Investing in our common stock involves a high degree of risk. You should carefully consider the risks described
below, together with the other information contained in this Annual Report, including our financial statements and the related notes appearing elsewhere in this Annual Report, before making your decision to invest in shares of our common stock. We
cannot assure you that any of the events discussed in the risk factors below will not occur. These risks could have a material and adverse impact on our business, results of operations, financial condition and cash flows and our future prospects
would likely be materially and adversely affected. If that were to happen, the trading price of our common stock could decline, and you could lose all or part of your investment.
Risks Related to the Merger
The ratio setting forth the number of shares of Edge common stock that will be issued in respect of each outstanding
share of PDS capital stock, or the Exchange Ratio, is not adjustable based on the market price of Edge 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 Exchange Ratio for the PDS common stock, and the Exchange Ratio is only adjustable upward or downward
based on increases or decreases in the number of shares of PDS’s issued and outstanding capital stock and the number of shares of PDS common stock issuable upon the exercise of all issued and outstanding equity awards, increases or decreases the
number of Edge’s issued and outstanding common stock, if the cash balances at closing of either Edge or PDS fall outside a pre-determined range, and the proposed reverse stock split, prior to the closing of the merger. The Exchange Ratio will
depend on the exact reverse stock split ratio that is ultimately mutually determined by Edge and PDS and certain changes in the capitalization of the two companies, as well as the cash balances of both companies relative to the agreed upon ranges.
If there is a significant divergence in the cash balances of either company relative to the agreed upon ranges there could be a material change to Exchange Ratio, which would affect the stockholders of one party at the expense of the other party.
The longer it takes to complete the merger, the greater the possibility there is for the Company’s cash balances to fall outside of the range. Any changes in the market price of Edge common stock before the closing of the merger will not affect the
number of shares PDS securityholders will be entitled to receive pursuant to the Merger Agreement. Therefore, if before the closing of the merger the market price of Edge common stock declines from the market price on the date of the Merger
Agreement, then PDS stockholders could receive merger consideration with substantially lower value. Similarly, if before the closing of the merger the market price of Edge common stock increases from the market price on the date of the Merger
Agreement, then PDS stockholders could receive merger consideration with substantially more value for their shares of PDS common stock than the parties had negotiated for in the establishment of the Exchange Ratio. Because the Exchange Ratio does
not adjust as a result of changes in the value of Edge common stock, for each one percentage point that the market value of Edge 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 PDS stockholders.
Failure to complete the merger may result in Edge paying a termination fee or expenses to PDS and could harm the
common stock price of Edge and future business and operations of each company.
If the merger is not completed, Edge and PDS are subject to the following risks:
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if the Merger Agreement is terminated under certain circumstances and certain events occur, Edge will be required to pay PDS a termination fee of $1.75 million;
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the price of Edge stock may decline and remain volatile; and
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costs related to the merger, such as legal, accounting and investment banking fees which Edge and PDS estimate will total approximately $
5.3
million, of which $
3.5
million must be paid even if the merger is not completed.
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In addition, if the Merger Agreement is terminated and the Edge Board determines to seek another business combination, there can be no
assurance that Edge or PDS will be able to find a partner willing to provide equivalent or more attractive consideration than the consideration to be provided by each party in the merger.
If the conditions to the merger are not met, the merger may not occur.
Even if the proposals referred to herein are approved by the stockholders of Edge and PDS, specified other conditions must be satisfied
or waived to complete the merger. These conditions are set forth in the Merger Agreement. Edge and PDS 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 Edge and PDS 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 or other causes.
In general, either Edge or PDS can refuse to complete the merger if there is a material adverse change affecting the other party between
November 23, 2018, 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 Edge or PDS,
including:
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any effect, change, event, circumstance or development in general economic or business conditions generally affecting the industries in which PDS or Edge operate;
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any act of war, armed hostilities or terrorism;
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any changes in financial, banking or securities markets;
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the taking of any action required to be taken by the Merger Agreement;
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any changes in accounting requirements or principles or any change in applicable laws, rules or regulations or the interpretation thereof;
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any effect resulting from the announcement or pendency of the merger or any related transactions;
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with respect to Edge, any change in the stock price or trading volume of Edge common stock; or
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with respect to Edge, any clinical trial programs or studies, including any adverse data, event or outcome arising out of or related to any such programs or studies.
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If adverse changes occur and Edge and PDS still complete the merger, the combined company stock price may suffer. This in turn may
reduce the value of the merger to the stockholders of Edge and PDS.
The combined company will need to raise additional capital by issuing securities or debt or through licensing
arrangements, which may cause dilution to the combined company’s stockholders or restrict the combined company’s operations or proprietary rights.
The combined company may be required to raise additional funds sooner than currently planned. Additional financing may not be available
to the combined company when it needs it or may not be available on favorable terms. To the extent that the combined company raises additional capital by issuing equity securities, such an issuance may cause significant dilution to the combined
company’s stockholders’ ownership and the terms of any new equity securities may have preferences over the combined company’s common stock. Any debt financing the combined company enters into may involve covenants that restrict its operations.
These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of the combined company’s assets, as well as prohibitions on its ability to create liens, pay dividends, redeem its stock or make
investments. In addition, if the combined company raises additional funds through licensing or other strategic arrangements, it may be necessary to grant licenses on terms that are not favorable to the combined company or otherwise restrict its
operations.
Certain Edge and PDS 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 Edge and PDS will participate in
arrangements that provide them with interests in the merger that are different from yours, including, among others, the continued service as officers and/or directors of the combined company, severance and retention benefits, the acceleration of
stock options and continued indemnification.
Furthermore, in connection with the closing of the merger, all unvested options to acquire shares of Edge common stock and Edge RSUs
(including those held by Edge officers and the Edge Board members (including Edge RSUs for 10,000 shares of Edge common stock held by each of Robert Spiegel, M.D., FACP, and James J. Loughlin, who are expected to remain on the combined company’s
board of directors, and stock options for 220,607 and 64,286 shares of Edge common stock held by Dr. Spiegel and Mr. Loughlin, respectively)) will vest in full. The exercise price of all unvested stock option awards held by the Edge Board members
and officers was above the trading price of Edge common stock as of December 31, 2018. Additionally, the parties expect that Dr. Sol Barer will enter into a consulting arrangement in connection with serving as an advisor to the board of directors
of the combined company.
In addition, certain of Edge’s executive officers are expected to become executive officers of the combined company upon the closing of
the merger. Specifically, Andrew Saik is expected to serve as Chief Financial Officer of the combined company, and W. Bradford Middlekauff is expected to serve as Senior Vice President, General Counsel and Secretary of the combined company.
Additionally, James Loughlin and Robert Spiegel, each of whom is a current director of Edge, and Andrew Saik, the Chief Financial Officer of Edge, are expected to be designated to serve on the combined company’s board of directors following the
closing of the merger.
Additionally, certain of PDS’s directors and executive officers are expected to become directors and executive officers of the combined
company upon the closing of the merger. Specifically, Frank Bedu-Addo, Ph.D. is expected to serve as the Chief Executive Officer, Lauren Wood, MD is expected to serve as Chief Medical Officer and Gregory Conn, Ph.D. is expected to serve as the
Chief Scientific Officer of the combined company. Additionally, each of Frank Bedu-Addo, Ph.D.
,
DeLyle Bloomquist, Sir Richard Sykes and Gregory Freitag, each of whom is a
current director of PDS, are expected to be designated to serve on the combined company’s board of directors following the closing of the merger.
In addition, certain of PDS’s executive officers and directors and affiliates of PDS’s directors currently hold shares of PDS common
stock and preferred stock. Affiliates of certain PDS directors and certain executive officers of PDS will convert their unsecured subordinated convertible promissory notes into shares of PDS common stock prior to the closing of the merger pursuant
to the note purchase agreement.
The market price of the combined company’s common stock following the merger may decline as a result of the merger.
The market price of the combined company’s common stock may decline as a result of the merger for a number of reasons including if:
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investors react negatively to the prospects of the combined company’s business and prospects from the merger;
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the effect of the merger on the combined company’s business and prospects is not consistent with the expectations of financial or industry analysts; or
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the combined company does not achieve the perceived benefits of the merger as rapidly or to the extent anticipated by financial or industry analysts.
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Edge and PDS stockholders may not realize a benefit from the merger commensurate with the ownership dilution they
will experience in connection with the merger.
