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As filed with the Securities and Exchange Commission on December 2, 2016

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

SIGNAL GENETICS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		8071		47-1187261
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

5740 Fleet Street

Carlsbad, California 92008

(760) 537-4100

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

 

 

Samuel D. Riccitelli

President and Chief Executive Officer

Signal Genetics, Inc.

5740 Fleet Street

Carlsbad, California 92008

(760) 537-4100

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

 

 

Copies to:

 

Mike Hird Patty M. DeGaetano Pillsbury Winthrop Shaw Pittman LLP 12255 El Camino Real, Suite 300 San Diego, CA 92130 (858) 509-4000		William S. Marshall, Ph.D. President and Chief Executive Officer Miragen Therapeutics, Inc. 6200 Lookout Road Boulder, CO 80301 (303) 531-5952		Brent D. Fassett Matthew P. Dubofsky Cooley LLP 380 Interlocken Crescent, Suite 900 Broomfield, CO 80021 (720) 566-4000

 

 

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

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

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

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

 

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

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

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

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

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

 

 

CALCULATION OF REGISTRATION FEE

 

Title of each class of securities to be registered		Amount to be registered(1)		Proposed maximum offering price per share		Proposed maximum aggregate offering price(2)		Amount of registration fee(3)
Common stock, par value $0.01 per share		22,527,236		N/A		$59,892,000		$6,941.48

(1)

Represents the maximum number of shares of common stock, $0.01 par value per share, of Signal Genetics, Inc., a Delaware corporation, or Signal, issuable to holders of common stock, $0.001 par value per share, and warrants and options of Miragen Therapeutics, Inc., a Delaware corporation, or Miragen, in the proposed merger of Signal Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Signal, with and into Miragen. The amount of Signal common stock to be registered is based on the estimated number of shares of Signal common stock that are expected to be issued pursuant to the merger, assuming an exchange ratio of 0.6995 shares of Signal common stock for each share of Miragen common stock and for each option and warrant exercisable for shares of Miragen capital stock, without giving effect to a reverse stock split of Signal common stock immediately prior to the merger. The estimated exchange ratio calculation contained herein is subject to adjustment prior to the closing of the merger and is based upon expected shares of capital stock of Signal and Miragen outstanding as of the closing of the merger and assumes that Signal’s net cash, as defined in the merger agreement, exceeds the target set forth in the merger agreement.

(2)

Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(f) of the Securities Act of 1933, as amended, based upon the estimated book value of the Miragen securities to be exchanged in the merger, as of immediately prior to the merger (which such calculation takes into effect a new investment of $40.7 million in Miragen, which is expected to occur following the date hereof and prior to the consummation of the merger). Miragen is a private company and no market exists for its securities.

(3)	Determined in accordance with Section 6(b) of the Securities Act at a rate equal to $115.90 per $1,000,000 of the proposed maximum aggregate offering price.

 

 

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

 

 

 

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

 

SUBJECT TO COMPLETION, DATED DECEMBER 2, 2016

 

PROPOSED MERGER

YOUR VOTE IS VERY IMPORTANT

To the Stockholders of Signal Genetics, Inc. and Miragen Therapeutics, Inc.:

Signal Genetics, Inc., or Signal, and Miragen Therapeutics, Inc., or Miragen, entered into an Agreement and Plan of Merger and Reorganization on October 31, 2016, or the Merger Agreement, pursuant to which a wholly-owned subsidiary of Signal will merge with and into Miragen, with Miragen surviving as a wholly-owned subsidiary of Signal, which is referred to as the Merger. Miragen and Signal believe that the Merger will result in a clinical-stage biopharmaceutical company that discovers and develops proprietary RNA-targeted therapeutics with a specific focus on microRNAs and their role in diseases where there is a high unmet medical need.

Immediately prior to the effective time of the Merger, each share of Miragen preferred stock will be converted into one share of Miragen’s common stock, or Miragen common stock, as determined in accordance with the Miragen certificate of incorporation then in effect. At the effective time of the Merger, each share of Miragen common stock will be converted into the right to receive a fraction of a share of Signal common stock, or the Exchange Ratio. It is currently anticipated that, at the closing of the Merger, the Exchange Ratio would be approximately 0.6995 pre-split shares of Signal’s common stock, or Signal common stock, and would be within a range of approximately 0.6995 to 0.0466 post-split shares of Signal common stock. Signal will assume (i) each outstanding warrant to purchase Miragen capital stock, which will be converted into warrants to purchase Signal common stock and (ii) each outstanding and unexercised option to purchase Miragen common stock, which will be converted into options to purchase Signal common stock. Signal stockholders will continue to own and hold their existing shares of Signal common stock. The Exchange Ratio is determined pursuant to a formula in the Merger Agreement and described in the attached proxy statement/prospectus/information statement, and these estimates are subject to adjustment.

