    changes in regulatory requirements and guidance that require amending or submitting new clinical protocols;

 

    the cost of clinical trials of Evofem’s product candidates;

 

    negative or inconclusive results from Evofem’s clinical trials which may result in Evofem’s deciding, or regulators requiring Evofem, to conduct additional clinical trials or abandon development programs in other ongoing or planned indications for a product candidate; and

 

    delays in reaching agreement on acceptable terms with third-party manufacturers and the time for manufacture of sufficient quantities of its product candidates for use in clinical trials.

Any inability to successfully complete clinical development and obtain regulatory approval for one or more of its product candidates could result in additional costs to Evofem or impair its ability to generate revenue. In addition, if Evofem makes manufacturing or formulation changes to its product candidates, Evofem may need to conduct additional nonclinical studies and/or clinical trials to show that the results obtained from such new formulation are consistent with previous results obtained. Clinical trial delays could also shorten any periods during which its products have patent protection and may allow competitors to develop and bring products to market before Evofem does, which could impair its ability to successfully commercialize its product candidates and may harm its business and results of operations.

Contraception is a highly competitive healthcare niche. The success of Amphora and any other future contraceptive product candidate Evofem may pursue will be related to its efficacy and safety outcomes during clinical trials.

Today, there are a variety of hormonal and non-hormonal contraceptive options available to women and men, including oral contraceptive pills and intrauterine devices, newer hormonal contraceptive products including implants, injectables, vaginal rings, patches, and hormonal intrauterine systems, and non-hormonal methods such as female condoms, novel diaphragms, and new methods of female sterilization. Based on Evofem’s market research, clinical testing of Amphora may need to demonstrate efficacy for typical use of at least 80% to be commercially viable. Should Amphora fail to generate the safety and efficacy data expected, Evofem’s business prospects would be materially damaged.

 

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Due in part to Evofem’s limited financial resources, it may fail to select or capitalize on the most scientifically, clinically or commercially promising or profitable indications or therapeutic areas for its product candidate, and it may be unable to pursue and complete the clinical trials that it would like to pursue and complete.

Evofem has limited financial and technical resources to determine the indications on which it should focus the development efforts for its product candidate and any future candidates it may choose to develop. Due to Evofem’s limited available financial resources, it may be required to curtail clinical development programs and activities that might otherwise have led to more rapid progress of its product candidate, or product candidates that it may in the future choose to develop, through the regulatory and development processes. Evofem may make incorrect determinations with regard to the indications and clinical trials on which to focus the available resources that it does have. The decisions to allocate Evofem’s research, management and financial resources toward particular indications may not lead to the development of viable commercial products and may divert resources from better opportunities. Similarly, Evofem’s decisions to delay or terminate development programs may also cause it to miss valuable opportunities.

Risks Related to Regulatory Approval of Evofem’s Product Candidates and Other Legal Compliance Matters

Evofem must obtain regulatory approval prior to marketing or commercializing its products and product candidates. In order to obtain regulatory approval, Evofem must complete its clinical and pre-clinical trials in compliance with the regulatory approval requirements of the FDA and any applicable and comparable foreign regulators. If clinical trials of Evofem’s product candidates fail to satisfactorily demonstrate safety and efficacy to the FDA and other comparable foreign regulators, Evofem may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of its product candidates.

Evofem is not permitted to commercialize, market, promote or sell any product candidate in the United States without obtaining marketing approval from the FDA. Comparable foreign regulatory authorities impose similar restrictions. Evofem may never receive such approvals, and must complete extensive preclinical development and clinical trials to demonstrate the safety and efficacy of its product candidates before we will be able to obtain these approvals.

Any inability to complete preclinical and clinical development successfully could result in additional costs to Evofem, and impair its ability to generate revenues. Moreover, if (1) Evofem is required to conduct additional clinical trials or other testing of its product candidates beyond the trials and testing that it currently contemplates (2) Evofem is unable to successfully complete clinical trials of its product candidates or other testing, (3) the results of these clinical trials or tests are unfavorable, uncertain or are only modestly favorable or (4) there are unacceptable safety concerns associated with its product candidates, Evofem may:

 

    be delayed in obtaining marketing approval for our product candidates;

 

    not obtain marketing approval at all;

 

    obtain approval with labeling that includes significant use or distribution restrictions or significant safety warnings, including boxed warnings;

 

    be subject to additional post-marketing testing or other requirements; or

 

    be required to remove the product from the market after obtaining marketing approval.

Amphora is a drug/device combination and the process for obtaining regulatory approval for Amphora in the United States will require compliance with requirements of two divisions of the FDA. A change in the FDA’s primary oversight responsibility would adversely impact Evofem’s development timeline and significantly raise its costs.

Amphora is comprised of both drug and device components and is considered a combination product by the FDA. It is a method of self-applied contraception that uses a pre-filled applicator to apply a semi-solid topical

 

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gel. The key active ingredient has been shown to be an active anti-inflammatory and anti-infective and works in combination with other active ingredients to stabilize the pH levels in the vagina without altering the vaginal microbiome, which results in both the inhibition and the immobilization of spermatozoa. Other properties contributing to the contraceptive effect of Amphora are its capacity to reduce/inhibit cervical mucus penetration, to maintain sufficient viscosity even on dilution, and its bioadhesive strength. The FDA has different divisions responsible for assessing and approving devices and drugs. The Center for Drug Evaluation and Research, or CDER, has responsibility for drug products, while the Center for Devices and Radiological Health, or CDRH, has oversight responsibility for medical devices. Amphora previously underwent a request for designation process with the FDA that determined that CDER would lead the review. If the designation were to be changed to CDRH, or if either division were to institute additional requirements for the approval of Amphora, Evofem could be required to complete clinical studies with more patients and over longer periods of time than is currently anticipated. This would likely require Evofem to raise additional funds and would cause it to miss anticipated timelines. The impact of either a change in review agency or the imposition of additional requirements for approval would be significant to it and would have a material adverse effect on the prospects for the development of Amphora, its business and its financial condition.

Serious adverse events arising during clinical studies of Evofem’s MPT vaginal gel and its lead product candidate, Amphora, or post marketing could have a material, adverse effect on Evofem’s product development timeline or its ability to develop and market its MPT vaginal gel and its lead product candidate, Amphora, at all.

If serious adverse events or undesirable side effects occur during the clinical investigation of Evofem’s MPT vaginal gel or its lead product candidate, Amphora, or post marketing, the following events could materially and adversely affect Evofem’s business:

 

    regulatory authorities may impose a clinical hold which could result in substantial delays and adversely impact Evofem’s ability to continue development of its MPT vaginal gel and Amphora;

 

    regulatory authorities may require the addition of specific warnings or contraindications to product labeling or field alerts to physicians and pharmacies;

 

    Evofem may be required to change the way the MPT vaginal gel and/or Amphora is administered or the labeling of the MPT vaginal gel and/or Amphora;

 

    Evofem may be required to conduct additional clinical studies with more patients or over longer periods of time than anticipated;

 

    Evofem may be required to implement a risk minimization action plan, which could result in substantial cost increases and have a negative impact on its ability to commercialize its MPT vaginal gel and/or Amphora;

 

    Evofem may be required to limit the patients who can receive its MPT vaginal gel and/or Amphora;

 

    Evofem may be subject to promotional and marketing limitations on its MPT vaginal gel and/or Amphora;

 

    sales of its MPT vaginal gel and/or Amphora may decrease significantly;

 

    regulatory authorities may require Evofem to take an approved product off the market;

 

    Evofem may be subject to litigation or product liability claims; and

 

    Evofem’s reputation may suffer.

Any of these events could prevent Evofem from achieving or maintaining market acceptance of its MPT vaginal gel or its lead product candidate, Amphora, or any future product candidate Evofem may seek to develop, or could substantially increase commercialization costs and expenses, which in turn could delay or prevent Evofem from generating significant revenues from its MPT vaginal gel or Amphora sales or the sales from any future product candidate.

 

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If FDA approval is received for Evofem’s MPT vaginal gel, its lead product candidate, Amphora, or any other future product candidate Evofem may develop, serious adverse events or side effects could require the product to be taken off of the market, may require the product to be packaged with safety warnings or may otherwise limit Evofem’s sales of the product.

Even if Evofem obtains regulatory approval for a product, Evofem will remain subject to ongoing regulatory requirements.

If Evofem’s lead product candidate, Amphora, is approved or if its MPT vaginal gel product candidate is approved in additional indications, Evofem will be subject to ongoing regulatory requirements with respect to manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing clinical trials and submission of safety, efficacy and other post-approval information, including both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities.

Manufacturers and manufacturers’ facilities are required to continuously comply with FDA and comparable foreign regulatory authority requirements, including ensuring that quality control and manufacturing procedures conform to current good manufacturing practices, or cGMP, regulations and corresponding foreign regulatory manufacturing requirements. As such, Evofem and its contract manufacturers will be subject to continual review and inspections to assess compliance with cGMP and adherence to commitments made in any FDA new drug application, or NDA, or marketing authorization application.

Any regulatory approvals that Evofem receives for any of its product candidates may be subject to limitations on the approved indicated uses for which the product candidate may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase IV clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. Evofem will be required to report adverse reactions and production problems, if any, to the FDA and comparable foreign regulatory authorities. Any new legislation addressing drug safety issues could result in delays in product development or commercialization, or increased costs to assure compliance. If its original marketing approval for a product candidate was obtained through an accelerated approval pathway, Evofem could be required to conduct a successful post-marketing clinical trial in order to confirm the clinical benefit for its products. An unsuccessful post-marketing clinical trial or failure to complete such a trial could result in the withdrawal of marketing approval.

If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, the regulatory agency may impose restrictions on that product or Evofem, including requiring withdrawal of the product from the market. If Evofem fails to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:

 

    issue warning letters;

 

    impose civil or criminal penalties;

 

    suspend or withdraw regulatory approval;

 

    suspend any of Evofem’s ongoing clinical trials;

 

    refuse to approve pending applications or supplements to approved applications submitted by Evofem;

 

    impose restrictions on Evofem’s operations, including closing its contract manufacturers’ facilities; or

 

    require a product recall.

Any government investigation of alleged violations of law would require Evofem to expend significant time and resources in response and could generate adverse publicity. Any failure to comply with ongoing regulatory

 

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requirements may significantly and adversely affect Evofem’s ability to develop and commercialize its products and the value of Evofem and its operating results would be adversely affected.

Even if Evofem receives approval from the FDA in the United States to market its MPT vaginal gel, its lead product candidate, Amphora, or a future product candidate Evofem may seek to develop, it may fail to receive similar approval outside the United States.

In order to market a new product outside the United States, Evofem must obtain separate marketing approvals in each jurisdiction and comply with numerous and varying regulatory requirements of other countries, including clinical trials, commercial sales, pricing manufacture distribution and safety requirements. The time required to obtain approval in other countries might differ from, and be longer than, that required to obtain FDA approval. The marketing approval process in other countries may include all of the risks associated with obtaining FDA approval in the United States, as well as other risks. Further, Evofem may be unable to obtain rights to the necessary clinical data and may be required to develop its own. In addition, in many countries outside the United States, a new product must receive pricing and reimbursement approval prior to commercialization. This can result in substantial delays in these countries. Additionally, the product labeling requirements outside the United States may be different and inconsistent with the United States labeling requirements, negatively affecting the ability of Evofem to market its products in countries outside the United States.

In addition, if Evofem fails to comply with applicable foreign regulatory requirements, Evofem may be subject to fines, suspension or withdrawal of marketing approvals, product recalls, seizure of products, operating restrictions and criminal prosecution. In such an event, Evofem’s ability to market to its full target market will be reduced and Evofem’s ability to realize the full market potential of its product candidate will be harmed, which could have a materially adverse effect on its business, financial condition, results of operation and prospects.

Evofem’s development and commercialization strategy for its MPT vaginal gel and its lead product candidate, Amphora, depends, in part, on published scientific literature and the FDA’s prior findings regarding the safety and efficacy of approved products based on data developed by others that the FDA may rely on in reviewing Evofem’s NDA.

The Drug Price Competition and Patent Term Restoration Act added section 505(b)(2) to the Federal Food, Drug, and Cosmetic Act (as amended), or the FDCA. Section 505(b)(2) permits the filing of a NDA where at least some of the information required for approval comes from investigations that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. The FDA interprets section 505(b)(2) of the FDCA, for the purposes of approving an NDA, to permit the applicant to rely, in part, upon published literature or the FDA’s previous findings of safety and efficacy for an approved product. The FDA may also require the applicant to perform additional clinical trials or measurements to support any deviation from the previously approved product. The FDA may then approve the new product candidate for all or some of the label indications for which the referenced product candidate has been approved, as well as for any new indication sought by the section 505(b)(2) applicant. The applicant’s product label, however, may require all or some of the limitations, contraindications, warnings or precautions included in the reference product’s label, including a black box warning, or may require additional limitations, contraindications, warnings or precautions. Evofem has submitted a NDA for Amphora under section 505(b)(2) of the FDCA and as such the NDA relied, in part, on the FDA’s previous findings of safety and efficacy from investigations for approved products and published scientific literature for which Evofem has not received a right of reference. In addition, notwithstanding the approval of many products by the FDA pursuant to section 505(b)(2) of the FDCA, over the last few years some pharmaceutical companies and others have objected to the FDA’s interpretation of section 505(b)(2) of the FDCA. If the FDA changes its interpretation of section 505(b)(2) of the FDCA, or if the FDA’s interpretation is successfully challenged in court, this could delay or even prevent the FDA from approving any section 505(b)(2) NDAs that Evofem submits. Such a result could require Evofem to conduct additional testing and costly clinical trials, which could substantially delay or prevent the approval and launch of its product candidates.

 

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Product liability lawsuits against Evofem could cause Evofem to incur substantial liabilities and to limit commercialization of its MPT vaginal gel, its lead product candidate, Amphora, and any future product candidate that Evofem may develop.

Evofem faces an inherent risk of product liability exposure should it commercialize its MPT vaginal gel or its lead product candidate, Amphora. Evofem will face similar risks with any other future indications for its MPT vaginal gel or other product candidates that it may develop or commercialize. If Evofem cannot successfully defend itself against these product liability claims, it may incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in decreased demand for its MPT vaginal gel, Amphora or, as applicable, any future product candidate Evofem may develop, injury to Evofem’s reputation, negative media attention and the diversion of Evofem management’s time and attention from Evofem’s product development and commercialization efforts to address claim related matters.

Evofem will need to maintain liability insurance coverage as it seeks to conduct and continues to conduct clinical trials for its MPT vaginal gel and Amphora. Such insurance may become increasingly expensive and difficult to procure. In the future, such insurance may not be available to Evofem at all or may only be available at a very high cost and, if available, may not be adequate to cover all liabilities that Evofem may incur. In addition, Evofem may need to increase its liability insurance coverage in connection with the commercialization of its MPT vaginal gel, Amphora or any other product candidate it may commercialize. If it is not able to obtain and maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise, Evofem’s business could be harmed, possibly materially.

If Evofem fails to comply with environmental, health and safety laws and regulations, Evofem could become subject to fines or penalties or incur costs that could have a material adverse effect on its business, financial condition or results of operations.

Evofem’s research and development activities and its third-party manufacturers’ and suppliers’ activities involve the controlled storage, use, and disposal of hazardous materials, including the components of its product candidates and other hazardous compounds. Evofem and its manufacturers and suppliers are subject to laws and regulations governing the use, manufacture, storage, handling, and disposal of these hazardous materials. In some cases, these hazardous materials and various wastes resulting from their use are stored at Evofem’s and its manufacturers’ facilities pending their use and disposal. Evofem cannot eliminate the risk of contamination, which could cause an interruption of its commercialization efforts, research and development efforts and business operations; environmental damage resulting in costly clean-up; and liabilities under applicable laws and regulations governing the use, storage, handling, and disposal of these materials and specified waste products. Although Evofem believes that the safety procedures utilized by it and its third-party manufacturers for handling and disposing of these materials generally comply with the standards prescribed by these laws and regulations, Evofem cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such an event, Evofem may be held liable for any resulting damages and such liability could exceed its resources and state or federal or other applicable authorities may curtail Evofem’s use of specified materials and/or interrupt its business operations. Furthermore, environmental laws and regulations are complex, change frequently, and have tended to become more stringent. Evofem cannot predict the impact of such changes and cannot be certain of its future compliance. Evofem does not currently carry biological or hazardous waste insurance coverage.

 

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Risks Related to Evofem’s Intellectual Property

If Evofem is unable to obtain and maintain patent protection for its MPT vaginal gel, its lead product candidate, Amphora, and other proprietary technologies it develops, or if the scope of the patent protection it has or will obtain is not sufficiently broad, Evofem’s competitors could develop and commercialize products and technology similar or identical to Evofem’s, and Evofem’s ability to successfully commercialize its MPT vaginal gel, Amphora, and other proprietary technologies Evofem may develop may be adversely affected.

Evofem’s success depends in large part on its ability to obtain and maintain patent protection in the United States and other countries with respect to its MPT vaginal gel, its lead product candidate, Amphora, and other proprietary technologies it may develop. Evofem seeks to protect its proprietary position by in-licensing intellectual property and filing patent applications in the United States and abroad relating to its MPT vaginal gel, its Amphora product candidate and other proprietary technologies it may develop. If Evofem or its licensors are unable to obtain or maintain patent protection with respect to its MPT vaginal gel, its Amphora product candidate and other proprietary technologies it may develop, Evofem’s business, financial condition, results of operations, and prospects could be materially harmed.

Changes in either the patent laws or their interpretation in the United States and other countries may diminish Evofem’s ability to protect its inventions, obtain, maintain, and enforce its intellectual property rights and, more generally, could affect the value of its intellectual property or narrow the scope of its owned and licensed patents. With respect to both in-licensed and owned intellectual property, Evofem cannot predict whether the patent applications Evofem and its licensors are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient protection from competitors or other third parties.

The patent prosecution process is expensive, time-consuming, and complex, and Evofem may not be able to file, prosecute, maintain, enforce, or license all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that Evofem will fail to identify patentable aspects of its research and development output in time to obtain patent protection. Although Evofem enters into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of its research and development output, such as its employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors, and other third parties, any of these parties may breach the agreements and disclose such output before a patent application is filed, thereby jeopardizing Evofem’s ability to seek patent protection. In addition, Evofem’s ability to obtain and maintain valid and enforceable patents depends on whether the differences between its inventions and the prior art allow Evofem’s inventions to be patentable over the prior art. Furthermore, publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, Evofem cannot be certain that Evofem or its licensors were the first to make the inventions claimed in any of its owned or licensed patents or pending patent applications, or that Evofem or its licensors were the first to file for patent protection of such inventions.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions, and has been the subject of much litigation in recent years. As a result, the issuance, scope, validity, enforceability, and commercial value of Evofem’s patent rights are highly uncertain. Evofem’s owned or in-licensed pending and future patent applications may not result in patents being issued which protect Amphora product candidate and other proprietary technologies Evofem may develop or which effectively prevent others from commercializing competitive technologies and product candidates.

Moreover, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. Even if patent applications Evofem licenses or owns currently or in the future issue as patents, they may not issue in a form that will provide Evofem with any meaningful protection, prevent competitors or other third parties from competing with Evofem, or otherwise provide Evofem

 

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with any competitive advantage. Any patents that Evofem owns or in-licenses may be challenged, narrowed, circumvented, or invalidated by third parties. Consequently, Evofem does not know whether its MPT vaginal gel, Amphora product candidate and other proprietary technology will be protectable or remain protected by valid and enforceable patents. Evofem’s competitors or other third parties may be able to circumvent Evofem’s patents by developing similar or alternative technologies or products in a non-infringing manner which could materially adversely affect Evofem’s business, financial condition, results of operations and prospects.

The issuance of a patent is not conclusive as to its inventorship, scope, validity, or enforceability, and Evofem’s patents may be challenged in the courts or patent offices in the United States and abroad. Evofem or its licensors may be subject to a third party preissuance submission of prior art to the United States Patent and Trademark Office, or the USPTO, or become involved in opposition, derivation, revocation, reexamination, post-grant and inter partes review, or interference proceedings or other similar proceedings challenging Evofem’s owned or licensed patent rights. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate or render unenforceable, Evofem’s owned or in-licensed patent rights, allow third parties to commercialize its MPT vaginal gel, Amphora product candidate and other proprietary technologies Evofem may develop and compete directly with Evofem, without payment to Evofem, or result in Evofem’s inability to manufacture or commercialize products without infringing third-party patent rights. Moreover, Evofem, or one of its licensors, may have to participate in interference proceedings declared by the USPTO to determine priority of invention or in post-grant challenge proceedings, such as oppositions in a foreign patent office, that challenge Evofem or its licensor’s priority of invention or other features of patentability with respect to Evofem’s owned or in-licensed patents and patent applications. Such challenges may result in loss of patent rights, loss of exclusivity, or in patent claims being narrowed, invalidated, or held unenforceable, which could limit Evofem’s ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of its MPT vaginal gel, Amphora product candidate and other proprietary technologies Evofem may develop. Such proceedings also may result in substantial cost and require significant time from Evofem’s scientists and management, even if the eventual outcome is favorable to Evofem.

In addition, given the amount of time required for the development, testing, and regulatory review of Evofem’s MPT vaginal gel and Amphora product candidate, patents protecting such product candidates might expire before or shortly after such product candidates are commercialized. As a result, Evofem’s intellectual property may not provide Evofem with sufficient rights to exclude others from commercializing products similar or identical to Evofem’s. Moreover, some of Evofem’s owned and in-licensed patents and patent applications are, and may in the future be, co-owned with third parties. If Evofem is unable to obtain an exclusive license to any such third party co-owners’ interest in such patents or patent applications, such co-owners may be able to license their rights to other third parties, including Evofem’s competitors, and Evofem’s competitors could market competing products and technology. In addition, Evofem may need the cooperation of any such co-owners of its patents in order to enforce such patents against third parties, and such cooperation may not be provided to Evofem. Furthermore, Evofem’s owned and in-licensed patents may be subject to a reservation of rights by one or more third parties. Any of the foregoing could have a material adverse effect on Evofem’s competitive position, business, financial conditions, results of operations, and prospects.

Evofem’s rights to develop and commercialize its MPT vaginal gel and lead product candidate, Amphora, are subject, in part, to the terms and conditions of licenses granted to Evofem by others.

Evofem is reliant upon licenses to certain patent rights and proprietary technology from third parties that are important or necessary to the development of Amphora product candidate. For example, Evofem’s license agreement with Rush University includes intellectual property rights to its MPT vaginal gel and its Amphora product candidate. This agreement requires Evofem, as a condition to the maintenance of Evofem’s license and other rights, to make milestone and royalty payments and satisfy certain performance obligations. Evofem’s obligations under this in-license agreement impose significant financial and logistical burdens upon Evofem’s ability to carry out its business plan. Furthermore, if Evofem does not meet such obligations in a timely manner, and, in the case of milestone payment requirements, if Evofem were unable to obtain an extension of the

 

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deadlines for meeting such payment requirements, Evofem could lose the rights to this proprietary technology, which would have a material adverse effect on Evofem’s business, financial condition and results of operations.

There is no assurance that the existing Rush University license agreement covering the rights related to its MPT vaginal gel or its Amphora product candidate will not be terminated due to a material breach of the underlying agreement. This would include a failure on Evofem’s part to make the milestone and royalty payments, Evofem’s failure to obtain applicable approvals from governmental authorities, or the loss of rights to the underlying intellectual property by any such licensors. There is no assurance that Evofem will be able to renew or renegotiate a license agreement on acceptable terms if the agreement is terminated. Evofem cannot guarantee that any license agreement will be enforceable. The termination of this license agreement or Evofem’s inability to enforce its rights under this license agreement would materially and adversely affect Evofem’s ability to commercialize its MPT vaginal gel and its Amphora product candidate.

In addition, with respect to the MPT vaginal gel and Evofem’s Amphora product candidate, Rush University has the right, in certain instances, to control the defense against any infringement litigation arising from the manufacture or development (but not the sale) of the MPT vaginal gel and Evofem’s Amphora product candidate. While Evofem’s license agreement with Rush University requires Rush University to indemnify Evofem for certain losses arising from these claims, this indemnification may not be sufficient to adequately compensate Evofem for any related losses or the potential loss of Evofem’s ability to manufacture and develop its MPT vaginal gel or Amphora product candidate.

In addition, the agreements under which Evofem currently licenses intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what Evofem believes to be the scope of Evofem’s rights to the relevant intellectual property or technology, or increase what Evofem believes to be its financial or other obligations under the relevant agreement, either of which could have a material adverse effect on Evofem’s business, financial condition, results of operations, and prospects. Moreover, if disputes over intellectual property that Evofem has licensed prevent or impair its ability to maintain its current licensing arrangements on commercially acceptable terms, Evofem may be unable to successfully develop and commercialize the affected product candidate, which could have a material adverse effect on Evofem’s business, financial conditions, results of operations, and prospects.

Evofem’s licensors may have relied on third party consultants or collaborators or on funds from third parties such that Evofem’s licensors are not the sole and exclusive owners of the patents Evofem in-licensed. If other third parties have ownership rights to Evofem’s in-licensed patents, they may be able to license such patents to Evofem’s competitors, and Evofem’s competitors could market competing products and technology. This could have a material adverse effect on Evofem’s competitive position, business, financial conditions, results of operations, and prospects.

Evofem may not be able to protect its intellectual property and proprietary rights throughout the world.

Filing, prosecuting, and defending patents on Evofem’s MPT vaginal gel, its Amphora product candidate and other proprietary technologies Evofem may develop in all countries throughout the world would be prohibitively expensive, and the laws of foreign countries may not protect Evofem’s rights to the same extent as the laws of the United States. Consequently, Evofem may not be able to prevent third parties from practicing Evofem’s inventions in all countries outside the United States, or from selling or importing products made using Evofem’s inventions in and into the United States or other jurisdictions. Competitors may use Evofem’s technologies in jurisdictions where Evofem has not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where Evofem has patent protection but enforcement is not as strong as that in the United States. These products may compete with Evofem’s products, and Evofem’s patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

 

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Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for Evofem to stop the infringement of its patents or marketing of competing products in violation of its intellectual property and proprietary rights generally. In addition, some jurisdictions, such as Europe, Japan, and China, may have a higher standard for patentability than in the U.S., including for example the requirement of claims having literal support in the original patent filing and the limitation on using supporting data that is not in the original patent filing. Under those heightened patentability requirements, Evofem may not be able to obtain sufficient patent protection in certain jurisdictions even though the same or similar patent protection can be secured in U.S. and other jurisdictions.

Proceedings to enforce Evofem’s intellectual property and proprietary rights in foreign jurisdictions could result in substantial costs and divert Evofem’s efforts and attention from other aspects of its business, could put Evofem’s patents at risk of being invalidated or interpreted narrowly, could put Evofem’s patent applications at risk of not issuing, and could provoke third parties to assert claims against Evofem. Evofem may not prevail in any lawsuits that it initiates, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, Evofem’s efforts to enforce its intellectual property and proprietary rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that Evofem develops or licenses.

Many countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition, many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If Evofem or any of its licensors are forced to grant a license to third parties with respect to any patents relevant to Evofem’s business, Evofem’s competitive position may be impaired, and its business, financial condition, results of operations, and prospects may be adversely affected.

Obtaining and maintaining Evofem’s patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by government patent agencies, and its patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuity fees, and various other government fees on patents and applications will be due to be paid to the USPTO and various government patent agencies outside of the United States over the lifetime of Evofem’s owned or licensed patents and applications. In certain circumstances, Evofem relies on its licensing partners to pay these fees due to U.S. and non-U.S. patent agencies. The USPTO and various non-U.S. government agencies require compliance with several procedural, documentary, fee payment, and other similar provisions during the patent application process. Evofem is also dependent on its licensors to take the necessary action to comply with these requirements with respect to its licensed intellectual property. In some cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however, in which non-compliance can result in abandonment or lapse of the patent or patent application, resulting in a partial or complete loss of patent rights in the relevant jurisdiction. In such an event, potential competitors might be able to enter the market with similar or identical products or technology, which could have a material adverse effect on Evofem’s business, financial condition, results of operations, and prospects.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing Evofem’s ability to protect its products.

Changes in either the patent laws or interpretation of the patent laws in the United States could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. Assuming that other requirements for patentability are met, prior to March 2013, in the United

 

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States, the first to invent the claimed invention was entitled to the patent, while outside the United States, the first to file a patent application was entitled to the patent. After March 2013, under the Leahy-Smith America Invents Act, or the America Invents Act, enacted in September 2011, the United States transitioned to a first inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to file a patent application will be entitled to the patent on an invention regardless of whether a third party was the first to invent the claimed invention. A third party that files a patent application in the USPTO after March 2013, but before Evofem could therefore be awarded a patent covering an invention of Evofem’s even if Evofem had made the invention before it was made by such third party. This will require Evofem to be cognizant going forward of the time from invention to filing of a patent application. Since patent applications in the United States and most other countries are confidential for a period of time after filing or until issuance, Evofem cannot be certain that it or its licensors were the first to either (i) file any patent application related to its MPT vaginal gel, its Amphora product candidate and other proprietary technologies Evofem may develop or (ii) invent any of the inventions claimed in Evofem’s or its licensor’s patents or patent applications.

The America Invents Act also includes a number of significant changes that affect the way patent applications will be prosecuted and also may affect patent litigation. These include allowing third party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review, and derivation proceedings. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate Evofem’s patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. Therefore, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of Evofem’s owned or in-licensed patent applications and the enforcement or defense of Evofem’s owned or in-licensed issued patents, all of which could have a material adverse effect on Evofem’s business, financial condition, results of operations, and prospects.

In addition, the patent positions of companies in the development and commercialization of biologics and pharmaceuticals are particularly uncertain. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. This combination of events has created uncertainty with respect to the validity and enforceability of patents, once obtained. Depending on future actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could have a material adverse effect on Evofem’s existing patent portfolio and Evofem’s ability to protect and enforce its intellectual property in the future.

Issued patents covering Evofem’s MPT vaginal gel, its Amphora product candidate and other proprietary technologies Evofem may develop could be found invalid or unenforceable if challenged in court or before administrative bodies in the United States or abroad.

If Evofem or one of its licensors initiated legal proceedings against a third party to enforce a patent covering Evofem’s MPT vaginal gel, its Amphora product candidate and other proprietary technologies Evofem may develop, the defendant could counterclaim that such patent is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. Third parties may raise claims challenging the validity or enforceability of Evofem’s owned or in-licensed patents before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post-grant review, inter

 

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partes review, interference proceedings, derivation proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in the revocation of, cancellation of, or amendment to Evofem’s patents in such a way that they no longer cover its MPT vaginal gel, its Amphora product candidate and other proprietary technologies Evofem may develop. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the validity question, for example, Evofem cannot be certain that there is no invalidating prior art, of which Evofem or its licensing partners and the patent examiner were unaware during prosecution. If a third party were to prevail on a legal assertion of invalidity or unenforceability, Evofem would lose at least part, and perhaps all, of the patent protection on Amphora product candidate and other proprietary technologies Evofem may develop. Such a loss of patent protection would have a material adverse impact on Evofem’s business, financial condition, results of operations, and prospects.