If the combined company is unable to realize the full strategic and financial benefits currently anticipated from the merger, Edge and
PDS securityholders 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
company is able to realize only part of the strategic and financial benefits currently anticipated from the merger.
During the pendency of the merger, Edge and PDS 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 Edge and PDS to make acquisitions, subject, in the case of Edge, to certain
exceptions relating to fiduciary duties, or complete other transactions that are not in the ordinary course of business pending the closing 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, in the case of Edge, certain exceptions. Any 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 Edge and PDS from soliciting alternative takeover proposals or cooperating with
persons making unsolicited takeover proposals, except, with respect to Edge, in certain circumstances where the Edge Board determines in good faith, after consultation with its financial advisor and outside legal counsel, that an unsolicited
alternative takeover proposal constitutes or is reasonably likely to result in a superior takeover proposal. In addition, if Edge or PDS terminate the Merger Agreement under certain circumstances, including terminating because of a decision of a
board of directors to recommend an alternative proposal, Edge would be required to pay a termination fee of $1.75 million to the other party. These termination fees and reimbursement obligations described above may discourage third parties from
submitting alternative takeover proposals to Edge and its stockholders, and may cause the Edge Board to be less inclined to recommend an alternative proposal.
The lack of a public market for PDS shares makes it difficult to determine the fair market value of the PDS shares, and PDS stockholders
may receive consideration in the merger that is less than the fair market value of the PDS shares and/or Edge may pay more than the fair market value of the PDS shares.
PDS is privately held and its capital stock is not traded in any public market. The lack of a public market makes it extremely difficult
to determine PDS’s fair market value. Because the percentage of Edge equity to be issued to PDS stockholders was determined based on negotiations between the parties, it is possible that the value of the Edge common stock to be received by PDS
stockholders will be less than the fair market value of PDS, or Edge may pay more than the aggregate fair market value for PDS.
Risks Related to the Merger and Edge’s Evaluation of Strategic Alternatives
If the merger is not completed, Edge may be unsuccessful in completing an alternative transaction on terms that are
as favorable as the terms of the proposed transaction with PDS, or at all, and Edge may be unable to reestablish an operating business. The Edge Board may decide to pursue a dissolution and liquidation of Edge. In such an event, the amount of cash
available for distribution to Edge’s stockholders 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.
On March 28, 2018, Edge announced that an independent Data Monitoring Committee, or the DMC, for Edge’s NEWTON 2 clinical trial for
EG-1962 recommended that the NEWTON 2 study be stopped based on the DMC’s conclusion that the study has a low probability of meeting its primary endpoint. Based on the DMC recommendation, Edge decided to discontinue the NEWTON 2 study and has taken
steps to notify health authorities and clinical investigators participating in the study. Edge has ceased all further development of EG-1962 and Edge’s other product candidates and has implemented operating cost reductions and organizational
restructurings, including a reduction in Edge’s workforce, to preserve Edge’s cash resources. Edge’s strategic focus shifted to the identification and evaluation of a range of potential strategic alternatives designed to maximize stockholder value.
In April 2018, Edge engaged Piper Jaffray as Edge’s advisor to assist with the exploration of strategic alternatives. Edge devoted
substantial time and resources to exploring such strategic alternatives.
To date, Edge’s current assets consist primarily of cash, cash equivalents and marketable securities, Edge’s clinical assets, Edge’s
listing on the Nasdaq Global Market and the Merger Agreement with PDS. While Edge has entered into the Merger Agreement with PDS, the closing of the merger with PDS may be delayed or may not occur at all and there can be no assurance that the
merger will deliver the anticipated benefits Edge expects or enhance shareholder value.
If Edge is unable to consummate the merger with PDS, the Edge Board may elect to pursue an alternative strategy, one of which may be a
strategic transaction similar to the proposed merger with PDS. Attempting to complete an alternative transaction will be costly and time consuming, and Edge can make no assurances that such an alternative transaction would occur at all.
Alternatively, the Edge Board may elect to continue operations to conduct another study of EG-1962 or decide to pursue a dissolution and liquidation of the company. In such an event, the amount of cash available for distribution to Edge’s
stockholders 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 Edge continues to fund its operations. In addition, if the Edge Board was to approve and
recommend, and Edge’s stockholders were to approve, a dissolution and liquidation of the company, Edge 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 Edge’s stockholders. Edge’s commitments and contingent liabilities may include severance obligations, regulatory and clinical obligations remaining under Edge’s NEWTON 2
study, fees and expenses related to the merger and liabilities relating to investigations of or litigation against Edge and other various claims and legal actions. As a result of this requirement, a portion of Edge’s assets may need to be reserved
pending the resolution of such obligations. In addition, Edge may be subject to litigation or other claims related to a dissolution and liquidation. If a dissolution and liquidation were pursued, the Edge 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 Edge 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.
Failure to obtain stockholder approval for the proposed reverse stock split may result in the combined company being
unable to obtain compliance with minimum bid price requirements for an initial listing on any Nasdaq market tier and may result in Edge common stock being delisted from the Nasdaq Global Select Market.
Edge is required pursuant to the terms of the Merger Agreement to submit to its stockholders a proposal to approve an amendment to its
certificate of incorporation to authorize the Edge Board to effect a reverse stock split of all outstanding shares of its common stock, or the Reverse Stock Split Proposal. If the Reverse Stock Split Proposal is not approved by Edge’s stockholders,
the combined company will likely not be able to obtain compliance with the minimum bid price requirement for an initial listing on any Nasdaq market tier and, as a consequence, to the extent the merger is consummated under such circumstances,
Nasdaq will immediately provide the combined company with written notification that the combined company’s common stock will be delisted.
Upon receipt of such delisting letter, the combined company will likely appeal the determination to the Nasdaq hearings panel, or the
Hearing Panel. If the combined company has not regained compliance with Nasdaq listing requirements prior to such hearing, and the Hearing Panel decides to continue with delisting of the combined company, the Hearing Panel’s decision may be
appealed to the Nasdaq Listing and Hearing Review Council but such appeal would not stay the delisting process.
The issuance of shares of Edge common stock to PDS stockholders in the merger will dilute substantially the voting
power of Edge’s current stockholders.
If the merger is completed, each outstanding share of PDS common stock will be converted into the right to receive a number of shares of
Edge common stock equal to the Exchange Ratio determined pursuant to the Merger Agreement. Immediately following the merger, Edge securityholders are expected to own approximately 30% of the outstanding capital stock of the combined company on a
fully diluted basis, and PDS securityholders are expected to own approximately 70% of the outstanding capital stock of the combined company on a fully diluted basis. Accordingly, the issuance of shares of Edge common stock to PDS stockholders in
the merger will reduce significantly the relative voting power of each share of Edge common stock held by Edge’s current securityholders. Consequently, Edge securityholders as a group will have significantly less influence over the management and
policies of the combined company after the merger than prior to the merger.
If the combined company after the merger is unable to realize the strategic and financial benefits currently anticipated from the
merger, the Edge stockholders and the PDS stockholders will have experienced substantial dilution of their ownership interests in their respective companies without receiving the expected commensurate benefit, or receiving only part of the
commensurate benefit to the extent the combined company is able to realize only part of the expected strategic and financial benefits currently anticipated from the merger.
The pendency of the merger could have an adverse effect on the trading price of Edge common stock and Edge’s
business, financial condition, results of operations or business prospects.
While there have been no significant adverse effects to date, the pendency of the merger could disrupt Edge’s businesses in the
following ways, including:
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the attention of Edge’s management may be directed toward the closing of the merger and related matters and may be diverted from the day-to-day business operations; and
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third parties may seek to terminate or renegotiate their relationships with Edge as a result of the merger, whether pursuant to the terms of their existing agreements with
Edge or otherwise.
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Should they occur, any of these matters could adversely affect the trading price of Edge common stock or harm Edge’s financial
condition, results of operations or business prospects.
Stockholder litigation and regulatory inquiries and investigations are expensive and could harm Edge’s business,
financial condition and operating results and could divert management attention.