Immediately after the Merger, Miragen securityholders will own approximately 96% of the fully-diluted common stock of the combined company, with Signal securityholders, whose shares of Signal common stock will remain outstanding after the Merger, owning approximately 4% of the fully-diluted common stock of the combined company, each assuming that Miragen closes its concurrent financing immediately prior to the effective time of the Merger. If the concurrent financing does not close, then Miragen securityholders would own approximately 94% of the fully-diluted common stock of the combined company and Signal securityholders would own approximately 6% of the fully-diluted common stock of the combined company. These estimates are based on the anticipated pre-split Exchange Ratio and post-split Exchange Ratios and are subject to adjustment.

Shares of Signal common stock are currently listed on The NASDAQ Capital Market under the symbol “SGNL.” Prior to consummation of the Merger, Signal intends to file an initial listing application for the combined company with The NASDAQ Capital Market. After completion of the Merger, Signal will be renamed “Miragen Therapeutics, Inc.” and expects to trade on The NASDAQ Capital Market under the symbol “MGEN.” On December 1, 2016, the last trading day before the date of this proxy statement/prospectus/information statement, the closing sale price of Signal common stock was $10.08 per share.

Signal is holding a special meeting of stockholders, or the Signal special meeting, in order to obtain the stockholder approvals necessary to complete the Merger and related matters. At the Signal special meeting, which will be held at 12255 El Camino Real, Suite 300, San Diego, California 92130, at                  local time, on                 , unless postponed or adjourned to a later date, Signal will ask its stockholders to, among other things:

 

•

approve the issuance of shares of Signal common stock to Miragen stockholders pursuant to the terms of the Merger Agreement;

 

•

approve the change in control of Signal resulting from the Merger;

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•

approve the conversion of the Unsecured Demand Promissory Note, dated March 6, 2015, issued by Signal to Bennett LeBow in the original principal amount of $1,105,009, as amended on October 31, 2016, into shares of Signal common stock;

 

•

approve the Signal 2016 Equity Incentive Plan;

 

•

approve the Signal 2016 Employee Stock Purchase Plan;

 

•

approve an amendment to the certificate of incorporation of Signal changing the Signal corporate name to “Miragen Therapeutics, Inc.”;

 

•

approve an amendment to the certificate of incorporation of Signal effecting a reverse stock split of Signal’s issued and outstanding common stock within a range of every one to 15 shares (or any number in between) of outstanding Signal common stock being combined and reclassified into one share of Signal common stock;

 

•

approve an amendment to the certificate of incorporation of Signal increasing the authorized common stock from 50,000,000 to 100,000,000 shares;

 

•

approve the sale of all of Signal’s intellectual property assets related to its MyPRS test to Quest Diagnostics Investments LLC pursuant to an intellectual property purchase agreement;

 

•

approve an amendment to the certificate of incorporation of Signal to eliminate the ability of Signal stockholders to act by written consent;

 

•

consider and vote upon an adjournment of the Signal special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the proposals set forth above; and

 

•

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

As described in the accompanying proxy statement/prospectus/information statement, certain Miragen stockholders who in the aggregate own approximately 80% of the outstanding shares of Miragen common stock on an as-converted to common stock basis, and certain Signal stockholders who in the aggregate own 27% of the outstanding shares of Signal common stock, are parties to support agreements with Signal and Miragen, respectively, whereby such stockholders agreed to vote in favor of certain proposals described in this proxy statement/prospectus/information statement, subject to the terms of the support agreements.

In addition, following the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, being declared effective by the Securities and Exchange Commission, or the SEC, and pursuant to the conditions of the Merger Agreement, the Miragen stockholders who are party to the support agreements will each execute an action by written consent of the Miragen stockholders, referred to herein as the written consent, adopting the Merger Agreement, thereby approving the Merger and related transactions. These stockholders hold a sufficient number of shares of Miragen capital stock to adopt the Merger Agreement, and no meeting of Miragen stockholders to adopt the Merger Agreement and approve the Merger and related transactions will be held. Nevertheless, all Miragen stockholders will have the opportunity to elect to adopt the Merger Agreement, thereby approving the Merger and related transactions, by signing and returning to Miragen a written consent.

After careful consideration, the Signal and Miragen boards of directors have approved the Merger Agreement and the respective proposals described in this proxy statement/prospectus/information statement, and each of the Signal and Miragen boards of directors has determined that it is advisable to consummate the Merger. Signal’s board of directors recommends that its stockholders vote “FOR” the proposals described in the accompanying proxy statement/prospectus/information statement, and Miragen’s board of directors recommends that its stockholders sign and return the written consent to Miragen indicating their approval of the Merger and adoption of the Merger Agreement and related transactions.

More information about Signal, Miragen and the Merger is contained in this proxy statement/prospectus/information statement. Signal and Miragen urge you to read the accompanying proxy statement/

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prospectus/information statement carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “RISK FACTORS” BEGINNING ON PAGE 19.

Signal and Miragen are excited about the opportunities the Merger brings to both Signal’s and Miragen’s stockholders, and thank you for your consideration and continued support.

 

Samuel D. Riccitelli		William S. Marshall, Ph.D.
President and Chief Executive Officer		President and Chief Executive Officer
Signal Genetics, Inc.		Miragen Therapeutics, Inc.

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

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

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SIGNAL GENETICS, INC.