If Evofem does not obtain patent term extension and data exclusivity for its MPT vaginal gel and its Amphora product candidate, Evofem’s business may be materially harmed.

Depending upon the timing, duration and specifics of any FDA marketing approval of any product candidate Evofem may develop, one or more of Evofem’s owned or in-licensed U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Action of 1984, or the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent extension term, or PTE, of up to five years as compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent may be extended and only those claims covering the approved drug, a method for using it, or a method for manufacturing it may be extended. Similar patent term restoration provisions to compensate for commercialization delay caused by regulatory review are also available in certain foreign jurisdictions, such as in Europe under Supplemental Protection Certificate, or SPC.

An important part of Evofem’s patent strategy is reliant on its ability to obtain patent term extension on the patents licensed from Rush University. However, Evofem may not be granted an extension, such as PTE for the U.S. patent and SPC for the European patents because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents, or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than Evofem requests. If Evofem is unable to obtain patent term extension or the term of any such extension is shorter than what Evofem requests, its competitors may obtain approval of competing products following Evofem’s patent expiration, and Evofem’s business, financial condition, results of operations, and prospects could be materially harmed.

The patent protection and patent prosecution for Evofem’s MPT vaginal gel and Amphora product candidate is dependent on third parties.

While Evofem normally seeks to obtain the right to control prosecution, maintenance and enforcement of the patents relating to Evofem’s MPT vaginal gel and Amphora product candidate, there may be times when the filing and prosecution activities for patents relating to Evofem’s product candidate are controlled by Evofem’s licensors or collaboration partners. If any of Evofem’s current or future licensing or collaboration partners fail to prosecute, maintain and enforce such patents and patent applications in a manner consistent with the best interests of Evofem’s business, including by payment of all applicable fees for patents covering its product candidate, Evofem could lose its rights to the intellectual property or its exclusivity with respect to those rights, its ability to develop and commercialize its product candidate may be adversely affected and Evofem may not be able to prevent competitors from making, using and selling competing products. In addition, even where Evofem has the right to control patent prosecution of patents and patent applications Evofem has licensed to and from third parties, Evofem may still be adversely affected or prejudiced by actions or inactions of its licensees, its licensors and their counsel that took place prior to the date upon which Evofem assumed control over patent prosecution.

 

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Evofem may be subject to claims challenging the inventorship of its patents and other intellectual property.

Evofem or its licensors may be subject to claims that former employees, collaborators or other third parties have an interest in its owned or in-licensed patents, trade secrets, or other intellectual property as an inventor or co-inventor. For example, Evofem or its licensors may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing Amphora product candidate and other proprietary technologies Evofem may develop. Litigation may be necessary to defend against these and other claims challenging inventorship or Evofem’s or its licensor’s ownership of its owned or in-licensed patents, trade secrets or other intellectual property. If Evofem or its licensors fail in defending any such claims, in addition to paying monetary damages, Evofem may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important to Amphora product candidate and other proprietary technologies Evofem may develop. Even if Evofem is successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on Evofem’s business, financial condition, results of operations and prospects.

If Evofem is unable to protect the confidentiality of its trade secrets, Evofem’s business and competitive position would be harmed.

In addition to seeking patents for its MPT vaginal gel, its Amphora product candidate and other proprietary technologies Evofem may develop, Evofem also relies on trade secrets and confidentiality agreements to protect its unpatented know-how, technology, and other proprietary information and to maintain its competitive position. With respect to its MPT vaginal gel and its Amphora product candidate, Evofem considers trade secrets and know-how to be one of its important sources of intellectual property. Trade secrets and know-how can be difficult to protect. In particular, the trade secrets and know-how in connection with its MPT vaginal gel and its Amphora product candidate and other proprietary technology Evofem may develop may over time be disseminated within the industry through independent development, the publication of journal articles describing the methodology, and the movement of personnel with scientific positions in academic and industry.

Evofem seeks to protect these trade secrets and other proprietary technology, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to them, such as Evofem’s employees, corporate collaborators, outside scientific collaborators, CROs, contract manufacturers, consultants, advisors, and other third parties. Evofem also enters into confidentiality and invention or patent assignment agreements with its employees and consultants. Evofem cannot guarantee that it has entered into such agreements with each party that may have or have had access to Evofem’s trade secrets or proprietary technology and processes. Despite these efforts, any of these parties may breach the agreements and disclose Evofem’s proprietary information, including its trade secrets, and Evofem may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive, and time-consuming, and the outcome is unpredictable. In addition, some courts inside and outside the United States are less willing or unwilling to protect trade secrets. If any of Evofem’s trade secrets were to be lawfully obtained or independently developed by a competitor or other third party, Evofem would have no right to prevent them from using that technology or information to compete with Evofem. If any of Evofem’s trade secrets were to be disclosed to or independently developed by a competitor or other third party, Evofem’s competitive position would be materially and adversely harmed.

Evofem may be subject to claims that third parties have an ownership interest in its trade secrets. For example, Evofem may have disputes arise from conflicting obligations of its employees, consultants or others who are involved in developing its product candidate. Litigation may be necessary to defend against these and other claims challenging ownership of Evofem’s trade secrets. If Evofem fails in defending any such claims, in addition to paying monetary damages, it may lose valuable trade secret rights, such as exclusive ownership of, or right to use, trade secrets that are important to Amphora product candidate and other proprietary technologies

 

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Evofem may develop. Such an outcome could have a material adverse effect on Evofem’s business. Even if Evofem is successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Evofem may not be successful in obtaining necessary rights to any product candidate it may develop through acquisitions and in-licenses.

Evofem currently has rights to intellectual property, covering its MPT vaginal gel, its Amphora product candidate and other proprietary technologies it may develop. Other pharmaceutical companies and academic institutions may also have filed or are planning to file patent applications potentially relevant to Evofem’s business. In order to avoid infringing these third party patents, Evofem may find it necessary or prudent to obtain licenses to such patents from such third party intellectual property holders. However, Evofem may be unable to secure such licenses or otherwise acquire or in-license any compositions, methods of use, processes, or other intellectual property rights from third parties that Evofem identifies as necessary for its MPT vaginal gel, its Amphora product candidate and other proprietary technologies Evofem may develop. The licensing or acquisition of third party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third party intellectual property rights that Evofem may consider attractive or necessary. These established companies may have a competitive advantage over Evofem due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive Evofem to be a competitor may be unwilling to assign or license rights to Evofem. Evofem also may be unable to license or acquire third party intellectual property rights on terms that would allow it to make an appropriate return on Evofem’s investment or at all. If Evofem is unable to successfully obtain rights to required third party intellectual property rights or maintain the existing intellectual property rights it has, it may have to abandon development of the relevant program or product candidate, which could have a material adverse effect on Evofem’s business, financial condition, results of operations, and prospects.

Evofem may be subject to claims that its employees, consultants, or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what Evofem regards as its own intellectual property.

Many of Evofem’s employees, consultants, and advisors are currently or were previously employed at universities or other biotechnology or pharmaceutical companies, including Evofem’s competitors or potential competitors. Although Evofem tries to ensure that its employees, consultants, and advisors do not use the proprietary information or know-how of others in their work for Evofem, Evofem may be subject to claims that it or these individuals have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer. Litigation may be necessary to defend against these claims. If Evofem fails in defending any such claims, in addition to paying monetary damages, Evofem may lose valuable intellectual property rights or personnel. Even if Evofem is successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

In addition, while it is Evofem’s policy to require its employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to Evofem, Evofem may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that it regards as its own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and Evofem may be forced to bring claims against third parties, or defend claims that they may bring against Evofem, to determine the ownership of what Evofem regards as its intellectual property. Such claims could have a material adverse effect on its business, financial condition, results of operations, and prospects.

 

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Third-party claims of intellectual property infringement, misappropriation or other violation against Evofem or its collaborators may prevent or delay the development and commercialization of its MPT vaginal gel, its Amphora product candidate and other proprietary technologies Evofem may develop.

The field of contraceptive and/or anti-STDs vaginal gel is competitive and dynamic. Due to the significant research and development that is taking place by several companies, including Evofem and its competitors, in this field, the intellectual property landscape is in flux, and it may remain uncertain in the future. There may be significant intellectual property related litigation and proceedings, in addition to the ongoing interference proceedings, relating to Evofem’s owned and in-licensed, and other third party, intellectual property and proprietary rights in the future.

Evofem’s commercial success depends in part on Evofem’s and its collaborators’ ability to avoid infringing, misappropriating and otherwise violating the patents and other intellectual property rights of third parties. There is a substantial amount of complex litigation involving patents and other intellectual property rights in the biotechnology and pharmaceutical industries, as well as administrative proceedings for challenging patents, including interference, derivation and reexamination proceedings before the USPTO or oppositions and other comparable proceedings in foreign jurisdictions. As discussed above, recently, due to changes in U.S. law referred to as patent reform, new procedures including inter partes review and post-grant review have been implemented. As stated above, this reform adds uncertainty to the possibility of challenge to Evofem’s patents in the future.

Numerous U.S. and foreign issued patents and pending patent applications owned by third parties exist in the fields in which Evofem is commercializing its MPT vaginal gel, its Amphora product candidate and in which it is developing other proprietary technologies. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that Evofem’s product candidate may give rise to claims of infringement of the patent rights of others. Evofem cannot assure you that its MPT vaginal gel, its Amphora product candidate and other proprietary technologies it may develop will not infringe existing or future patents owned by third parties. Evofem may not be aware of patents that have already been issued and that a third party, for example, a competitor in the fields in which it is developing its product candidate, might assert are infringed by its current or future product candidate, including claims to compositions, formulations, methods of manufacture or methods of use or treatment that cover its product candidate. It is also possible that patents owned by third parties of which Evofem is aware, but which it does not believe are relevant to its MPT vaginal gel, its Amphora product candidate and other proprietary technologies it may develop, could be found to be infringed by its product candidate. In addition, because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that Evofem’s product candidate may infringe.

Third parties may currently have patents or obtain patents in the future, and claim that use of Evofem’s technologies or the manufacture, use or sale of its MPT vaginal gel or its Amphora product candidate infringes upon these patents. In the event that any third party claims that Evofem infringes their patents or that Evofem is otherwise employing their proprietary technology without authorization and initiates litigation against Evofem, even if Evofem believes such claims are without merit, a court of competent jurisdiction could hold that such patents are valid, enforceable and infringed by Evofem’s technologies or product candidate. In this case, the holders of such patents may be able to block Evofem’s ability to commercialize the applicable product candidate or technology unless it obtains a license under the applicable patents, or until such patents expire or are finally determined to be held invalid or unenforceable. Such a license may not be available on commercially reasonable terms or at all. Even if Evofem is able to obtain a license, the license would likely obligate Evofem to pay license fees or royalties or both, and the rights granted to Evofem might be nonexclusive, which could result in its competitors gaining access to the same intellectual property. If Evofem is unable to obtain a necessary license to a third-party patent on commercially reasonable terms, it may be unable to commercialize its product candidate or technologies or such commercialization efforts may be significantly delayed, which could in turn significantly harm Evofem’s business.

 

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Defense of infringement claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of management and other employee resources from Evofem’s business, and may impact its reputation. In the event of a successful claim of infringement against Evofem, Evofem may be enjoined from further developing or commercializing its infringing products or technologies. In addition, Evofem may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, obtain one or more licenses from third parties, pay royalties and/or redesign its infringing products or technologies, which may be impossible or require substantial time and monetary expenditure. In that event, Evofem would be unable to further develop and commercialize its product candidate or technologies, which could harm its business significantly. Further, Evofem cannot predict whether any required license would be available at all or whether it would be available on commercially reasonable terms. In the event that Evofem could not obtain a license, it may be unable to further develop its product candidate and commercialize its product and product candidate, if approved, which could harm its business significantly. Even if Evofem are able to obtain a license, the license would likely obligate Evofem to pay license fees or royalties or both, and the rights granted to it might be nonexclusive, which could result in Evofem’s competitors gaining access to the same intellectual property. Ultimately, Evofem could be prevented from commercializing a product, or be forced to cease some aspect of its business operations, if, as a result of actual or threatened patent infringement claims, Evofem is unable to enter into licenses on acceptable terms.

Engaging in litigation defending Evofem against third parties alleging infringement of patent and other intellectual property rights is very expensive, particularly for a company of Evofem’s size, and time-consuming. Some of Evofem’s competitors may be able to sustain the costs of litigation or administrative proceedings more effectively than Evofem can because of greater financial resources. Patent litigation and other proceedings may also absorb significant management time. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could impair Evofem’s ability to compete in the marketplace. The occurrence of any of the foregoing could have a material adverse effect on Evofem’s business, financial condition or results of operations.

Evofem may become involved in lawsuits to protect or enforce its patents and other intellectual property rights, which could be expensive, time consuming, and unsuccessful.

Competitors may infringe Evofem’s patents or the patents of its licensing partners, or Evofem may be required to defend against claims of infringement. In addition, Evofem’s patents or the patents of its licensing partners also may become involved in inventorship, priority or validity disputes. To counter or defend against such claims can be expensive and time consuming. In an infringement proceeding, a court may decide that a patent owned or in-licensed by Evofem is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that Evofem’s owned and in-licensed patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of Evofem’s owned or in-licensed patents at risk of being invalidated or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of Evofem’s confidential information could be compromised by disclosure during this type of litigation.

Even if resolved in Evofem’s favor, litigation or other legal proceedings relating to intellectual property claims may cause Evofem to incur significant expenses and could distract Evofem’s personnel from their normal responsibilities. In addition, there could be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of Evofem’s common stock. Such litigation or proceedings could substantially increase Evofem’s operating losses and reduce the resources available for development activities or any future sales, marketing, or distribution activities. Evofem may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Some of Evofem’s competitors may be able to sustain the costs of such litigation or proceedings more effectively than Evofem can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on Evofem’s ability to compete in the marketplace.

 

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If Evofem’s trademarks and trade names are not adequately protected, then Evofem may not be able to build name recognition in its markets of interest and its business may be adversely affected.

Evofem’s registered or unregistered trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. During trademark registration proceedings, including those for Amphora, Evofem may receive rejections of its applications by the USPTO or in other foreign jurisdictions. Although Evofem is given an opportunity to respond to those rejections, it may be unable to overcome such rejections. In addition, in the USPTO and in comparable agencies in many foreign jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against Evofem’s trademarks, and its trademarks may not survive such proceedings. Moreover, any name Evofem has proposed to use with its product candidate in the United States must be approved by the FDA, regardless of whether Evofem has registered it, or applied to register it, as a trademark. Similar requirements exist in Europe. The FDA typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA (or an equivalent administrative body in a foreign jurisdiction) objects to any of Evofem’s proposed proprietary product names, it may be required to expend significant additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. Furthermore, in many countries, owning and maintaining a trademark registration may not provide an adequate defense against a subsequent infringement claim asserted by the owner of a senior trademark.

Evofem may not be able to protect its rights to these trademarks and trade names, which Evofem needs to build name recognition among potential partners or customers in its markets of interest. At times, competitors or other third parties may adopt trade names or trademarks similar to Evofem’s, thereby impeding its ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of Evofem’s registered or unregistered trademarks or trade names. Over the long term, if Evofem is unable to establish name recognition based on its trademarks and trade names, then Evofem may not be able to compete effectively and its business may be adversely affected. Evofem’s efforts to enforce or protect its proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely affect its business, financial condition, results of operations and prospects.

Intellectual property rights do not necessarily address all potential threats.

The degree of future protection afforded by Evofem’s intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect Evofem’s business or permit Evofem to maintain its competitive advantage. For example:

 

    others may be able to make products that are similar to Evofem’s product candidate or utilize similar technology but that are not covered by the claims of the patents that Evofem licenses or may own;

 

    Evofem, or its current or future licensors or collaborators, might not have been the first to make the inventions covered by the issued patent or pending patent application that Evofem licenses or may own in the future;

 

    Evofem, or its current or future licensors or collaborators, might not have been the first to file patent applications covering certain of Evofem’s or their inventions;

 

    others may independently develop similar or alternative technologies or duplicate any of Evofem’s technologies without infringing its owned or licensed intellectual property rights;

 

    it is possible that Evofem’s current or future pending owned or licensed patent applications will not lead to issued patents;

 

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    issued patents that Evofem holds rights to may be held invalid or unenforceable, including as a result of legal challenges by its competitors or other third parties;

 

    Evofem’s competitors or other third parties might conduct research and development activities in countries where Evofem does not have patent rights and then use the information learned from such activities to develop competitive products for sale in Evofem’s major commercial markets;

 

    Evofem may not develop additional proprietary technologies that are patentable;

 

    the patents of others may harm Evofem’s business; and

 

    Evofem may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.

Should any of these events occur, they could have a material adverse effect on Evofem’s business, financial condition, results of operations, and prospects.

Risks Related to Evofem’s Reliance on Third Parties

Evofem’s success relies on third party suppliers and manufacturers. Any failure by such third parties, including failure to successfully perform and comply with regulatory requirements, could negatively impact Evofem’s business and its ability to develop and market Amphora and potential future product candidates, and its business could be substantially harmed.

Evofem has a small number of employees and no internal manufacturing capability. Evofem management does not expect to manufacture any products and expects to rely on third parties to make Evofem’s products, and as such it will be subject to inherent uncertainties related to product safety, availability and security. To date, Evofem’s contract manufacturer, Swiss-American Products, Inc., has only produced a small quantity of its MPT vaginal gel for clinical testing. Furthermore, for some of the key raw materials and components of its MPT vaginal gel, Evofem has only a single source of supply, and alternate sources of supply may not be readily available.

Moreover, Evofem does not expect to control the manufacturing processes for the production of its MPT vaginal gel or any of its other future products or product candidates, which must be made in accordance with relevant regulations, and includes, among other things, quality control, quality assurance, compliance with cGMP and the maintenance of records and documentation. In the future, it is possible that Evofem’s suppliers or manufacturers may fail to comply with FDA regulations, the requirements of other regulatory bodies or its own requirements, all of which would result in suspension or prevention of commercialization and/or manufacturing of its products or product candidates, including its MPT vaginal gel and its lad product candidate, Amphora, suspension of ongoing research, disqualification of data or other enforcement actions such as product recall, injunctions, civil penalties or criminal prosecutions against Evofem. Furthermore, Evofem may be unable to replace any supplier or manufacturer with an alternate supplier or manufacturer on a commercially reasonable or timely basis, or at all.

If Evofem were to experience an unexpected loss of supply of, or if any supplier or manufacturer were unable to meet its demand for its product candidates, Evofem could experience delays in research, planned clinical studies or commercialization. Evofem might be unable to find alternative suppliers or manufacturers with FDA approval, of acceptable quality, in the appropriate volumes and at an acceptable cost. The long transition periods necessary to switch manufacturers and suppliers, would significantly delay Evofem’s timelines, which would materially adversely affect its business, financial conditions, results of operation and prospects.

In addition, Evofem’s reliance on third-party manufacturers exposes Evofem to the following additional risks:

 

    Evofem may be unable to identify manufacturers on acceptable terms or at all;

 

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    Evofem’s third-party manufacturers might be unable to timely formulate and manufacture Evofem’s product or produce the quantity and quality required to meet Evofem’s clinical and commercial needs, if any;

 

    Contract manufacturers may not be able to execute Evofem’s manufacturing procedures appropriately;

 

    Evofem’s future third-party manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time required to supply its clinical trials or to successfully produce, store and distribute its products;

 

    Manufacturers are subject to ongoing periodic unannounced inspection by the FDA and corresponding state agencies to ensure strict compliance with cGMPs and other government regulations and corresponding foreign standards, and Evofem does not have control over third-party manufacturers’ compliance with these regulations and standards;

 

    Evofem may not own, or may have to share, the intellectual property rights to any improvements made by Evofem’s third-party manufacturers in the manufacturing process for its product candidates; and

 

    Evofem’s third-party manufacturers could breach or terminate their agreement with Evofem.

Each of these risks could delay Evofem’s clinical trials, the approval, if any of its product candidates by the FDA or the commercialization of its product candidates or result in higher costs or deprive Evofem of potential product revenue. In addition, Evofem relies on third parties to perform release testing on its product candidates prior to delivery to patients. If these tests are not appropriately conducted and test data are not reliable, patients could be put at risk of serious harm, which could result in product liability suits.

The manufacture of medical products is complex and requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of medical products often encounter difficulties in production, particularly in scaling up and validating initial production and absence of contamination. These problems include difficulties with production costs and yields, quality control, including stability of the product, quality assurance testing, operator error, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Furthermore, if contaminants are discovered in Evofem’s supply of its product candidates or in the manufacturing facilities, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. Evofem cannot be assured that any stability or other issues relating to the manufacture of its product candidates will not occur in the future. Additionally, Evofem’s manufacturers may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments. If Evofem’s manufacturers were to encounter any of these difficulties, or otherwise fail to comply with their contractual obligations, Evofem’s ability to provide its product candidates to patients in clinical trials would be jeopardized. Any delay or interruption in the supply of clinical trial supplies could delay the completion of clinical trials, increase the costs associated with maintaining clinical trial programs and, depending upon the period of delay, require Evofem to commence new clinical trials at additional expense or terminate clinical trials completely.

Evofem has no internal distribution capabilities and intends to engage third party distributors for distribution of products outside the United States. The inability to identify, or enter into an agreement with, any such third party distributor, would likely have a material adverse effect on Evofem’s business and operations.

Although Evofem currently plans to market and sell its lead product candidate, Amphora, directly in the United States, Evofem does intend to enter into distribution agreements with one or more distributors of Amphora outside the United States. Evofem currently has not entered into any such distribution agreement with any such distributor, and Evofem cannot guaranty that it will be able to enter into any such distribution agreement on commercially reasonable terms, or at all. If Evofem were to outsource product distribution, including the

 

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distribution of its MPT vaginal gel, Amphora or any future product candidate or product, this outsourcing would also be subject to uncertainties related to such distribution services, including the quality of such distribution services. For example, distributors may not have the capacity to supply sufficient product if demand increases rapidly. Further, Evofem would be dependent on the distributors to ensure that the distribution process accords with relevant regulations, which includes, among other things, compliance with current good documentation practices, the maintenance of records and documentation and compliance with other regulations, including, without limitation, the Foreign Corrupt Practices Act. Failure to comply with these requirements could result in significant remedial action, including improvement of facilities, suspension of distribution or recall of product. Additionally, any failure by Evofem to forecast demand for finished product, including Amphora, and failure by Evofem to ensure its distributors have appropriate capacity to distribute such quantities of finished product, could result in an interruption in the supply of certain products and a decline in sales of that product. Further third-party distributors may not perform as agreed or may terminate their agreements with Evofem. Any significant problem that Evofem’s distributors experience could delay or interrupt Evofem’s sale of products in the applicable jurisdiction until the applicable distributor cures the problem or until Evofem identifies and negotiates an acceptable agreement with an alternative distributor, if one is available. Any failure or delay in distributing products would likely have a negative impact on Evofem’s business and operations.

Evofem relies and intends to rely on third-parties for the execution of its development programs for its MPT vaginal gel, its lead product candidate, Amphora, and its potential future product candidates. Failure of these third parties to provide services of a suitable quality and within acceptable timeframes may cause the delay or failure of Evofem’s development programs.

Evofem employs a business model that relies on the outsourcing of certain functions, tests and services to CROs, medical institutions and other specialist providers, including, without limitation, the conduct, management and monitoring of Evofem’s ongoing and planned clinical trials. As a result, Evofem relies on these third parties for, among other things, quality assurance, clinical monitoring, clinical data management and regulatory expertise. In terms of Amphora, Evofem has engaged PAREXEL International Corporation as CRO to run substantially all aspects of the AMPOWER clinical trial. Evofem also intends to engage a CRO for all future clinical trial requirements needed to file for regulatory approvals. There is no assurance that such organizations or individuals will be able to provide the functions, tests or services as agreed upon, or to the requisite quality. Evofem will rely on the efforts of these organizations and individuals and could suffer significant delays in the development of its product or processes should they fail to perform as expected.

There is also no assurance that these third parties will not make errors in, or simply fail to be effective in, the design, management or retention of Evofem’s data or data systems. Any failures by such third parties could lead to a loss of data, which in turn could lead to delays in clinical development and obtaining regulatory approval. Third parties may not pass FDA or other regulatory audits, which could delay or prohibit regulatory approval. In addition, the cost of such services could significantly increase over time. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, regulatory approval of Evofem’s MPT vaginal gel, its lead product candidate, Amphora, or any future product candidates, may be delayed, prevented or cost significantly more than expected, all of which would have a material adverse effect on Evofem’s business, financial conditions, results of operation and prospects.

If Evofem fails to enter into or maintain strategic relationships or collaborations with respect to future product candidates, or if Evofem is unable to realize the potential benefits from such collaborations, its business, financial condition, commercialization prospects and results of operation may be materially adversely affected.

If Evofem is successful in identifying and in-licensing the rights to additional product candidates, Evofem’s expected strategy with respect to the development of any such future product candidates is to supplement internal efforts with third-party collaborations. Evofem faces significant competition in seeking appropriate collaborators. Collaborations are complex and time-consuming arrangements to negotiate and document.

 

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Evofem’s success in entering into a definitive agreement for any collaboration will depend upon, among other things, its assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design and outcomes of the clinical studies, the likelihood of approval by regulatory authorities, the potential market for the product, the costs and complexities of manufacturing and delivering such products to customers, the potential of competing products, the strength of the intellectual property and industry and market conditions generally. The collaborator may also consider alternative products or technologies for similar indications that may be available to collaborate on and whether such collaboration could be more attractive than the one with Evofem for its products or product candidates.

Any potential collaboration agreement into which Evofem might enter may call for licensing or cross-licensing of potentially blocking patents, know-how or other intellectual property. Due to the potential overlap of data, know-how and intellectual property rights, there can be no assurance that one of Evofem’s collaborators will not dispute its right to use, license or distribute such data, know-how or other intellectual property rights, and this may potentially lead to disputes, liability or termination of the collaboration.

Evofem may also be restricted under existing and future collaboration agreements from entering into agreements on certain terms with other potential collaborators and may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If that were to occur, Evofem may have to curtail the development of a particular product, reduce or delay Evofem’s development program, delay commercialization, reduce the scope of sales or marketing activities, or increase expenditures and undertake development or commercialization activities at its own expense. If Evofem elects to fund development or commercialization activities on its own, it will need to obtain additional capital, which may not be available to Evofem on acceptable terms or at all. Absent sufficient funds, Evofem may not be able to commercialize a product candidate. If Evofem enters into a collaboration agreement regarding a product or product candidate, it could be subject to, among other things, the following risks, each of which may materially harm its business, commercialization prospects and financial condition:

 

    Evofem may not be able to control the amount and timing of resources that the collaborator devotes to the product development program;

 

    Evofem may experience financial difficulties and thus not commit sufficient financial resources to the product development program;

 

    Evofem may be required to relinquish important rights to the collaborator such as marketing, distribution and intellectual property rights;

 

    a collaborator could move forward with a competing product developed either independently or in collaboration with third parties, including its competitors;

 

    a collaborator could terminate the agreement (for convenience if permitted) or for its breach; or

 

    business combinations or significant changes in a collaborator’s business strategy may adversely affect Evofem’s willingness to complete its obligations under any arrangement.

As a result, a collaboration may not result in the successful development or commercialization of Evofem’s product candidates.

Evofem enters into various contracts in the normal course of its business in which Evofem indemnifies the other party to the contract. In the event Evofem has to perform under these indemnification provisions, it could have a material adverse effect on its business, financial condition and results of operations.

In the normal course of business, Evofem periodically enters into academic, commercial, service, collaboration, licensing, consulting and other agreements that contain indemnification provisions. With respect to Evofem’s academic and other research agreements, including the Rush License, Evofem typically indemnifies the

 

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institution and related parties from losses arising from claims relating to the products, processes or services made, used, sold or performed pursuant to the agreements for which Evofem has secured licenses, and from claims arising from Evofem’s or its sublicensees’ exercise of rights under the agreement. With respect to collaboration agreements, Evofem may have to indemnify its collaborators from any third-party product liability claims that could result from the production, use or consumption of the product, as well as for alleged infringements of any patent or other intellectual property right owned by a third party. With respect to consultants, Evofem indemnifies them from claims arising from the good faith performance of their services.

If Evofem’s obligations under an indemnification provision exceed applicable insurance coverage or if Evofem were denied insurance coverage, Evofem’s business, financial condition and results of operations could be adversely affected. Similarly, if Evofem is relying on a collaborator to indemnify Evofem and the collaborator is denied insurance coverage or the indemnification obligation exceeds the applicable insurance coverage, and if the collaborator does not have other assets available to indemnify Evofem, its business, financial condition and results of operations could be adversely affected.

Risks Related to Commercialization of Evofem’s Product Candidate

Evofem currently has limited marketing and sales experience. If Evofem is unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell its product candidates, Evofem may be unable to generate any revenue.

Although some of its employees may have marketed, launched and sold other pharmaceutical products in the past while employed at other companies, Evofem has no experience selling and marketing its product candidates, and Evofem currently has no marketing or sales organization. To successfully commercialize any products that may result from its development programs, Evofem will need to find one or more collaborators to commercialize its products or invest in and develop these capabilities, either on its own or with others, which would be expensive, difficult and time consuming. Any failure or delay in the timely development of Evofem’s internal commercialization capabilities could adversely impact the potential for success of its products.

If commercialization collaborators do not commit sufficient resources to commercialize Evofem’s future products and Evofem is unable to develop the necessary marketing and sales capabilities on its own, Evofem will be unable to generate sufficient product revenue to sustain or grow its business. Evofem may be competing with companies that currently have extensive and well-funded marketing and sales operations, particularly in the markets its product candidates are intended to address. Without appropriate capabilities, whether directly or through third-party collaborators, Evofem may be unable to compete successfully against these more established companies.

Evofem faces competition from other medical device, biotechnology and pharmaceutical companies and its operating results will suffer if Evofem fails to compete effectively.

The medical device, biotechnology and pharmaceutical industries are intensely competitive. Significant competition among various contraceptive products already exists. Existing products have name recognition, are marketed by companies with established commercial infrastructures and with greater financial, technical and personnel resources than Evofem. In order to compete and gain market share, any new product will need to demonstrate advantages in efficacy, convenience, tolerability or safety. In addition, new products developed by others could emerge as competitors to Amphora, if approved. Such products could offer an alternative form of non-hormonal contraceptive that provides protection over longer periods of time. If Evofem is not able to compete effectively against its current and future competitors, Evofem’s business will not grow and its financial condition and operations will suffer.