In the past, securities class action litigation and/or stockholder derivative litigation and inquiries or investigations by regulatory
authorities have often followed certain significant business transactions, such as the sale of a company or announcement of any other strategic transaction, such as the merger, or the announcement of negative events, such as negative results from
clinical trials. Edge is currently and may in the future be the target of this type of litigation as a result of changes in Edge’s stock price, past transactions, results of clinical trials or other matters. Any stockholder litigation and/or
regulatory investigations against Edge, whether or not resolved in Edge’s favor, could result in substantial costs and divert Edge’s management’s attention from other business concerns, which could adversely affect Edge’s business and cash
resources and Edge’s ability to consummate a potential strategic transaction or the ultimate value Edge’s stockholders receive in any such transaction.
Edge is substantially dependent on Edge’s remaining employees to facilitate the consummation of a strategic
transaction.
On May 1, 2018, Edge announced that it planned to reduce its workforce by 29 to a total of eight full-time employees. Edge’s ability to
successfully complete a strategic transaction depends in large part on Edge’s ability to retain certain of its remaining personnel. Despite Edge’s efforts to retain these employees, one or more may terminate their employment with Edge on short
notice. The loss of the services of any of these employees could potentially harm Edge’s ability to consummate the merger, to run Edge’s day-to-day operations, as well as fulfill Edge’s reporting obligations as a public company.
There is no assurance that the proposed merger will be completed in a timely manner or at all. If the merger is not
consummated, Edge’s business could suffer materially and its stock price could decline.
The closing of the proposed merger is subject to a number of closing conditions, including the approval by Edge’s stockholders of the
issuance of shares of Edge common stock pursuant to the Merger Agreement and the proposed reverse stock split of Edge common stock and other customary closing conditions. If the conditions are not satisfied or waived, the merger will not occur or
will be delayed.
If the proposed merger is not consummated, Edge may be subject to a number of material risks, and Edge’s business and stock price could
be adversely affected, as follows:
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Edge has incurred and expects to continue to incur significant expenses related to the proposed merger even if the merger is not consummated;
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Edge could be obligated to pay PDS a termination fee of up to $1.75 million under certain circumstances pursuant to the Merger Agreement;
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the market price of Edge common stock may decline to the extent that the current market price reflects a market assumption that the proposed merger will be completed; and
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Edge may not be able to pursue an alternate merger transaction if the proposed merger with PDS is not completed.
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Risks Related to Development and Regulatory Approval
Edge may not be able to successfully develop or obtain regulatory approval for EG-1962 or any other product
candidate.
Edge has ceased all research and development activities for EG-1962 and its other product candidates. Edge currently has no drug
products for sale and may never be able to develop marketable drug products. If Edge were to resume research and development activities, EG-1962 will require substantial additional clinical development, testing, and regulatory approval before Edge
will be permitted to commence its commercialization. No clinical studies have been undertaken with respect to Edge’s only other product candidates, EG-1964 and EG-1965. If Edge were to resume research and development activities, the clinical
studies of Edge’s product candidates will be, and the manufacturing and marketing of Edge’s product candidates will be, subject to extensive and rigorous review and regulation by numerous government authorities in the United States and in other
countries where Edge intends to investigate and, if approved, market any product candidate. If Edge were to resume research and development activities, before obtaining regulatory approvals for the commercial sale of any product candidate, Edge
would have to successfully meet a number of critical developmental milestones. For example, for EG-1962, these would include:
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providing adequate and well-controlled data that the product candidate is safe and effective and shows a significant benefit over the active comparator in patients for the
intended indication;
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demonstrating that the product candidate formulation is reproducible and can meet the relevant release specifications for each market Edge intends to commercialize in; and
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completing the development and scale-up to permit manufacture of Edge’s product candidates in commercial quantities and at acceptable prices.
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The time necessary to achieve these developmental milestones for any individual product candidate is long and uncertain.
If Edge were to resume research and development activities, Edge may not be able to finalize the design or formulation of any product
candidate. In addition, if Edge were to resume research and development activities, Edge may select components, solvents, excipients or other ingredients to include in its product candidates that have not previously been used in approved
pharmaceutical products, which may require Edge to perform additional studies and may delay clinical testing and regulatory approval of its product candidates. If Edge were to resume research and development activities, Edge may not be able to
complete development of any product candidates that will be safe and effective and that will have a commercially reasonable treatment and storage period, and may not be able to commercialize and earn revenue from any products candidates. Moreover,
even if a product candidate can be approved, it could be blocked by competitor patents or exclusivities.
The regulatory approval processes of the FDA and comparable foreign regulatory authorities are inherently
unpredictable, and, to the extent Edge resumes research and development activities, if Edge’s product candidates are subject to multiple cycles of review or Edge is ultimately unable to obtain regulatory approval for its product candidates, Edge’s
business will be substantially harmed. In addition, the regulatory approval processes can delay clinical trials, which can jeopardize the ability to generate revenues from the sale of products.
Of the large number of drugs in development in the United States, only a small percentage successfully complete the FDA regulatory
approval process and are commercialized. Edge has ceased all research and development activities for EG-1962 and its other product candidates but to the extent that Edge resumes research and development activities, Edge will not be permitted to
market any of product candidates in the United States or in other global markets unless and until Edge receives approval of an NDA from the FDA or the requisite approval from such other global regulatory authorities. Successfully completing
clinical studies and obtaining approval of an NDA is complex, lengthy, and expensive. The FDA or a comparable foreign regulatory authority may delay, limit or deny approval of product candidates for many reasons, including, among others:
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disagreement with, or disapproval of, the design of, procedures for, or implementation of, clinical trials;
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the inability to comply with conditions imposed by a regulatory authority regarding the scope or design of a clinical trial;
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disagreement with the sufficiency of the final content and data included in a marketing application;
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feedback from the FDA or a comparable foreign regulatory authority on results from earlier stage or concurrent preclinical and clinical studies, that might require
modification to the protocol;
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a decision by the FDA or a comparable foreign regulatory authority to suspend or terminate clinical trials at any time for safety issues or for any other reason;
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challenges in meeting regulatory requirements to commence clinical trials in countries outside the United States;
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failure to conduct the trial in accordance with regulatory requirements;
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failure to demonstrate that the product candidate provides an overall benefit to risk or significant enough improvement over the comparator in the proposed indication;
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failure of the product candidate to demonstrate efficacy at the level of statistical significance required for approval;
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a negative interpretation of the data from preclinical studies or clinical trials;
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deficiencies in the manufacturing processes or failure of third party manufacturing facilities to effectively and consistently manufacture product or to pass FDA
pre-approval facility inspection;
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failure to demonstrate adequate and reproducible product stability to support product commercialization;
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failure to adequately demonstrate process performance qualification prior to product commercialization;
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inability to validate analytical and microbiological methods consistent with industry and government agency expectations; or
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changes in governmental regulations or administrative actions.
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Further, if Edge were to resume research and development activities and experiences delays in the completion of, or termination of, any
clinical trial of product candidates, the commercial prospects of those product candidates will be harmed, and Edge’s ability to generate product revenues will be delayed or may not happen at all, which circumstances may significantly harm Edge’s
business, financial condition and prospects.
Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier
studies and trials and non-head-to-head analysis (e.g., historical comparisons) may not be predictive of future trial results.
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any
time during the clinical trial process. The results of preclinical studies and early clinical trials of product candidates may not be predictive of the results of later-stage clinical trials. Many companies in the biotechnology industry have
suffered significant setbacks in advanced clinical trials due to lack of efficacy, failure by the study drug to demonstrate sufficiently improved efficacy over a comparator arm, or adverse safety profiles, notwithstanding promising results in
earlier trials. If Edge were to resume research and development activities, Edge’s future clinical trials may not be successful.
To the extent Edge were to resume research and development activities, even if a product candidate receives
regulatory approval, it may still face future development and regulatory challenges and any approved products will be subject to extensive post-approval regulatory requirements.
To the extent Edge were to resume research and development activities and in the future obtains regulatory approval for a product
candidate, Edge would be subject to extensive ongoing requirements by the FDA and comparable foreign regulatory authorities governing the manufacture, quality control, further development, labeling, packaging, storage, distribution, safety
surveillance, import, export, advertising, promotion, recordkeeping and reporting of safety and other post-market information. The safety profile of any product will continue to be closely monitored by the FDA and comparable foreign regulatory
authorities after approval. If the FDA or comparable foreign regulatory authorities become aware of new safety information after approval of any of Edge’s product candidates, these regulatory authorities may require labeling changes or, depending
on the nature of the safety information, establishment of a Risk Evaluation and Mitigation Strategy, impose significant restrictions on a product’s indicated uses or marketing, impose ongoing requirements for potentially costly post-approval
studies or post-market surveillance, cause a recall or even move to withdraw the marketing approval for the product.