5740 FLEET STREET

CARLSBAD, CALIFORNIA 92008

(760) 537-4100

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held On                 

Time:            

Date:             

Place:    12255 El Camino Real, Suite 300, San Diego, California 92130

Purposes:

 

1.

To approve the issuance of shares of common stock of Signal Genetics, Inc. (“Signal”) to stockholders of Miragen Therapeutics, Inc. (“Miragen”) pursuant to the terms of the Agreement and Plan of Merger and Reorganization between Signal, Miragen and Signal Merger Sub, Inc., dated October 31, 2016, a copy of which is attached as Annex A, which is referred to as the Merger Agreement;

 

2.

To approve the change in control of Signal resulting from the merger contemplated by the Merger Agreement;

 

3.

To approve the conversion of the Unsecured Demand Promissory Note, dated March 6, 2015, issued by Signal to Bennett LeBow in the original principal amount of $1,105,009, as amended on October 31, 2016 into shares of Signal common stock;

 

4.

To approve the Signal 2016 Equity Incentive Plan, a copy of which is attached as Annex B;

 

5.

To approve the Signal 2016 Employee Stock Purchase Plan, a copy of which is attached as Annex C;

 

6.

To approve an amendment to the certificate of incorporation of Signal changing the Signal corporate name to “Miragen Therapeutics, Inc.” in the form attached as Annex D;

 

7.

To approve an amendment to the certificate of incorporation of Signal effecting a reverse stock split of Signal’s issued and outstanding common stock within a range of every one to 15 shares (or any number in between) of outstanding Signal common stock being combined and reclassified into one share of Signal common stock in the form attached as Annex E;

 

8.

To approve an amendment to the certificate of incorporation of Signal increasing the number of authorized shares of Signal common stock from 50,000,000 shares to 100,000,000 shares in the form attached as Annex F;

 

9.

To approve the sale of all of Signal’s intellectual property assets related to its MyPRS test to Quest Diagnostics Investments LLC pursuant to an intellectual property purchase agreement, a copy of which is attached as Annex G;

 

10.

To approve an amendment to the certificate of incorporation of Signal to eliminate the ability of Signal stockholders to act by written consent in the form attached as Annex H;

 

11.

To consider and vote upon an adjournment of the Signal special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the proposals set forth above; and

 

12.

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

 

Record Date:

Signal’s board of directors has fixed         ,          as the record date for the determination of stockholders entitled to notice of, and to vote at, the Signal special meeting and any adjournment or postponement thereof. Only holders of record of shares of Signal common stock at the close of business on the record date are entitled to notice of, and to vote at, the Signal special meeting. At the close of business on the record date, Signal had          shares of common stock outstanding and entitled to vote.

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Your vote is important. The affirmative vote of the holders of a majority of the shares of Signal common stock having voting power present in person or represented by proxy at the Signal special meeting, assuming a quorum is present, is required for approval of Signal Proposal Nos. 1, 2, 3, 4, 5 and 11. The affirmative vote of the holders of a majority of outstanding shares of Signal common stock entitled to vote on the record date for the Signal special meeting is required for approval of Signal Proposal Nos. 6, 7, 8, 9 and 10. Each of Signal Proposal Nos. 1, 2, 3, 4, 5, 6, 7, 8 and 9 are conditioned upon each other and the approval of each such proposal is a condition to the completion of the Merger. Therefore, the Merger cannot be consummated without the approval of Signal Proposal Nos. 1, 2, 3, 4, 5, 6, 7, 8 and 9.

Even if you plan to attend the Signal special meeting in person, Signal requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the Signal special meeting if you are unable to attend. You may change or revoke your proxy at any time before it is voted at the Signal special meeting.

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

By Order of Signal’s Board of Directors,

Samuel D. Riccitelli

President and Chief Executive Officer

Carlsbad, California

                ,                 

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REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus/information statement incorporates important business and financial information about Signal that is not included in or delivered with this document. You may obtain this information without charge through the SEC website (www.sec.gov) or upon your written or oral request by contacting the chief financial officer of Signal Genetics, Inc., 5740 Fleet Street, Carlsbad, California 92008 or by calling (760) 537-4100.

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

For additional details about where you can find information about Signal, please see the section titled “Where You Can Find More Information” in this proxy statement/prospectus/information statement.