Evofem’s potential competitors include large, well-established pharmaceutical companies and specialty pharmaceutical companies. These companies include Merck & Co., Inc., Allergan plc, Teva Pharmaceutical

 

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Industries Ltd., Bayer AG, Johnson & Johnson, Cooper and Mylan Inc. Additionally, several generic manufacturers currently market and continue to introduce new generic contraceptives. There are other contraceptive product candidates in development that, if approved, would potentially compete with Amphora, including hormonal patches and hormonal vaginal rings.

Evofem’s MPT vaginal gel, its lead product candidate, Amphora, and any of its future potential product candidates, may not gain acceptance among physicians, patients or the medical community, thereby limiting Evofem’s potential to generate revenue, which will undermine its future growth prospects.

Even if Evofem’s MPT vaginal gel, Amphora or any of its future product candidates are approved for commercial sale by the FDA or other regulatory authorities, the degree of market acceptance of any new product by physicians, health care professionals and third-party payors will depend on a number of factors, including:

 

    demonstrated evidence of efficacy and safety;

 

    sufficient third-party insurance coverage or reimbursement;

 

    effectiveness of Evofem’s or its collaborators’ sales and marketing strategy;

 

    the willingness of uninsured consumers to pay for the product;

 

    the willingness of pharmacy chains to stock the products;

 

    the prevalence and severity of any adverse side effects; and

 

    availability of alternative products.

If Evofem’s MPT vaginal gel, Amphora or any product candidate that Evofem may license, develop or sell does not provide a benefit over currently available options, that product is unlikely to achieve market acceptance and Evofem will not generate sufficient revenues to achieve profitability.

The success of Evofem’s MPT vaginal gel, its lead product candidate, Amphora, or any future contraceptive product candidate Evofem may seek to develop, will depend on the availability of contraceptive alternatives and women’s preferences, in addition to the market’s acceptance of this specific method of contraception.

The commercial success of Evofem’s MPT vaginal gel, Amphora, or any other future contraceptive product candidate Evofem may seek to develop, will depend upon the contraceptive market as well as market acceptance of this alternative method. Risks related to market acceptance include, among other things:

 

    minimum acceptable contraceptive efficacy rates;

 

    perceived safety differences of hormonal and/or non-hormonal contraceptive options;

 

    changes in healthcare laws and regulations, including the PPCA, and its effect on pharmaceutical coverage, reimbursement and pricing, and the birth control mandate;

 

    competition from new lower dose hormonal contraceptives with more favorable side effect profiles; and

 

    new generic contraceptive options including a generic version of Amphora as a contraceptive.

If one or more of these risks occur it could reduce the market potential for Evofem’s MPT vagina gel, Amphora, or any future contraceptive product Evofem may seek to develop, and place pressure on Evofem’s business, financial condition, results of operation and prospects.

 

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If Evofem suffers negative publicity concerning the safety or efficacy of Evofem’s products in development, Evofem’s reputation could be harmed and Evofem may be forced to cease development of such products.

If concerns should arise about the actual or anticipated clinical outcomes regarding the safety of any of Evofem’s product candidates, such concerns could adversely affect the market’s perception of these candidates. Such concerns could lead to a decline in investors’ expectations and a decline in the price of Evofem’s common stock.

Evofem relies, and continues to expect to rely, on market research conducted on its behalf to evaluate the potential commercial acceptance its MPT vaginal gel, lead product candidate, Amphora and other future product candidates.

Evofem has contracted with and expects to continue to contract with third parties to perform market research on its behalf. Based on the results of its market research to date, Evofem believes that Amphora, if approved, would be an attractive alternative to hormonal birth control to certain women. However, these research findings may not be indicative or predictive of actual or overall market acceptance and any future market research may not be indicative of the acceptance for another product candidate or future product candidate Evofem may develop.

The commercial success of Evofem’s MPT vaginal gel, its lead product candidate, Amphora, and any future Evofem product candidates will depend in significant measure on the label claims that the FDA or other regulatory authorities approve for the product.

The commercial success of Evofem’s MPT vaginal gel, its lead product candidate, Amphora, and any of Evofem’s future product candidates will depend in significant measure upon Evofem’s ability to obtain approval from the FDA or other regulatory authorities of labeling describing a product candidate’s expected features or benefits. Failure to achieve approval from the FDA or other regulatory authorities of product labeling containing adequate information on features or benefits will prevent or substantially limit Evofem’s advertising and promotion of such features in order to differentiate Amphora or any future product candidate from those products that already exist in the market. This failure would have a material adverse impact on Evofem’s business, financial condition, results of operation and prospects.

The proportion of the contraceptive market that is made up of generic products continues to increase, making introduction of a branded contraceptive difficult and expensive.

The proportion of the U.S. market that is made up of generic products has been increasing over time. In 2005, generic contraceptive products held 47% of prescription volume and 34% of sales and, by 2011, those values had risen to 68% and 44%, respectively. For the year ended December 31, 2016, approximately 83% of the prescription volume and approximately 43% of sales of combined hormonal contraceptives in the United States were generated by generic products. If this trend continues, it may be more difficult to introduce Amphora, if approved, or any future approved contraceptive product candidate Evofem may develop, as a branded contraceptive, at a price that will maximize its revenue and profits. Also, there may be additional marketing costs to introduce Amphora in order to overcome the trend towards generics and to gain access to reimbursement by payors. If Evofem is unable to introduce Amphora or any future approved contraceptive product candidate at a price that is commensurate with that of current branded contraceptive products, or it is unable to gain reimbursement from payors for Amphora, or if patients are unwilling to pay any price differential between Amphora and a generic contraceptive, its revenues will be limited.

 

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Changes in healthcare laws and regulations may eliminate current requirements that health insurance plans cover and reimburse FDA-cleared or approved contraceptive products without cost sharing, which could reduce demand for products such as Amphora. Even if Amphora is approved for commercialization, Evofem management expects that Evofem’s success will be dependent on the willingness or ability of patients to pay out-of-pocket should they not be able to obtain third party reimbursement or should such reimbursement be limited.

Evofem cannot be certain that third party reimbursement will be available for Amphora, and if reimbursement is available, the amount of any such reimbursement. The Patient Protection and Affordable Care Act of 2010, or the PPACA, and subsequent regulations enacted by the Department of Health and Human Services, or DHHS, require health plans to provide coverage for women’s preventive care, including all forms of FDA-cleared or approved contraception, without imposing any cost sharing on the plan beneficiary. These regulations ensure that women who wish to use an approved form of contraception may request it from their doctors and their health insurance plan must cover all costs associated with such products. However, after the 2016 election, the U.S. Federal Government is attempting to repeal the PPACA and corresponding regulations, which would likely eliminate the requirement for health plans to cover women’s preventive care without cost sharing. Even if the PPACA is not repealed, the DHHS regulations to specifically enforce the preventive health coverage mandate could be repealed under the Congressional Review Act. Any repeal or elimination of the preventive care coverage rules would mean that women seeking to use prescribed forms of contraceptives may have to pay some portion of the cost for such products out-of-pocket, which could deter some women from using prescription contraceptive products, such as Amphora, at all. As a result, Evofem expects that its success will be dependent on the willingness of patients to pay out-of-pocket for Amphora in the event that either they do not have insurance or their insurance requires payment of a portion of Amphora by the patient, thus increasing the patient’s overall cost to use Amphora. This could reduce market demand for Amphora or any future product candidates Evofem may seek to develop, if and when they receive FDA approval, which would have a material adverse effect on its business, financial conditions, and prospects.

In the event that Evofem is successful in obtaining regulatory approval to market its MPT vaginal gel, its lead product candidate, Amphora, or a future product in the United States, revenues may be adversely affected if the product fails to obtain insurance coverage or adequate reimbursement from third-party payers and administrators in the United States.

Third-party payers and administrators, including state Medicaid programs and Medicare, have recently been challenging the prices charged for pharmaceutical and medical device products. The United States government and other third-party payers are increasingly limiting both coverage and the level of reimbursement for new drugs and medical devices. Third-party insurance coverage may not be available to patients for Amphora or any future product Evofem may seek to commercialize. If such government and other third-party payers do not provide adequate coverage and reimbursement for Amphora or such products, healthcare providers may not prescribe them or patients may ask their healthcare providers to prescribe competing products with more favorable reimbursement.

Managed care organizations and other private insurers frequently adopt their own payment or reimbursement reductions. Consolidation among managed care organizations has increased the negotiating power of these entities. Private third-party payers, as well as governments, increasingly employ formularies to control costs by negotiating discounted prices in exchange for formulary inclusion. Failure to obtain timely or adequate pricing or formulary placement for Evofem’s MPT vaginal gel, Amphora or any future product Evofem may seek to commercialize, or obtaining such pricing or placement at unfavorable pricing levels, could materially adversely affect Evofem’s business, financial conditions, results of operation and prospects.

 

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The pharmaceutical and medical device industries are highly regulated and subject to various fraud and abuse laws, including, without limitation, the U.S. federal Anti-Kickback Statute, the U.S. federal False Claims Act and the U.S. Foreign Corrupt Practices Act.

Healthcare fraud and abuse regulations are complex, and even minor irregularities can potentially give rise to claims that a statute or prohibition has been violated. The laws that may affect Evofem’s ability to operate include, among other things:

 

    the federal healthcare programs’ anti-kickback law, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs;

 

    false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent;

 

    the Health Insurance Portability and Accountability Act of 1996, which created federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; and

 

    the U.S. Foreign Corrupt Practices Act, which prohibits corrupt payments, gifts or transfers of value to non-U.S. officials.

The scope and enforcement of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Regulatory authorities might challenge Evofem’s current or future activities under these laws. Any such challenge could have a material adverse effect on Evofem’s reputation, business, results of operations and financial condition. In addition, efforts to ensure that Evofem’s business arrangements with third parties will comply with these laws will involve substantial costs. Any investigation of Evofem or the third parties with whom Evofem contracts, regardless of the outcome, would be costly and time consuming.

Evofem’s business may be adversely affected by unfavorable macroeconomic conditions.

Various macroeconomic factors could adversely affect Evofem’s business, its results of operations and financial condition, including changes in inflation, interest rates and foreign currency exchange rates and overall economic conditions and uncertainties, including those resulting from political instability (including workforce uncertainty) and the current and future conditions in the global financial markets. For example, if inflation or other factors were to significantly increase Evofem’s business costs, it may be unable to pass through price increases to patients. The cost of importing similar products from foreign markets may affect Evofem’s sales in any domestic market.

Interest rates and the ability to access credit markets could also adversely affect the ability of patients, payers and distributors to purchase, pay for and effectively distribute Evofem’s product if and when approved. Similarly, these macroeconomic factors could affect the ability of Evofem’s current or potential future third-party manufacturers, sole source or single source suppliers, licensors or licensees to remain in business, or otherwise manufacture or supply Evofem’s product candidate. Failure by any of them to remain in business could affect Evofem’s ability to manufacture Amphora or any of its future product candidates.

 

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Risks Related to Evofem’s Business Operations

As Evofem matures and expands its sales and marketing infrastructure, it will need to expand the size of its organization. If Evofem experiences difficulties in managing this growth or fails to attract and retain management and other key personnel, it may be unable to successfully commercialize its products, develop any product candidates or otherwise implement its business plan.

As of October 20, 2017, Evofem had a total of 23 full-time employees, and uses third-party consultants to assist with research and development activities, including regulatory filings and clinical trial operations and support, sales and marketing research and programs, as well as general and administrative activities. As Evofem’s development and commercialization plans and strategies develop, Evofem expects that it will expand the size of its employee base for managerial, operational, sales, marketing, financial, regulatory affairs and other resources. Future growth would impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. In addition, management may have to divert a disproportionate amount of its attention away from day-to-day activities and devote a substantial amount of time to managing these growth activities, which would lead to disruptions in Evofem’s operations. Evofem cannot provide assurance that it will be able to retain adequate staffing levels to run its operations and/or to accomplish all of the objectives that it otherwise would seek to accomplish.

Evofem’s ability to compete in the highly competitive pharmaceutical and medical device industries depends upon its ability to attract and retain highly qualified managerial and key personnel. Evofem is highly dependent on its senior management, including its President and Chief Executive Officer, Saundra Pelletier, its Chief Financial Officer, Justin J. File, Kelly Culwell, M.D., its Chief Medical Officer and Russ Barrans, its Chief Commercial Officer. The loss of the services of any of these individuals could impede, delay or prevent the development and commercialization of Evofem’s product candidates, hurt its ability to raise additional funds and negatively impact its ability to implement its business plan. If Evofem loses the services of any of these individuals, it might not be able to find suitable replacements on a timely basis or at all, and its business could be harmed as a result. Evofem does not maintain “key man” insurance policies on the lives of these individuals.

Evofem might not be able to attract or retain qualified management and other key personnel in the future due to the intense competition for qualified personnel among biotechnology, medical device, pharmaceutical and other businesses, particularly in the San Diego area where it is headquartered. As a result, Evofem may be required to expend significant financial resources in its employee recruitment and retention efforts, including the grant of significant equity incentive awards which would be dilutive to stockholders. Many of the other companies within the contraceptive industry with whom Evofem competes for qualified personnel have greater financial and other resources, different risk profiles and longer histories in the industry than Evofem does. They also may provide more diverse opportunities and better chances for career advancement. If Evofem is not able to attract and retain the necessary personnel to accomplish its business objectives or if Evofem is not able to effectively manage any future growth, it may experience constraints that will harm its ability to implement its business strategy and achieve its business objectives.

Evofem’s current or future employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards.

Evofem may become exposed to the risk of employees, independent contractors, principal investigators, consultants, suppliers, commercial partners or vendors engaging in fraud or other misconduct. Misconduct by employees, independent contractors, principal investigators, consultants, suppliers, commercial partners and vendors could include intentional failures such as failures: (i) to comply with FDA or other regulators’ regulations, (ii) to provide accurate information to such regulators or (iii) to comply with manufacturing standards established by Evofem and/or required by law. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws, regulations and industry guidance intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission,

 

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customer incentive programs and other business arrangements. Misconduct by current or future employees, independent contractors, principal investigators, consultants, suppliers, commercial partners and vendors could also involve the improper use of information obtained in the course of clinical studies, which could result in regulatory or civil sanctions and serious harm to Evofem’s reputation. It is not always possible to identify and deter misconduct by employees, independent contractors, principal investigators, consultants, suppliers, commercial partners and vendors, and the precautions Evofem takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses, or in protecting it from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against Evofem, and it is not successful in defending or asserting Evofem’s rights, those actions could have a significant adverse impact on its business, including the imposition of significant fines or other sanctions, and its reputation.

Evofem may be vulnerable to disruption, damage and financial obligations as a result of information technology system failures.

Despite the implementation of security measures, any of the internal computer systems belonging to Evofem or its third-party service providers are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war, and telecommunication and electrical failure. Any system failure, accident, security breach or data breach that causes interruptions in its own or in third-party service vendors’ operations could result in a material disruption of its product development programs. For example, the loss of clinical study data from future clinical studies could result in delays in its or its partners’ regulatory approval efforts and significantly increase its costs in order to recover or reproduce the lost data. Further, Evofem’s information technology and other internal infrastructure systems, including firewalls, servers, leased lines and connection to the Internet, face the risk of systemic failure, which could disrupt its operations. To the extent that any disruption or security breach results in a loss or damage to Evofem’s data or applications, or inappropriate disclosure of confidential or proprietary information, it may incur resulting liability, its product development programs and competitive position may be adversely affected and the further development of its products may be delayed. Furthermore, Evofem may incur additional costs to remedy the damage caused by these disruptions or security breaches.

Risks Related to the Combined Organization

In determining whether you should approve the merger, the issuance of shares of Neothetics common stock and other matters related to the merger, as the case may be, you should carefully read the following risk factors in addition to the risks.

The combined company may never earn a profit.

Evofem and Neothetics have never generated revenue from the sale of any products and expect the combined company to incur substantial net losses for the foreseeable future. Because of the risks and uncertainties associated with identifying, licensing and advancing product candidates through clinical development, Evofem and Neothetics are unable to predict if and when the combined company may be able to commercially introduce products. These uncertainties also make it difficult to forecast the extent of any future losses or if the combined company will ever become profitable. Even if the combined company were able to obtain regulatory approval for Amphora, there is no guaranty that a commercial market for the product will develop.

The combined company will be required to raise additional funds to finance its operations and remain a going concern; the combined company may not be able to do so when necessary, and/or on acceptable terms.

The combined company’s ongoing capital requirements will depend on numerous factors related to the development of its product candidates and the sale of products obtaining regulatory approval, including: the

 

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progress and cost of research and development programs and clinical trials; the progress and cost of research and development programs of partners; the time and costs expended and required to obtain any necessary or desired regulatory approvals; the costs of ongoing compliance with the FDA and other domestic and foreign regulatory agency requirements; the resources devoted to manufacturing expenditures; the ability to enter into licensing arrangements; the cost of commercialization activities and arrangements, if any, undertaken by the combined company; and, if and when approved, the demand for the combined company’s products.

Evofem and Neothetics anticipate that the combined company will need to raise additional funds through public or private financings, strategic partnerships or other arrangements. Additional equity financing would be dilutive to the combined company existing stockholders, and debt financing, if available, may involve restrictive covenants. If the combined company raises funds through collaborative or licensing arrangements, it may be required to relinquish, on terms that are not favorable to the combined company, rights to some of its technologies or product candidates that the combined company would otherwise seek to develop or commercialize. The combined company’s failure to raise capital when needed could materially harm its business, financial condition and results of operations.

The combined company expects to be heavily reliant on its ability to access funding through capital market transactions. Due to the combined company’s small public float, low market capitalization, limited operating history and lack of revenue, it may be difficult and expensive for the combined company to raise additional funds.

Evofem and Neothetics anticipate that the combined company will be heavily reliant on its ability to raise funds through the issuance of shares of its common stock or securities linked to its common stock. The combined company’s ability to raise these funds may be dependent on a number of factors, including the risk factors further described herein and the low trading volume and volatile trading price of its shares of common stock. The stocks of small cap companies in the biotechnology sector like the combined company tend to be highly volatile. The combined company expects that the price of its common stock will be highly volatile for the next several years. Even if the combined company expands its portfolio of products and product candidates, it may never successfully commercialize or monetize its current product candidate or any future product candidate that the combined company may seek to develop.

As a result, the combined company may be unable to access funding through sales of its common stock or other equity-linked securities. Even if the combined company were able to access funding, the cost of capital may be substantial due to its low market cap and its small public float. The terms of any funding the combined company is able to obtain may not be favorable to it and may be highly dilutive to its stockholders. The combined company may be unable to access capital due to unfavorable market conditions or other market factors outside of its control. There can be no assurance that it will be able to raise additional capital when needed. The failure to obtain additional capital when needed would have a material adverse effect on its business.

The unaudited pro forma financial statements are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the completion of the transactions.

The unaudited pro forma financial statements contained in this proxy statement/prospectus/information statement are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the merger for several reasons. The unaudited pro forma financial statements have been derived from the historical financial statements of Neothetics and Evofem and adjustments and assumptions have been made regarding the combined company after giving effect to the transaction. The information upon which these adjustments and assumptions have been made is preliminary, and these kinds of adjustments and assumptions are difficult to make with accuracy. Moreover, the unaudited pro forma financial statements do not reflect all costs that are expected to be incurred by the combined company in connection with the transactions or that have been incurred since the date of such unaudited pro forma financial statements. For

 

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example, the impact of any incremental costs incurred in integrating the two companies is not reflected in the unaudited pro forma financial statements. As a result, the actual financial condition of the combined company following the merger may not be consistent with, or evident from, these unaudited pro forma financial statements. The assumptions used in preparing the unaudited pro forma financial information may not prove to be accurate, and other factors may affect the combined company’s financial condition following the transaction. The unaudited pro forma financial statements can be found in the section entitled “Unaudited Pro Forma Condensed Consolidated Financial Statements” beginning on page 214 of this proxy statement/prospectus/information statement.

The merger will result in changes to the combined company’s board of directors that may affect the combined company’s business strategy and operations.

The composition of the combined company’s board of directors will change as described in more detail in the section of this proxy statement/prospectus/information statement entitled “Management Following the Merger” beginning on page 189 of this proxy statement/prospectus/information statement. The newly comprised board of directors of the combined company may affect business strategies and operating decisions with respect to the combined company that may have an adverse impact on the combined company’s business, financial condition and results of operations following the completion of the transaction.

Neothetics and Evofem expect the price of the combined company’s common stock may be volatile and may fluctuate substantially following this transaction.

The stock market in general, and the market for biopharmaceutical companies in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. The market price for the combined company’s common stock may be influenced by many factors, including:

 

    the results of the combined company’s efforts to discover, develop, acquire or in-license product candidates or products, if any;

 

    failure or discontinuation of any of the combined company’s research programs;

 

    actual or anticipated results from, and any delays in, any future clinical trials, as well as results of regulatory reviews relating to the approval of any product candidates the combined company may choose to develop;

 

    the level of expenses related to any product candidates that the combined company may choose to develop or clinical development programs Evofem may choose to pursue;

 

    commencement or termination of any collaboration or licensing arrangement;

 

    disputes or other developments relating to proprietary rights, including patents, litigation matters and the combined company’s ability to obtain patent protection for its technologies;

 

    announcements by the combined company or the combined company’s competitors of significant acquisitions, strategic partnerships, joint ventures and capital commitments;

 

    additions or departures of key scientific or management personnel;

 

    variations in the combined company’s financial results or those of companies that are perceived to be similar to the combined company;

 

    new products, product candidates or new uses for existing products introduced or announced by the combined company’s competitors, and the timing of these introductions or announcements;

 

    results of clinical trials of product candidates of the combined company’s competitors;

 

    general economic and market conditions and other factors that may be unrelated to the combined company’s operating performance or the operating performance of the combined company’s competitors, including changes in market valuations of similar companies;

 

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    regulatory or legal developments in the United States and other countries;

 

    changes in the structure of healthcare payment systems;

 

    conditions or trends in the biotechnology and biopharmaceutical industries;

 

    actual or anticipated changes in earnings estimates, development timelines or recommendations by securities analysts;

 

    announcement or expectation of additional financing efforts;

 

    sales of common stock by the combined company or its stockholders in the future, as well as the overall trading volume of the combined company’s common stock; and

 

    the other factors described in this “Risk Factors” section.

In the past, following periods of volatility in companies’ stock prices, securities class-action litigation has often been instituted against such companies. Such litigation, if instituted against the combined company, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect the combined company’s business and financial condition.

If the combined company were to be delisted from NASDAQ, it could reduce the visibility, liquidity and price of its common stock.

There are various quantitative listing requirements for a company to remain listed on The NASDAQ Capital Market, including maintaining a minimum bid price of $1.00 per share. Further, upon closing of this transaction, the combined company expects to trade on the NASDAQ Capital Market. There is no guarantee that the combined company will be able to continue complying with the minimum bid price rule, the minimum equity standard or other NASDAQ requirements.

Delisting from The NASDAQ Capital Market could reduce the visibility, liquidity and price of the combined company’s common stock.

After the merger, two existing stockholders of Evofem will own a significant percentage of the combined company’s issued and outstanding common stock and will be able to exercise significant influence over matters submitted to stockholders for approval.

Upon closing of the merger (and without assuming the issuance of Neothetics common stock in the Financing and the issuance of the Neothetics Post Merger Warrants), funds affiliated with or discretionarily managed Invesco Asset Management, or Invesco, and funds affiliated with or discretionarily managed by Woodford Investment Management are expected to hold approximately 33.6% and 46.3%, respectively, of the combined company’s outstanding common stock. At or immediately following the effective time of the merger, Neothetics expects to enter into voting agreements with certain of these holders which agreements provide that the shares held by such holders in excess of 19.5% of the then issued and outstanding Neothetics common stock shall be voted in the same proportion as the shares voted by all other Neothetics stockholders (see the section entitled “Agreements Relating to the Merger — Post-Merger Voting Agreement” beginning on page 129 of this proxy statement/prospectus/information statement). Notwithstanding the voting agreements, if these stockholders were to choose to act together, they would be able to exert a significant degree of influence over matters submitted to the combined company’s stockholders for approval, as well as its management and affairs. This concentration of voting power could delay or prevent an acquisition on terms that other stockholders may desire. For example, these entities, if they choose to act together, would be able to have significant influence on the election of directors, approval of any increase in the number of shares reserved under equity incentive plans, approval of new equity incentive plans, and approval of any merger, consolidation or sale of all or substantially all of the combined company’s assets.

In addition, if Proposal No. 4 is approved, the combined entity will not be subject to or governed by Section 203 of the DGCL, which prohibits a publicly-held Delaware corporation from engaging in a “business combination”

 

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with an “interested stockholder,” and the combined entity will be able to enter into transactions with its principal stockholders. The post-merger concentration of ownership may have the effect of delaying, preventing or deterring a change of control of the combined company, could deprive its stockholders of an opportunity to receive a premium for their common stock as part of a sale of the combined company and may materially adversely affect the market price of the combined company’s common stock.

A significant portion of the combined company’s total outstanding shares of common stock may be sold into the public market at any point, which could cause the market price of the combined company’s common stock to drop significantly, even if the combined company’s business is doing well.

Sales of a substantial number of shares of the combined company’s common stock in the public market could occur at any time. These sales, or the perception in the market that holders of a large number of shares intend to sell shares, could reduce the market price of the combined company’s common stock. The combined company’s outstanding shares of common stock may be freely sold in the public market at any time to the extent permitted by Rules 144 and 701 under the Securities Act or to the extent such shares have already been registered under the Securities Act and are held by non-affiliates.

As of October 20, 2017, there were 1,555,573 shares of the Neothetics common stock subject to outstanding options, all of which have been registered on a registration statement on Form S-8. These shares can be freely sold in the public market upon exercise, except to the extent they will be held by the combined company’s affiliates, in which case such shares will become eligible for sale in the public market as permitted by Rule 144 under the Securities Act. Furthermore, as of October 20, 2017, there were 71,257 shares subject to outstanding warrants to purchase common stock. These shares will become eligible for sale in the public market, to the extent such warrants are exercised, as permitted by Rule 144 under the Securities Act. Moreover, holders of approximately 4,729,151 shares of the combined company’s common stock have rights, subject to conditions, to require the combined company to file registration statements covering their shares or to include their shares in registration statements that Neothetics or the combined company may file for itself or other stockholders. Unless held by affiliates of the combined company and as permitted by Rule 144 under the Securities Act, shares of Neothetics common stock registered pursuant to the Registration Statement on Form S-4 may be freely sold in the public market.

In addition and as further disclosed in the section entitled “Agreements Relating to the Merger — Post-Merger Registration Rights Agreement” beginning on page 129 of this proxy statement/information statement/registration statement, certain existing Evofem and Neothetics stockholders will have the registration rights set forth in the Post-Merger Registration Rights Agreement.

The combined company will have broad discretion in the use of its cash reserves and may not use them effectively.

The combined company’s management will have broad discretion to use its cash reserves, including any amounts received as a result of the Financing, and could use its cash reserves in ways that do not improve the combined company’s results of operations or enhance the value of its common stock. The failure by the combined company’s management to apply these funds effectively could result in financial losses and these financial losses could have a material adverse effect on the combined company’s business, cause the price of the combined company’s common stock to decline and delay the development of any product candidates that it may choose to develop. Pending their use, the combined company may invest its cash reserves in a manner that does not produce income or that loses value.

The combined company will be an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make the combined company’s common stock less attractive to investors.

The combined company will be an “emerging growth company,” as defined in the JOBS Act and may remain an emerging growth company through 2019. For so long as the combined company remains an emerging growth

 

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company, it will be permitted to and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

 

    not being required to comply with the auditor attestation requirements in the assessment of its internal control over financial reporting;

 

    not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

    reduced disclosure obligations regarding executive compensation; and

 

    exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

The combined company may choose to take advantage of some, but not all, of the available exemptions. The combined company cannot predict whether investors will find its common stock less attractive if it relies on these exemptions. If some investors find the combined company’s common stock less attractive as a result, there may be a less active trading market for the combined company’s common stock and the price of the combined company’s common stock price may be more volatile.

The combined company expects to continue to incur increased costs as a result of operating as a public company, and its management will be required to devote substantial time to compliance initiatives and corporate governance practices.

As a public company, the combined company will be incurring and expect to continue to incur additional significant legal, accounting and other expenses in relation to its status as a public reporting company. The combined company expects that these expenses will further increase after it is no longer an “emerging growth company.” The combined company expects that it will need to hire additional accounting, finance and other personnel in connection with its continuing efforts to comply with the requirements of being a public company, and its management and other personnel will need to continue to devote a substantial amount of time towards maintaining compliance with these requirements. In addition, the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the Securities and Exchange Commission and NASDAQ have imposed various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. The combined company’s management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase the combined company’s legal and financial compliance costs and will make some activities more time-consuming and costly.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, the combined company will be required to furnish a report by its management on its internal controls over financial reporting, including an attestation report on internal control over financial reporting issued by its independent registered public accounting firm. However, while the combined company remains an “emerging growth company,” it will not be required to include an attestation report on internal control over financial reporting issued by its independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, the combined company will be engaged in a process to document and evaluate its internal control over financial reporting, which is both costly and challenging. In this regard, the combined company will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. If the combined company identifies one or more material weaknesses, this could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of its financial statements.

 

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The combined company 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 as a holder of the combined company’s common stock.

Neither Neothetics nor Evofem have ever declared or paid cash dividends on shares of their capital stock. The combined company currently plans to retain all of its future earnings, if any, and any cash received as a result of future financings to finance the growth and development of the combined company’s business. Accordingly, capital appreciation, if any, of the combined company’s common stock will be the sole source of gain for its common stockholders for the foreseeable future.

Provisions in the combined company’s certificate of incorporation, its bylaws or Delaware law might discourage, delay or prevent a change in control of the company or changes in its management and, therefore, depress the trading price of its common stock.

Provisions in the combined company’s certificate of incorporation, its bylaws or Delaware law may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which its stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of the combined company’s common stock, thereby depressing the market price of its common stock. In addition, because the combined company’s board of directors is responsible for appointing the members of its management team, these provisions might frustrate or prevent any attempts by its stockholders to replace or remove the current management by making it more difficult for stockholders to replace members of its board of directors. These provisions include the following:

 

    a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of the combined company’s board of directors;

 

    prohibiting the combined company’s stockholders from calling a special meeting of stockholders or acting by written consent other than unanimous written consent;

 

    permitting the combined company’s board to issue additional shares of its preferred stock, with such rights, preferences and privileges as they may designate, including the right to approve an acquisition or other changes in control;

 

    establishing an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to the combined company’s board of directors;

 

    providing that the combined company’s directors may be removed only for cause;

 

    providing that vacancies on the combined company’s board of directors may be filled only by a majority of directors then in office, even though less than a quorum; and

 

    requiring the approval of the combined company’s board of directors or the holders of a supermajority of its outstanding shares of capital stock to amend the combined company’s bylaws and certain provisions of its certificate of incorporation.