In addition, manufacturers of therapeutic products and their facilities are subject to continual review and periodic inspections by the
FDA and other regulatory authorities for compliance with applicable regulations, including a focused pre-approval inspection in connection with any regulatory submission for approval. If Edge or a regulatory agency discover previously unknown
problems with a product, such as problems with the facility where the product is manufactured, a regulatory agency may take regulatory actions against the manufacturing facility or Edge, leading to a product recall or withdrawal, or suspension of
manufacturing.
If Edge, Edge’s product candidates or the manufacturing facilities for Edge’s product candidates fail to comply with applicable
regulatory requirements, Edge’s ability to commercialize Edge’s products and generate revenue may be significantly limited.
Advertising and promotion of any product candidate that obtains approval in the United States may be heavily scrutinized by the FDA,
including the Office of Prescription Drug Promotion, the Department of Justice, or the DOJ, the Department of Health and Human Services, Office of Inspector General, state attorneys general, members of Congress and the public. Violations, including
promotion of products for unapproved (or off-label) uses, may be subject to enforcement letters, inquiries and investigations, and civil and criminal sanctions by the FDA. Additionally, advertising and promotion of any product candidate that
obtains approval outside of the United States will be heavily scrutinized by comparable foreign regulatory authorities.
In the United States, engaging in impermissible promotion of products, including for off-label uses, can also subject companies to false
claims litigation under federal and state statutes, which can lead to civil and criminal penalties and fines and agreements that materially restrict the manner in which a company can promote or distribute a drug product. These false claims statutes
include the False Claims Act, or FCA, which allows any individual to bring a lawsuit against a pharmaceutical company on behalf of the federal government alleging submission of false or fraudulent claims, or causing to present such false or
fraudulent claims, for payment by a federal program such as Medicare or Medicaid. If the government prevails in the lawsuit, the individual will share in any fines or settlement funds. Since 2004, these FCA lawsuits against pharmaceutical companies
have increased significantly in volume and breadth, leading to several substantial civil and criminal settlements based on certain sales practices promoting off-label drug uses. This growth in litigation has increased the risk that a pharmaceutical
company will have to defend a false claim action, pay settlement fines or restitution, agree to comply with burdensome reporting and compliance obligations, and be excluded from the Medicare, Medicaid, and other federal and state healthcare
programs. If Edge does not lawfully promote any approved products, Edge may become subject to such litigation and, if Edge is not successful in defending against such actions, those actions may have a material adverse effect on Edge’s business,
financial condition and results of operations.
Failure to obtain regulatory approval in international jurisdictions would prevent Edge’s product candidates from
being marketed abroad.
To the extent Edge were to resume research and development activities, and in the future obtains regulatory approval for a product
candidate, in order to market and sell Edge’s products in the EU, Canada, Japan and other international jurisdictions, Edge would have to obtain separate and distinct marketing approvals and comply with the respective regulatory requirements of
each of these jurisdictions. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval, but can involve additional testing or safety surveillance. Edge may need to partner
with third parties in order to obtain regulatory approvals outside the United States. Approval by the FDA does not necessarily guarantee approval by regulatory authorities in other countries or jurisdictions. Nor does the approval by one regulatory
authority outside the United States ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. Edge may not be able to file for marketing approvals and may not receive necessary approvals to commercialize Edge’s
products in any market. If Edge is unable to obtain approval of any product candidates by regulatory authorities in the EU, Canada, and other international jurisdictions, the commercial prospects of those product candidates may be significantly
diminished and Edge’s business prospects could dramatically decline.
Risks Related to Edge’s Business and Industry
To the extent Edge were to resume research and development activities, Edge’s future success will depend on Edge’s
ability to attract, retain and motivate qualified personnel.
Edge does not have the resources or the required expertise to develop any of its potential product candidates. To the extent Edge were
to seek to resume research and development activities, because of the specialized scientific nature of Edge’s business, it would need to hire additional qualified scientific personnel. The competition for qualified personnel in the pharmaceutical
field is intense and, as a result, Edge may be unable to attract qualified personnel necessary for the future development of Edge’s business.
The pharmaceutical industry is highly competitive and is subject to rapid and significant technological change,
which could render Edge’s technologies and products obsolete or uncompetitive.
If Edge were to resume research and development activities, there is no assurance that Edge’s product candidates will be the most
effective, the safest, the first to market, or the most economical to make or use. The introduction of competitive therapies as alternatives to any of Edge’s product candidates could dramatically reduce the value of those development projects or
chances of successfully commercializing those product candidates, which could have a material adverse effect on Edge’s long-term financial success.
Edge’s business and operations would suffer in the event of system failures.
Despite the implementation of security measures, the servers of Edge’s cloud-based computing providers and other systems, and those of
other third parties on which Edge relies, are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause interruptions
in Edge’s operations, it could result in a material disruption of Edge’s drug development programs if Edge were to resume research and development activities. For example, the loss of clinical trial data from completed or ongoing or planned
clinical trials could result in delays in Edge’s regulatory approval efforts and significantly increase Edge’s costs to recover or reproduce the data. To the extent that any disruption or security breach was to result in a loss of or damage to
Edge’s data or applications, or inappropriate disclosure of confidential or proprietary information, Edge could incur liability and the further development of Edge’s product candidates could be delayed.
Any future collaborators may compete with Edge or have interests which conflict with Edge’s. This may restrict any
future research and development efforts.
If Edge were to resume research and development activities, large pharmaceutical companies with whom Edge may seek to collaborate may
have internal programs or enter into collaborations with Edge’s competitors for products addressing the same medical conditions targeted by Edge’s technologies. Thus, such collaborators may pursue alternative technologies or product candidates in
order to develop treatments for the diseases or disorders targeted by Edge’s collaborative arrangements. Such collaborators may pursue these alternatives either on their own or in collaboration with others, including Edge’s competitors. Depending
on how other product candidates advance, a corporate partner may slow down or abandon its work on Edge’s product candidates or terminate its collaborative arrangement with Edge in order to focus on these other prospects.
If any conflicts arise, Edge’s future collaborators may act in their own interests, which may be adverse to Edge. In addition, in Edge’s
future collaborations, Edge may be required to agree not to conduct any research that is competitive with the research conducted under Edge’s future collaborations. Edge’s future collaborations may have the effect of limiting the areas of research
that Edge may pursue. Edge’s collaborators may be able to develop products in related fields that are competitive with the products or potential products that are the subject of these collaborations.
Business disruptions could seriously harm Edge’s financial condition and increase Edge’s costs and expenses.
Edge’s operations could be subject to natural disasters, power shortages, telecommunications failures, water shortages, fires, medical
epidemics and other manmade disasters or business interruptions, for which Edge or they are predominantly self-insured. The occurrence of any of these business disruptions could seriously harm Edge’s financial condition and increase Edge’s costs
and expenses.
Edge’s employees may engage in misconduct or other improper activities, including noncompliance with regulatory
standards and requirements, which could have a material adverse effect on Edge’s business.
Edge is exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to comply
with FDA regulations or similar regulations of comparable foreign regulatory authorities, to provide accurate information to the FDA or comparable foreign regulatory authorities, to comply with federal and state healthcare fraud and abuse laws and
regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities, to report financial information or data accurately or to disclose unauthorized activities to Edge. Edge has adopted, implemented,
and is enforcing a code of conduct, or Code of Conduct, and other compliance-based policies and procedures, but it is not always possible to identify and deter employee misconduct, and the precautions Edge takes to detect and prevent this activity,
such as employee training on enforcement of the Code of Conduct and other policies and procedures, may not be effective in controlling unknown or unmanaged risks or losses or in protecting Edge 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 Edge, and Edge is not successful in defending itself or asserting Edge’s rights, those actions could have a significant
impact on Edge, including the imposition of significant fines or other sanctions.
Risks Related to Edge’s Intellectual Property
If Edge is unable to protect Edge’s intellectual property rights, Edge’s competitive position could be harmed.
If Edge were to resume research and development activities, Edge will depend on its ability to protect its proprietary technology. Edge
relies on trade secret, patent, copyright and trademark laws, and confidentiality, licensing and other agreements with employees and third parties, all of which offer only limited protection. If Edge were to resume research and development
activities, Edge’s success will depend in large part on its ability to obtain and maintain patent protection in the United States and other countries with respect to Edge’s proprietary technology and products.
The patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involve complex legal and factual
questions and have in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of Edge’s patents are highly uncertain.
The steps Edge has taken to police and protect Edge’s proprietary rights may not be adequate to preclude misappropriation of Edge’s
proprietary information or infringement of Edge’s intellectual property rights, both inside and outside the United States. The rights already granted under any of Edge’s currently issued/granted patents and those that may be granted under future
issued/granted patents may not provide Edge with the proprietary protection or competitive advantages Edge may seek in the future. If Edge is unable to obtain and maintain patent protection for Edge’s technology and products, or if the scope of the
patent protection obtained is not sufficient, Edge’s competitors could develop and commercialize technology and products similar or superior to Edge’s, and Edge’s ability to successfully commercialize Edge’s technology and products may be adversely
affected.
Although Edge has a number of issued/granted patents, the issuance/grant of a patent is not conclusive as to its inventorship, scope,
validity or enforceability, and issued/granted patents that Edge owns or has licensed from third parties may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in the loss of patent protection,
the narrowing of claims in such patents, or the invalidity or unenforceability of such patents, which could limit Edge’s ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the
patent protection for Edge’s technology and products.
Protecting against the unauthorized use of Edge’s patented technology, trademarks and other intellectual property rights is expensive,
difficult and, may in some cases not be possible. In some cases, it may be difficult or impossible to detect third party infringement or misappropriation of Edge’s intellectual property rights, even in relation to issued/granted patent claims, and
proving any such infringement may be even more difficult.
Edge could be required to incur significant expenses to obtain Edge’s intellectual property rights, and Edge cannot
ensure that Edge will obtain meaningful patent protection for its products.
The patent prosecution process is expensive and time-consuming, and Edge or any future licensors may not be able to file and prosecute
all necessary or desirable patent applications at a reasonable cost or in a timely manner. In addition, if Edge were to resume research and development activities, it is also possible that Edge or Edge’s licensors will fail to identify patentable
aspects of further inventions made in the course of Edge’s development and commercialization activities before they are publicly disclosed, making it too late to obtain patent protection on them. Further, given the amount of time required for the
development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. Changes in either the patent laws or interpretation of the patent laws
in the United States and other countries may diminish the value of Edge’s patents or narrow the scope of Edge’s patent protection. The laws of foreign countries may not protect Edge’s rights to the same extent as the laws of the United States, and
these foreign laws may also be subject to change.
Obtaining and maintaining Edge’s patent protection depends on compliance with various procedural, document
submissions, fee payment and other requirements imposed by governmental patent agencies, and Edge’s patent protection could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees on any issued/granted patent are due to be paid to the USPTO and foreign patent agencies in several stages
over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an
inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application,
resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official
actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If Edge or Edge’s licensors fail to maintain the patents and patent applications covering any of Edge’s product candidates,
Edge’s competitors might be able to enter the market, which would have a material adverse effect on Edge’s business.
Edge may become involved in lawsuits to protect or enforce Edge’s intellectual property, which could be expensive,
time consuming and unsuccessful.
Competitors may infringe Edge’s patents or misappropriate or otherwise violate Edge’s intellectual property rights. To counter
infringement or unauthorized use, litigation may be necessary in the future to enforce or defend Edge’s intellectual property rights, to protect Edge’s trade secrets or to determine the validity and scope of Edge’s own intellectual property rights
or the proprietary rights of others. This can be expensive and time consuming and results can be uncertain. Many of Edge’s current and potential competitors have the ability to dedicate substantially greater resources to defend their intellectual
property rights than Edge can. Accordingly, despite Edge’s efforts, Edge may not be able to prevent third parties from infringing upon or misappropriating Edge’s intellectual property, particularly in certain parts of the world. Litigation could
result in substantial costs and diversion of management resources, which could harm Edge’s business and financial results. In addition, in an infringement proceeding, a court may decide that a patent owned by, or licensed to, Edge is invalid or
unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that Edge’s patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of Edge’s
patents at risk of being invalidated, held unenforceable 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 Edge’s
confidential information could be compromised by disclosure during this type of litigation. If any of these occur, Edge’s business could be materially and adversely affected.
From time to time Edge may need to rely on licenses to proprietary technologies, which may be difficult, expensive
or not possible to obtain or Edge may lose certain licenses which may be difficult or not possible to replace.
If Edge were to resume research and development activities, Edge may need to obtain licenses to patents and other proprietary rights
held by third parties to develop, manufacture and market Edge’s product candidates. If Edge is unable to timely obtain these licenses on commercially reasonable terms and maintain these licenses, Edge’s ability to commercially market Edge’s product
candidates may be inhibited or prevented, which could have a material adverse effect on Edge’s business, results of operations, financial condition and cash flows.
Third parties may initiate legal proceedings alleging that Edge is infringing their intellectual property rights,
the outcome of which would be uncertain and could have a material adverse effect on the success of Edge’s business.
If Edge were to resume research and development activities, Edge’s commercial success will depend upon Edge’s ability to develop,
manufacture, market and sell Edge’s product candidates, and to use Edge’s proprietary technologies without infringing the proprietary rights of third parties. Edge may become party to, or threatened with, future adversarial proceedings or
litigation regarding intellectual property rights with respect to Edge’s products and technology, including interference (for patents with an effective date before March 16, 2013) and various post grant proceedings before the USPTO, and opposition
proceedings at other patent offices. Third parties may assert infringement claims against Edge based on existing patents or patents that may be granted in the future. In the event a third party were to assert an infringement claim against Edge and
Edge were ultimately found to infringe the third party’s intellectual property rights, Edge could be required to obtain a license from such third party to continue developing and commercializing Edge’s products and technology. However, Edge may not
be able to obtain an appropriate license on commercially reasonable terms or at all. Even if Edge is able to obtain a license, it may be non-exclusive, thereby giving Edge’s competitors access to the same technologies licensed to Edge. Edge could
be forced, including by court order, to cease commercializing the infringing technology or product. In addition, in any such proceeding or litigation, Edge could be found liable for monetary damages. A finding of infringement could prevent Edge
from commercializing Edge’s product candidates or force Edge to cease some of Edge’s business operations, which could materially harm Edge’s business. Any claims by third parties that Edge has misappropriated their confidential information or trade
secrets could have a similar negative impact on Edge’s business.
Edge’s trade secrets are difficult to protect.
Confidentiality agreements with employees and others may not adequately prevent disclosure of Edge’s trade secrets and other proprietary
information and may not adequately protect Edge’s intellectual property.
If Edge were to resume research and development activities, Edge’s success will depend upon the skills, knowledge and experience of
Edge’s scientific and technical personnel, Edge’s consultants and advisors as well as Edge’s partners, licensors and contractors. Because Edge operates in a highly competitive technical field of drug discovery, Edge relies in part on trade secrets
to protect Edge’s proprietary technology and processes. However, trade secrets are difficult to protect. Edge enters into confidentiality and invention assignment agreements with Edge’s employees and certain of Edge’s corporate partners,
consultants, sponsored researchers and other advisors. These agreements generally require that the receiving party keep confidential and not disclose to third parties all confidential information developed by the receiving party or made known to
the receiving party by Edge during the course of the receiving party’s relationship with Edge. These confidentiality and assignment agreements may be breached and may not effectively assign intellectual property rights to Edge.
Edge’s trade secrets also could be independently discovered by competitors, in which case Edge would not be able to prevent use of such
trade secrets by Edge’s competitors. The enforcement of a claim alleging that a party illegally obtained and was using Edge’s trade secrets could be difficult, expensive and time consuming and the outcome would be unpredictable. In addition, courts
outside the United States may be less willing to protect trade secrets. The failure to obtain or maintain meaningful trade secret protection could adversely affect Edge’s competitive position.
Edge may be subject to claims that Edge’s employees or consultants have wrongfully used or disclosed alleged trade
secrets of their former employers or other third parties.