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TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE MERGER			i
PROSPECTUS SUMMARY			1
The Companies			1
The Merger			2
Reasons for the Merger			3
Opinion of Signal Financial Advisor			4
Interests of Certain Directors, Officers and Affiliates of Signal and Miragen			5
Management Following the Merger			6
Overview of the Merger Agreement and Agreements Related to the Merger Agreement			6
Regulatory Approvals			9
Material U.S. Federal Income Tax Consequences of the Merger			9
NASDAQ Stock Market Listing			10
Anticipated Accounting Treatment			10
Appraisal Rights and Dissenters’ Rights			10
Comparison of Stockholder Rights			10
Risk Factors			10
SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION AND DATA			12
Selected Historical Consolidated Financial Data of Signal			12
Selected Historical Consolidated Financial Data of Miragen			14
Selected Unaudited Pro Forma Condensed Combined Financial Data of Signal and Miragen			15
Comparative Historical and Unaudited Pro Forma Per Share Data			16
MARKET PRICE AND DIVIDEND INFORMATION			17
RISK FACTORS			19
Risks Related to the Merger			19
Risks Related to Signal			23
Regulatory Risks Relating to Signal’s Business			33
Risks Related to Signal’s Reliance on Third Parties			37
Intellectual Property Risks Related to Signal’s Business			39
Risks Related to Ownership of Signal’s Common Stock			41
Risks Related to Miragen’s Financial Condition and Capital Requirements			46
Risks Related to the Development of Miragen’s Product Candidates			48
Risks Related to Regulatory Approval of Miragen’s Product Candidates and Other Legal Compliance Matters			55
Risks Related to Miragen’s Intellectual Property			60
Risks Related to Miragen’s Reliance on Third Parties			67
Risks Related to Commercialization of Miragen’s Product Candidates			70
Risks Related to Miragen’s Business Operations			75
Risks Related to the Combined Company			76
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS			82
THE SPECIAL MEETING OF SIGNAL STOCKHOLDERS			83
Date, Time and Place			83
Purposes of the Signal Special Meeting			83
Recommendation of Signal’s Board of Directors			83
Record Date and Voting Power			85
Voting and Revocation of Proxies			85
Required Vote			86
Solicitation of Proxies			87
Other Matters			87
THE MERGER			88
Background of the Merger			88
Signal Reasons for the Merger			95

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Miragen Reasons for the Merger			98
Opinion of Signal Financial Advisor			99
Interests of the Signal Directors and Executive Officers in the Merger			105
Interests of Miragen Directors and Executive Officers in the Merger			108
Form of the Merger			113
Merger Consideration and Exchange Ratio			113
Stock Options and Warrants			114
Effective Time of the Merger			114
Regulatory Approvals			115
Tax Treatment of the Merger			115
Material U.S. Federal Income Tax Consequences of the Merger			115
Anticipated Accounting Treatment			118
NASDAQ Stock Market Listing			118
Appraisal Rights and Dissenters’ Rights			119
THE MERGER AGREEMENT			123
Structure			123
Completion and Effectiveness of the Merger			123
Merger Consideration and Exchange Ratio			123
Determination of Signal’s Net Cash			125
Signal Common Stock			126
Procedures for Exchanging Miragen Stock Certificates			126
Fractional Shares			127
Representations and Warranties			127
Covenants; Conduct of Business Pending the Merger			130
Non-Solicitation			132
Disclosure Documents			134
Meeting of Signal Stockholders and Written Consent of Miragen’s Stockholders			134
Regulatory Approvals			135
Miragen Stock Options and Miragen Warrants			135
Indemnification and Insurance for Officers and Directors			135
Additional Agreements			136
NASDAQ Stock Market Listing			136
Conditions to the Completion of the Merger			137
Termination of the Merger Agreement and Termination Fee			139
Amendment			140
Expenses			140
Directors and Officers of Signal Following the Merger			141
Amendments to the Certificate of Incorporation of Signal			141
Special Meeting of Signal Stockholders			141
Miragen Written Consent			141
AGREEMENTS RELATED TO THE MERGER			142
Subscription Agreement			142
Support Agreements			143
Lock-Up Agreements			144
MATTERS BEING SUBMITTED TO A VOTE OF SIGNAL STOCKHOLDERS			145
Signal Proposal No. 1: Approval of the Issuance of Common Stock in the Merger			145
Signal Proposal No. 2: Approval of the Change of Control Resulting from the Merger			145
Signal Proposal No. 3: Approval of the Conversion of the Note			146
Signal Proposal No. 4: Approval of the Signal 2016 Equity Incentive Plan			147
Signal Proposal No. 5: Approval of the Signal 2016 Employee Stock Purchase Plan			161
Signal Proposal No. 6: Approval of Name Change			167
Signal Proposal No. 7: Approval of the Amendment to the Certificate of Incorporation of Signal Effecting the Reverse Stock Split			167

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Signal Proposal No. 8: Approval of the Amendment to the Certificate of Incorporation of Signal to Increase the Authorized Shares of Signal Common Stock			174
Signal Proposal No. 9: Approval of the Sale of All of Signal’s Intellectual Property Assets Related to its MyPRS Test to Quest Diagnostics Investments LLC			175
Signal Proposal No. 10: Approval of the Amendment to the Certificate of Incorporation of Signal to Eliminate the Ability of Signal Stockholders to Act by Written Consent			181
Signal Proposal No. 11: Approval of Possible Adjournment of the Signal Special Meeting			182
SIGNAL BUSINESS			184
MIRAGEN BUSINESS			188
SIGNAL MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			218
MIRAGEN MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			230
MANAGEMENT FOLLOWING THE MERGER			247
Executive Officers and Directors			247
Board of Directors of the Combined Company Following the Merger			250
Director Compensation			254
Executive Compensation			255
Employment Benefits Plan			261
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			277
DESCRIPTION OF SIGNAL CAPITAL STOCK			281
COMPARISON OF RIGHTS OF HOLDERS OF SIGNAL CAPITAL STOCK AND MIRAGEN CAPITAL STOCK			286
PRINCIPAL STOCKHOLDERS OF SIGNAL			295
PRINCIPAL STOCKHOLDERS OF MIRAGEN			297
LEGAL MATTERS			300
EXPERTS			300
WHERE YOU CAN FIND MORE INFORMATION			301
TRADEMARK NOTICE			301
OTHER MATTERS			301
INDEX TO SIGNAL CONSOLIDATED FINANCIAL STATEMENTS			F-1
INDEX TO MIRAGEN CONSOLIDATED FINANCIAL STATEMENTS			F-37
INDEX TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS			F-84