If securities analysts do not publish research or reports about the combined company’s business or if they publish negative evaluations of the combined company’s stock, the price of the combined company’s stock could decline.

The trading market for the combined company’s common stock relies in part on the research and reports that industry or financial analysts publish about the combined company or its business. The combined company does not have any control over these analysts. If one or more of the analysts covering the combined company’s business downgrade their evaluations of the combined company’s stock, the price of the combined company’s common stock could decline. In addition, if one or more of these analysts cease coverage or fail to regularly publish reports on the combined company’s business, the combined company could lose visibility in the financial markets, which in turn could cause the combined company’s common stock price or trading volume to decline.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus/information statement and the documents incorporated by reference into this proxy statement/prospectus/information statement contain forward-looking statements. These forward-looking statements are based on current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements should not be relied upon as predictions of future events as Neothetics and Evofem cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify forward-looking statements by the use of forward-looking terminology including “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “pro forma,” “estimates,” or “anticipates” or the negative of these words and phrases or other variations of these words and phrases or comparable terminology. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. For example, forward-looking statements include, but are not limited to statements about:

 

    the merger consideration may have greater or lesser value than at the time the Merger Agreement is signed because the exchange ratios are not adjustable based on the market price of Neothetics common stock;

 

    failure to complete the merger may result in either party paying a termination fee or expenses to the other party and could harm the future business and operations of each company;

 

    if the conditions to the merger are not met, the merger may not occur;

 

    the merger may be completed even though material adverse changes may occur;

 

    some executive officers of each company have interests in the merger that are different from yours, which may result them to support or approve the merger without regard to your interests;

 

    the market price of Neothetics common stock may decline following the merger;

 

    restrictions in the Merger Agreement may prevent Neothetics and Evofem from entering into a business combination with another party at a favorable price;

 

    certain provisions of the Merger Agreement may discourage third parties rom submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement;

 

    the stockholders of Evofem may receive consideration in the merger that is greater or less than fair market value of the Evofem shares due to the lack of a public market for Evofem shares;

 

    if the merger does not qualify as a tax-free reorganization, the receipt of Neothetics common stock pursuant to the merger could be fully taxable to all Evofem stockholders;

 

    the combined company may never earn a profit;

 

    the combined company will be required to raise additional funds to finance its operations and remain a going concern; the combined company may not be able to raise additional funds when necessary, and/or on acceptable terms;

 

    the combined company’s small public float, low market capitalization, limited operating history, and lack of revenue may make it difficult and expensive for the combined company to raise additional funds;

 

    the pro forma financial statement may not be an indication of the combined company’s financial condition or results of operations following the completion of the transactions;

 

    the merger will result in changes to the combined company’s board of directors that may affect the combined company’s business strategy and operations;

 

    both companies expect the price of the combined company’s common stock may be volatile and may fluctuate substantially following this transaction;

 

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    if the combined company were to be delisted from NASDAQ, it could reduce the visibility, liquidity and price of its common stock;

 

    after the merger, two existing stockholders of Evofem will own a significant percentage of the combined company’s issued and outstanding common stock and will be able to exercise significant influence over matters submitted to stockholders for approval;

 

    a significant portion of the combined company’s total outstanding shares of common stock may be sold into the public market at any point, which could cause the market price of the combined company’s common stock to drop significantly, even if the combined company is doing well;

 

    the combined company will have broad discretion in the use of its cash reserves and may not use them effectively;

 

    the combined company will be an “emerging growth company,” and the reduced disclosure requirements applicable to such companies may make the combined company’s common stock less attractive to investors;

 

    the combined company expects to continue to incur increased costs as a result of operating as a public company, and its management will be required to devote substantial time to compliance initiatives and corporate governance practices;

 

    the combined company does not anticipate paying any cash dividends on its capital stock in the foreseeable future;

 

    provisions in the combined company’s certificate of incorporation, its bylaws or Delaware law might discourage, delay or prevent a change in control of the company or changes in its management, which may depress the price of its common stock; and

 

    securities analysts’ published reports could cause a decline in the price of the combined company’s stock.

For a discussion of the factors that may cause Neothetics, Evofem or the combined organization’s actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied in such forward-looking statements, or for a discussion of risk associated with the ability of Neothetics and Evofem to complete the merger and the effect of the merger on the business of Neothetics, Evofem and the combined organization, see section entitled “Risk Factors” beginning on page 23 of this proxy statement/prospectus/information statement.

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in reports filed with the SEC by Neothetics. See section entitled “Where You Can Find More Information” beginning on page 243 of this proxy statement/prospectus/information statement.

If any of these risks or uncertainties materializes or any of these assumptions proves incorrect, the results of Neothetics, Evofem or the combined organization could differ materially from the forward-looking statements. All forward-looking statements in this proxy statement/prospectus/information statement are current only as of the date on which the statements were made. Neothetics and Evofem do not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances after the date on which any statement is made or to reflect the occurrence of unanticipated events.

 

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THE SPECIAL MEETING OF NEOTHETICS STOCKHOLDERS

Date, Time and Place

The special meeting of Neothetics stockholders will be held on January 5, 2018, at the offices of DLA Piper LLP (US) located at 4365 Executive Driver, Suite 1100, San Diego, CA 92121 commencing at 8:00 a.m. local time. Neothetics is sending this proxy statement/prospectus/information statement to its stockholders in connection with the solicitation of proxies by the Neothetics Board for use at the Neothetics special meeting and any adjournments or postponements of the special meeting. This proxy statement/prospectus/information statement is first being furnished to stockholders of Neothetics on or about December 13, 2017.

Purposes of the Neothetics Special Meeting

The purposes of the Neothetics special meeting are:

1. To consider and vote upon a proposal to approve the merger and the issuance of Neothetics common stock in the merger pursuant to the Agreement and Plan of Merger and Reorganization, dated as of October 17, 2017, by and among Neothetics, Merger Sub and Evofem, a copy of which is attached as Annex A to this proxy statement/prospectus/information statement;

2. To approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to effect a reverse stock split of Neothetics common stock in accordance with a ratio to be determined by mutual agreement of Neothetics and Evofem, and approved by the Neothetics Board, within a range of one share of Neothetics common stock for every 6 to 10 shares of Neothetics common stock (or any number in between) in the form attached as Annex D to this proxy statement/prospectus/information statement;

3. To approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to change the name “Neothetics, Inc.” to “Evofem Biosciences, Inc.” in the form attached as Annex D to this proxy statement/prospectus/information statement;

4. To approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to elect for Neothetics not to be governed by or subject to Section 203 of the DGCL in the form attached as Annex D to this proxy statement/prospectus/information statement;

5. To approve the issuance of Neothetics common stock in the Financing pursuant to the Securities Purchase Agreement, a copy of which is attached as Annex E to this proxy statement/prospectus/information statement;

6. To consider and vote upon a proposal to approve, on a non-binding advisory vote basis, compensation that will or may become payable by Neothetics to its named executive officers in connection with the merger;

7. To consider and vote upon an adjournment of the Neothetics special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Neothetics Proposal Nos. 1, 2, 3, 4, 5, 6 and 7; and

8. To transact such other business as may properly come before the Neothetics special meeting or any adjournment or postponement thereof.

Recommendation of the Neothetics Board

The Neothetics Board has determined and believes that the merger and the issuance of shares of Neothetics common stock pursuant to the merger is in the best interests of Neothetics and its stockholders and has approved such items. The Neothetics Board recommends that Neothetics stockholders vote “FOR” Neothetics Proposal No. 1 to approve the Merger Agreement, the merger and the issuance of shares of Neothetics common stock in the merger.

 

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The Neothetics Board has determined and believes that it is advisable to, and in the best interests of, Neothetics and its stockholders to approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics effecting the proposed Reverse Stock Split, as described in this proxy statement/prospectus/information statement. The Neothetics Board recommends that Neothetics stockholders vote “FOR” Neothetics Proposal No. 2 to approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics effecting the proposed Reverse Stock Split, as described in this proxy statement/prospectus/information statement.

The Neothetics Board has determined and believes that the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to change the name of Neothetics to “Evofem Biosciences, Inc.” is advisable to, and in the best interests of, Neothetics and its stockholders and has approved such name change. The Neothetics Board recommends that Neothetics stockholders vote “FOR” Neothetics Proposal No. 3 to approve the name change.

The Neothetics Board has determined and believes that the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to elect for Neothetics not to be governed by or subject to Section 203 of the DGCL is advisable to, and in the best interests of, Neothetics and its stockholders and has approved the same. The Neothetics Board recommends that Neothetics stockholders vote “FOR” Neothetics Proposal No. 4 to elect for Neothetics as the post-merger combined entity not to be governed by or subject to Section 203 of the DGCL.

The Neothetics Board has determined and believes that the Securities Purchase Agreement and the issuance of Neothetics common stock under the Securities Purchase Agreement is in the best interests of Neothetics and its stockholders, and has approved such items. The Neothetics Board recommends the Neothetics stockholders vote “FOR” Neothetics Proposal No. 5 to approve the issuance of Neothetics common stock under the Securities Purchase Agreement.

The Neothetics Board has determined and believes that the compensation that will or may become payable by Neothetics to its named executive officers in connection with the merger is appropriate, and accordingly recommends that the Neothetics stockholders vote “FOR” Neothetics Proposal No. 6 to approve, on a non-binding advisory vote basis, such compensation.

The Neothetics Board has determined and believes that adjourning the Neothetics special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Neothetics Proposal Nos. 1, 2, 3, 4, 5 and 6 is advisable to, and in the best interests of, Neothetics and its stockholders and has approved and adopted the proposal. The Neothetics Board recommends that Neothetics stockholders vote “FOR” Neothetics Proposal No. 7 to adjourn the Neothetics special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Neothetics Proposal Nos. 1, 2, 3, 4, 5 and 6.

Record Date and Voting Power

Only holders of record of Neothetics common stock at the close of business on the record date, December 13, 2017 are entitled to notice of, and to vote at, the Neothetics special meeting. At the close of business on December 6, 2017 13,850,601 shares of Neothetics common stock were issued and outstanding. Each share of Neothetics common stock entitles the holder thereof to one vote on each matter submitted for stockholder approval. See the section entitled “Principal Stockholders of Neothetics” beginning on page 236 of this proxy statement/prospectus/information statement for information regarding persons known to the management of Neothetics to be the beneficial owners of more than five percent of the outstanding shares of Neothetics common stock.

Voting and Revocation of Proxies

The proxy accompanying this proxy statement/prospectus/information statement is solicited on behalf of the Neothetics Board for use at the Neothetics special meeting.

 

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If you are a stockholder of record of Neothetics as of the record date referred to above, you may vote in person at the Neothetics special meeting or vote by proxy using the enclosed proxy card. Whether or not you plan to attend the Neothetics special meeting, Neothetics urges you to vote by proxy to ensure your vote is counted. You may still attend the Neothetics special meeting and vote in person if you have already voted by proxy. As a stockholder of record, you have the right:

 

    to vote in person. Come to the Neothetics special meeting and Neothetics will give you a ballot when you arrive.

 

    to vote using the proxy card. Simply mark, sign and date your proxy card and return it promptly in the postage-paid envelope provided. If you return your signed proxy card to Neothetics before the Neothetics special meeting, Neothetics will vote your shares as you direct.

 

    to vote on the Internet. Go to the website on the proxy card or voting instruction form to complete an electronic proxy card. You will be asked to provide the company number and control number from the enclosed proxy card. Your vote must be received by January 4, 2018, 11:59 p.m. Eastern Time to be counted.

If your Neothetics shares are held by your broker as your nominee, that is, in “street name,” the enclosed voting instruction card is sent by the institution that holds your shares. Please follow the instructions included on that proxy card regarding how to instruct your broker to vote your Neothetics shares. If you do not give instructions to your broker, your broker can vote your Neothetics shares with respect to “discretionary” items but not with respect to “non-discretionary” items. Discretionary items are proposals considered routine under the rules of The NASDAQ Stock Market on which your broker may vote shares held in “street name” in the absence of your voting instructions. On non-discretionary items for which you do not give your broker instructions, the Neothetics shares will be treated as broker non-votes. It is anticipated that Neothetics Proposal Nos. 1, 2, 3, 4, 5 and 6 will be non-discretionary items.

All properly executed proxies that are not revoked will be voted at the Neothetics special meeting and at any adjournments or postponements of the Neothetics special meeting in accordance with the instructions contained in the proxy. If a holder of Neothetics common stock executes and returns a proxy and does not specify otherwise, the shares represented by that proxy will be voted “FOR” Neothetics Proposal No. 1 to approve the Merger Agreement, the merger and the issuance of shares of Neothetics common stock in the merger; “FOR” Neothetics Proposal No. 2 to approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics effecting the proposed Reverse Stock Split; “FOR” Neothetics Proposal No. 3 to approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to change the name of “Neothetics, Inc.” to “Evofem Biosciences, Inc.”; “FOR” Neothetics Proposal No. 4 to approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to elect for Neothetics not to be governed by or subject to Section 203 of the DGCL; “FOR” Neothetics Proposal No. 5 to approve the issuance of Neothetics common stock pursuant to the Securities Purchase Agreement; “FOR” Neothetics Proposal No. 6 to approve, on a non-binding advisory vote basis, compensation that will or may become payable by Neothetics to its named executive officers in connection with the merger; and “FOR” Neothetics Proposal No. 7 to adjourn the Neothetics special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Neothetics Proposal Nos. 1, 2, 3, 4, 5 and 6 in accordance with the recommendation of the Neothetics Board.

Neothetics stockholders of record may change their vote at any time before their proxy is voted at the Neothetics special meeting in one of three ways. First, a stockholder of record of Neothetics can send a written notice to the Secretary of Neothetics stating that the stockholder would like to revoke its proxy. Second, a stockholder of record of Neothetics can submit new proxy instructions either on a new proxy card or via the Internet or telephone. Third, a stockholder of record of Neothetics can attend the Neothetics special meeting and vote in person. Attendance alone will not revoke a proxy. If a Neothetics stockholder of record or a stockholder who owns Neothetics shares in “street name” has instructed a broker to vote its shares of Neothetics common stock, the stockholder must follow directions received from its broker to change those instructions.

 

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Required Vote

The presence, in person or represented by proxy, at the Neothetics special meeting of the holders of a majority of the shares of Neothetics common stock outstanding and entitled to vote at the Neothetics special meeting is necessary to constitute a quorum at the meeting. Abstentions and broker non-votes will be counted towards a quorum. Approval of Neothetics Proposal Nos. 1, 5, 6 and 7 requires the affirmative vote of the holders of a majority of the shares of Neothetics common stock having voting power present in person or represented by proxy at the Neothetics special meeting. Approval of Neothetics Proposal Nos. 2, 3 and 4 requires the affirmative vote of holders of a majority of the Neothetics common stock having voting power outstanding on the record date for the Neothetics special meeting. Each of Proposal Nos. 1, 2 and 3 are conditioned upon each other. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1, 2 and 3.

Votes will be counted by the inspector of election appointed for the meeting, who will separately count “FOR” and “AGAINST” votes, abstentions and broker non-votes. Abstentions will be counted towards the vote total for each proposal and will have the same effect as “AGAINST” votes. Broker non-votes will have the same effect as “AGAINST” votes for Neothetics Proposal Nos. 2, 3 and 4. For Neothetics Proposal Nos. 1, 5, 6 and 7, broker non-votes will have no effect and will not be counted towards the vote total, but will be used to determine whether a quorum is present at the Neothetics special meeting.

As of October 20, 2017, the directors and executive officers of Neothetics owned approximately 42% of the outstanding shares of Neothetics common stock entitled to vote at the Neothetics special meeting. As of October 20, 2017, Neothetics is not aware of any affiliate of Evofem owning any shares of Neothetics common stock entitled to vote at the Neothetics special meeting.

Solicitation of Proxies

In addition to solicitation by mail, the directors, officers, employees and agents of Neothetics may solicit proxies from Neothetics stockholders by personal interview, telephone, telegram or otherwise. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of Neothetics common stock for the forwarding of solicitation materials to the beneficial owners of Neothetics common stock. Neothetics will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials. Neothetics has retained Philadelphia Stock Transfer to assist it in soliciting proxies using the means referred to above. Neothetics will pay the fees of Philadelphia Stock Transfer, which Neothetics expects to be approximately $10,000, plus reimbursement of out-of-pocket expenses.

Other Matters

As of the date of this proxy statement/prospectus/information statement, the Neothetics Board does not know of any business to be presented at the Neothetics special meeting other than as set forth in the notice accompanying this proxy statement/prospectus/information statement. If any other matters should properly come before the Neothetics special meeting, it is intended that the shares represented by proxies will be voted with respect to such matters in accordance with the judgment of the persons voting the proxies.

 

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THE MERGER

This section and the section entitled “The Merger Agreement” beginning on page 108 of this proxy statement/prospectus/information statement describe the material aspects of the merger, including the Merger Agreement. While Neothetics and Evofem believe that this description covers the material terms of the merger and the Merger Agreement, it may not contain all of the information that is important to you. You should read carefully this entire proxy statement/prospectus/information statement for a more complete understanding of the merger and the Merger Agreement, including the Merger Agreement itself which is attached as Annex A to this proxy statement/prospectus/information statement, and the other documents to which you are referred herein. See the section entitled “Where You Can Find More Information” beginning on page 243 of this proxy statement/prospectus/information statement.

Background of the Merger

The terms of the Merger Agreement between Neothetics and Evofem Biosciences (together, “the companies”) and the contractual arrangements related to the Financing, are the result of extensive arm’s-length negotiations among the management teams, and representatives of the management teams, of Neothetics and Evofem, under the guidance of each company’s board of directors, and involving outside advisors retained by each of the companies. From the beginning of the process, Neothetics followed a careful process assisted by experienced outside financial and legal advisors to rigorously examine potential merger partners in a broad and inclusive manner. Throughout the process, the Neothetics Board took affirmative steps to deal with potential conflicts of interest by establishing the Strategic Committee, comprised of two independent directors of Neothetics. Additionally, the Neothetics directors who had potential conflicting interests with respect to certain potential candidates disclosed their interests to the Neothetics Board, recused themselves from meetings, refrained from participating directly in price negotiations with potential candidates with whom they had some affiliation, and left discussions and decisions regarding the strategic process to our Strategic Committee, whose members had no such affiliation. The following is a summary of the background of the process, the negotiations, the merger, the Financing, and related transactions, including the circumstances surrounding Neothetics’ decision to review strategic alternatives available to it.

On June 24, 2017, the Operating Committee of the Neothetics Board, members of senior management and representatives of Neothetics’ outside legal counsel, DLA Piper LLP (US), or DLA, met to review and discuss the results from its Phase 2 proof-of-concept trial, LIPO-202-CL-31, for the reduction of submental subcutaneous fat. The study did not demonstrate improvement on any efficacy measurements or separation from placebo.

On June 26, 2017, Neothetics announced that the top-line safety and efficacy results from its Phase 2 proof-of-concept trial, LIPO-202-CL-31, for the reduction of submental subcutaneous fat, did not demonstrate improvement on any efficacy measurements or separation from placebo.

On June 26 and 27, 2017, at the request of several members of the Neothetics Board, Ms. Knudson met informally with several investment banks regarding their potential engagement as a financial advisor to Neothetics for a potential strategic process.

On June 29, 2017, the Neothetics Board, Ms. Knudson and representatives of DLA met with representatives of Oppenheimer to discuss Oppenheimer’s qualifications, capability and experience as a financial advisor.

On June 30, 2017, the Neothetics Board, Ms. Knudson and representatives of DLA met with representatives of H.C. Wainwright and Co., to discuss their qualifications, capability and experience as a financial advisor. After a representative from DLA described the Neothetics Board’s fiduciary duties in connection with an evaluation of strategic alternatives, the Neothetics Board discussed Neothetics’ strategic options. Based upon the results of the Phase 2 proof-of-concept trial, the Neothetics Board concluded a strategy to move forward with its current

 

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development candidates was not feasible, and the Neothetics Board and members of senior management discussed strategic alternatives as well as the potential engagement of an investment bank to serve as a financial advisor to the company. Following the meeting with H.C. Wainwright and Co., the Neothetics Board directed management to negotiate an engagement agreement with Oppenheimer to serve as the exclusive financial advisor for a potential strategic transaction.

On July 10, 2017, Neothetics executed an engagement agreement with Oppenheimer to serve as the exclusive financial advisor to the Strategic Committee. Also on July 10, 2017, Neothetics announced the initiation of a process to explore and review a range of strategic alternatives focusing on seeking an acquisition, business combination or partnership and that Neothetics had engaged Oppenheimer, to act as the exclusive financial advisor to the Strategic Committee for this process. Neothetics also announced a reduction in workforce and operational changes to decrease cash expenditures.

On July 11, 2017, the Neothetics Board, Ms. Knudson, representatives of DLA and representatives of Oppenheimer, met to review and discuss materials prepared by Oppenheimer. Representatives of Oppenheimer presented to the Neothetics Board the anticipated process, initial potential candidates, and the proposed transaction timeline, and an extensive discussion ensued, including substantial discussion regarding the process timeline. Representatives of Oppenheimer noted that a number of additional parties would likely initiate inquiries following the Neothetics press release on July 10, 2017. Beginning on July 11, 2017, inbound emails and calls were received by Neothetics and Oppenheimer by additional interested parties. Neothetics directed any and all inquiries to representatives of Oppenheimer. By August 1, 2017, Oppenheimer had identified or received unsolicited contact from a total of 36 companies. Representatives of Oppenheimer, Ms. Knudson and representatives of DLA prepared, delivered and executed nondisclosure agreements with many of the interested parties. During the period from July 11, 2017 to August 1, 2017, representatives of Oppenheimer and Ms. Knudson conducted initial diligence on certain of the interested companies, focusing on product pipeline, market opportunity, management team, capitalization, and overall ability to proceed with a potential business combination within the contemplated timeframe.

On July 18, 2017, several members of the Neothetics Board, Ms. Knudson, representatives of DLA and representatives of Oppenheimer met informally to discuss the screening process, as well as anticipated timing of the solicitation of bids. A total of 29 potential partners were presented and discussed, 26 of which had been contacted by representatives of Oppenheimer, including the exchange of seven nondisclosure agreements, two of which had been executed. The purpose of this screening was to rank the companies categorically. The companies were ranked in categories A, B and C with A being the potential strongest contenders and C being the weakest, with six companies included in “Category A.” After a representative from DLA described the Neothetics Board’s fiduciary duties in connection with a strategic process, the members of the Neothetics Board present at the meeting reviewed the diligence process, including the number of companies identified independently, the number of companies considered following an unsolicited indication of interest, the criteria utilized in the evaluation and the resulting categorical determinations. Following a discussion with representatives of Oppenheimer on the process and resulting categorical determination, the members of the Neothetics Board present at the meeting directed Oppenheimer to initiate the bid process solicitation for all companies under consideration.

Between July 18, 2017 and July 25, 2017, representatives of Oppenheimer contacted representatives of Evofem and Parties A, B, C, D and E, the companies included in “Category A” to conduct further discussions and deliver initial bid process letters. In addition, representatives of Oppenheimer contacted 27 additional companies, including the companies included in Categories B and C as well as seven new companies. In connection with outreach and in response to the discussion with the contacted companies, Oppenheimer delivered and had executed 20 nondisclosure agreements with parties continuing to express interest. Following execution of the nondisclosure agreements, Oppenheimer delivered to the 20 interested parties initial bid process letters requesting companies to submit their bids by August 1, 2017. On July 25, 2017, the Neothetics Board, Ms. Knudson, representatives of DLA and representatives of Oppenheimer, met to discuss the outreach process, including the parties contacted, timelines and overall progress. A total of 7 interested parties were included as

 

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“Category A” candidates. Following the meeting, Oppenheimer, in consultation with Ms. Knudson, continued its outreach to the identified companies. In addition, Oppenheimer contacted three additional candidates, each of whom executed a nondisclosure agreement and were subsequently provided with an initial bid process letter and instructions to provide their bids by August 1, 2017.

On August 1, 2017, the Neothetics Board, Ms. Knudson, representatives of DLA and representatives of Oppenheimer met to discuss the solicitation of bids and continuing outreach process. Representatives of Oppenheimer provided an overview of the 36 identified companies, including a detailed discussion of the three new companies to the process since the meeting on July 25, 2017. Representatives of Oppenheimer discussed their outreach process to the Neothetics Board, including an overview of the 23 companies continuing to express interest, each of whom executed a nondisclosure agreement following which initial bid process letters were delivered. Representatives of Oppenheimer informed the Neothetics Board that initial indications of interest had been received from 13 of the parties and that 14 parties had either declined to submit a bid, not yet responded to the initial bid process letter or not responded to the request for a nondisclosure agreement. Representatives of Oppenheimer discussed with the Neothetics Board the evaluation criteria utilized, previously outlined at the July 25, 2017 meeting, the bid process and initial discussions with the candidates, and evaluated the bids currently submitted. Following the discussion, representatives of Oppenheimer presented five companies considered as “Category A” candidates, each of whom had submitted initial bids for consideration. After a representative from DLA described the Neothetics Board’s fiduciary duties in connection with a strategic process, the Neothetics Board reviewed the companies and bids in detail in order to evaluate which bids might provide Neothetics stockholders the best value. Following the discussion, the Neothetics Board determined to proceed with negotiations with the “Category A” companies. The Neothetics Board directed members of senior management and Neothetics outside product development consultants to perform additional due diligence on the “Category A” companies, referred to herein as Evofem, Companies A, B, C and D, and arrange for introductory diligence calls involving the Neothetics Board and representatives of the respective companies.

On August 2, 2017, members of senior management and its development consultants conducted additional due diligence on Evofem and Companies A, B, C and D. On August 2, 2017, the Neothetics Board, members of senior management, Neothetics’ outside development consultants, representatives of DLA and representatives of Oppenheimer, held an initial diligence call with each of Evofem and Company B, at which the respective companies presented to the Neothetics Board an overview of their product pipeline, stage of clinical development, management team and capitalization.

On August 3, 2017, the Neothetics Board, members of senior management, Neothetics’ outside development consultants, representatives of DLA and representatives of Oppenheimer, held an initial diligence call with each of Companies A and C, at which the respective companies presented to the Neothetics Board an overview of their product pipeline, stage of clinical development, management team and capitalization.

On August 4, 2017, Ms. Knudson met with the chief executive officer and chief financial officer of Company B to further discuss Company B’s development pipeline, management team, near term value inflection milestones and overall capitalization.

On August 7, 2017, Ms. Knudson contacted the chief executive officer of Company A to further discuss Company A’s development pipeline, management team, near term value inflection milestones and overall capitalization.

On August 8, 2017, the Neothetics Board, members of senior management, Neothetics’ outside development consultants, representatives of DLA and representatives of Oppenheimer, held an initial diligence call with Company D, at which Company D presented to the Neothetics Board an overview of its product pipeline, stage of clinical development, management team and capitalization.

 

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On August 11, 2017, Ms. Knudson contacted the chief financial officer of Company D to further discuss the company’s development pipeline, management team, near term value inflection milestones and overall capitalization.

On August 11, 2017, the Neothetics Board, members of senior management, representatives of DLA and representatives of Oppenheimer held a telephonic meeting of the Neothetics Board to review the diligence process. A representative from DLA described the Neothetics Board’s fiduciary duties in connection with a strategic process and recommend that, in light of the potential conflicts of interest for certain members of the Neothetics Board with respect to Companies A and D under consideration, the Neothetics Board should establish a strategic transaction committee consisting solely of directors with no potential conflicts of interest in respect of the current targets. Following a discussion, the Neothetics Board approved the establishment of the Strategic Committee. The Neothetics Board, following a separate discussion of the Strategic Committee, and in light of the bids received, determined to continue discussions with each of the five companies under consideration.

On August 14, 2017, Oppenheimer delivered the final bid process letter together with a draft merger agreement to Companies A, B, and D.

On August 17, 2017, the Strategic Committee, members of senior management, representatives of DLA, and representatives of Oppenheimer, held an additional diligence call with Company B during which representatives of Company B presented a detailed overview of the company including pipeline, development data, milestones, management team, board of directors, cash position, operating expenses and current financing plans.

On August 24, 2017, the Strategic Committee, members of senior management, its outside development consultants, representatives of DLA and representatives of Oppenheimer, held an additional diligence call with representatives of Company A. Representatives of Company A’s team presented a detailed overview of the company including pipeline, development data, milestones, management team, board of directors, cash position, runway and near term financing plans. Neothetics participants asked many questions during the call.

On August 25, 2017, the Strategic Committee, members of senior management, its outside development consultants, representatives of DLA and representatives of Oppenheimer, held a diligence call with Company D. Company D’s team presented a detailed overview of the company including pipeline, development data, milestones, management team, board of directors, cash position, runway and near term financing plans. Following the presentation, the Strategic Committee, Ms. Knudson and representatives of DLA met to discuss the companies under consideration. After a representative from DLA described the Strategic Committee’s fiduciary duties in connection with evaluating the various indications of interest, the Strategic Committee evaluated the companies under consideration based upon the bids received and diligence completed and discussed which companies currently presented the best value to Neothetics stockholders in a business combination transaction and determined that, at the present time, a business combination with Company A on the terms included in its submitted bid presented the best value to Neothetics stockholders. The Strategic Committee determined to proceed with negotiations with Company A while continuing diligence and discussions with Companies B and D. The Strategic Committee directed Oppenheimer to contact Company A in order to notify Company A that is was currently the lead candidate Neothetics would move forward in the process. As well, Ms. Knudson was to follow up with Company A after confirmation from Oppenheimer of being contacted.

On August 25, 2017, representatives of Oppenheimer contacted Company A to inform Company A of the Neothetics Board determination and discuss the terms of a business combination. Ms. Knudson subsequently contacted the chief executive officer of Company A to discuss the process and timeline to negotiate and execute a definitive merger agreement, including negotiation of the related documents, additional diligence items and other actions necessary to enter into the definitive agreement. During this discussion the chief executive officer of Company A informed Ms. Knudson that he was conferring with management and his board of directors regarding Company A’s proposed financing plan which would be completed in connection with the transaction and would contact Ms. Knudson on August 28, 2017 following his internal discussion. Ms. Knudson promptly informed the Neothetics Board of the result of the conversation.

 

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On August 28, 2017, the chief executive officer of Company A called Ms. Knudson to discuss Company A’s financing options in connection with a proposed business combination, including Company A’s concerns about its ability to secure adequate financing to support the company through its near-term value inflection points. The chief executive officer of Company A discussed that management and the board of directors of Company A had significant doubts as to whether Company A’s involvement in a potential business combination would be viable at this time and agreed to inform Ms. Knudson of Company A’s decision by August 30, 2017. Ms. Knudson promptly informed the Neothetics Board of the conversation.