Many of Edge’s employees and consultants were previously employed at other biotechnology or pharmaceutical companies, including Edge’s
competitors or potential competitors. Some of these employees, including each member of Edge’s senior management, and consultants executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous
employment. Although Edge tries to ensure that Edge’s employees and consultants do not use the proprietary information or know-how of others in their work for Edge, Edge may be subject to claims that Edge or these employees and consultants have
used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s or consultant’s former employer. Edge is not aware of any threatened or pending claims related to these matters or concerning
the agreements with Edge’s senior management, but in the future, litigation may be necessary to defend against such claims. If Edge fails in defending any such claims, in addition to paying monetary damages, Edge may lose valuable intellectual
property rights or personnel. Even if Edge is successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.
Intellectual property disputes could cause Edge to spend substantial resources.
Even if resolved in Edge’s favor, litigation or other legal proceedings relating to intellectual property claims may cause Edge to incur
significant expenses. 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 market price of Edge’s common stock. Such litigation or proceedings could substantially increase Edge’s operating losses and reduce the resources available for development activities or any future sales, marketing
or distribution activities. Edge may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of Edge’s competitors may be able to sustain the costs of such litigation or proceedings more
effectively than Edge can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on Edge’s ability to compete in the
marketplace.
Edge may not be able to protect Edge’s intellectual property rights throughout the world.
Filing, prosecuting and defending patents on all of Edge’s product candidates throughout the world could be prohibitively expensive.
Competitors may use Edge’s technologies in jurisdictions where Edge has not obtained patent protection to develop their own products and
further, may export otherwise infringing products to territories where Edge has patent protection, but where enforcement is not as strong as that in the United States. These products may compete with any of Edge’s future products, to the extent
Edge resumes research and development activities, in jurisdictions where Edge does not have any issued/granted patents and Edge’s patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so
competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions.
The legal systems of certain countries do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for Edge to stop the infringement of Edge’s
patents or marketing of competing products in violation of Edge’s proprietary rights generally. Proceedings to enforce Edge’s patent rights in foreign jurisdictions could result in substantial cost and divert Edge’s efforts and attention from other
aspects of Edge’s business and will have uncertain outcomes.
Risks Related to Edge’s Financial Position and Capital Needs
Edge has incurred significant losses since Edge’s inception and anticipates that Edge will continue to incur losses
for the foreseeable future.
Edge is a clinical-stage biotechnology company. Investment in biotechnology product development is highly speculative because it entails
substantial upfront capital expenditures and significant risk that a product candidate will fail to gain regulatory approval or become commercially viable. Edge has not generated any revenue from product sales to date, and Edge continues to incur
expenses related to Edge’s ongoing operations. As a result, Edge is not profitable and has incurred losses in each period since inception in 2009. For the years ended December 31, 2018 and December 31, 2017, Edge reported a net loss of $40.9
million and $50.9 million, respectively.
Edge expects to continue to incur losses for the foreseeable future. Edge may encounter unforeseen expenses, difficulties,
complications, delays and other unknown factors that may adversely affect Edge’s business. Edge’s prior losses and expected future losses have had and will continue to have an adverse effect on Edge’s stockholders’ (deficit) equity and working
capital.
Edge has not generated any revenues since inception and may never become profitable.
Edge has not generated any revenues since Edge’s inception. If Edge were to resume research and development activities, even if Edge is
able to successfully achieve regulatory approval for any product candidates, Edge does not know when any of these products will generate revenue for Edge, if at all.
If Edge were to resume research and development activities, Edge will require additional capital to fund Edge’s
operations and if Edge fails to obtain necessary financing, Edge will not be able to complete the development and commercialization of Edge’s product candidates.
Edge’s operations have consumed substantial amounts of cash since inception. If Edge were to resume research and development activities,
Edge will require additional capital for the further development and commercialization of Edge’s product candidates.
Under such circumstances Edge cannot be certain that additional funding will be available on acceptable terms, or at all. If Edge is
unable to raise additional capital in sufficient amounts or on terms acceptable to Edge, Edge may have to significantly delay, scale back or discontinue the development or commercialization of one or more of Edge’s products or product candidates or
one or more of Edge’s other research and development initiatives.
Raising additional capital may cause dilution to Edge’s stockholders, restrict Edge’s operations or require Edge to
relinquish rights to Edge’s technologies or product candidates.
If Edge were to resume research and development activities, Edge may seek additional capital through a combination of private and public
equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the extent that Edge raises additional capital through the sale of equity or convertible debt securities, Edge’s then-existing stockholders’
ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of then-existing stockholders. Debt financings may be coupled with an equity component, such as warrants to purchase
stock, which could also result in dilution of Edge’s then-existing stockholders’ ownership. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such as
limitations on Edge’s ability to incur additional debt, limitations on Edge’s ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact Edge’s ability to conduct Edge’s business and may
result in liens being placed on Edge’s assets and intellectual property. If Edge were to default on such indebtedness, Edge could lose such assets and intellectual property. If Edge raises additional funds through strategic partnerships and
alliances and licensing arrangements with third parties, Edge may have to relinquish valuable rights to Edge’s product candidates, or grant licenses on terms that are not favorable to Edge.
Risks Related to Ownership of Edge’s Common Stock
The trading market in Edge’s common stock has been extremely limited and substantially less liquid than the
average trading market for a stock quoted on the Nasdaq Global Select Market.
Prior to Edge’s initial public offering, or IPO, there was no market for shares of Edge’s common stock. Since Edge’s initial listing
on the Nasdaq Global Select Market on October 1, 2015, the trading market in Edge’s common stock has been limited and substantially less liquid than the average trading market for companies quoted on the Nasdaq Global Select Market. The quotation
of Edge’s common stock on the Nasdaq Global Select Market does not assure that a meaningful, consistent and liquid trading market currently exists. Edge cannot predict whether a more active market for Edge’s common stock will develop in the
future. An absence of an active trading market could adversely affect Edge’s stockholders’ ability to sell Edge’s common stock at current market prices in short time periods, or possibly at all. Additionally, market visibility for Edge’s common
stock may be limited and such lack of visibility may have a depressive effect on the market price for Edge’s common stock. As of December 31, 2018, approximately 41% of Edge’s outstanding shares of common stock was held by Edge’s officers,
directors, beneficial owners of 5% or more of Edge’s capital stock and their respective affiliates, which adversely affects the liquidity of the trading market for Edge’s common stock, inasmuch as federal securities laws restrict sales of Edge’s
shares by these stockholders under certain circumstances. If Edge’s affiliates continue to hold their shares of common stock, there will be limited trading volume in Edge’s common stock, which may make it more difficult for investors to sell
their shares or increase the volatility of Edge’s stock price.
If Edge fails to continue to meet all applicable Nasdaq Global Select Market requirements and Nasdaq determines to delist Edge’s common stock, the
delisting could adversely affect the market liquidity of Edge’s common stock and the market price of Edge’s common stock could decrease.
Edge’s common stock is listed on The Nasdaq Global Select Market. In order to maintain Edge’s listing, Edge 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 Edge is not characterized as a “public shell company.” Edge has received written notice from Nasdaq
stating that, at present, Edge is not in compliance with the audit committee requirements for continued listing on The Nasdaq Global Select Market, because Edge currently has an audit committee comprised of two members. If Edge does not regain
compliance with audit committee requirements in a timely manner, Nasdaq will provide written notification to Edge that Edge’s securities will be subject to delisting. In addition, Edge has received written notice from Nasdaq stating that, at
present, Edge is not in compliance with the bid price requirements for Edge’s common stock because the bid price for Edge’s common stock had closed below $1.00 per share for 30 consecutive business days. If Edge does not regain compliance with the
bid price requirements in a timely manner, Nasdaq will provide written notification to Edge that Edge’s securities will be subject to delisting.
Nasdaq has notified Edge that, in connection with the Merger, Edge will be required to submit a new listing application and meet
Nasdaq’s initial listing requirements, as opposed to Nasdaq’s more lenient continued listing requirements. Edge cannot provide any assurance that it will meet the initial listing requirements at the closing of the Merger. If the merger is
consummated, the combined company following such transaction will need to meet Nasdaq’s initial listing standards. If Edge is unable to comply with Nasdaq’s listing standards, Nasdaq may determine to delist Edge’s common stock from The Nasdaq
Global Select Market or other of Nasdaq’s trading markets. If Edge’s common stock is delisted for any reason, it could reduce the value of Edge’s common stock and its liquidity.
Market volatility may affect Edge’s stock price and the value of Edge’s stockholders’ investment.