 

ANNEX A—MERGER AGREEMENT
ANNEX B—SIGNAL 2016 EQUITY INCENTIVE PLAN
ANNEX C—SIGNAL 2016 EMPLOYEE STOCK PURCHASE PLAN
ANNEX D—AMENDMENT TO CERTIFICATE OF INCORPORATION—NAME CHANGE
ANNEX E—AMENDMENT TO CERTIFICATE OF INCORPORATION—REVERSE STOCK SPLIT
ANNEX F—AMENDMENT TO CERTIFICATE OF INCORPORATION—AUTHORIZED SHARES
ANNEX G—INTELLECTUAL PROPERTY PURCHASE AGREEMENT
ANNEX  H—AMENDMENTTO CERTIFICATE OF INCORPORATION—STOCKHOLDER WRITTEN CONSENT
ANNEX I—OPINION OF FINANCIAL ADVISOR
ANNEX J—DELAWARE APPRAISAL RIGHTS

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QUESTIONS AND ANSWERS ABOUT THE MERGER

Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus/information statement gives effect to Signal’s one-for-15 reverse stock split of its common stock, which was effective at 5:01 p.m. Eastern Time on November 4, 2016, but does not give effect to the proposed reverse stock split described in Signal Proposal No. 7, beginning on page 167 in this proxy statement/prospectus/information statement.

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

Q: What is the Merger?

A: Signal Genetics, Inc., or Signal, and Miragen Therapeutics, Inc., or Miragen, have entered into an Agreement and Plan of Merger and Reorganization, dated October 31, 2016, or the Merger Agreement. The Merger Agreement contains the terms and conditions of the proposed business combination of Signal and Miragen. Under the Merger Agreement, Signal Merger Sub, Inc., a wholly-owned subsidiary of Signal, or Merger Sub, will merge with and into Miragen, with Miragen surviving as a wholly-owned subsidiary of Signal. After the completion of the Merger, Signal will change its corporate name to “Miragen Therapeutics, Inc.” as required by the Merger Agreement. This transaction is referred to as the Merger.

Immediately prior to the effective time of the Merger, each share of Miragen preferred stock will be converted into one share of Miragen’s common stock, or Miragen common stock, as determined in accordance with the Miragen certificate of incorporation then in effect. At the effective time of the Merger, each share of Miragen common stock will be converted into the right to receive a fraction of a share of Signal common stock, or the Exchange Ratio. It is currently anticipated that, at the closing of the Merger, the Exchange Ratio would be approximately 0.6995 pre-split shares of Signal’s common stock, or Signal common stock, and would be within a range of approximately 0.6995 to 0.0466 post-split shares of Signal common stock. Signal will assume (i) each outstanding warrant to purchase Miragen capital stock, which will be converted into warrants to purchase Signal common stock and (ii) each outstanding and unexercised option to purchase Miragen common stock, which will be converted into options to purchase Signal common stock. Signal stockholders will continue to own and hold their existing shares of Signal common stock. The Exchange Ratio is determined pursuant to a formula in the Merger Agreement and described in this proxy statement/prospectus/information statement, and these estimates are subject to adjustment.

Immediately after the Merger, Miragen securityholders will own approximately 96% of the fully-diluted common stock of the combined company, with Signal securityholders, whose shares of Signal common stock will remain outstanding after the Merger, owning approximately 4% of the fully-diluted common stock of the combined company, each assuming that Miragen closes its concurrent financing immediately prior to the effective time of the Merger. If the concurrent financing does not close, then Miragen securityholders would own approximately 94% of the fully-diluted common stock of the combined company and Signal securityholders would own approximately 6% of the fully-diluted common stock of the combined company. These estimates are based on the anticipated pre-split Exchange Ratio and post-split Exchange Ratios and are subject to adjustment.

The rules applicable to the calculation of the Exchange Ratio, which are described in the sections titled “The Merger—Merger Consideration and Exchange Ratio” beginning on page 113 and “The Merger Agreement—Merger Consideration and Exchange Ratio” beginning on page 123, are complex and circumstances as of the effective time of the Merger may result in an Exchange Ratio that differs from estimates in this proxy statement/prospectus/information statement.

 

i

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

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

Q: Why are the two companies proposing to merge?