On August 30, 2017, the chief executive officer of Company A contacted Ms. Knudson to inform her that Company A had determined not to continue with a potential business combination. Following the conversation, on August 30, 2017, Ms. Knudson contacted the Neothetics Board, including the Strategic Committee, representatives of DLA and representatives of Oppenheimer, to discuss Company A’s decision to remove themselves from consideration. Ms. Knudson and representatives of Oppenheimer led a discussion considering the other candidates for a potential combination, including a recommendation to reengage Evofem and to continue to engage Companies B and D. After a representative from DLA described the Neothetics Board’s fiduciary duties in connection with a strategic process, the Strategic Committee instructed Ms. Knudson and Oppenheimer to submit final bid process letters to Evofem.

On August 31, 2017, Oppenheimer delivered the final bid process letter together with a draft merger agreement to Evofem. Ms. Knudson contacted Saundra Pelletier, chief executive officer of Evofem, and Ms. Pelletier confirmed Evofem remained interested in pursuing a business combination. Ms. Knudson asked that Evofem submit to Oppenheimer an improved bid for consideration. The Strategic Committee also instructed Ms. Knudson and representatives of Oppenheimer to request Companies B and D improve their previously submitted indications of interest.

On September 1, 2017, Company B submitted a revised bid to representatives of Oppenheimer. Representatives of Oppenheimer informed Ms. Knudson of the terms of the revised bid who promptly informed the Neothetics Board. Also on September 1, 2017, Company D informed Oppenheimer that Company D’s prior bid was their best and final offer.

On September 5, 2017, the Strategic Committee, the other members of the Neothetics Board, members of senior management, its development consultants, representatives of DLA and representatives of Oppenheimer, held an additional diligence session with Evofem. Representatives of Evofem presented a detailed overview of the company including pipeline, development data, milestones, management team, board of directors, cash position, operating expenses and near term financing plans. Following the diligence session, representatives of RBC Capital, financial advisor to Evofem, submitted a revised bid as well as a detailed response to the draft merger agreement.

On September 8, 2017, the Strategic Committee, Ms. Knudson, representatives of DLA and representatives of Oppenheimer, met informally to review the bids from Evofem and Companies B and D as well as review the detailed information of each candidate. The Strategic Committee instructed Oppenheimer and Ms. Knudson to request from each of the companies additional diligence information, including current cash positions, financing plans both in connection with a business combination and following any such combination in order to fund ongoing clinical development, and the impact of any such financing plans on the proposed ownership percentages described in the companies’ respective bids. Following the meeting, representatives of Oppenheimer and Ms. Knudson contacted each of the companies for the requested information. In addition, on September 7, 2017, DLA provided comments to the draft merger agreement to Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., or Mintz, counsel to Evofem.

On September 10, 2017, the Strategic Committee, the other members of the Neothetics Board, Ms. Knudson, representatives of DLA and representatives of Oppenheimer held a telephonic meeting to review each of the companies after evaluating the impact of the intended financing options in connection with business combination

 

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and determine if there was sufficient data to support moving forward with a company as the lead contender in the process. A representative from DLA described the Strategic Committee’s fiduciary duties in connection with evaluating the various indications of interest and the comments received to the draft merger agreement from the various parties submitting bids. The Strategic Committee determined to proceed in negotiations with Evofem. Following the meeting, on September 10, 2017, representatives of Oppenheimer contacted Companies B and D to notify each company that they would not be moving forward in the process at this time.

On September 12, 2017, the Neothetics Board, Ms. Knudson and representatives of DLA met to discuss general company business. At the meeting, Ms. Knudson and representatives of DLA also provided the Neothetics Board a brief update on actions, process and timeline to finalize a definitive merger agreement. Also on September 12, 2017, Mintz provided additional comments to the draft merger agreement to DLA.

On September 13, 2017, Ms. Knudson, representatives from DLA, members of Evofem’s senior management, including Ms. Pelletier and Justin J. File, the chief financial officer of Evofem, and representatives of Mintz met to review the process, documentation and timelines to reach a definitive merger agreement. The parties also discussed the comments on the draft merger agreement provided by Mintz on September 12, 2017. The parties discussed Evofem’s current capitalization structure, including the impact of certain outstanding warrants on the post-merger ownership percentages of the combined company.

From September 13, 2017 until the execution of the definitive merger agreement on October 17, 2017, the companies and their respective advisors exchanged numerous drafts of the Merger Agreement and numerous messages and calls regarding due diligence matters and engaged in negotiations and discussions regarding the terms and conditions of the Merger Agreement. Significant areas of negotiation included the treatment of Neothetics’ and Evofem’s outstanding equity instruments, the post-closing capitalization of the combined company, including the amended and restated warrant, the terms of the Financing, the definition of the common stock exchange ratio and preferred stock exchange ratio, and the amount and triggers for the possible reimbursement of expenses and the payment of termination fees. Also during this time, Ms. Knudson and Ms. Pelletier had a series of meetings to negotiate the treatment of certain Evofem warrants in the merger.

On September 23, 2017, the Neothetics Board held a telephonic meeting with Ms. Knudson and representatives of DLA present. The Neothetics Board discussed, among other things, the progress of negotiations with Evofem, open issues and the potential timeline to execution of a definitive agreement. The Neothetics Board also discussed strategic alternatives in the event that a definitive agreement was unable to be reached on acceptable terms within the contemplated timeline.

On October 3, 2017, several members of the Neothetics Board, Ms. Knudson and representatives of DLA held an informal telephonic conference during which the parties discussed the progress of negotiations with Evofem, open issues and the potential timeline to execution of a definitive agreement.

On October 12, 2017, representatives of Neothetics, DLA, Evofem and Mintz met to discuss the remaining open items in the Merger Agreement. Following the meeting, the Merger Agreement was submitted to the Evofem Board and the Strategic Committee for review and approval.

On October 16, 2017, the Strategic Committee, the other members of the Neothetics Board, Ms. Knudson, representatives of DLA and representatives of Oppenheimer met to discuss the proposed merger agreement terms and related documents. At this meeting, representatives of Oppenheimer reviewed with the Neothetics Board and the Strategic Committee its financial analyses of the fairness, from a financial point of view, to Neothetics of the merger consideration to be paid by Neothetics in the merger and delivered to the Strategic Committee its oral opinion, to the effect that and subject to the various assumptions, qualifications and limitations set forth in its opinion, as of that date, the merger consideration to be paid by Neothetics in the merger was fair, from a financial point of view, to Neothetics. Also, at this meeting, representatives of DLA reviewed the terms of the proposed merger agreement and other transaction agreements, including conditions to closing, termination rights and any

 

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fees associated with terminations under circumstances, and Neothetics’ limited right to continue negotiations with other interested parties. After a representative from DLA described the Strategic Committee’s fiduciary duties, the Strategic Committee discussed the transaction, including Evofem’s business and the proposed terms of the merger agreement and Financing. The Strategic Committee unanimously voted to approve the Merger Agreement, the merger, the issuance of shares of Neothetics common stock to Neothetics stockholders pursuant to the terms of the Merger Agreement and the Financing, the change of control of Neothetics, and the other actions contemplated by the Merger Agreement.

On October 17, 2017, each of Evofem, Neothetics, and Merger Sub executed and delivered the merger agreement, effective as of October 17, 2017. Later on October 17, 2017, Evofem and Neothetics issued a joint press release announcing the execution of the merger agreement and the proposed transaction.

Neothetics Reasons for the Merger

The Strategic Committee considered the following factors in reaching its conclusion to approve and adopt the Merger Agreement and the transactions contemplated thereby and to recommend that the Neothetics stockholders approve the merger, adopt the Merger Agreement and approve the other transactions contemplated by the Merger Agreement, including the issuance of shares of Neothetics common stock in the merger, all of which the Strategic Committee viewed as supporting its decision to approve the business combination with Evofem:

 

    The Strategic Committee believes, based in part on the judgment, advice and analysis of Neothetics management with respect to the potential strategic, financial and operational benefits of the merger (which judgment, advice and analysis was informed in part on the business, technical, financial, accounting and legal due diligence investigation performed with respect to Evofem), that:

 

    the combined organization will be a clinical-stage women’s healthcare company that develops and commercializes novel products;

 

    Evofem has an ongoing Phase III study of Amphora as a vaginal contraceptive — AMPOWER;

 

    the combined organization will be led by experienced senior management from Evofem and a board of directors of six members designated by Evofem and one member designated by Neothetics;

 

    Evofem has delivered support agreements from certain of its stockholders, holding approximately 68% of Evofem’s issued and outstanding capital stock, in which each such individual or entity has agreed to vote in favor of the Merger Agreement and the related transactions; and

 

    the combined company’s ability to continue listing on The NASDAQ Capital Market.

 

    The Strategic Committee also reviewed with the management of Neothetics the current plans of Evofem for developing its product candidates to confirm the likelihood that the combined organization would possess sufficient financial resources to allow the management team to focus initially on the continued development of its product candidates. The Strategic Committee also considered the possibility that the combined organization would be able to take advantage of the potential benefits resulting from the combination of Neothetics and Evofem to raise additional funds in the future.

 

    The Strategic Committee considered the opportunity as a result of the merger for Neothetics stockholders to participate in the potential value that may result from development of the Evofem product candidate portfolio and the potential increase in value of the combined organization following the merger.

 

    The Strategic Committee concluded that the merger would provide the existing Neothetics stockholders with a significant opportunity to participate in the potential increase in value of the combined organization following the merger.

 

   

The Strategic Committee considered the analyses of Oppenheimer, and its opinion to the Strategic Committee as to the fairness, from a financial point of view and as of the date of such opinion, to

 

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Neothetics of the merger consideration to be paid by Neothetics in the merger, as more fully described below under the caption “The Merger — Opinion of Oppenheimer & Co., Inc. as Neothetics’ Financial Advisor.”

 

    The Strategic Committee also reviewed various factors impacting the financial condition, results of operations and prospects for Neothetics, including:

 

    the strategic alternatives of Neothetics to the merger, including potential transactions that could have resulted from discussions that Neothetics’ management conducted with other potential merger partners;

 

    the consequences of the negative results from the LIPO-202 clinical trial, and the likelihood that the resulting circumstances for the company would not change for the benefit of the Neothetics stockholders in the foreseeable future on a stand-alone basis;

 

    the risks associated with, and the uncertain value, timing and costs to stockholders of, liquidating Neothetics or effecting a sale of all or some of its assets and thereafter distributing the proceeds;

 

    the risks of continuing to operate Neothetics on a stand-alone basis, including Neothetics’ current financial situation, the need to rebuild the company’s product candidate development programs, infrastructure and management to continue its operations; and

 

    the risks associated with Neothetics’ inability to maintain its listing on The NASDAQ Capital Market without completing the merger.

The Strategic Committee also reviewed the terms and conditions of the proposed Merger Agreement and associated transactions, as well as the safeguards and protective provisions included therein intended to mitigate risks, including:

 

    the fact that immediately following the consummation of the merger and completion of the Financing, Evofem stockholders will own approximately 87% of the issued and outstanding common stock of Neothetics, with Neothetics stockholders whose shares of Neothetics stock will remain outstanding after the merger, holding approximately 13% of the issued and outstanding common stock of Neothetics;

 

    the final exchange ratio used to establish the number of shares of Neothetics common stock to be issued in the merger is based upon Neothetics’ capitalization numbers immediately prior to the consummation of the merger; however, the estimated exchange ratios contained in this proxy statement/prospectus/information statement are based upon Neothetics’ capitalization numbers immediately prior to the date of this proxy statement/prospectus/information statement, and will be adjusted to account for the issuance of any additional shares of Neothetics common stock prior to the consummation of the merger;

 

    the limited number and nature of the conditions to the Evofem obligation to consummate the merger, including the absence of any financing contingency, and the limited risk of non-satisfaction of such conditions as well as the likelihood that the merger will be consummated on a timely basis;

 

    the respective rights of, and limitations on, Neothetics and Evofem under the Merger Agreement to consider certain unsolicited acquisition proposals under certain circumstances should Neothetics or Evofem receive a superior proposal;

 

    the reasonableness of the potential termination fee payable by Neothetics under certain circumstances of $1.5 million or the reasonableness of the potential termination fee payable by Evofem under certain circumstances of $1.5 million;

 

    the Support Agreements, pursuant to which certain stockholders of Evofem agreed to vote all of their shares of Evofem capital stock in favor of adoption of the Merger Agreement; and

 

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    the belief that the terms of the Merger Agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations, are reasonable under the circumstances.

In the course of its deliberations, the Strategic Committee also considered a variety of risks and other countervailing factors related to entering into the merger, including:

 

    the $1.5 million termination fee that may be payable to Evofem upon the occurrence of certain events, and the potential effect of such termination fee or reimbursement of transaction expenses in deterring other potential acquirers from proposing an alternative transaction that may be more advantageous to Neothetics stockholders;

 

    the substantial expenses to be incurred in connection with the merger;

 

    the possible volatility, at least in the short term, of the trading price of the Neothetics common stock resulting from the merger announcement;

 

    the risk that the merger might not be consummated in a timely manner or at all and the potential adverse effect of the public announcement of the merger or on the delay or failure to complete the merger on the reputation of Neothetics;

 

    the risk to Neothetics’ business, operations and financial results in the event that the merger is not consummated;

 

    the strategic direction of the continuing entity following the completion of the merger, which will be determined by a board of directors, a majority of which will initially designated entirely by Evofem;

 

    the fact that the merger would give rise to substantial limitations on the utilization of Neothetics’ NOLs; and

 

    various other risks associated with the combined organization and the merger, including those described in the section entitled “Risk Factors” beginning on page 23 of this proxy statement/prospectus/information statement.

The foregoing information and factors considered by the Strategic Committee are not intended to be exhaustive but are believed to include all of the material factors considered by the Strategic Committee. In view of the wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, the Strategic Committee did not find it useful to attempt, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, individual members of the Strategic Committee may have given different weight to different factors. The Strategic Committee conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, the Neothetics management team and the legal and financial advisors of Neothetics, and considered the factors overall to be favorable to, and to support, its determination.

Evofem Reasons for the Merger

The following discussion sets forth material factors considered by the Evofem Board in reaching its determination to authorize the Merger Agreement and approve the merger; however, it may not include all of the factors considered by the Evofem Board. In light of the number and wide variety of factors considered in connection with its evaluation of the Merger Agreement and the merger, the Evofem Board did not consider it practicable to, and did not attempt to, quantify or otherwise assign relative weights to the specific factors it considered in reaching its determination. The Evofem Board viewed its position and determinations as being based on all of the information available and the factors presented to and considered by it.

 

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In the course of reaching its decision to approve the merger, the Evofem Board consulted with its senior management, financial advisor and legal counsel, reviewed a significant amount of information and considered a number of factors, including, among others:

 

    the Evofem Board’s belief, after reviewing the various alternative transactions that were considered by the Evofem Board and the likelihood of achieving any of these alternative transactions, that currently no alternatives to the merger were reasonably likely to create greater value for Evofem’s stockholders than the merger;

 

    the expectation that the merger and the concurrent Financing would be a more time and cost effective means to access capital than other alternatives considered, including an initial public offering of Evofem’s common stock and additional financings of Evofem as a non-publicly traded entity;

 

    the potential for access to public capital markets following the merger, including sources of capital from a broader range of investors to support the clinical development of Evofem’s product candidate than it could otherwise obtain if it continued to operate as a privately-held company;

 

    historical and current information concerning Evofem’s business, including its financial performance and condition, operations, ongoing clinical trial efforts for its current product candidate, management and prospective competitive position;

 

    the cash resources of the combined company expected to be available at the closing of the merger relative to the anticipated burn rate of the combined company;

 

    the potential to provide Evofem’s current stockholders with greater liquidity by owning stock in a public company;

 

    the fact that the shares of Neothetics common stock issued to Evofem stockholders will be registered pursuant to a registration statement on Form S-4 by Neothetics and will become freely tradable for Evofem’s stockholders who are not affiliates of Evofem and who are not party to the Lock-Up Agreements;

 

    the ability to obtain a NASDAQ listing and the fact that Neothetics will change its name to “Evofem Biosciences, Inc.” upon the closing of the merger;

 

    the competitive market conditions private companies currently face when seeking exchange traded merger or business combination partners;

 

    the belief, after conducting due diligence, that Neothetics had comparatively fewer and less significant ongoing obligations and material liabilities when compared to other potential exchange traded merger and business combination partners;

 

    the likelihood that the merger will be consummated on a timely basis; and

 

    the terms and conditions of the Merger Agreement, including, without limitation, the following:

 

    the determination by the Evofem Board that an exchange ratio that is not subject to adjustment based on trading prices or on Neothetics’ closing cash balance is appropriate to determine relative percentage ownership of Neothetics’ and Evofem’s security holders immediately following the merger;

 

    the expectation that the merger will be treated as a reorganization for U.S. federal income tax purposes, with the result that the Evofem stockholders will not generally recognize taxable gain or loss for U.S. federal income tax purposes upon the exchange of Evofem capital stock for Neothetics common stock pursuant to the merger;

 

    the Support Agreements, pursuant to which certain stockholders of Evofem, have agreed, solely in their capacity as stockholders of Evofem, to vote all of their shares of Evofem capital stock in favor of the adoption or approval, respectively, of the Merger Agreement and the transactions contemplated by the Merger Agreement;

 

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    the conclusion of the Evofem Board that the potential termination fee of $1.5 million, or in some situations the reimbursement of certain transaction expenses incurred in connection with the transactions contemplated by the Merger Agreement of up to $250,000, payable by Neothetics to Evofem, and the circumstances when such fees may be payable, were reasonable; and

 

    the belief that the other terms of the Merger Agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations in these agreements, were reasonable in light of the entire transaction.

The Evofem Board also considered a number of uncertainties and risks in its deliberations concerning the merger and the other transactions contemplated by the Merger Agreement, including the following:

 

    the possibility that the merger might not be completed and the potential adverse effect of the public announcement of the merger on the reputation of Evofem and the ability of Evofem to obtain financing in the future in the event the merger is not completed;

 

    the risk that the merger might not be consummated in a timely manner or at all;

 

    the substantial expenses to be incurred in connection with the merger;

 

    the fact that the representations and warranties in the Merger Agreement do not survive the closing of the merger and the potential risk of liabilities that may arise post-closing;

 

    the additional public company expenses and obligations that Evofem’s business will be subject to following the merger to which it has not previously been subject; and

 

    various other risks associated with the combined company and the merger, including the risks described in the section entitled “Risk Factors” beginning on page 23 of this proxy statement/prospectus/information statement.

The Evofem Board weighed the benefits, advantages and opportunities of a potential transaction against the uncertainties and risks described above, as well as the possible diversion of management attention for an extended period of time. After taking into account these and other factors, the Evofem Board approved and authorized the Merger Agreement and the transactions contemplated thereby, including the merger.

Interests of the Evofem Directors and Executive Officers in the Merger

In considering the recommendation of the Evofem Board with respect to adopting the Merger Agreement, Evofem stockholders should be aware that certain members of the board of directors and executive officers of Evofem have interests in the merger that may be different from, or in addition to, interests they may have as Evofem stockholders. The Evofem Board was aware of these potential conflicts of interest and considered them, among other matters, in reaching their respective decisions to approve the Merger Agreement, the merger and related transactions, and to recommend that the Evofem stockholders sign and return the written consent as contemplated by this proxy statement/prospectus/information statement.

 

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Ownership Interests

Restricted Common Stock and Restricted Common Stock Unit Awards

Certain of Evofem’s executive officers and directors currently hold shares of Evofem unvested restricted common stock and restricted common stock unit awards as set forth below. In connection with the merger, and as an inducement for Neothetics to enter into the Merger Agreement, these executive officers have entered into agreements pursuant to which these shares of Evofem restricted common stock will be cancelled prior to and contingent upon the completion of the merger.

 

Name and Title   Shares of Evofem Restricted
Common Stock
    Restricted Evofem
Common Stock Units
 

Thomas Lynch, Chairman of the Board

    —         100,000  

Saundra Pelletier, Chief Executive Officer

    3,259,091       —    

Justin J. File, Chief Financial Officer

    1,400,000       —    

Kelly Culwell M.D., Chief Medical Officer

    50,000       —    

Russ Barrans, Chief Commercial Officer

    50,000       —    

Preferred Stock

Thomas Darden, a member of the Evofem Board, is the managing member of an Evofem stockholder, Brickhaven II, LLC. As of October 20, 2017, Brickhaven II, LLC held 8,179,897 shares of Evofem common stock and 707,557 shares of Evofem Series C Preferred Stock. Each share of Evofem Series C Preferred Stock will convert into one share of Evofem common stock immediately prior to the completion of the merger. See the section entitled “Principal Stockholders of Evofem” beginning on page 238 of this proxy statement/prospectus/information statement.

 

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Stock Options

Certain of Evofem’s directors and executive officers hold options to purchase shares of Evofem common stock, which, pursuant to the Merger Agreement, will be converted into options to purchase shares of Neothetics common stock. In connection with the conversion of the options, the number of shares subject to the options and the option exercise prices will be adjusted pursuant to the terms of the Merger Agreement. The number of shares subject to each option will be multiplied by the common stock exchange ratio, rounding any resulting fractional shares down to the nearest whole share, and the exercise price of each option will be divided by the common stock exchange ratio, rounding up to the nearest whole cent.

 

Optionholder Name    Grant Date      Expiration
Date
     Exercise
Price ($)
     Number of Shares
of Common
Stock Underlying
Option as of
October 20,
2017
     Number of Shares
Vested
as of
October 20,
2017
 

Saundra Pelletier

     6/3/2013        6/3/2023        2.05        261,784        261,784  
     9/28/2016        9/28/2026        1.19        430,000        235,000  
     9/28/2016        9/28/2026        1.19        320,000        140,000  
     9/28/2016        9/28/2026        1.19        420,000        125,000  
     9/28/2016        9/28/2026        1.19        80,000        —    
     9/28/2016        9/28/2026        1.19        389,404        389,404  

Justin J. File

     9/28/2016        9/28/2026        1.19        180,000        110,000  
     9/28/2016        9/28/2026        1.19        320,000        140,000  
     9/28/2016        9/28/2026        1.19        325,000        100,000  
     9/28/2016        9/28/2026        1.19        75,000        —    

Kelly Culwell, M.D.

     9/28/2016        9/28/2026        1.19        13,750        13,750  
     9/28/2016        9/28/2026        1.19        286,250        136,250  

Russ Barrans

     9/28/2016        9/28/2026        1.19        150,000        75,000  
     9/28/2016        9/28/2026        1.19        50,000        12,500  

David R. Friend, Ph.D.

     9/28/2016        9/28/2026        1.19        140,000        87,500  
     3/8/2017        3/8/2017        1.12        40,000        —    

* Thomas Lynch

     10/13/2016        10/13/2026        1.19        150,000        150,000  

* Natalie Douglas

     3/8/2017        3/8/2027        1.12        30,000        7,500  

* Colin Rutherford

     3/8/2017        3/8/2027        1.12        30,000        7,500  

* Simon Best

     3/8/2017        3/8/2027        1.12        30,000        7,500  

* Thomas Darden II

     3/8/2017        3/8/2027        1.12        30,000        7,500  

 

* Members of Evofem Board. All unvested shares will vest upon completion of the merger.

Management Following the Merger

As described elsewhere in this proxy statement/prospectus/information statement, including in the section entitled “Management Following the Merger” beginning on page 189 of this proxy statement/prospectus/information statement, certain of Evofem’s directors and executive officers are expected to become directors and executive officers of the combined company upon the closing of the merger.

Indemnification and Insurance

Under the Merger Agreement, from and after the closing of the merger, Neothetics must fulfill and honor in all respects the obligations of Evofem and Neothetics existing prior to the date of the Merger Agreement to indemnify Evofem’s and Neothetics’ present and former directors and officers and their heirs, executors and assigns.

In accordance with the Merger Agreement, the certificate of incorporation and bylaws of Evofem, as the surviving corporation in the merger, shall contain provisions at least as favorable with respect to indemnification

 

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and elimination of liability for monetary damages as are presently set forth in the certificate of incorporation and bylaws of Evofem, and the provisions relating to the indemnification and elimination of liability for monetary damages set forth in the certificate of incorporation and bylaws of Evofem and Neothetics shall not be amended, repealed or otherwise modified for a period of six years’ time from the closing of the merger in a manner that would adversely affect the rights thereunder of individuals who, at or prior to the closing of the merger, were officers, directors, employees or agents of Evofem or Neothetics.

The Merger Agreement also provides that Evofem will maintain “tail” director and officer liability insurance coverage on Evofem’s existing directors and officers for six years from the closing.

Limitations on Liability and Indemnification

In addition to the indemnification required in the Merger Agreement, Evofem has entered into indemnification agreements with each of its directors and executive officers. These agreements provide for the indemnification of the directors and executive officers of Evofem for all liabilities and actual and reasonable expenses incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were serving as an Evofem officer or director or, at the request of Evofem, as an officer, director or employee of another corporation, partnership, joint venture, trust or other enterprise. Evofem anticipates that the directors and officers of the combined company will enter into substantially similar agreements with the combined company, effective upon consummation of the merger.

Stock Options and Warrants

Neothetics Options and Warrants

All options and warrants to purchase shares of Neothetics common stock that are outstanding immediately prior to the effective time of the merger will remain outstanding following the effective time of the merger.

Evofem Options

As of October 20, 2017, an aggregate of 6,248,595 shares of Evofem common stock were issuable upon the exercise of outstanding Evofem Options at a weighted average exercise price of $1.45 per share. At the effective time of the merger, each outstanding Evofem Option, whether or not vested, unexercised immediately prior to the effective time of the merger will be converted into a Neothetics Option to purchase that number of shares of Neothetics common stock as determined pursuant to the common stock exchange ratio described in more detail below. All rights with respect to each Evofem Option will be assumed by Neothetics in accordance with its terms. Accordingly, from and after the effective time of the merger, each Evofem Option assumed by Neothetics may be exercised solely for shares of Neothetics common stock.

The number of shares of Neothetics common stock subject to each outstanding Evofem Option assumed by Neothetics will be determined by multiplying the number of shares of Evofem capital stock that were subject to such Evofem Option by the common stock exchange ratio and rounding the resulting number down to the nearest whole number of shares of Neothetics common stock. The per share exercise price for the shares of Neothetics common stock issuable upon exercise of each Evofem Option assumed by Neothetics will be determined by dividing the per share exercise price of Evofem capital stock subject to such option by the common stock exchange ratio and rounding the resulting exercise price up to the nearest whole cent. Any restriction on the exercise of any Evofem Option will continue in full force and effect and the term, exercisability, vesting schedule and other provisions of such option will otherwise remain unchanged.

Evofem Warrants

In connection with Evofem’s issuance of shares of its Series D Preferred Stock, Evofem issued the Evofem Warrants to the purchasers of its Series D Preferred Stock. The number of shares of Evofem capital stock

 

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issuable upon the full exercise of the Evofem Warrants would be equal to (i) 75% of the aggregate purchase price to be paid by the purchasers of Evofem’s Series D Preferred Stock divided by (ii) the per share price of the shares of Evofem capital stock to be issued in the next equity financing completed by Evofem. Evofem did not complete any such next equity financing triggering the exercisability of the Evofem Warrants. The exercise price for the shares of Evofem capital stock issuable upon exercise of the Evofem Warrants would be the exercise price paid by the investors in Evofem’s next completed equity financing. As of October 20, 2017, the Evofem Warrants were not yet exercisable for shares of Evofem capital stock. As such, the Audited Consolidated Financial Statements of Evofem for the years ended December 31, 2015 and 2016 beginning on page F-33 of this proxy statement/prospectus/information statement and the Unaudited Consolidated Financial Statements of Evofem for the nine months ended September 30, 2017 refer to the Evofem Warrants as “Warrant Rights” in the financial notes set forth therein.

Pursuant to the Merger Agreement, the Evofem Warrants will be assumed by Neothetics upon completion of the merger and then immediately amended and restated to be the Neothetics Post-Merger Warrants. The exercise price for the Neothetics Post-Merger Warrants will be an exercise price equal to the average of the closing sale prices of Neothetics’ common stock as quoted on The NASDAQ Capital Market for the 30 consecutive trading day period commencing with the first trading day immediately after the effective time of the merger and will be exercisable commencing on the first anniversary of the effective time of the merger and ending on the fourth anniversary of the effective time of the merger.

Per the terms of the Securities Purchase Agreement, Evofem will issue warrants to the Investors, or the Investor Warrants, to purchase up to 158,999,371 shares of Evofem common stock (subject to adjustment as set forth in Section 1.12(b) of the Merger Agreement) at an exercise price of $0.001 (subject to adjustment as set forth in Section 1.12(b) of the Merger Agreement) per share immediately prior to the merger that will be automatically exercised on a cashless basis immediately prior to the merger. As a result, the shares of Evofem common stock issued upon exercise of the Investor Warrants will be eligible to receive shares of Neothetics common stock at the common stock exchange ratio. For more information regarding the Securities Purchase Agreement and the Investor Warrant, see the section entitled “Agreements Related to the Merger — Securities Purchase Agreement” beginning on page 128 of this proxy statement/prospectus/information statement. For more information regarding the common stock exchange ratio, see “The Merger Agreement — Exchange Ratios” beginning on page 109 of this proxy statement/prospectus/information statement.

Form of Merger

The Merger Agreement provides that at the effective time of the merger, Merger Sub will be merged with and into Evofem. Upon the consummation of the merger, Evofem will continue as the surviving corporation and will be a wholly owned subsidiary of Neothetics.

In connection with the merger, assuming Proposal No. 3 is approved by the Neothetics stockholders at the Neothetics special meeting, Neothetics will be renamed “Evofem Biosciences, Inc.” and expects shares of its common stock to trade on The NASDAQ Capital Market under the symbol “EVFM.”

Merger Consideration

Immediately prior to the effective time of the merger, each outstanding share of Evofem Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series C-1 Preferred Stock will be converted into one share of Evofem common stock. Shares of Evofem Series D Preferred Stock will not be converted into shares of Evofem common stock prior to the merger. At the effective time of the merger, upon the terms and subject to the conditions set forth in the Merger Agreement:

 

   

each share of Evofem common stock issued and outstanding immediately prior to the effective time of the merger (including shares of Evofem common stock issued upon conversion of shares of Evofem

 

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preferred stock and shares of Evofem common stock issued upon exercise of the Investor Warrants described in the section entitled “Agreements Related to the Merger — Securities Purchase Agreement” beginning on page 128 of this proxy statement/prospectus/information statement) will be converted into and represent the right to receive a number of shares of Neothetics common stock equal to the common stock exchange ratio, as described below;

 

    each share of Evofem Series D Preferred Stock issued and outstanding immediately prior to the effective time of the merger will be converted into and represent the right to receive a number of shares of Neothetics common stock equal to the Series D Preferred Stock exchange ratio, as described below;

 

    each Evofem Option will be assumed by Neothetics and will become a Neothetics Option multiplied by the common stock exchange ratio (and rounding the resulting number down to the nearest whole share), at an exercise price equal to the per share exercise price of such Evofem Option divided by the common stock exchange ratio (and rounding the resulting number up to the nearest whole cent); and

 

    Evofem Warrants will be assumed by Neothetics and then immediately amended and restated to become the Neothetics Post-Merger Warrants.