The trading price of Edge’s common stock, similar to other biotechnology companies, is likely to be highly volatile and could be subject
to wide fluctuations in response to various factors, some of which are beyond Edge’s control, including, among others:
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regulatory actions with respect to Edge;
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the recruitment or departure of key personnel;
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announcements by Edge or Edge’s competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments;
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regulatory or legal developments in the United States and other countries;
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developments or disputes concerning patent applications, issued/granted patents or other proprietary rights;
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the level of Edge’s expenses;
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actual or anticipated changes in estimates as to financial results;
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variations in Edge’s financial results or those of companies that are perceived to be similar to Edge;
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fluctuations in the valuation of companies perceived by investors to be comparable to Edge;
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share price and volume fluctuations attributable to inconsistent trading volume levels of Edge’s shares;
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announcement or expectation of additional financing efforts;
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sales of Edge’s common stock by Edge, Edge’s insiders or Edge’s other stockholders;
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market conditions in the pharmaceutical and biotechnology sectors; and
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general economic, industry and market conditions.
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In addition, the stock market in general, and pharmaceutical and biotechnology companies in particular, have experienced extreme price
and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies.
Broad market and industry factors may negatively affect the market price of Edge’s common stock, regardless of Edge’s actual operating
performance. The realization of any of the above risks or any of a broad range of other risks, including those described in these “Risk Factors,” could have a dramatic and material adverse impact on the market price of Edge’s common stock.
Future sales of a substantial number of shares of Edge’s common stock in the public market or other issuances of
Edge’s common stock or rights to purchase common stock, including pursuant to equity incentive plans could result in additional dilution of the percentage ownership of Edge’s stockholders and could cause Edge’s stock price to fall.
Edge’s stock price could also decline as a result of sales of a large number of shares of Edge’s common stock, including shares issuable
upon exercise of stock options and warrants, or the perception that these sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for Edge to sell equity securities in the future at a time
and at a price that Edge deems appropriate.
As of December 31, 2018, the holders of up to 3,290,905 shares, or 10.4%, of Edge’s common stock outstanding, will have rights, subject
to some conditions, to require Edge to file registration statements covering the sale of their shares or to include their shares in registration statements Edge may file for itself or other stockholders. Once Edge registers the offer and sale of
shares for the holders of registration rights, they can be freely sold in the public market.
In addition, in the future, Edge may issue additional shares of common stock or other equity or debt securities convertible into common
stock in connection with a financing, acquisition, litigation settlement, employee arrangements, or otherwise. Any such issuance could result in substantial dilution to Edge’s then-existing stockholders and could cause Edge’s stock price to
decline.
Future issuances of Edge’s common stock or rights to
purchase common stock, including pursuant to Edge’s equity incentive plans, could result in additional dilution of the percentage ownership of Edge’s stockholders and could cause Edge’s stock price to fall.
Any future issuances of common stock or common stock-related securities,
together with the exercise of outstanding options and warrants to purchase 7,632,383 shares of common stock as of December 31, 2018 and any additional shares issued in connection with acquisitions, if any, may result in material dilution to
Edge’s then-existing stockholders, and new investors could gain rights, preferences and privileges senior to those of holders of Edge’s common stock.
Edge’s principal stockholders and management own a significant percentage of Edge’s stock and will be able to exert
significant control over matters subject to stockholder approval.
As of December 31, 2018, Edge’s executive officers, directors, holders of 5% or more of Edge’s capital stock and their respective
affiliates beneficially owned approximately 41% of Edge’s outstanding voting stock (assuming no exercise of outstanding stock options). These stockholders may be able to determine the outcome of all matters requiring stockholder approval. For
example, these stockholders may be able to control elections of directors, amendments of Edge’s 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 Edge’s common stock that Edge’s then-existing stockholders’ may feel are in their best interest. The interests of this group of stockholders may not always coincide with your interests or the interests of other
stockholders and they may act in a manner that advances their best interests and not necessarily those of other stockholders, including seeking a premium value for their common stock, and might affect the prevailing market price for Edge’s common
stock.
Some provisions of Edge’s charter documents and Delaware law may have anti-takeover effects that could discourage an
acquisition of Edge by others, even if an acquisition would be beneficial to Edge’s stockholders and may prevent attempts by Edge’s stockholders to replace or remove Edge’s current management.
Provisions in Edge’s amended and restated certificate of incorporation, or certificate of incorporation, and amended and restated
bylaws, or bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire Edge or increase the cost of acquiring Edge, even if doing so would benefit Edge’s stockholders, or remove Edge’s current
management. These provisions include:
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authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;
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prohibiting cumulative voting in the election of directors, which would otherwise allow for less than a majority of stockholders to elect director candidates;
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prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of Edge’s stockholders;
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eliminating the ability of stockholders to call a special meeting of stockholders;
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establishing a staggered board of directors; and
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establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings.
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These provisions may frustrate or prevent any attempts by Edge’s stockholders to replace or remove Edge’s current management by making
it more difficult for stockholders to replace members of Edge’s board of directors, who are responsible for appointing the members of Edge’s management. Because Edge is incorporated in Delaware, Edge is governed by the provisions of Section 203 of
the Delaware General Corporation Law, which may discourage, delay or prevent someone from acquiring Edge or merging with Edge whether or not it is desired by or beneficial to Edge’s stockholders. Under Delaware law, a corporation may not, in
general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction. Any provision of Edge’s
amended and restated certificate of incorporation or amended and restated bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for Edge’s stockholders to receive a premium for their
shares of Edge’s common stock, and could also affect the price that some investors are willing to pay for Edge’s common stock.
Because Edge does not anticipate paying any cash dividends on Edge’s capital stock in the foreseeable future,
capital appreciation, if any, will be Edge’s stockholders’ sole source of gain.
Edge has never declared or paid cash dividends on Edge’s capital stock. Edge currently intends to retain all of Edge’s future earnings,
if any, to finance Edge’s business. In addition, any future debt agreements may preclude Edge from paying dividends. As a result, capital appreciation, if any, of Edge’s common stock will be Edge’s stockholders’ sole source of gain for the
foreseeable future.
Edge is an “emerging growth company” and Edge intends to take advantage of reduced disclosure and governance
requirements applicable to emerging growth companies, which could result in Edge’s common stock being less attractive to investors.
Edge is an “emerging growth company,” as defined in the JOBS Act, and Edge intends to take advantage of certain exemptions from various
reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley
Act, reduced disclosure obligations regarding executive compensation in Edge’s periodic reports and proxy statements, 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. Edge cannot predict if investors will find Edge’s common stock less attractive because Edge will rely on these exemptions. Edge may take advantage of these reporting exemptions until Edge is no
longer an emerging growth company, which could potentially be for up to five years after the date of Edge’s IPO, which occurred on October 1, 2015. If investors find Edge’s common stock less attractive as a result of Edge’s reduced reporting
requirements, there may be a less active trading market for Edge’s common stock and Edge’s stock price may be more volatile. Edge may also be unable to raise additional capital as and when Edge needs it.
If Edge fails to maintain an effective system of internal control over financial reporting in the future, Edge may
not be able to accurately report Edge’s financial condition, results of operations or cash flows, which may adversely affect investor confidence in Edge and, as a result, the value of Edge’s common stock.
The Sarbanes-Oxley Act requires, among other things, that Edge maintain effective internal controls for financial reporting and
disclosure controls and procedures. Edge’s annual report on Form 10-K includes a report by management on, among other things, the effectiveness of Edge’s internal control over financial reporting. This assessment includes disclosure of any material
weaknesses identified by Edge’s management in Edge’s internal control over financial reporting. A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting that results in more
than a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. Section 404 of the Sarbanes-Oxley Act also generally requires an attestation from Edge’s
independent registered public accounting firm on the effectiveness of Edge’s internal control over financial reporting. However, for as long as Edge remains an emerging growth company as defined in the JOBS Act, Edge intends to take advantage of
certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public
accounting firm attestation requirement.