A: Following the Merger, Signal and Miragen believe that the Merger will result in a clinical-stage biopharmaceutical company that discovers and develops proprietary RNA-targeted therapeutics with a specific focus on microRNAs and their role in diseases where there is a high unmet medical need. Signal and Miragen believe that the combined company will have the following potential advantages: (i) a diversified, clinical stage product development pipeline; (ii) appropriate resources; (iii) an experienced management team; and (iv) the potential to access additional sources of capital.

Q: Why am I receiving this proxy statement/prospectus/information statement?

A: You are receiving this proxy statement/prospectus/information statement because you have been identified as a stockholder of Signal or Miragen as of the applicable record date, and you are entitled, as applicable, to vote at Signal’s special meeting of stockholders to approve the matters set forth above, or to sign and return the Miragen written consent to adopt and approve the matters set forth in the written consent. This document serves as:

 

•

a proxy statement of Signal used to solicit proxies for its special meeting of stockholders to vote on the matters set forth above;

 

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a prospectus of Signal used to offer shares of Signal common stock in exchange for shares of Miragen common stock in the Merger and issuable upon exercise of Miragen options and Miragen warrants; and

 

•

an information statement of Miragen used to solicit the written consent of its stockholders for approval of matters relating to the Merger.

Q: What is required to consummate the Merger?

A: To consummate the Merger, Signal stockholders must approve the proposal numbers 1 through 9. Pursuant to the terms of the Merger Agreement, Signal is also requesting that Signal stockholders approve proposal numbers 10 and 11 below, which are, collectively with proposal numbers 1 through 9, referred to as the Signal Proposals. The Signal Proposals include the following matters:

 

1.

the issuance of shares of Signal common stock to Miragen stockholders pursuant to the terms of the Agreement and Plan of Merger and Reorganization between Signal, Miragen and Signal Merger Sub, Inc., dated October 31, 2016, a copy of which is attached as Annex A, which is referred to as the Merger Agreement;

 

2.

the change in control of Signal resulting from the Merger contemplated by the Merger Agreement;

 

3.

the conversion of the Unsecured Demand Promissory Note, dated March 6, 2015, issued by Signal to Bennett LeBow in the original principal amount of $1,105,009, as amended on October 31, 2016, which is referred to as the Note, into shares of Signal common stock;

 

4.

the Signal 2016 Equity Incentive Plan, a copy of which is attached as Annex B;

 

5.

the Signal 2016 Employee Stock Purchase Plan, a copy of which is attached as Annex C;

 

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6.

an amendment to the certificate of incorporation of Signal changing the Signal corporate name to “Miragen Therapeutics, Inc.” in the form attached as Annex D;

 

7.

an amendment to the certificate of incorporation of Signal effecting a reverse stock split of Signal’s issued and outstanding common stock within a range of every one to 15 shares (or any number in between) of outstanding Signal common stock being combined and reclassified into one share of Signal common stock in the form attached as Annex E, which is referred to as the reverse stock split;

 

8.

an amendment to the certificate of incorporation of Signal increasing the number of authorized shares of Signal common stock from 50,000,000 shares to 100,000,000 shares in the form attached as Annex F;

 

9.

the sale of all of Signal’s intellectual property assets related to its MyPRS test to Quest Diagnostics Investments LLC pursuant to an intellectual property purchase agreement, a copy of which is attached as Annex G;

 

10.

an amendment to the certificate of incorporation of Signal to eliminate the ability of Signal stockholders to act by written consent in the form attached as Annex H; and

 

11.

to consider and vote on an adjournment of the Signal special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the proposals set forth above.

The presence, in person or represented by proxy, at the Signal special meeting of the holders of a majority of the shares of Signal common stock outstanding and entitled to vote at the Signal special meeting is necessary to constitute a quorum at the meeting. Abstentions and broker non-votes will be counted towards a quorum. The affirmative vote of the holders of a majority of the shares of Signal common stock having voting power present in person or represented by proxy at the Signal special meeting, assuming a quorum is present, is required for approval of Signal Proposal Nos. 1, 2, 3, 4, 5 and 11. The affirmative vote of the holders of a majority of shares of Signal common stock entitled to vote on the record date for the Signal special meeting is required for approval of Signal Proposal Nos. 6, 7, 8, 9 and 10. Each of Signal Proposal Nos. 1, 2, 3, 4, 5, 6, 7, 8 and 9 are conditioned upon each other and the approval of each such proposal is a condition to the completion of the Merger. Therefore, the Merger cannot be consummated without the approval of Proposal Nos. 1, 2, 3, 4, 5, 6, 7, 8 and 9.

Votes will be counted by the inspector of election appointed for the meeting, who will separately count “FOR” and “AGAINST” votes, abstentions and broker non-votes. Abstentions will be counted towards the vote total for each proposal and will have the same effect as “AGAINST” votes for Signal Proposal Nos. 6, 7, 8, 9 and 10, but will have no effect on Signal Proposal Nos. 1, 2, 3, 4, 5 and 11. Similarly, broker non-votes will have the same effect as “AGAINST” votes for Signal Proposal Nos. 6, 7, 8, 9 and 10, but will have no effect on Signal Proposal Nos. 1, 2, 3, 4, 5 and 11.