No fractional shares of Evofem common stock will be issuable pursuant to the merger to Evofem stockholders. Instead, each Evofem stockholder who would otherwise be entitled to receive a fraction of a share of Evofem common stock, after aggregating all fractional shares of Evofem common stock issuable to such stockholder, will be entitled to receive in cash the dollar amount, rounded down to the nearest whole cent, without interest, determined by multiplying such fraction by the average closing prices of a share of Neothetics common stock as quoted on The NASDAQ Capital Market for the ten consecutive trading days ending with the trading day immediately preceding the date of the closing of the Merger Agreement, subject to adjustments as necessary to reflect any stock split, reverse stock split, stock dividend or other like change to Neothetics’ common stock.

The Merger Agreement provides that, as soon as practicable after the effective time of the merger, Neothetics will deposit with Neothetics’ transfer agent or another reputable bank or trust company reasonably acceptable to Evofem, (i) non-certificated shares of Neothetics common stock represented by book-entry shares of Neothetics common stock issuable to the Evofem stockholders and (ii) a sufficient amount of cash to make payments in lieu of fractional shares.

If any Evofem stock certificate has been lost, stolen or destroyed, the exchange agent will require the owner of such lost, stolen or destroyed certificate to deliver an appropriate affidavit claiming such certificate has been lost, stolen or destroyed and providing indemnity against any claim that may be made against the Exchange Agent, Neothetics or Evofem as the surviving corporation against any claim suffered by such parties related to the lost, stolen or destroyed certificate.

Regulatory Approvals

Neothetics must comply with applicable federal and state securities laws and the rules and regulations of The NASDAQ Stock Market in connection with the issuance of shares of Neothetics common stock and the filing of this proxy statement/prospectus/information statement with the SEC.

Tax Treatment of the Merger

Neothetics and Evofem intend the merger to qualify as a reorganization within the meaning of Section 368(a) of the Code. Each of Neothetics and Evofem will use its commercially reasonable efforts to cause the merger to qualify as a reorganization within the meaning of Section 368(a) of the Code, and not to permit or cause any affiliate or any subsidiary of Neothetics or Evofem to take any action or cause any action to be taken which would cause the merger to fail to qualify as a reorganization under Section 368(a) of the Code. For a description of material U.S. federal income tax consequences of the merger, please see the section entitled “The Merger — Material U.S. Federal Income Tax Consequences of the Merger” below.

 

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Material U.S. Federal Income Tax Consequences of the Merger

In the opinion of Mintz, counsel to Evofem, and DLA, counsel to Neothetics, the following is a discussion of material U.S. federal income tax consequences of the merger applicable to U.S. holders (as defined below) who exchange their Evofem capital stock for Neothetics common stock in the merger assuming the merger is consummated as in the manner described in this proxy statement/prospectus/information statement. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local, or non-U.S. tax laws are not discussed. This discussion is based on the Code, U.S. Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the Internal Revenue Service, or the IRS, each as in effect as of the date of the merger. These authorities are subject to differing interpretations or change. Any such change, which may or may not be retroactive, could alter the tax consequences to holders of Evofem capital stock as described in this proxy statement/prospectus/information statement.

This discussion does not address all U.S. federal income tax consequences relevant to the particular circumstances of an Evofem stockholder. In addition, it does not address consequences relevant to holders of Evofem capital stock that are subject to particular U.S. or non-U.S. tax rules, including, without limitation:

 

    persons who have a functional currency other than the U.S. dollar;

 

    persons who hold Evofem capital stock that constitutes “qualified small business stock” under Section 1202 of the Code or as “Section 1244 stock” for purposes of Section 1244 of the Code;

 

    persons holding Evofem capital stock as part of an integrated investment (including a “straddle,” pledge against currency risk, “constructive” sale or “conversion” transaction or other integrated or risk reduction transactions) consisting of shares of Evofem capital stock and one or more other positions;

 

    persons who are not U.S. holders as defined below;

 

    banks, insurance companies, mutual funds, tax-exempt entities, financial institutions, broker-dealers, real estate investment trusts or regulated investment companies;

 

    persons who do not hold their Evofem capital stock as a “capital asset” within the meaning of Section 1221 of the Code;

 

    partnerships or other entities or arrangements classified as partnerships or disregarded entities for U.S. federal income tax purposes, S corporations or other pass-through entities (including hybrid entities);

 

    persons who acquired their Evofem capital stock pursuant to the exercise of warrants or conversion rights under convertible instruments;

 

    persons holding Evofem capital stock who exercise dissenters’ rights;

 

    persons who acquired their Evofem capital stock in a transaction subject to the gain rollover provisions of Section 1045 of the Code; and

 

    persons who hold their Evofem capital stock through individual retirement accounts or other tax-deferred accounts.

For purposes of this discussion, a “U.S. holder” is a beneficial owner of Evofem capital stock that, for U.S. federal income tax purposes, is or is treated as:

 

    an individual who is a citizen or resident of the United States;

 

    a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;

 

    an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or

 

   

a trust if either (i) a court within the United States is able to exercise primary supervision over the administration of such trust and one or more United States persons (within the meaning of Section

 

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7701(a)(30) of the Code) are authorized or have the authority to control all substantial decisions of such trust, or (ii) the trust was in existence on August 20, 1996 and has a valid election in effect under applicable Treasury Regulations to be treated as a United States person for U.S. federal income tax purposes.

If an entity treated as a partnership for U.S. federal income tax purposes holds Evofem capital stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. If you are a partnership or a partner of a partnership holding Evofem capital stock or any other person excluded from this discussion, you should consult your tax advisor regarding the tax consequences of the merger.

In addition, the following discussion does not address (i) any U.S. federal non-income tax consequences of the merger, including estate, gift or other tax consequences, (ii) any state, local or non-U.S. tax consequences of the merger, (iii) the Medicare contribution tax on net investment income or the alternative minimum tax, (iv) the tax consequences of transactions effectuated before, after or at the same time as the merger (whether or not they are in connection with the merger), including, without limitation, transactions in which Evofem capital stock is acquired or Evofem preferred stock is converted to Evofem common stock, and (v) the tax consequences to holders of convertible debt or options, warrants or similar rights to purchase or acquire Evofem capital stock.

IN LIGHT OF THE FOREGOING, HOLDERS OF EVOFEM CAPITAL STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABLE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER TAX CONSEQUENCES, AND ANY TAX REPORTING REQUIREMENTS OF THE MERGER AND RELATED TRANSACTIONS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.

In connection with the filing of the registration statement of which this proxy statement/prospectus/information statement is a part, Mintz will deliver to Evofem and DLA will deliver to Neothetics opinions that the statements under the section entitled “The Merger — Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 92 of this proxy statement/prospectus/information statement constitute the opinions of Mintz and DLA, respectively. In rendering their opinions, counsel assume that the statements and facts concerning the merger set forth in this proxy statement/prospectus/information statement and in the Merger Agreement, are true and accurate in all respects, and that the merger will be completed in accordance with this proxy statement/prospectus/information statement and the Merger Agreement. Counsels’ opinions also assume the truth and accuracy of certain representations and covenants as to factual matters made by Neothetics, Evofem and Merger Sub in tax representation letters provided to counsel. In addition, counsel base their tax opinions on the law in effect on the date of the opinions and assume that there will be no change in applicable law between such date and the time of the merger. If any of these assumptions is inaccurate, the tax consequences of the merger could differ from those described in this proxy statement/prospectus/information statement.

No ruling from the IRS has been or will be requested with respect to the tax consequences of the merger. Opinions of counsel do not bind the courts or the IRS, nor will they preclude the IRS from adopting a position contrary to those expressed in the opinions. Subject to the qualifications and assumptions described in this proxy statement/prospectus/information statement, the merger will be treated for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. Accordingly, the tax consequences to U.S. holders of Evofem capital stock will be as follows:

 

    a U.S. holder will not recognize gain or loss upon the exchange of Evofem capital stock for Neothetics common stock pursuant to the merger, except to the extent of cash received in lieu of a fractional share of Neothetics common stock as described below;

 

    a U.S. holder who receives cash in lieu of a fractional share of Neothetics common stock in the merger will recognize capital gain or loss in an amount equal to the difference between the amount of cash received instead of a fractional share and the stockholder’s tax basis allocable to such fractional share;

 

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    a U.S. holder’s aggregate tax basis for the shares of Neothetics common stock received in the merger (including any fractional share interest for which cash is received) will equal the stockholder’s aggregate tax basis in the shares of Evofem capital stock surrendered in the merger; and

 

    the holding period of the shares of Neothetics common stock received by a U.S. holder in the merger will include the holding period of the shares of Evofem capital stock surrendered in exchange therefor.

Gain or loss recognized by a U.S. holder who receives cash in lieu of a fractional share of Evofem capital stock will constitute capital gain or loss and any such gain or loss will constitute long-term capital gain or loss if the U.S. holder’s holding period in the Evofem Capital stock surrendered in the merger is more than one year as of the effective date of the merger. Under current law, long-term capital gains of non-corporate taxpayers are taxed at a reduced U.S. federal income tax rate. Under current law, the deductibility of capital losses is subject to limitations. In addition, for purposes of the above discussion of the bases and holding periods for shares of Evofem capital stock and Neothetics common stock, U.S. holders who acquired different blocks of Evofem capital stock at different times for different prices must calculate their gains and losses and holding periods separately for each identifiable block of such stock exchanged in the merger.

As provided in Treasury Regulations Section 1.368-3(d), each U.S. holder who receives shares of Neothetics common stock in the merger is required to retain permanent records pertaining to the merger, and make such records available to any authorized IRS officers and employees. Such records should specifically include information regarding the amount, basis, and fair market value of all transferred property, and relevant facts regarding any liabilities assumed or extinguished as part of such reorganization. Additionally, U.S. holders who owned immediately before the merger at least one percent (by vote or value) of the total outstanding stock of Evofem are required to attach a statement to their tax returns for the year in which the merger is consummated that contains the information listed in Treasury Regulation Section 1.368-3(b). Such statement must include the U.S. holder’s tax basis in such holder’s Evofem capital stock surrendered in the merger, the fair market value of such stock, the date of the merger and the name and employer identification number of each of Evofem and Neothetics.

If the merger fails to qualify as a reorganization within the meaning of Section 368(a) of the Code, then a U.S. holder would recognize gain or loss upon the exchange of Evofem capital stock for Neothetics common stock equal to the difference between the fair market value, at the time of the merger, of the Neothetics common stock received in the merger (including any cash received in lieu of a fractional share of Neothetics common stock) and such U.S. holder’s tax basis in the Evofem capital stock surrendered in the merger. Such gain or loss would be long-term capital gain or loss if the Evofem capital stock was held for more than one year at the time of the merger. In such event, the aggregate tax basis of Neothetics common stock received in the merger would equal its fair market value at the time of the closing of the merger, and the holding period of such Neothetics common stock would commence the day after the closing of the merger.

Information Reporting and Backup Withholding

A U.S. holder of Evofem capital stock may be subject to information reporting and backup withholding for U.S. federal income tax purposes on cash paid in lieu of fractional shares in connection with the merger. The current backup withholding rate is 28%. Backup withholding will not apply, however, to a holder who (i) furnishes a correct taxpayer identification number and certifies the holder is not subject to backup withholding on IRS Form W-9 or a substantially similar form, (ii) provides a certification of foreign status on an appropriate IRS Form W-8 or successor form or (iii) certifies the holder is otherwise exempt from backup withholding. U.S. holders of Evofem capital stock should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption. If a U.S. holder does not provide a correct taxpayer identification number on IRS Form W-9 or other proper certification, the stockholder may be subject to penalties imposed by the IRS. Any amounts withheld under the backup withholding rules may be refunded or allowed as a credit against a U.S. holder of Evofem capital stock’s federal income tax liability, if

 

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any, provided the required information is timely furnished to the IRS. In the event of backup withholding see your tax advisor to determine if you are entitled to any tax credit, tax refund or other tax benefit as a result of such backup withholding.

U.S. HOLDERS OF EVOFEM CAPITAL STOCK SHOULD CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABLE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER TAX CONSEQUENCES, AND ANY TAX REPORTING REQUIREMENTS OF THE MERGER AND RELATED TRANSACTIONS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.

NASDAQ Stock Market Listing

Neothetics’ common stock currently is listed on The NASDAQ Capital Market under the symbol “NEOT.” Neothetics shall use commercially reasonable efforts to (i) to the extent required by the rules and regulations of The NASDAQ Stock Market, prepare and submit to The NASDAQ Stock Market a notification form for the listing of the shares of Neothetics common stock to be issued in connection with the merger and the Securities Purchase Agreement, and to cause such shares to be approved for listing (subject to official notice of issuance) on or prior to the merger; and (ii) to the extent required by NASDAQ Marketplace Rule 5110, file an initial listing application for the shares of Neothetics common stock issued in connection with the merger and the Securities Purchase Agreement and to cause such listing application to be approved prior to the merger. In addition, under the Merger Agreement, Evofem’s obligation to complete the merger is subject to the satisfaction or its waiver, at or prior to the merger, of various conditions, including a condition that the NASDAQ initial listing application for the combined company be approved. If such application is accepted, Neothetics anticipates that its common stock will be listed on The NASDAQ Capital Market following the closing of the merger under the trading symbol “EVFM.”

Anticipated Accounting Treatment

Although Neothetics is the legal acquirer and will issue shares of its common stock to affect the merger with Evofem, Evofem is considered the accounting acquirer. In accordance with the accounting guidance under ASU 2017-01, the merger is considered an asset acquisition. Accordingly, the assets and liabilities of Private Evofem will be recorded as of the merger closing date at the purchase price of the accounting acquirer, Evofem. Evofem will have to allocate the total purchase price among the individual net assets acquired on a fair value basis. Determination of fair value of certain assets acquired is dependent upon certain valuations that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. A final determination of these estimated fair values, which cannot be made prior to the completion of the transaction, will be based on the actual net tangible assets of Neothetics that exist as of the date of the completion of the transaction. Therefore, the actual purchase price allocation may differ from the amounts reflected in the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed consolidated financial statements include the accounts of Evofem since the effective date of merger and Neothetics since inception.

Appraisal Rights and Dissenters’ Rights

Delaware Law

If the merger is completed, Evofem stockholders who do not deliver a written consent approving the merger are entitled to appraisal rights under Section 262 of the DGCL, provided that they comply with the conditions established by Section 262. Holders of Neothetics common stock are not entitled to appraisal rights under Delaware law in connection with the merger.

The discussion below is not a complete summary regarding an Evofem stockholder’s appraisal rights under Delaware law and is qualified in its entirety by reference to the text of the relevant provisions of Delaware law,

 

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which is attached as Annex C. Stockholders intending to exercise appraisal rights should carefully review Annex C. Failure to follow precisely any of the statutory procedures set forth in Annex C may result in a termination or waiver of these rights. This summary does not constitute legal or other advice, nor does it constitute a recommendation that Evofem stockholders exercise their appraisal rights under Delaware law.

Under Section 262 of the DGCL, or Section 262, where a merger is adopted by stockholders by written consent in lieu of a meeting of stockholders pursuant to Section 228 of the DGCL, either the constituent corporation before the effective date of the merger or the surviving corporation, within 10 days after the effective date of the merger, must notify each stockholder of the constituent corporation entitled to appraisal rights of the approval of the merger, the effective date of the merger and that appraisal rights are available.

If the merger is completed, within 10 days after the effective date of the merger Evofem will notify its stockholders that the merger has been approved, the effective date of the merger and that appraisal rights are available to any stockholder who has not approved the merger. Holders of shares of Evofem capital stock who desire to exercise their appraisal rights must deliver a written demand for appraisal to Evofem within 20 days after the date of mailing of that notice, and that stockholder must not have delivered a written consent approving the merger. A demand for appraisal must reasonably inform Evofem of the identity of the stockholder and that such stockholder intends thereby to demand appraisal of the shares of Evofem capital stock held by such stockholder. Failure to deliver a written consent approving the merger will not in and of itself constitute a written demand for appraisal satisfying the requirements of Section 262. All demands for appraisal should be addressed to Evofem Biosciences, Inc., 12400 High Bluff Drive, Suite 600, San Diego, CA 92130, Attention: Secretary, and should be executed by, or on behalf of, the record holder of shares of Evofem capital stock. ALL DEMANDS MUST BE RECEIVED BY EVOFEM WITHIN 20 DAYS AFTER THE DATE EVOFEM MAILS A NOTICE TO ITS STOCKHOLDERS NOTIFYING THEM THAT THE MERGER HAS BEEN APPROVED, THE EFFECTIVE DATE OF THE MERGER AND THAT APPRAISAL RIGHTS ARE AVAILABLE TO ANY STOCKHOLDER WHO HAS NOT APPROVED THE MERGER.

If an Evofem stockholder fails to deliver a written demand for appraisal within the time period specified above, the stockholder will be entitled to receive the merger consideration for its shares of Evofem capital stock as provided for in the Merger Agreement, but the Evofem stockholder will have no appraisal rights with respect to its shares of Evofem capital stock.

To be effective, a demand for appraisal by a holder of shares of Evofem capital stock must be made by, or in the name of, the registered stockholder, fully and correctly, as the stockholder’s name appears on the stockholder’s stock certificate(s). Beneficial owners who do not also hold the shares of record may not directly make appraisal demands to Evofem. The beneficial owner must, in these cases, have the registered owner, such as a broker, bank or other custodian, submit the required demand in respect of those shares. If shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of a demand for appraisal should be made by or for the fiduciary; and if the shares are owned of record by more than one person, as in a joint tenancy or tenancy in common, the demand should be executed by or for all joint owners. An authorized agent, including an authorized agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner or owners and expressly disclose the fact that, in executing the demand, he or she is acting as agent for the record owner. A record owner, such as a broker, who holds shares as a custodian for others, may exercise the record owner’s right of appraisal with respect to the shares held for one or more beneficial owners, while not exercising this right for other beneficial owners. In that case, the written demand should state the number of shares as to which appraisal is sought. Where no number of shares is expressly mentioned, the demand will be presumed to cover all shares held in the name of the record owner. In addition, the stockholder must continuously hold the shares of record from the date of making the demand through the effective time of the merger.

If you hold your shares of Evofem capital stock in a brokerage account or in other custodian form and you wish to exercise appraisal rights, you should consult with your bank, broker or other custodian to determine the appropriate procedures for the making of a demand for appraisal by the custodian.

 

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At any time within 60 days after the effective time of the merger, any stockholder who has demanded an appraisal, but has neither commenced an appraisal proceeding or joined an appraisal proceeding as a named party, has the right to withdraw such stockholder’s demand and accept the terms of the merger by delivering a written withdrawal to Evofem. If, following a demand for appraisal, you have withdrawn your demand for appraisal in accordance with Section 262, you will have the right to receive the merger consideration for your shares of Evofem capital stock.

Within 120 days after the effective date of the merger, any stockholder who has delivered a demand for appraisal in accordance with Section 262 will, upon written request to the surviving corporation, be entitled to receive a written statement setting forth the aggregate number of shares not voted in favor of the Merger Agreement and with respect to which demands for appraisal rights have been received and the aggregate number of holders of these shares. This written statement will be mailed to the requesting stockholder within 10 days after the stockholder’s written request is received by the surviving corporation or within 10 days after expiration of the period for delivery of demands for appraisal, whichever is later. Within 120 days after the effective date of the merger, either the surviving corporation or any stockholder who has delivered a demand for appraisal in accordance with Section 262 may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares held by all such stockholders. Upon the filing of the petition by a stockholder, service of a copy of the petition must be made upon the surviving corporation. The surviving corporation has no obligation to file a petition in the Delaware Court of Chancery in the event there are dissenting stockholders, and Evofem, which is expected to be the surviving corporation, has no present intent to file a petition in the Delaware Court of Chancery. Accordingly, the failure of a stockholder to file a petition within the period specified could nullify the stockholder’s previously written demand for appraisal.

If a petition for appraisal is duly filed by a stockholder and a copy of the petition is delivered to the surviving corporation, the surviving corporation will then be obligated, within 20 days after receiving service of a copy of the petition, to provide the Delaware Court of Chancery with a duly verified list containing the names and addresses of all stockholders who have demanded an appraisal of their shares and with whom agreements as to the value of their shares have not been reached by the surviving corporation. After notice to dissenting stockholders who demanded appraisal of their shares, the Delaware Court of Chancery is empowered to conduct a hearing upon the petition, and to determine those stockholders who have complied with Section 262 and who have become entitled to the appraisal rights provided thereby. The Delaware Court of Chancery may require the stockholders who have demanded appraisal for their shares to submit their stock certificates to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with that direction, the Delaware Court of Chancery may dismiss the proceedings as to that stockholder.

After determination of the stockholders entitled to appraisal of their shares, the Delaware Court of Chancery will appraise the “fair value” of the shares owned by those stockholders. This value will be exclusive of any element of value arising from the accomplishment or expectation of the merger, but may include a fair rate of interest, if any, upon the amount determined to be the fair value.

In determining fair value, and, if applicable, a fair rate of interest, the Delaware Court of Chancery is required to take into account all relevant factors. In Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that could be considered in determining fair value in an appraisal proceeding, stating that “proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court” should be considered, and that “fair price obviously requires consideration of all relevant factors involving the value of a company.”

Section 262 provides that fair value is to be “exclusive of any element of value arising from the accomplishment or expectation of the merger.” In Cede & Co. v. Technicolor, Inc., the Delaware Supreme Court stated that this exclusion is a “narrow exclusion [that] does not encompass known elements of value,” but which rather applies only to the speculative elements of value arising from such accomplishment or expectation. In Weinberger, the Delaware Supreme Court construed Section 262 to mean that “elements of future value, including the nature of

 

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the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered.”

You should be aware that the fair value of your shares as determined under Section 262 could be more than, the same as, or less than the value that you are entitled to receive under the terms of the Merger Agreement.

When the value is determined, the Delaware Court of Chancery will direct the payment of the value, with interest thereon accrued during the pendency of the proceeding, if the Delaware Court of Chancery so determines, to the stockholders entitled to receive the same, upon surrender by the holders of the certificates representing those shares. At any time before the entry of judgment in the proceedings, the surviving corporation may pay to each stockholder entitled to appraisal an amount in cash, in which case interest shall accrue thereafter only upon the sum of (i) the difference, if any, between the amount so paid and the fair value of the shares subject to appraisal as determined by the Delaware Court of Chancery and (ii) interest theretofore accrued, unless paid at that time.

Costs of the appraisal proceeding may be imposed upon the surviving corporation and the stockholders participating in the appraisal proceeding by the Delaware Court of Chancery as the Court deems equitable in the circumstances. Upon the application of a stockholder, the Delaware Court of Chancery may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares entitled to appraisal. In the absence of such a determination of assessment, each party bears its own expenses. Any stockholder who had demanded appraisal rights will not, after the effective time of the merger, be entitled to vote shares subject to that demand for any purpose or to receive payments of dividends or any other distribution with respect to those shares, other than with respect to payment as of a record date prior to the effective time; however, if no petition for appraisal is filed within 120 days after the effective time of the merger, or if the stockholder delivers a written withdrawal of his or her demand for appraisal and an acceptance of the terms of the merger within 60 days after the effective time of the merger, then the right of that stockholder to appraisal will cease and that stockholder will be entitled to receive the merger consideration for shares of his or her Evofem capital stock pursuant to the Merger Agreement. Any withdrawal of a demand for appraisal made more than 60 days after the effective time of the merger may only be made with the written approval of the surviving corporation. No appraisal proceeding in the Delaware Court of Chancery will be dismissed as to any stockholder without the approval of the court.

Failure to follow the steps required by Section 262 for perfecting appraisal rights may result in the loss of appraisal rights. In view of the complexity of Section 262, stockholders who may wish to dissent from the merger and pursue appraisal rights should consult their legal advisors.

Opinion of Oppenheimer & Co. Inc. as Neothetics’ Financial Advisor

The Strategic Committee retained Oppenheimer on July 10, 2017 to act as Neothetics’ financial advisor in connection with a possible sale or other transfer of all or substantially all of the assets or at least a majority of the securities of Neothetics, or a transaction, and, if requested, to render an opinion as to the fairness, from a financial point of view, of a transaction. Pursuant to that engagement, the Strategic Committee requested that Oppenheimer render an opinion as to the fairness, from a financial point of view, to Neothetics of the merger consideration, as defined below, to be paid by Neothetics in the merger pursuant to the Merger Agreement.

On October 16, 2017, Oppenheimer rendered its oral opinion to the Strategic Committee (which was subsequently confirmed in writing by delivery of Oppenheimer’s written opinion dated the same date) to the effect that, based upon and subject to the assumptions, factors, qualifications and limitations set forth in the written opinion described herein, as of October 16, 2017, the merger consideration to be paid by Neothetics in the merger was fair, from a financial point of view, to Neothetics. As used in the opinion, the term merger consideration meant the 82,893,740 shares of Neothetics common stock to be issued in the merger to holders of Evofem’s capital stock as specified in the Merger Agreement.

 

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Oppenheimer’s opinion was prepared for the information of the Strategic Committee and only addressed the fairness, from a financial point of view, to Neothetics of the merger consideration to be paid by Neothetics in the merger. Oppenheimer was not engaged to, and did not consider or render any opinion as to the fairness to Neothetics, from a final point of view, of the assumption of the Neothetics Post-Merger Warrants and the Financing. Oppenheimer was not requested to opine as to, and Oppenheimer’s opinion does not address, the relative merits of the merger or any alternatives to the merger, Neothetics’ underlying decision to proceed with or effect the merger, or any other aspect of the merger. Oppenheimer’s opinion does not address the fairness of the merger to the holders of any class of securities, creditors or other constituencies of Neothetics and is not a valuation of Neothetics or its assets or any class of its securities. Oppenheimer did not express an opinion about the fairness of the amount or nature of any compensation payable or to be paid to any of the officers, directors or employees of Neothetics, whether or not relative to the merger.

The summary of Oppenheimer’s opinion in this proxy statement/prospectus/information statement is qualified in its entirety by reference to the full text of its written opinion, which is included as Annex B to this proxy statement/prospectus/information statement and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Oppenheimer in preparing its opinion. Oppenheimer’s opinion was prepared for the information of the Strategic Committee for its use in connection with its consideration of the merger. Neither Oppenheimer’s written opinion nor the summary of its opinion and the related analyses set forth in this proxy statement/prospectus/information statement are intended to be, and they do not constitute, advice or a recommendation to any stockholder as to how such stockholder should act or vote with respect to any matter relating to the merger or any other matter.

The terms of the merger, the consideration to be paid in the merger, and the related transactions were determined through arm’s length negotiations between Neothetics and Evofem and were approved unanimously by the Neothetics Board. Oppenheimer did not determine the consideration to be paid by Neothetics in connection with the merger. For purposes of its opinion, management of Neothetics advised Oppenheimer and, with the consent of the Strategic Committee, Oppenheimer assumed without independent verification that as a result of the merger, the former holders of Evofem capital stock would own approximately 85.7% of the outstanding equity of Neothetics immediately following the effective time of the merger and the holders of the outstanding equity of Neothetics immediately prior to the merger would own approximately 14.3% of the outstanding equity of Neothetics immediately following the effective time of the merger.

In connection with rendering the opinion described above and performing its related financial analyses, Oppenheimer, among other things:

 

    reviewed the financial terms of the merger described in the draft Merger Agreement, dated October 12, 2017;

 

    reviewed certain information, including financial forecasts, relating to the business, earnings, cash flow, assets, liabilities and prospects of Neothetics and Evofem that were furnished to Oppenheimer by Neothetics and Evofem;

 

    conducted discussions with members of senior management and representatives of Neothetics and Evofem concerning the matters described in the prior clause;

 

    reviewed publicly available information relating to the respective businesses of Neothetics and Evofem;

 

    reviewed the pro forma ownership structure of the combined entity resulting from the merger;

 

    discussed the past and current operations and financial condition and the prospects of Neothetics and Evofem with members of senior management of Neothetics and of Evofem, respectively;

 

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    reviewed the financial terms of the Securities Purchase Agreement and, to the extent publicly available, of selected acquisition transactions and conducted comparable companies and discounted cash flow analyses; and

 

    performed such other analyses and considered such other factors as Oppenheimer deemed appropriate for the purpose of rendering its opinion.

In arriving at its opinion, Oppenheimer assumed and relied upon, without verifying independently, the accuracy and completeness of all information that was publicly available or was furnished, or otherwise made available to Oppenheimer, or discussed with or reviewed by or for Oppenheimer, and further assumed that the financial information provided to Oppenheimer had been prepared by the respective managements of Neothetics and Evofem on a reasonable basis in accordance with industry practice, and that the managements of Neothetics and Evofem were not aware of any information or facts that would make any information provided to Oppenheimer incomplete or misleading.

With respect to the financial forecasts, estimates and other forward-looking information reviewed by Oppenheimer, Oppenheimer assumed that such information had been reasonably prepared by the respective managements of Neothetics and Evofem based on assumptions reflecting their best currently available estimates and judgments as to the expected future results of operations and financial condition of Neothetics and Evofem, respectively. Oppenheimer was not engaged to assess the achievability of any such financial forecasts, estimates or forward-looking information or the assumptions on which they were based, and Oppenheimer expressed no opinion as to such information or assumptions. In addition, Oppenheimer did not assume any responsibility for, and did not perform, any appraisals or valuation of any specific assets or liabilities (fixed, contingent or other) of Neothetics or Evofem, nor was Oppenheimer furnished or provided with any such appraisals or valuations. Without limiting the generality of the foregoing, Oppenheimer was not engaged to, and did not undertake, any independent analysis of any pending or threatened litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which Neothetics, Evofem or any of their respective affiliates is a party or may be subject, and at the direction of Neothetics and with its consent, Oppenheimer’s opinion made no assumption concerning, and did not consider, the possible assertion of claims, outcomes or damages arising out of any such matters.