Edge’s compliance with Section 404 requires that Edge incur additional accounting expense and management efforts. Edge currently does
not have an internal audit group. Edge may not be able to complete any required Section 404 evaluation, testing and remediation in a timely fashion. During the evaluation and testing process, if Edge identifies one or more material weaknesses in
Edge’s internal control over financial reporting, Edge will be unable to assert that Edge’s internal control over financial reporting is effective. Edge cannot assure Edge’s stockholders that there will not be material weaknesses or significant
deficiencies in Edge’s internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit Edge’s ability to accurately report Edge’s financial condition, results of
operations or cash flows. If Edge is unable to conclude that Edge’s internal control over financial reporting is effective, or if Edge’s independent registered public accounting firm determines Edge has a material weakness or significant deficiency
in Edge’s internal control over financial reporting, Edge could lose investor confidence in the accuracy and completeness of Edge’s financial reports, the market price of Edge’s common stock could decline, and Edge could be subject to sanctions or
investigations by Nasdaq, the SEC or other regulatory authorities. Failure to remedy any material weakness in Edge’s internal control over financial reporting, or to implement or maintain other effective control systems required of public
companies, could also restrict Edge’s future access to the capital markets.
Edge’s disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
Edge’s disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by Edge in reports
Edge files or submits under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules and forms
of the SEC. Edge believes that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are
met.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because
of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in
Edge’s control system, misstatements or insufficient disclosures due to error or fraud may occur and not be detected.
Risks Related to the Combined Company
If the merger with PDS closes, the combined company will be subject to additional risks, including each of those described below.
The combined company’s stock price is expected to be volatile, and the market price of its common stock may drop
following the merger.
The market price of the combined company’s common stock following the merger could be subject to significant fluctuations following the
merger. Market prices for securities of early-stage pharmaceutical, biotechnology and other life sciences companies have historically been particularly volatile. Some of the factors that may cause the market price of the combined company’s common
stock to fluctuate include:
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the ability of the combined company or its partners to develop product candidates and conduct clinical trials that demonstrate such product candidates are safe and
effective;
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the ability of the combined company or its partners to obtain regulatory approvals for product candidates, and delays or failures to obtain such approvals;
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failure of any of the combined company’s product candidates to demonstrate safety and efficacy, receive regulatory approval and achieve commercial success;
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failure by the combined company to maintain its existing third-party license, manufacturing and supply agreements;
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failure by the combined company or its licensors to prosecute, maintain, or enforce its intellectual property rights;
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changes in laws or regulations applicable to the combined company’s product candidates;
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any inability to obtain adequate supply of product candidates or the inability to do so at acceptable prices;
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adverse regulatory authority decisions;
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introduction of new or competing products by its competitors;
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failure to meet or exceed financial and development projections the combined company may provide to the public;
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the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;
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announcements of significant acquisitions, strategic partnerships, joint ventures, or capital commitments by the combined company or its competitors;
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disputes or other developments relating to proprietary rights, including patents, litigation matters, and the combined company’s ability to obtain intellectual property
protection for its technologies;
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additions or departures of key personnel;
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significant lawsuits, including intellectual property or stockholder litigation;
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if securities or industry analysts do not publish research or reports about the combined company, or if they issue an adverse or misleading opinions regarding its business
and stock;
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changes in the market valuations of similar companies;
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general market or macroeconomic conditions;
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sales of its common stock by the combined company or its stockholders in the future;
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trading volume of the combined company’s common stock;
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adverse publicity relating to the combined company’s markets generally, including with respect to other products and potential products in such markets;
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changes in the structure of health care payment systems; and
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period-to-period fluctuations in the combined company’s financial results.
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Moreover, the stock markets in general have experienced substantial volatility that has often been unrelated to the operating
performance of individual companies. These broad market fluctuations may also adversely affect the trading price of the combined company’s common stock.
In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class
action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm the combined company’s profitability and
reputation.
Edge and PDS do not anticipate that the combined company will pay any cash dividends in the foreseeable future.
The current expectation is that the combined company will retain its future earnings, if any, to fund the development and growth of the
combined company’s business. As a result, capital appreciation, if any, of the common stock of the combined company will be your sole source of gain, if any, for the foreseeable future.
Future sales of shares by existing stockholders could cause the combined company’s stock price to decline.
If existing stockholders of Edge and PDS sell, or indicate an intention to sell, substantial amounts of the combined company’s common
stock in the public market after legal restrictions on resale lapse, the trading price of the common stock of the combined company could decline. Based on shares outstanding as of December 31, 2018 and shares expected to be issued upon the closing
of the merger, the combined company is expected to have outstanding a total of approximately 101 million shares of common stock (prior to giving effect to the proposed reverse stock split) immediately following the closing of the merger.
Approximately
36
million of such shares of common stock (prior to giving effect to the proposed reverse stock split) will be freely tradable, without restriction, in the public
market. Approximately 65 million of such shares of common stock (prior to giving effect to the proposed reverse stock split) will be held by directors, executive officers of the combined company and other affiliates and will be subject to volume
limitations under Rule 144 under the Securities Act and various vesting agreements.
If the ownership of the combined company common stock is highly concentrated, it may prevent you and other
stockholders from influencing significant corporate decisions and may result in conflicts of interest that could cause the combined company stock price to decline.
Executive officers and directors of the combined company and their affiliates are expected to beneficially own or control approximately
59.6% of the outstanding shares of the combined company common stock following the closing of the merger. Accordingly, these executive officers, directors and their affiliates, acting as a group, will have substantial influence over the outcome of
corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of the combined company assets or any other significant corporate transactions. These stockholders
may also delay or prevent a change of control of the combined company, even if such a change of control would benefit the other stockholders of the combined company. The significant concentration of stock ownership may adversely affect the trading
price of the combined company’s common stock due to investors’ perception that conflicts of interest may exist or arise.
Because the merger will result in an ownership change under Section 382 of the Code for Edge, pre-merger U.S. net
operating loss carryforwards and certain other tax attributes will be subject to limitations.
As of December 31, 2018, Edge had federal and state net operating loss carryforwards, or NOLs, of $128.6 million and $27.2 million,
respectively, due to prior period losses. If a corporation undergoes an “ownership change” within the meaning of Section 382 of the Code, the corporation’s U.S. net operating loss carryforwards and certain other tax attributes arising from before
the ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation’s equity ownership by certain stockholders that exceeds fifty percentage
points over a rolling three-year period. Similar rules may apply under state and foreign tax laws. Edge believes that it may have already undergone one or more ownership changes prior to the merger. The merger will also result in an ownership
change for Edge and, accordingly, Edge’s U.S. net operating loss carryforwards and certain other tax attributes will be subject to limitations on their use after the merger.
Changes in tax laws and regulations or in the combined company’s operations may impact the combined company’s
effective tax rate and may adversely affect the combined company’s business, financial condition and operating results.
Changes in tax laws in any jurisdiction in which combined company operates, or adverse outcomes from any tax audits that the combined
company may be subject to in any such jurisdictions, could result in an unfavorable change in Edge’s effective tax rate, which could adversely affect Edge’s business, financial condition, and operating results.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act, or
the Tax Act. The changes included in the Tax Act are broad and complex. The impact of these changes on how the combined company’s earnings are taxed include, among other items, (i) reducing the U.S. federal corporate tax rate from 35% to 21%; (ii)
repealing the corporate alternative minimum tax and changing how existing credits can be utilized; (iii) temporarily providing for elective immediate expensing for certain depreciable property; (iv) creating a new limitation on the deductibility of
interest expense; and (v) changing rules related to uses and limitations of net operating losses created in tax years beginning after December 31, 2017. Edge and PDS continue to evaluate the Tax Act and its impact on the combined company’s
businesses. It is possible that the Tax Act will be subject to further changes either in a technical corrections bill or entirely new legislation. The overall impact of the Tax Act also depends on the future interpretations and regulations that may
be issued by U.S. tax authorities. Edge expects there will be further guidance provided by these authorities potentially having a material adverse effect on the combined company’s financial condition or results of operations. The impact of broad
proposals or of regulatory issuances on the combined company’s business can vary substantially depending upon the specific changes or further guidance made and how the changes or guidance are implemented by the authorities.
Anti-takeover provisions under Delaware law could make an acquisition of the combined company more difficult and may
prevent attempts by the combined company stockholders to replace or remove the combined company management.
Because the combined company will be incorporated in Delaware, it is governed by the provisions of Section 203 of the DGCL, which
prohibits stockholders owning in excess of 15% of the outstanding combined company voting stock from merging or combining with the combined company. Although Edge and PDS believe these provisions collectively will provide for an opportunity to
receive higher bids by requiring potential acquirors to negotiate with the combined company’s board of directors, 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 the combined company’s stockholders to replace or remove then current management by making it more difficult for stockholders to replace members of the board of directors, which is responsible for appointing the members of
management.