As of November 30, 2016, the directors and executive officers of Signal owned or controlled 27% of the outstanding shares of Signal common stock entitled to vote at the Signal special meeting. The directors and executive officers of Signal owning these shares are subject to support agreements. Each Signal stockholder that entered into a support agreement has agreed to vote all shares of Signal common stock owned by him as of the record date in favor of the Signal Proposals and against any “acquisition proposal,” as defined in the Merger Agreement.

The adoption of the Merger Agreement and the approval of the Merger and related transactions by the stockholders of Miragen require the affirmative votes of the holders of (i) a majority of the outstanding Miragen common stock and preferred stock, voting together as one class on an as-converted to common stock basis and (ii) 70% of the shares of Miragen preferred stock, voting together as one class on an as-converted to common stock basis. In addition to the requirement of obtaining such stockholder approvals, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived.

 

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In addition, following the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, being declared effective by the SEC and pursuant to the conditions of the Merger Agreement, Miragen stockholders who are party to the support agreements will each execute written consents approving the Merger and related transactions. These stockholders hold a sufficient number of shares of Miragen capital stock to adopt the Merger Agreement, and no meeting of Miragen stockholders to adopt the Merger Agreement and approve the Merger and related transactions will be held. Stockholders of Miragen, including those who are parties to support agreements, are being requested to execute written consents providing such approvals.

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

Q: What will Miragen stockholders, warrantholders and optionholders receive in the Merger?

A: As a result of the Merger, Miragen securityholders will become entitled to receive shares of Signal common stock equal to approximately 96% of the outstanding common stock of the combined company, assuming that Miragen closes its concurrent financing immediately prior to the effective time of the Merger. If the concurrent financing does not close, then Miragen securityholders will become entitled to receive shares of Signal common stock equal to approximately 94% of the fully-diluted common stock of the combined company. Each of Miragen’s outstanding warrants to purchase shares of Miragen capital stock not terminated or exercised at or prior to the effective time of the Merger will be converted into a warrant to purchase Signal common stock, with the number of shares and exercise price being appropriately adjusted to reflect the Exchange Ratio between Signal common stock and Miragen common stock determined in accordance with the Merger Agreement. Following the closing of the Merger, Miragen’s optionholders will have each Miragen option converted into an option to purchase Signal common stock, with the number of shares and exercise price being appropriately adjusted to reflect the Exchange Ratio between Signal common stock and Miragen common stock determined in accordance with the Merger Agreement.

For a more complete description of what Miragen stockholders, warrantholders and optionholders will receive in the Merger, please see the sections titled “Market Price and Dividend Information” and “The Merger Agreement—Merger Consideration and Exchange Ratio” in this proxy statement/prospectus/information statement.

Q: Who will be the directors of Signal following the Merger?

A: Immediately following the Merger, Signal’s board of directors is expected to be composed of seven directors to be designated solely by Miragen, including the following: William S. Marshall, Ph.D., Bruce L. Booth, Ph.D., John W. Creecy, Thomas E. Hughes, Ph.D., Kevin Koch, Ph.D., Kyle A. Lefkoff and Joseph L. Turner.

Q: Who will be the executive officers of Signal immediately following the Merger?

A: Immediately following the Merger, the executive management team of Signal is expected to be composed solely of the members of the Miragen executive management team prior to the Merger, as set forth below:

 

Name		Title
William S. Marshall, Ph.D.		President and Chief Executive Officer
Jason A. Leverone		Chief Financial Officer, Secretary and Treasurer
Adam S. Levy		Chief Business Officer
Paul D. Rubin, M.D.		Executive Vice President, Research and Development

Q: As a Signal stockholder, how does Signal’s board of directors recommend that I vote?

A: After careful consideration, Signal’s board of directors recommends that Signal stockholders vote “FOR” all of the Signal Proposals.

 

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Q: As a Miragen stockholder, how does Miragen’s board of directors recommend that I vote?

A: After careful consideration, Miragen’s board of directors recommends that Miragen stockholders execute the written consent indicating their vote in favor of the adoption of the Merger Agreement and the approval of the Merger and the transactions contemplated thereby.

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

A: You should carefully review the section of this proxy statement/prospectus/information statement titled “Risk Factors” beginning on page 19, which sets forth certain risks and uncertainties related to the Merger, risks and uncertainties to which the combined company’s business will be subject, and risks and uncertainties to which each of Signal and Miragen, as an independent company, is subject.

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

A: The Merger is anticipated to occur as early as the first quarter of 2017 after the Signal special meeting to be held on                     , but the exact timing cannot be predicted. For more information, please see the section titled “The Merger Agreement—Conditions to the Completion of the Merger” in this proxy statement/prospectus/information statement.

Q: What do I need to do now?

A: Signal and Miragen urge you to read this proxy statement/prospectus/information statement carefully, including its annexes, and to consider how the Merger affects you.