Oppenheimer relied upon and assumed, without independent verification, that the representations and warranties of all parties set forth in the Merger Agreement and all related documents and instruments that are referred to therein are true and correct, that each party will fully and timely perform all of the covenants and agreements required to be performed by such party, that the merger will be consummated pursuant to the terms of the Merger Agreement, without amendment thereto, and that all conditions to the consummation of the merger will be satisfied without waiver by any party of any conditions or obligations thereunder. Oppenheimer further assumed that the Merger Agreement was in all material respects identical to the draft of the Merger Agreement provided to Oppenheimer. Finally, Oppenheimer also assumed that all the necessary regulatory approvals and consents required for the merger, including the approval of the stockholders of Neothetics, will be obtained in a manner that will not adversely affect Neothetics.

In connection with its opinion, Oppenheimer assumed and relied upon, without independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by it. Oppenheimer’s opinion does not address any legal, regulatory, tax or accounting issues. Oppenheimer’s fairness opinion was approved by its fairness opinion committee prior to delivering it to Neothetics.

Oppenheimer’s opinion is necessarily based upon the information available to Oppenheimer and facts and circumstances as they existed and were subject to evaluation as of October 16, 2017, which is the date of the Oppenheimer opinion. Although events occurring after the date of the Oppenheimer opinion could materially affect the assumptions used in preparing the opinion, Oppenheimer does not have any obligation to update, revise

 

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or reaffirm its opinion and Oppenheimer expressly disclaims any responsibility to do so. Oppenheimer did not express any opinion as to the value of the merger consideration or the prices at which shares of Neothetics’ common stock may trade following announcement of the merger or at any future time. The terms of the merger, the consideration to be paid in the merger, and the related transactions were determined through arm’s length negotiations between Neothetics and Evofem and were approved unanimously by Neothetics’ Board of Directors. Oppenheimer did not determine the consideration to be paid by Neothetics in connection with the merger. Oppenheimer’s opinion and its presentation to the Strategic Committee was one of many factors taken into consideration by the Strategic Committee in deciding to approve, adopt and authorize the Merger Agreement. Consequently, the analyses as described herein should not be viewed as determinative of the opinion of Neothetics’ Board of Directors with respect to the consideration to be paid by Neothetics in the merger or of whether the Neothetics Board would have been willing to agree to different consideration.

The following is a summary of the material financial analyses performed by Oppenheimer in connection with the preparation of its fairness opinion, which opinion was rendered orally to the Strategic Committee (and subsequently confirmed in writing by delivery of Oppenheimer’s written opinion dated the same date) on October 16, 2017. The preparation of analyses and a fairness opinion is a complex analytic process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to summary description and this summary does not purport to be a complete description of the analyses performed by Oppenheimer or the delivery of Oppenheimer’s opinion to the Strategic Committee.

In furnishing its opinion, Oppenheimer did not attempt to combine the analyses described herein into one composite valuation range, nor did Oppenheimer assign any quantitative weight to any of the analyses or the other factors considered. Furthermore, in arriving at its opinion, Oppenheimer did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor in light of one another. Accordingly, Oppenheimer has stated that it believes that its analyses must be considered as a whole and that considering any portion of its analyses, without considering all of the analyses, could create a misleading or incomplete view of the process underlying its opinion or the conclusions to be drawn therefrom.

In conducting the analysis as to the fairness to Neothetics, from a financial point of view, of the merger consideration to be paid by Neothetics pursuant to the terms of the Merger Agreement, Oppenheimer evaluated the stand-alone valuations of Neothetics and Evofem. Oppenheimer then compared Neothetics’ ownership based on the Merger Agreement with Neothetics’ implied ownership based on the relative valuation between Neothetics and Evofem.

The results of the application by Oppenheimer of each of the valuation methodologies utilized in connection with its fairness opinion are summarized below.

Consideration to be Paid in the Merger

As specified in the Merger Agreement, Neothetics agreed to issue 82,893,740 shares of Neothetics common stock in the merger to holders of Evofem’s capital stock. For purposes of its opinion, management of Neothetics advised Oppenheimer and, with the consent of the Strategic Committee, Oppenheimer assumed without independent verification that as a result of the merger, the former holders of shares of Evofem capital stock would own approximately 85.7% of the outstanding equity of Neothetics immediately following the effective time of the merger and the holders of the outstanding equity of Neothetics immediately prior to the merger would own approximately 14.3% of the outstanding equity of Neothetics immediately following the effective time of the merger.

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Neothetics’ clinical set back in June 2017 and calculated the theoretical number of shares of Neothetics common stock Neothetics would have to issue to acquire Evofem using a number of different valuation methods and then compared the resulting ownership interest in Neothetics that would have been retained by holders of Neothetics common stock to the 14.3% ownership stake estimated by Neothetics management based on the 82,893,740 shares of Neothetics common stock to be issued in the merger to holders of Evofem’s capital stock.

Estimated Neothetics Stand-Alone Valuation

Neothetics Public Market Valuation

Oppenheimer evaluated the value of Neothetics on a stand-alone basis using a public market valuation methodology. Oppenheimer noted that since Neothetics’ clinical set-back in June 2017, Neothetics’ closing stock price had ranged from a high of $0.68 per share to a low of $0.32 per share. Based on that range, Oppenheimer estimated that Neothetics had a total market capitalization of between $9.3 million and $4.4 million. Based on the last reported sale per share of $0.54 on October 13, 2017, Oppenheimer estimated that Neothetics’ enterprise value was approximately $1.9 million.

Estimated Evofem Stand-Alone Valuation

Oppenheimer evaluated the value of Evofem on a stand-alone basis, using the following valuation methodologies:

 

    Comparable Companies Analysis — Women’s Health;

 

    Precedent Women’s Health M&A Transactions;

 

    Discounted Cash Flow Analysis; and

 

    Implied Valuation from the Securities Purchase Agreement.

Utilizing the various valuation methodologies listed above, Oppenheimer used the estimated valuations of Evofem to calculate a range of the theoretical number of shares of Neothetics common stock that would have to be issued by Neothetics based on the high and low prices of Neothetics common stock since described above. The high end of the range was calculated based on the high valuation of Evofem divided by the low Neothetics common stock price per share and the low end of the range was calculated based on the low valuation of Evofem divided by the high Neothetics common stock price per share. Using this methodology, Oppenheimer estimated a range of Neothetics common stock utilizing the Comparable Companies Analysis — Women’s Health of 752,512,077 shares to 291,883,472 shares; Precedent Women’s Health M&A Transactions of 1,199,343,750 to 465,200,000 shares; Discounted Cash Flow Analysis of 1,341,473,298 shares to 550,011,708 shares; and Implied Valuation from the Securities Purchase Agreement of 661,824,820 shares to 256,707,809 shares.

 

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Comparable Companies Analysis — Women’s Health

Oppenheimer reviewed the total enterprise values of publicly traded companies with women’s health product candidates in development. The comparable companies’ analysis uses data from comparable guideline companies to develop a measure of current value for Evofem. The theory underlying the comparable companies’ valuation is that companies in the same industry with similar operating characteristics should have certain valuation benchmarks in common. The goal of the analysis is to develop a premise for relative value, which when coupled with other valuation approaches, presents a foundation for determining a range of firm value. On that basis, Oppenheimer calculated that Neothetics would be required to issue between 752,512,077 shares of Neothetics common stock and 291,883,472 shares of Neothetics common stock, resulting in an implied ownership stake of existing holders of Neothetics common stock of 1.8% to 4.5%, compared to the 14.3% calculated pursuant to the Merger Agreement. The list of comparable companies used by Oppenheimer in its analysis is below:

Mithra Pharmaceuticals SA

Starpharma Holdings Limited

ObsEva SA

Agile Therapeutics, Inc.

Veru Inc.

Precedent Women’s Health M&A Transactions

The precedent women’s health M&A analysis uses data based on the values acquirers have previously placed on comparable companies in a merger or acquisition to develop a measure of current value for Evofem. Oppenheimer examined precedent transactions, from October 7, 2010 through September 18, 2017, involving women’s health companies that it viewed as similar to Evofem. On that basis, Oppenheimer calculated that Neothetics would be required to issue between 1,199,343,750 shares of Neothetics common stock and 465,200,000 shares of Neothetics common stock, resulting in an implied ownership stake of existing holders of Neothetics common stock of 1.1% to 2.9%, compared to the 14.3% calculated pursuant to the Merger Agreement. The list of precedent transactions used by Oppenheimer in its analysis is below:

 

Announcement
Date

  

Target

  

Acquiror

9/18/17    Teva (Women’s Health Products)    CVC Capital Partners Fund
9/18/17    Teva (Emergency Contraception Products)    Foundation Consumer
4/2/17    Ogeda SA    Astellas Pharma Inc.
6/30/16    FINOX Biotech    Gedeon Richter
2/2/15    Jai Pharma    Mylan
9/29/14    Lumara Health (Women’s Healthcare Business)    Perrigo Company
1/23/13    Uteron Pharma    Allergan
11/3/10    Grünenthal GmbH (Oral Contraceptive Portfolio)    Gedeon Richter
10/28/10    Laboratoire Théramex    Teva Pharmaceutical Industries
10/7/10    PregLem    Gedeon Richter

Discounted Cash Flow Analysis

The discounted cash flow analysis is a “forward looking” methodology and is based on projected future cash flows to be generated by Evofem which are then discounted back to the present. This methodology has three primary components: (1) the present value of projected unlevered cash flows for a determined period; (2) the present value of the terminal value of cash flows based on the declining growth method (representing firm value beyond the time horizon on the projections); (3) the weighted average cost of capital, or WACC, used to discount such future cash flows and terminal value back to the present. In the discounted cash flow analysis, Oppenheimer used projections provided to it by Evofem’s management. The future cash flows plus the terminal value of such cash flows are discounted by the WACC, to derive a present value.

 

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In conducting its discounted cash flow analysis for the purpose of determining the enterprise value of Evofem, Oppenheimer applied the projected unlevered free cash flow that Evofem is expected to generate during fiscal years 2018 to 2033 based upon financial projections prepared by Evofem’s management. Terminal values based on declining cash flow at a rate of -3.0% to -2.0% were applied to management’s cash flow estimates in year 2033 to complete the basis for calculating the present value of future free cash flows. The future free cash flows are then discounted by the WACC, to derive a present value. In selecting an appropriate discount rate, Oppenheimer took into account the industry’s book value debt to market value equity ratio of 2.4%, the industry’s book value debt to total market capitalization ratio of 7.1%, the industry’s market value equity to total market capitalization ratio of 92.9% and the industry’s after-tax cost of debt of 5.4%. Application of the foregoing principles resulted in a 14.9% WACC. Oppenheimer performed a sensitivity analysis in both cases using discount rates from 14.4% to 15.4% to arrive at a range of present values.

On that basis, Oppenheimer calculated that Neothetics would be required to issue between 1,341,473,298 shares of Neothetics common stock and 550,011,708 shares of Neothetics common stock, resulting in an implied ownership stake of existing holders of Neothetics common stock of 1.0% to 2.5%, compared to the 14.3% calculated pursuant to the Merger Agreement. In evaluating the foregoing, it should be noted that the WACC does not take into consideration the specific firm risks such as bankruptcy. As a result, Evofem’s true WACC may be higher when taking into consideration the risks of default and negative operating profit history of the business which would have the effect of reducing the enterprise value range. By conducting an analysis of a range of discount rates rather than relying on one specific WACC, Oppenheimer is comfortable that the analysis is appropriate.

Implied Valuation from the Securities Purchase Agreement

Oppemheimer also reviewed the terms of the Financing pursuant to which, immediately after the effective time of the merger, certain investors had agreed to purchase 9,672,550 shares of Neothetics common stock for an aggregate purchase price of $20 million. Based on the valuation implied in that transaction, Oppenheimer calculated that Neothetics would be required to issue between 661,824,820 shares of Neothetics common stock and 256,707,809 shares of Neothetics common stock, resulting in an implied ownership stake of existing holders of Neothetics common stock of 2.0% to 5.1%, compared to the 14.3% calculated pursuant to the Merger Agreement.

As discussed above, Oppenheimer performed a variety of financial and comparative analyses for the purpose of rendering its opinion. While the preceding summary describes several analyses and examinations that Oppenheimer deems material to its evaluation and opinion, they are not a comprehensive description of all analyses and examinations actually conducted by Oppenheimer.

General

Oppenheimer is a nationally recognized investment banking firm that provides financial advisory services and is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. The Strategic Committee retained Oppenheimer to render an opinion as to the fairness, from a financial point of view, to Neothetics of the merger consideration to be paid in the merger by Neothetics based upon the foregoing qualifications, experience and expertise.

Neothetics paid Oppenheimer a fee of $75,000 at the time of its engagement and a fee of $225,000 for rendering its fairness opinion delivered in connection with the merger. An additional fee of $200,000 is contingent on the success of the merger. The $225,000 opinion fee was not contingent on the success of the merger or on the results of Oppenheimer’s evaluation and analysis or upon the conclusions reached in Oppenheimer’s opinion. In addition, Neothetics agreed to reimburse Oppenheimer up to $50,000 for its reasonable, documented,

 

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out-of-pocket expenses, including reasonable fees and disbursements of its counsel. Neothetics has also agreed to indemnify Oppenheimer against certain liabilities and other items that may arise out of the Neothetics’ engagement of Oppenheimer. The Strategic Committee did not limit Oppenheimer in any way in the investigations it made or the procedures it followed in rendering its opinion.

Oppenheimer has not had a material relationship with, nor otherwise received fees from, Neothetics, Evofem or any other party to the merger within the two years preceding the date of the Merger Agreement. Oppenheimer may in the future provide investment banking and other financial services to Neothetics and its affiliates for which Oppenheimer and its affiliates may receive compensation. Oppenheimer is a full service investment firm engaged in securities trading and brokerage activities, as well as providing investment banking and other financial services. In the ordinary course of business, Oppenheimer and its affiliates may acquire, hold or sell, for its and its affiliates’ own accounts and for the accounts of customers, equity, debt and other securities and financial instruments (including bank loans and other obligations) of Neothetics and the other parties to the merger, and, accordingly, may at any time hold a long or short position in such securities.

Consistent with applicable legal and regulatory requirements, Oppenheimer has adopted policies and procedures to establish and maintain the independence of its research departments and personnel. As a result, Oppenheimer’s research analysts may hold views, make statements or investment recommendations and/or publish research reports with respect to Neothetics, Evofem and/or the merger that differ from the views of its investment banking personnel.

Information Regarding Financial Projections Used for Fairness Opinion Analysis

The forward looking financial information of Neothetics and Evofem used in the discounted cash flow analyses referenced in the Oppenheimer fairness opinion was not prepared with a view towards compliance with published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation, presentation of prospective financial information. Such forward looking financial information included in this proxy statement/prospectus/information statement is the responsibility of the management of Neothetics or Evofem, as applicable, who prepared the information. Neither Ernst & Young LLP nor Deloitte & Touche LLP have examined, compiled nor performed any procedures with respect to this forward looking financial information and, accordingly, neither Ernst & Young LLP nor Deloitte & Touche LLP express an opinion or any other form of assurance with respect thereto. The Ernst & Young LLP nor Deloitte & Touche LLP reports included in this proxy statement/prospectus/information statement relate solely to the historical financial information. They do not extend to the forward looking financial information and should not be read to do so.

Interests of the Neothetics Directors and Executive Officers in the Merger

In considering the recommendation of the Neothetics Board that you vote to approve the proposal to adopt the Merger Agreement, you should be aware that Neothetics’ directors and executive officers have interests in the merger that are different from, or in addition to, those of Neothetics’ stockholders generally. The Neothetics Board was aware of and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement and the mergers, and in recommending that the Merger Agreement be adopted by Neothetics’ stockholders.

Severance Arrangements

On October 15, 2014, Neothetics entered into an executive employment agreement with Ms. Knudson which provides that, if Ms. Knudson is terminated by us without cause or if she resigns for good reason, she will be entitled to a severance package consisting of (a) a payment equal to six months of her then in effect base salary payable in accordance with our regular payroll cycle beginning on the first regular payday occurring 60 days following the termination date and (b) payment by us of the premiums required to continue Ms. Knudson’s group health coverage for a period of six months following termination.

 

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2017 Retention Bonus

In July 2017, following the recommendation of its Compensation Committee, the Neothetics Board approved a cash incentive award of $150,000 to Susan A. Knudson under the Neothetics, Inc. 2014 Equity Incentive Plan, or the 2014 Plan. Payment of the cash award is contingent upon consummation of the merger and that Ms. Knudson’s service has not terminated prior to the consummation of the merger.

Potential Benefits upon Change in Control of Neothetics

Pursuant to the executive employment agreement, dated October 15, 2014, by and between Neothetics and Ms. Knudson, in the event that Ms. Knudson is terminated within 12 months following a change in control, she will be entitled to a severance package consisting of (a) a lump sum payment equal to 12 months of her then in effect base salary, (b) payment by us of the premiums required to continue Ms. Knudson’s group health coverage for a period of 12 months following termination and (c) full acceleration of all unvested equity awards under the 2007 Stock Plan and 2014 Plan.

Golden Parachute Compensation

The following table and related footnotes present information about the compensation payable to Ms. Knudson, Neothetics’ sole remaining named executive officer, in connection with the merger and her associated termination without cause from Neothetics. The compensation shown in the table below is intended to comply with Item 402(t) of Regulation S-K, which requires disclosure of information about compensation for each named executive officer that is based on or otherwise relates to the merger. Ms. Knudson is not entitled to any pension or non-qualified deferred compensation benefits or enhancements or any tax reimbursements in connection with the merger.

 

Named Executive Officer

   Cash
($)(1)
     Equity
($)(2)
     Pension/
NDQC ($)
     Perquisites/
Benefits
($)(3)
     Tax
Reimbursements
($)
     Other
($)(4)
     Total
($)
 

Susan Knudson

   $ 317,000      $ 5,828        —        $ 24,939        —        $ 150,000      $ 497,767  

 

(1) Amounts in this column represent lump sum severance amount equal to 12 months of base salary for Ms. Knudson payable in accordance with Ms. Knudson’s executive employment agreement with Neothetics upon termination without cause.
(2) These amounts represent the estimated intrinsic value of Ms. Knudson’s unvested stock options that will accelerate and vest upon the consummation of the merger if Ms. Knudson is terminated without cause following the closing of the merger as is currently expected. “Intrinsic value” refers to the excess of the average closing market price of Neothetics’ common stock over the first five business days following October 17, 2017, the date of the first announcement of the merger, over the aggregate exercise price of the Neothetics stock options held by Ms. Knudson that were unvested as of October 20, 2017. In addition, Ms. Knudson holds underwater options to purchase 129,527 having a weighted average exercise price of $2.54.
(3) Amounts equal the premiums necessary to continue under COBRA the health insurance coverage in effect for Ms. Knudson prior to termination under the terms of their respective executive severance agreements in the event Ms. Knudson is terminated without cause following the merger.
(4) Amounts represent the cash bonuses payable contingent upon consummation of the merger, as approved the Neothetics Board in July 2017 and discussed in more detail above under “2017 Retention/Performance Bonus.”

Ownership Interest

As of October 20, 2017, the directors and executive officers of Neothetics beneficially owned 42.39% of the outstanding shares of Neothetics common stock. See the section entitled “Principal Stockholders of Neothetics” beginning on page 236 of this proxy statement/prospectus/information statement for more information.

 

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Other Neothetics Director Interests

It is anticipated that Kim P. Kamdar, Ph.D. will serve as a director of the combined company following the effective time of the merger.

Indemnification of the Neothetics Officers and Directors

The Merger Agreement provides that, for a period of six years following the effective time of the merger, Neothetics will, to the fullest extent permitted by Delaware law, indemnify and hold harmless all individuals who are present or former directors and officers or who become, prior to the effective date of the merger, director or officers of Neothetics or Evofem, against all claims, losses, liabilities, damages, judgments, fines and reasonable fees, costs and expenses, including attorneys’ fees and disbursements, incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to the fact that such person is or was a director or officer of Neothetics or Evofem. In addition, for a period of six years following the effective time of the merger, the certificate of incorporation and bylaws of Neothetics will contain provisions no less favorable with respect to indemnification of present and former directors and officers of Evofem than are presently set forth in the certificate of incorporation and bylaws of Neothetics.

The Merger Agreement also requires that Neothetics purchase an insurance policy which maintains in effect for six years from the closing the current directors’ and officers’ liability insurance policies currently maintained by Neothetics; provided, that Neothetics may substitute such policies with policies of at least the same coverage containing terms and conditions that are not materially less favorable.

 

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THE MERGER AGREEMENT

The following is a summary of the material terms of the Merger Agreement. A copy of the Merger Agreement is attached as Annex A to this proxy statement/prospectus/information statement and is incorporated by reference into this proxy statement/prospectus/information statement. The Merger Agreement has been attached to this proxy statement/prospectus/information statement to provide you with information regarding its terms. It is not intended to provide any other factual information about Neothetics, Evofem or Merger Sub. The following description does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement. You should refer to the full text of the Merger Agreement for details of the merger and the terms and conditions of the Merger Agreement.

The Merger Agreement contains representations and warranties that Neothetics and Merger Sub, on the one hand, and Evofem, on the other hand, have made to one another as of specific dates. These representations and warranties have been made for the benefit of the other parties to the Merger Agreement and may be intended not as statements of fact but rather as a way of allocating the risk to one of the parties if those statements prove to be incorrect. In addition, the assertions embodied in the representations and warranties are qualified by information in confidential disclosure schedules exchanged by the parties in connection with signing the Merger Agreement. While Neothetics and Evofem do not believe that these disclosure schedules contain information required to be publicly disclosed under the applicable securities laws, other than information that has already been so disclosed, the disclosure schedules do contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the attached Merger Agreement. Accordingly, you should not rely on the representations and warranties as current characterizations of factual information about Neothetics or Evofem, because they were made as of specific dates, may be intended merely as a risk allocation mechanism between Neothetics and Merger Sub, and Evofem and are modified by the disclosure schedules.

General

Under the Merger Agreement, Merger Sub, a wholly owned subsidiary of Neothetics formed by Neothetics in connection with the merger, will merge with and into Evofem, with Evofem surviving as a wholly owned subsidiary of Neothetics.

Merger Consideration

Immediately prior to the effective time of the merger, each share of Evofem preferred stock (other than shares of Evofem Series D Preferred Stock) outstanding at such time will be converted into one share of Evofem common stock in accordance with the Evofem certificate of incorporation then in effect. Shares of Evofem Series D Preferred Stock will not convert into shares of Evofem common stock in connection with the merger. At the effective time of the merger:

 

    each share of Evofem common stock issued and outstanding immediately prior to the effective time of the merger (including shares of Evofem common stock issued upon conversion of shares of Evofem preferred stock and shares of Evofem common stock issued upon exercise of the Investor Warrants described in the section entitled “Agreements Related to the Merger — Securities Purchase Agreement” beginning on page 128 of this proxy statement/prospectus/information statement) will be converted into and represent the right to receive a number of shares of Neothetics common stock equal to the common stock exchange ratio, as described below;

 

    each share of Evofem Series D Preferred Stock issued and outstanding immediately prior to the effective time of the merger will be converted into and represent the right to receive a number of shares of Neothetics common stock equal to the Series D Preferred Stock exchange ratio, as described below;

 

    each Evofem Option will be assumed by Neothetics and will become a Neothetics Option, multiplied by the common stock exchange ratio (and rounding the resulting number down to the nearest whole share), at an exercise price equal to the per share exercise price of such Evofem Option divided by the common stock exchange ratio (and rounding the resulting number up to the nearest whole cent); and

 

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    Evofem Warrants will be assumed by Neothetics and then immediately amended and restated to become the Neothetics Post-Merger Warrants.

No fractional shares of Neothetics common stock will be issuable pursuant to the merger to Evofem stockholders. Instead, each Evofem stockholder who would otherwise be entitled to receive a fraction of a share of Neothetics common stock, after aggregating all fractional shares of Neothetics common stock issuable to such stockholder, will be entitled to receive in cash the dollar amount, rounded down to the nearest whole cent, without interest, determined by multiplying such fraction by the average of the closing prices of a share of Neothetics common stock as quoted on The NASDAQ Capital Market for the ten consecutive trading days ending with the second to last trading day immediately preceding the effective time of the merger.

Exchange Ratios

The exchange ratios are calculated using formulas intended to allocate to the existing Neothetics securityholders a percentage of the combined company based on (i) the relative valuations agreed upon by the parties of $171.4 million for Evofem and $28.6 million for Neothetics and (ii) imputing the aggregate value of investments made by existing Evofem investors in the Financing immediately following the merger. The exchange ratios are also intended to take into account the liquidation preference and accrued dividends payable to the holders of Evofem Series D Preferred Stock in connection with the merger pursuant to the terms of Section 2(a) of Article IV(B) of Evofem’s amended and restated certificate of incorporation. See the section entitled “Comparison of the Rights of Neothetics Stock and Evofem Stock — Liquidation Preference” beginning on page 226 of this proxy statement/prospectus/information statement.

Per the exchange ratio formulas in the Merger Agreement, the aggregate number of shares of Neothetics common stock to be issued to the holders of Evofem capital stock in the merger, or Evofem Merger Shares, is 82,893,740 shares subject to adjustment for the Reverse Stock Split and as set forth in Section 1.12(b) of the Merger Agreement.

The Series D exchange ratio means the quotient obtained by dividing the Series D Preference Merger Shares (as defined below) by the number of issued and outstanding shares of Evofem Series D Preferred Stock immediately prior to the effective time of the merger.

 

    Series D Preference Merger Shares means the number of Evofem Merger Shares (rounded up to the nearest whole share) equal to the quotient of the Series D Preference Amount (as defined below) divided by $2.0677.

 

    The Series D Preference Amount is the aggregate amount (in United States dollars) payable to holders of outstanding shares of Evofem Series D Preferred Stock pursuant to Section 2(a) of Article IV(B) of Evofem’s amended and restated certificate of incorporation in connection with the consummation of the merger.

The common stock exchange ratio means the quotient obtained by dividing the Common Merger Shares by the number of Common Exchange Ratio Outstanding Shares (as defined below).

 

    Common Merger Shares means the number of Evofem Merger Shares equal to the difference of the aggregate number of Evofem Merger Shares minus the Series D Preference Merger Shares.

 

    Common Exchange Ratio Outstanding Shares means the total number of Evofem common stock outstanding immediately prior to the consummation of the merger (on an as converted to common stock basis with respect to shares of Evofem Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series C-1 Preferred Stock) and assuming full net exercise of the Investor Warrants.

The number of Evofem Common Merger Shares, the number of Evofem Series D Merger Shares, and the number of Evofem Merger Shares is subject to adjustment to reflect the ownership percentages set forth on Schedule

 

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1.12(d) of the Merger Agreement and to reflect the proposed Reverse Stock Split. No adjustment will be made to the common stock exchange ratio or Series D Preferred Stock exchange ratio in respect of the Financing.

The Merger Agreement does not include a price-based termination right, so there will be no adjustment to the total number of shares of Neothetics common stock that Evofem stockholders, option holders and warrant holders will be entitled to receive for changes in the market price of Neothetics common stock. Accordingly, the market value of the shares of Neothetics common stock issued pursuant to the merger will depend on the market value of the shares of Neothetics common stock at the time of the merger, and could vary significantly from the market value on the date of this proxy statement/prospectus/information statement.

Procedures for Exchanging Evofem Stock Certificates

The Merger Agreement provides that, as soon as practicable after the effective time of the merger, Neothetics will issue and deposit with the exchange agent non-certificated shares of Neothetics common stock represented by book-entry issuable to the Evofem stockholders and a sufficient amount of cash to make payments in lieu of fractional shares.

The Merger Agreement provides that, as soon as reasonably practicable after the effective time of the merger, the exchange agent will mail to each record holder of Evofem capital stock a letter of transmittal and instructions for surrendering and exchanging the record holder’s Evofem stock certificates for shares of Neothetics common stock. Upon surrender of an Evofem stock certificate for exchange to the Exchange Agent, together with a duly signed letter of transmittal and such other documents as the exchange agent or Neothetics may reasonably require, the Evofem stock certificate surrendered will be cancelled and the holder of the Evofem stock certificate will be entitled to receive the following:

 

    non-certificated shares of Neothetics common stock represented by book-entry that such holder has the right to receive pursuant to the provisions of the Merger Agreement; and

 

    cash in lieu of any fractional share of Neothetics common stock.

At the effective time of the merger, all shares of Evofem capital stock outstanding immediately prior to the effective time of the merger will be cancelled and all holders of Evofem capital stock that was outstanding immediately prior to the effective time of the merger will cease to have any rights as stockholders of Evofem. In addition, the stock transfer books of Evofem will be closed with respect to all shares of Evofem capital stock outstanding immediately prior to the effective time of the merger and no transfer of any shares of Evofem capital stock will be made after the effective time of the merger on such stock transfer books.

If any Evofem stock certificate has been lost, stolen or destroyed, Neothetics’ transfer agent, Philadelphia Stock Transfer, Inc. acting as exchange agent for the merger, or the Exchange Agent, will, as a condition to the delivery of any shares of Neothetics common stock, require the owner of such lost, stolen or destroyed certificate to provide an appropriate affidavit and as indemnity against any claim that may be made against the Exchange Agent, Neothetics or the surviving corporation with respect to a lost, stolen or destroyed certificate.

From and after the effective time of the merger, until it is surrendered, each certificate that previously evidenced Evofem capital stock will be deemed to represent only the right to receive shares of Neothetics common stock and cash in lieu of any fractional share of Neothetics common stock. No dividends or distributions declared or made with respect to Neothetics common stock with a record date after the effective time of the merger will be paid to the holder of any unsurrendered certificate representing shares of Evofem capital stock with respect to the shares of Neothetics common stock that such holder has the right to receive in the merger until such holder surrenders such certificate for exchange to the Exchange Agent.

Treatment of Evofem Options

At the effective time of the merger, each Evofem Option, whether vested or not vested, will be converted into a Neothetics Option and each Neothetics Option may be exercised solely for shares of Neothetics common stock.

 

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Neothetics will assume the Evofem Equity Incentive Plan. The number of shares of Neothetics common stock subject to each Neothetics Option will be determined by multiplying (i) the number of shares of Evofem common stock that were subject to the underlying Evofem Option by (ii) the common stock exchange ratio, with the resulting number rounded down to the nearest whole number of shares of Neothetics common stock. The per share exercise price for the Neothetics common stock subject to such Neothetics Option will be determined by dividing (i) the per share exercise price of the underlying Evofem Option by (ii) the common stock exchange ratio, with the resulting number rounded up to the nearest whole cent.

Any restrictions on the exercise of assumed Evofem Options will continue in full force and effect following the conversion and the term, exercisability, vesting schedules, status as an “incentive stock option” under Section 422 of the Code, if applicable, and other provisions of the assumed Evofem Options will generally remain unchanged; provided, that any Evofem Options assumed by Neothetics may be subject to adjustment to reflect changes in Neothetics’ capitalization after the effective time of the merger and that the Neothetics Board or any committee thereof will succeed to the authority of the Evofem Board with respect to each assumed Evofem Option.

Treatment of Evofem Warrants

The Evofem Warrants will be assumed by Neothetics at the effective time and then immediately amended and restated to become the Neothetics Post-Merger Warrants to purchase up to an aggregate of 12 million shares of the Neothetics common stock. The exercise price for the Neothetics Post-Merger Warrants will be equal to the average of the closing sale prices of the Neothetics common stock as quoted on The NASDAQ Capital Market for the 30 consecutive trading day period commencing immediately following the effective time of the merger and will be exercisable for a period commencing on the one year anniversary of the effective time of the merger and ending on the fourth anniversary of the effective time of the merger. Each of the three Neothetics Post-Merger Warrants will be issued as a unit with one Unit Share. Per the terms of the Neothetics Post-Merger Warrants, the Unit Shares may not be transferred separately from the Neothetics Post-Merger Warrants. The Neothetics Post-Merger Warrants will be subject to adjustment for the Reverse Stock Split as well as any other changes in Neothetics’ capitalization after the effective time of the merger.

 

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Directors and Executive Officers of Neothetics Following the Merger

Pursuant to the Merger Agreement, the Neothetics Board immediately after the effective time of the merger will consist of six members designated by Evofem, or the Evofem Appointees, and one independent director designated by Neothetics. Each current director of Neothetics that will no longer be a member of the Neothetics Board after the effective time of the merger will resign effective as of the effective time of the merger. From and after the effective time of the merger, the Neothetics Board will maintain an independent audit committee, and it is anticipated that the company appointees, together with the independent director designated by Neothetics, will allow the Neothetics Board to comply with the requisite NASDAQ independence requirements and all applicable securities laws. Each new director of Neothetics that was not a member of the Neothetics Board immediately before the effective time of the merger will enter into an indemnification agreement with Neothetics within 15 days of their respective appointment. It is anticipated that the Neothetics Board will include the following Evofem appointees, Thomas Lynch, Gillian Greer, CBE, Ph.D., William Hall, Ph.D., M.D., Tony O’Brien, Saundra Pelletier and Colin Rutherford, as well as Kim P. Kamdar, Ph.D., who was appointed by Neothetics. Effective as of the effective time of the merger, Evofem will direct the Neothetics Board to appoint each of the following as executive officers of Neothetics:

 

Name

  

Title

Saundra Pelletier

  

Chief Executive Officer

Justin J. File

  

Chief Financial Officer

Kelly Culwell, M.D.

  

Chief Medical Officer

Russ Barrans

  

Chief Commercial Officer

David R. Friend, Ph.D.

  

Chief Scientific Officer

Alexander A. Fitzpatrick, Esq.

  

General Counsel and Secretary

Amendment to the Amended and Restated Certificate of Incorporation of Neothetics

Stockholders of record of Neothetics common stock on the record date for the Neothetics special meeting will also be asked to approve the certificate of amendment to the amended and restated certificate of incorporation of Neothetics to (i) effect the proposed Reverse Stock Split, (ii) cause the post-merger combined entity not to be governed by Section 203 of the DGCL, and (iii) change the name of the corporation from “Neothetics, Inc.” to “Evofem Biosciences, Inc.” in connection with the merger, each of which requires the affirmative vote of holders of a majority of the outstanding common stock on the record date for the Neothetics special meeting.

Conditions to the Completion of the Merger

Each party’s obligation to effect the merger is subject to the satisfaction or waiver by each of the parties, at or prior to the effective time of the merger, of various conditions, which include the following:

 

    the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, must have been declared effective by the SEC in accordance with the Securities Act and must not be subject to any stop order or proceedings seeking a stop order;

 

    there must not have been any temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the merger that is in effect, and there must not be any proceeding brought by any administrative agency or commission or other governmental body or instrumentality, domestic or foreign, seeking any temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the merger that is pending, and there must not have been any action taken, or any statute, rule, regulation, or order enacted, entered, enforced or deemed applicable to the merger, which makes the consummation of the merger illegal;

 

   

the holders of a majority in voting power of the outstanding shares each class of Evofem preferred stock on the applicable record date, each voting as a separate class, and the holders of a majority in

 

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voting power of the outstanding shares of all Evofem capital stock must have adopted the Merger Agreement and approved the merger, and the holders of a majority of the outstanding shares of Neothetics common stock must have approved the merger, the issuance of Neothetics common stock in the merger and the amended and restated certificate of incorporation of Neothetics, including for purposes of effectuating the Reverse Stock Split;

 

    the shares of Neothetics common stock to be issued in the merger must have been approved for listing on The NASDAQ Capital Market (subject to official notice of issuance); and

 

    any waiting period applicable to the consummation of the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or HSR Act, must have expired or been terminated.

In addition, the obligation of Neothetics to effect the merger is also subject to the satisfaction or waiver of certain conditions, including the following:

 

    the (i) representations and warranties of Evofem in the Merger Agreement with respect to its capital structure and authorization must be true and correct in all material respects and as of the closing date of the merger, with the same force and effect as if made on and as of the closing date of the merger, except for those representations and warranties which address matters only as of a particular date (which must be true and correct in all material respects as of such date) and (ii) representations and warranties of Evofem in the Merger Agreement, other than those with respect to its capital structure, non-contravention and authorization, must be true and correct in all respects on and as of the closing date of the merger, with the same force and effect as if made on and as of the closing date of the merger, expect for those representations and warranties which address matters only as of a particular date (which must be true and correct in all material respects as of such date), or contain inaccuracies that, individually or in the aggregate, do not constitute and would not reasonably be expected to constitute a material adverse effect, provided that for purposes of clause (ii), all “material adverse effect” qualifications and other materiality qualifications limiting the scope of the representations and warranties of Evofem in the Merger Agreement will be disregarded. The merger and the transactions contemplated in connection with the merger must not constitute a breach of Evofem’s representations and warranties with respect to its capital structure;

 

    Evofem must have performed or complied with in all material respects its agreements and covenants required by the Merger Agreement to be performed or complied with by it on or prior to the effective time of the merger;

 

    since the date of the Merger Agreement, there must not have been any change, occurrence or circumstance in the business, results of operations or financial condition of Evofem or any subsidiary of Evofem that (i) prevents Evofem from consummating the merger or (ii) had, individually or in the aggregate, a material adverse effect on the business, financial condition, operations or result of operations of Evofem or its subsidiaries taken as a whole that is continuing, provided, however, that in no event will any of the following, alone or in combination, be deemed to constitute, nor will any of the following be taken into account in determining whether there has occurred a material adverse effect on Evofem:

 

    conditions generally affecting the industries in which Evofem or its subsidiaries participate, or the United States or global economy or capital markets as a whole (only to the extent that, individually or in the aggregate, such effects do not have a disproportionate impact on Evofem and its subsidiaries taken as a whole);

 

    any failure by the Evofem or any of its subsidiaries to meet internal projections or forecasts or third party revenue or earnings predictions for any period ending (or for which revenues or earnings are released) on or after the date of the Merger Agreement (however, any effect causing or contributing to such failures to meet projections or predictions may, if not otherwise to be disregarded pursuant to the terms of the Merger Agreement, constitute a material adverse effect and may be taken into account in determining whether a material adverse effect has occurred);

 

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    any natural disaster or any acts of terrorism, sabotage, military action or war or any escalation or worsening thereof (only to the extent that, individually or in the aggregate, such effects do not have a disproportionate impact on Evofem and its subsidiaries taken as a whole); or

 

    any changes (after the date of the Merger Agreement) in GAAP or applicable laws (only to the extent that, individually or in the aggregate, such effects do not have a disproportionate impact on Evofem and its subsidiaries taken as a whole).

 

    Neothetics must have received written resignations from each resigning member of the board of directors of Evofem and each of its subsidiaries;

 

    The Lock-Up Agreements must be in full force and effect immediately following the completion of the Merger (see section entitled “Agreements Related to the Merger — Lock-Up Agreements” beginning on page 128 of this proxy statement/prospectus/information statement);

 

    Evofem must have delivered a certificate setting forth the allocation of the Evofem Merger Shares to its securityholders;

 

    The Securities Purchase Agreement must be in full force and effect so that the Financing may be completed immediately following the merger;

 

    Evofem must have terminated the Evofem Stockholder Agreement (see the section entitled “Certain Relationships and Related Party Transactions of Evofem — Evofem Stockholder Agreement” beginning on page 213 of this proxy statement/prospectus/information statement) and the Evofem Registration Rights Agreement (see the section entitled “Certain Relationships and Related Party Transactions of Evofem — Registration Rights Agreement” beginning on page 212 of this proxy statement/prospectus/information statement);

 

    Evofem must have delivered to Neothetics certain other officer certificates and deliverables; and

 

    Evofem must have effected a conversion of its preferred stock into common stock (other than the Evofem Series D Preferred Stock) immediately prior to the effective time of the merger.

In addition, the obligation of Evofem to complete the merger is further subject to the satisfaction or waiver of certain conditions, including the following:

 

    the (i) representations and warranties of Neothetics and Merger Sub in the Merger Agreement with respect to their capital structure, non-contravention and authorization must be true and correct in all material respects on and as of the closing date of the merger, with the same force and effect as if made on and as of the closing date of the merger, except for those representations and warranties which address matters only as of a particular date (which must be true and correct in all material respects as of such date) and (ii) representations and warranties of Neothetics and Merger Sub in the Merger Agreement, other than those with respect to their capital structure and authorization, must be true and correct in all respects on and as of the closing date of the merger, with the same force and effect as if made on and as of the closing date of the merger, expect for those representations and warranties which address matters only as of a particular date (which must be true and correct in all material respects as of such date), or contain inaccuracies that, individually or in the aggregate, do not constitute and would not reasonably be expected to constitute a material adverse effect, provided that for purposes of clause (ii), all “material adverse effect” qualifications and other materiality qualifications limiting the scope of the representations and warranties of Neothetics and Merger Sub in the Merger Agreement will be disregarded;

 

    Neothetics and Merger Sub must have performed or complied with in all material respects its agreements and covenants required by the Merger Agreement to be performed or complied with by it on or prior to the effective time of the merger;

 

   

since the date of the Merger Agreement, there must not have been any change, occurrence or circumstance in the business, results of operations or financial condition of Neothetics or any

 

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subsidiary of Neothetics that (i) prevents Neothetics or Merger Sub from consummating the merger or (ii) had, individually or in the aggregate, a material adverse effect on the business, financial condition, operations or result of operations of Neothetics or its subsidiaries taken as a whole, that is continuing, provided, however, that in no event will any of the following, alone or in combination, be deemed to constitute, nor will any of the following be taken into account in determining whether there has occurred a material adverse effect on Neothetics:

 

    conditions generally affecting the industries in which Neothetics participates, or the United States or global economy or capital markets as a whole (only to the extent that, individually or in the aggregate, such effects do not have a disproportionate impact on Neothetics and its subsidiaries taken as a whole);

 

    changes in the trading price or trading volume of Neothetics common stock (however, any effect causing or contributing to such changes in the trading price or trading volume of Neothetics common stock may if not otherwise to be disregarded pursuant to the Merger Agreement, constitute a material adverse effect and may be taken into account in determining whether a material adverse effect has occurred);

 

    any failure by Neothetics or any of its subsidiaries to meet internal projections or forecasts or third party revenue or earnings predictions for any period ending (or for which revenues or earnings are released) on or after the date of the Merger Agreement (however, any effect causing or contributing to such failures to meet projections or predictions may, if not otherwise to be disregarded pursuant to the terms of the Merger Agreement, constitute a material adverse effect and may be taken into account in determining whether a material adverse effect has occurred);

 

    any natural disaster or any acts of terrorism, sabotage, military action or war or any escalation or worsening thereof (only to the extent that, individually or in the aggregate, such effects do not have a disproportionate impact on Neothetics and its subsidiaries taken as a whole); or

 

    any changes (after the date of the Merger Agreement) in GAAP or applicable laws (only to the extent that, individually or in the aggregate, such effects do not have a disproportionate impact on Neothetics and its subsidiaries taken as a whole).

 

    Evofem must have received written resignations from each resigning member of the Neothetics Board and each of its subsidiaries, with such resignation to be effective as of the effective time of the merger;

 

    each of the Evofem appointees has been elected to the Neothetics Board;

 

    Neothetics’ amended and restated investor rights agreement, by and among Neothetics and the stockholders set forth must be terminated on or prior to the date of the merger;

 

    Shares of Neothetics common stock must be approved for listing on The NASDAQ Capital Market and NASDAQ must have approved the listing of shares of Neothetics common stock on The NASDAQ Capital Market following the merger; and

 

    Neothetics must deliver a fully executed Post-Merger Registration Rights Agreement. See the section entitled “Agreements Related to the Merger — Post-Merger Registration Rights Agreement” beginning on page 129 of this proxy statement/prospectus/information statement.

Representations and Warranties

The Merger Agreement contains customary representations and warranties of Neothetics and Evofem for a transaction of this type relating to, among other things:

 

    corporate organization and power, and similar corporate matters;

 

    capital structure;

 

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    financial statements, undisclosed liabilities and with respect to Neothetics, documents filed with the SEC and the accuracy of information contained in those documents;

 

    absence of material changes or events;

 

    title to assets;

 

    real property and leaseholds;

 

    intellectual property;

 

    the validity of material contracts to which the parties or their subsidiaries are a party and any violation, default or breach to such contracts;

 

    liabilities;

 

    regulatory compliance, permits and restrictions;

 

    tax matters;

 

    inapplicability of anti-takeover statutes;

 

    employee benefit plans;

 

    insurance;

 

    compliance with legal requirements;

 

    legal proceedings and orders;

 

    authority to enter into the Merger Agreement and the transactions contemplated by the Merger Agreement;

 

    transactions with affiliates;

 

    votes required for adoption of the Merger Agreement, approval of the merger and approval of the proposals that will come before the Neothetics special meeting;

 

    except as otherwise specifically identified in the Merger Agreement, the fact that the consummation of the merger would not contravene organizational documents, applicable laws or require the consent of any third party;

 

    any brokerage or finder’s fee or other fee or commission in connection with the merger;

 

    with respect to Evofem, labor matters;

 

    with respect to Evofem, environmental matters;

 

    with respect to Evofem, its ability to bid on government contracts;

 

    with respect to Evofem, the availability and accuracy of its books and records;

 

    with respect to Neothetics, that it is not a shell company;

 

    with respect to Neothetics, the opinion of the financial advisor to the Strategic Committee, Oppenheimer, that the merger consideration to be paid by Neothetics in the merger was fair, from a financial point of view, to Neothetics;

 

    with respect to Neothetics, the truth, accuracy and completeness of its representations or warranties in the Merger Agreement and the information contained in its disclosure schedule to the Merger Agreement;

 

    with respect to Neothetics, the valid issuance in the merger of the Neothetics common stock; and

 

    the truth, accuracy and completeness of the information supplied by the parties in this proxy statement/prospectus/information statement.

 

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The representations and warranties are, in many respects, qualified by materiality and knowledge, and will not survive the merger, but their accuracy forms the basis of one of the conditions to the obligations of Neothetics and Evofem to complete the merger.

No Solicitation

Each of Neothetics and Evofem agreed that, except as described below, Neothetics and Evofem will not, and will not authorize or permit any of their respective subsidiaries or any of their respective controlled affiliates, officers, directors, employees, partners, attorneys, accountants, advisors, agents or representatives of such parties or of any such party’s subsidiaries or other controlled affiliates to, directly or indirectly:

 

    solicit, initiate, knowingly encourage, induce or facilitate the making, submission or announcement of any “acquisition proposal,” as defined below, or take any action that would reasonably be expected to lead to an acquisition proposal;

 

    furnish any nonpublic information regarding it to any person in connection with or in response to an acquisition proposal or an inquiry or indication of interest that could lead to an acquisition proposal;

 

    engage in discussions or negotiations with any person with respect to any acquisition proposal;

 

    approve, endorse or recommend an acquisition proposal; or

 

    enter into any letter of intent or similar document or any agreement contemplating or otherwise relating to an acquisition transaction.

An “acquisition proposal” means any offer, proposal or indication of interest contemplating or which would reasonably be interpreted to be lead to the contemplation of an “acquisition transaction,” as defined below.

An “acquisition transaction” means the following:

 

    any merger, consolidation, amalgamation, share exchange, business combination, issuance of securities, acquisition of securities, tender offer, exchange offer or other similar transaction (i) in which Evofem (or its subsidiaries) or Neothetics (or its subsidiaries) is a constituent corporation, (ii) in which a person or “group” (as defined in the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder) of persons directly or indirectly acquires beneficial or record ownership of securities representing more than 15% of the outstanding securities of any class of voting securities of Evofem (or its subsidiaries) or Neothetics (or its subsidiaries), or (iii) in which Evofem (or its subsidiaries) or Neothetics (or its subsidiaries) issues securities representing more than 15% of the outstanding securities of any class of voting securities of any such entity (other than as contemplated under the Merger Agreement);

 

    any sale, lease, exchange, transfer, license, acquisition or disposition of any business or businesses or assets that constitute or account for 15% or more of the consolidated net revenues, net income or assets of Evofem (or its subsidiaries) or Neothetics (or its subsidiaries); or

 

    any liquidation or dissolution of any of Evofem (or its subsidiaries) or Neothetics (or its subsidiaries).

However, before obtaining the applicable Neothetics or Evofem stockholder approvals required to adopt the Merger Agreement, each party may furnish nonpublic information regarding such party and its respective subsidiaries to, may enter into discussions with, or facilitate or cooperate with the submission of an acquisition proposal made by any person in response to any such acquisition proposal, that after consultation with a financial advisor and outside legal counsel, such party’s board of directors determines in good faith is, or would reasonably be expected to result in a “superior offer,” as defined below, (and is not withdrawn) if:

 

    such acquisition proposal did not result from a breach of the no solicitation provisions of the Merger Agreement described above;

 

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    such party’s board of directors concludes in good faith, after having taken into account the advice of its outside legal counsel, that such action is required in order for the board of directors to comply with its fiduciary duty obligations to its stockholders under applicable legal requirements;

 

    at least two business days prior to furnishing any information or entering into discussions with a third party, such party must (i) give the other party written notice of the identity of the third party, the terms and conditions of any proposals or offers (including, if applicable, copies of any written requests, proposals or offers, including proposed agreements) made thereby and of that party’s intention to furnish information to, or enter into discussions with such third party and (ii) such party must receive from the third party an executed confidentiality agreement on terms no less favorable to such party than those in the confidentiality agreement between Neothetics and Evofem, with such new confidentiality agreement to contain customary limitations on the use and disclosure of all nonpublic written and oral information furnished to such third party on or behalf of such party (as well as customary “standstill” provisions if Neothetics is the party entering into a new confidentiality agreement with the third party); and

 

    substantially contemporaneous with furnishing of any information to a third party, such party furnishes the same information to the other party to the extent not previously furnished. Notwithstanding the non-solicitation provisions of the Merger Agreement described above, Evofem is permitted to take, or refrain from taking, any action described above to the extent any such action is taken in connection with or view a view towards consummating a post-closing financing or refinancing, and no such action or omission will be deemed a violation of the non-solicitation provisions of the Merger Agreement.

A “superior offer” means an unsolicited, bona fide written offer made by a third party to purchase all of the outstanding shares of capital stock of either Neothetics or Evofem, as applicable, on terms that the Evofem Board or Neothetics Board, as applicable, determines, in its reasonable judgment, based upon a written opinion of an independent financial advisor of nationally recognized reputation, to be more favorable to its stockholders from a financial point of view than the terms of the merger; provided, however, that any such offer will not be deemed to be a “superior offer” if any financing required to consummate the transaction contemplated by such offer is not committed and is not reasonably capable of being obtained by such third party.

The Merger Agreement also provides that each party will promptly (and in no event later than 24 hours after receipt of any acquisition proposal, any inquiry or indication of interest that could lead to an acquisition proposal or any request for nonpublic information) advise the other orally and in writing of any acquisition proposal, any inquiry or indication of interest that could lead to an acquisition proposal or any request for nonpublic information relating to such party or its subsidiaries (including the identity of the third party making or submitting such acquisition proposal, inquiry, indication of interest or request, the material terms thereof and copies of any written material submitted therewith) that is made or submitted by any third party between the date of the Merger Agreement and the consummation of the merger. Each party will keep the other informed on a prompt basis in all material respects with respect to the status of any such acquisition proposal, inquiry, indication of interest or request and any modification or proposed modification thereto and shall deliver copies of any written material submitted therewith.

The Merger Agreement provides that each party must have immediately ceased and caused to be terminated any discussions that existed at the date the Merger Agreement was signed with any third party that related to any acquisition proposal and such party must have promptly requested from each third party that executed a confidentiality agreement in connection with its consideration of making an acquisition proposal prior to the date of the Merger Agreement to return or destroy all confidential information concerning Evofem or Neothetics, as applicable, or any of their subsidiaries, as applicable, and promptly terminated all physical and electronic data access previously granted to such third party.

 

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Meetings of Stockholders

Neothetics is obligated under the Merger Agreement to take all action necessary under applicable legal requirements to call, give notice of and hold a special meeting of its stockholders to vote on the merger, the issuance of Neothetics common stock in the merger, the proposed certificate of amendment to the amended and restated certificate of incorporation of Neothetics, including for purposes of effectuating the Reverse Stock Split. The Neothetics special meeting will be held as promptly as practicable after the effective date of the registration statement on Form S-4.

If on a date preceding the date on which or the date on which the Neothetics special meeting is scheduled, Neothetics reasonably believes that (i) it will not receive proxies sufficient to obtain the requisite stockholder approval, whether or not a quorum would be present or (ii) it will not have sufficient shares of Neothetics common stock represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of the Neothetics special meeting, Neothetics may (or will, at the Evofem’s direction) postpone or adjourn, or make one or more successive postponements or adjournments of, the Neothetics special meeting as long as the date of the Neothetics special meeting is not postponed or adjourned more than an aggregate of 60 calendar days in connection with any postponements or adjournments in reliance on the preceding sentence.

Evofem is obligated under the Merger Agreement to obtain written consents of its stockholders sufficient for purposes of (i) adopting the Merger Agreement and approving the merger and all other transactions contemplated by the Merger Agreement, (ii) acknowledging that such approval given is irrevocable and that such stockholder is aware of its rights to demand appraisal for its shares pursuant to Section 262 of the DGCL, and that such stockholder has received and read a copy of Section 262 of the DGCL, (iii) acknowledging that by its approval of the merger such stockholder is not entitled to appraisal rights with respect to its shares in connection with the merger and thereby waives any rights to receive payment of the fair value of its Evofem capital stock under Delaware Law and (iv) providing for the conversion of all Evofem preferred stock into Evofem common stock immediately prior to, and contingent upon the occurrence of, the effective time of the merger (clauses (i) though (iv) collectively, the Evofem stockholder matters) no later than 11:59 pm on the date that is second business day following the effective date of this registration statement. Stockholders of Evofem that execute written consents approving the Evofem stockholder matters may revoke such consent until 11:59 pm on the date that is second business day following the effective date of this registration statement.

Covenants; Conduct of Business Pending the Merger

Evofem agreed that to carry on its business in accordance with good commercial practice and to carry on its business in the usual, regular and ordinary course, and in substantially the same manner as conducted previously. Evofem also agreed that, subject to certain limited exceptions, without the written consent of Neothetics, it will not, and will not permit its subsidiaries to do any of the following during the period prior to closing of the merger:

 

    amend or otherwise change its certificate of incorporation or bylaws, or otherwise alter its corporate structure through merger, liquidation, reorganization or otherwise; sell, issue or grant, or authorize the issuance of, or make any commitments to do any of the foregoing, other than as contemplated by the Merger Agreement: any capital stock or other security (except for options or common stock issued to Evofem employees, officers, or directors pursuant to the Evofem Equity Incentive Plan or shares of Evofem common stock issued upon the valid exercise of options); any option, warrant or right to acquire any capital stock or any other security; or any instrument convertible into or exchangeable for any capital stock or other security;

 

    redeem, repurchase or otherwise acquire, directly or indirectly, any shares of Evofem capital stock (other than pursuant a repurchase right in favor of Evofem with respect to unvested shares at no more than cost);

 

   

incur any indebtedness or sell any debt securities or guarantee any debt securities or other obligations of others or sell, pledge, dispose of or create an encumbrance over any assets (except (i) for sales of

 

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assets in the ordinary course of business and in a manner consistent with past practice; (ii) for dispositions of obsolete or worthless assets or (iii) in connection with a post-closing financing or permitted bridge financing);

 

    accelerate, amend or change the period (or permit any acceleration, amendment or change) of exercisability of options or warrants or authorize cash payments in exchange for any Evofem Options, except as may be required under the Evofem Equity Incentive Plan, any other contract, the Merger Agreement or as may be required by applicable legal requirements;

 

    (i) declare, set aside, make or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of any of its capital stock, except that a wholly owned subsidiary may declare and pay a dividend to its parent, (ii) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) amend the terms of, repurchase, redeem or otherwise acquire, or permit any subsidiary to repurchase, redeem or otherwise acquire, any of its securities or any securities of its subsidiaries (except pursuant to any contract to which Evofem or one of its subsidiaries is a party as of the date of the Merger Agreement), or propose to do any of the foregoing;

 

    sell, assign, transfer, license, sublicense or otherwise dispose of any Evofem intellectual property rights (other than in the ordinary course of business consistent with past practice);

 

    (i) acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof or any other material property or assets; (ii) without the consent of Neothetics, which will not be unreasonably withheld, conditioned or delayed, enter into or amend any material terms of any Evofem contract or grant any release or relinquishment of any material rights under any Evofem contract; (iii) authorize any capital expenditures or purchase of fixed assets which are, in the aggregate, in excess of $100,000, taken as a whole not reflected or accounted for in the Evofem budget; or (iv) enter into or amend any contract, agreement, commitment or arrangement to effect any of the matters prohibited by any of the foregoing;

 

    forgive any loans to any person, including its employees, officers, directors or affiliates (provided that the conversion or settlement of any indebtedness of Evofem or one of its subsidiaries into or for equity securities of Evofem or one of its subsidiaries will not be deemed a forgiveness of such indebtedness);

 

    except as contemplated by Evofem’s then existing budget, increase the compensation payable or to become payable to Evofem directors, officers, employees or consultants or grant any severance or termination pay to, or enter into any employment or severance agreement with, any director, officer (except for officers who are terminated on an involuntary basis), employee or consultant, or establish, adopt, enter into or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any such director, officer, consultant or employee, except for bonus awards in the ordinary course of business consistent with past practice or bonus awards contingent upon the completion of the transactions contemplated by this Merger Agreement (of which there are none);

 

    take any action, other than as required by applicable legal requirements or GAAP, to change accounting policies or procedures;

 

    make or change any material tax election inconsistent with past practices; adopt or change any tax accounting method; settle or compromise any material federal, state, local or foreign tax liability or agree to an extension of a statute of limitations for any assessment of any tax;

 

    pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice;

 

    enter into any material partnership arrangements, joint development agreements or strategic alliances, other than in connection with a post-closing financing or refinancing;

 

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    initiate any litigation, action, suit, proceeding, claim or arbitration or settle or agree to settle any litigation, action, suit, proceeding, claim or arbitration;

 

    make any material expenditure that is inconsistent with those expenditures contemplated by the Evofem budget (provided that nothing herein shall prevent Evofem from making payments on expenses incurred prior to the date of the Merger Agreement and, provided further, that nothing herein shall be deemed to permit Evofem to make any expenditures relating to the consummation of a public offering of Evofem’s capital stock); or

 

    amend, modify, waive or otherwise alter the Evofem Support Agreements in any material respect or consent to the transfer of any Evofem stock held or managed by the signatories thereto.

Neothetics agreed that to carry on its business in accordance with good commercial practice and to carry on its business in the usual, regular and ordinary course, and in substantially the same manner as conducted previously. Neothetics also agreed that, subject to certain limited exceptions, without the written consent of Evofem, it will not, and will not permit its subsidiaries to do any of the following during the period prior to closing of the merger:

 

    except for the amendment to its amended and restated certificate of incorporation to effect the proposed Reverse Stock Split, amend or otherwise change its certificate of incorporation or bylaws, or otherwise alter its corporate structure through merger, liquidation, reorganization or otherwise, or form any subsidiary);

 

    issue, sell, pledge, dispose of or encumber, or authorize the issuance, sale, pledge, disposition or encumbrance of, any shares of capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of capital stock, or any other ownership interest (including, without limitation, any phantom interest), other than the issuance of shares of common stock issuable pursuant to employee stock options under currently existing employee stock option plans or pursuant to currently outstanding warrants, as the case may be, which options, warrants or rights, as the case may be, are outstanding on the date of the Merger Agreement;

 

    redeem, repurchase or otherwise acquire, directly or indirectly, any shares of Neothetics capital stock, other than as may be required by the Reverse Stock Split;

 

    incur any indebtedness or sell, pledge, dispose of or create an encumbrance over any assets (except for (i) sales of assets in the ordinary course of business and in a manner consistent with past practice or (ii) dispositions of obsolete or worthless assets;

 

    accelerate, amend, or change the period (or permit any acceleration, amendment, or change) of exercisability of options or warrants or authorize cash payments in exchange for any options, except as may be provided under Neothetics’ stock plan, contract, or the Merger Agreement, or as may be required by applicable legal requirements;

 

    (i) declare, set aside, make or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of any of its capital stock, except that a wholly owned subsidiary may declare and pay a dividend to its parent, (ii) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) amend the terms of, repurchase, redeem or otherwise acquire, or permit any subsidiary to repurchase, redeem or otherwise acquire, any of its securities or any securities of its subsidiaries (except pursuant to any contract to which Neothetics or one of its subsidiaries is a party as of the date of the Merger Agreement), or propose to do any of the foregoing;

 

   

(i) acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof or any other material property or assets, or allow any material property or assets to become subject to any encumbrance; (ii) enter into or amend any material terms of any material contract (other than solely to decrease any payment obligation of Neothetics or

 

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one of its subsidiaries) or grant any release or relinquishment of any material rights under any material contract, with new obligations or losses of rights in excess of $100,000 in the aggregate; (iii) authorize any capital expenditures or purchase of fixed assets which are, in the aggregate, in excess of $100,000, taken as a whole; or (iv) enter into or amend any contract, agreement, commitment or arrangement to effect any of the matters prohibited by any of the foregoing;

 

    forgive any loans to any person, including its employees, officers, directors or affiliates;

 

    increase the compensation payable or to become payable to its directors, officers, employees or consultants or grant any severance or termination pay to, or enter into any employment or severance agreement with, any director, officer (except for officers who are terminated on an involuntary basis), employee or consultant, or establish, adopt, enter into or amend any collective bargaining, bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, agreement, trust, fund, policy or arrangement for the benefit of any such director, officer, consultant or employee (other than securing a liability “tail” policy for the directors’ and officers’);