If you are a Signal stockholder of record, you may provide your proxy instructions in one of four different ways. First, you can attend the Signal special meeting in person and Signal will provide you with a ballot when you arrive at the meeting. Second, you can mail your signed proxy card in the enclosed return envelope. Third, you can provide your proxy instructions via telephone by following the instructions on your proxy card. Fourth, you can provide your proxy instructions via the Internet by following the instructions on your proxy card. If you hold your shares in “street name” (as described below), you may provide your proxy instructions via telephone or the internet by following the instructions on your vote instruction form. Please provide your proxy instructions only once, unless you are revoking a previously delivered proxy instruction, and as soon as possible so that your shares can be voted at the special meeting of Signal stockholders.

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

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

A: If you are a Signal stockholder, the failure to return your proxy card or otherwise provide proxy instructions will reduce the aggregate number of votes required to approve Signal Proposals Nos. 1, 2, 3, 4, 5 and 11 and will have the same effect as voting against 6, 7, 8, 9 and 10. Also, your shares will not be counted for purposes of determining whether a quorum is present at the Signal special meeting.

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

A: If your shares of Signal common stock are registered directly in your name with Signal’s transfer agent, you are considered to be the stockholder of record with respect to those shares, and the proxy materials and proxy card are being sent directly to you by Signal. If you are a Signal stockholder of record, you may attend the special meeting of Signal stockholders and vote your shares in person. Even if you plan to attend the Signal special meeting in person, Signal requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the Signal special meeting if you are unable to attend.

 

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If your shares of Signal common stock are held in a brokerage account or by another nominee, you are considered the beneficial owner of shares held in “street name,” and the proxy materials are being forwarded to you by your broker or other nominee together with a voting instruction card. As the beneficial owner, you are also invited to attend the special meeting of Signal stockholders. Because a beneficial owner is not the stockholder of record, you may not vote these shares in person at the Signal special meeting unless you obtain a proxy from the broker, trustee or nominee that holds your shares, giving you the right to vote the shares at the meeting.

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

A: The special meeting of Signal stockholders will be held at 12255 El Camino Real, Suite 300, San Diego, California 92130, at              local time, on                     . Subject to space availability, all Signal stockholders as of the record date, or their duly appointed proxies, may attend the meeting. Since seating is limited, admission to the meeting will be on a first-come, first-served basis.

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

A: Unless your broker has discretionary authority to vote on certain matters, your broker will not be able to vote your shares of Signal common stock on matters requiring discretionary authority without instructions from you. If you do not give instructions to your broker, your broker can vote your Signal shares with respect to “discretionary” items but not with respect to “non-discretionary” items. Discretionary items are proposals considered routine under the rules of The NASDAQ Capital Market on which your broker may vote shares held in “street name” in the absence of your voting instructions. On non-discretionary items for which you do not give your broker instructions, the Signal shares will be treated as broker non-votes. It is anticipated that Signal Proposal Nos. 1, 2, 3, 6, 7, 8, 9 and 10 will be non-discretionary items. To make sure that your vote is counted, you should instruct your broker to vote your shares, following the procedures provided by your broker.

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

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

Q: Who is paying for this proxy solicitation?

A: Signal and Miragen will share equally the cost of printing and filing of this proxy statement/prospectus/information statement and the proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of Signal common stock for the forwarding of solicitation materials to the beneficial owners of Signal common stock. Signal will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials. Signal has retained Advantage Proxy to assist it in soliciting proxies using the means referred to above. Signal will pay the fees of Advantage Proxy, which Signal expects to be approximately $7,500, plus reimbursement of out-of-pocket expenses.

Q: What are the material U.S. federal income tax consequences of the reverse stock split to Signal stockholders?

A: The reverse stock split described in Signal Proposal No. 7 should constitute a “recapitalization” for U.S. federal income tax purposes. As a result, a U.S. Holder (as described in more detail in the section titled “Matters

 

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Being Submitted to a Vote of Signal Stockholders—Signal Proposal No. 7: Approval of the Amendment of the Certificate of Incorporation of Signal Effecting the Reverse Stock Split—Material U.S. Federal Income Tax Consequences of the Reverse Stock Split”) of Signal common stock generally should not recognize gain or loss upon such reverse stock split, except with respect to cash received in lieu of a fractional share of Signal common stock, as discussed below in the section titled “Matters Being Submitted to a Vote of Signal Stockholders—Signal Proposal No. 7: Approval of the Amendment of the Certificate of Incorporation of Signal Effecting the Reverse Stock Split—Material U.S. Federal Income Tax Consequences of the Reverse Stock Split—Cash in Lieu of Fractional Shares”. A U.S. Holder’s aggregate tax basis in the shares of Signal common stock received pursuant to such reverse stock split should equal the aggregate tax basis of the shares of the Signal common stock surrendered (excluding any portion of such basis that is allocated to any fractional share of Signal common stock), and such U.S. Holder’s holding period in the shares of Signal common stock received should include the holding period in the shares of Signal common stock surrendered. Treasury Regulations provide detailed rules for allocating the tax basis and holding period of the shares of Signal common stock surrendered to the shares of Signal common stock received in a recapitalization pursuant to such reverse stock split. U.S. Holders of shares of Signal common stock acquired on different dates and at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such shares. For more information, please see the section titled “Matters Being Submitted to a Vote of Signal Stockholders—Signal Proposal No. 7: Approval of the Amendment of the Certificate of Incorporation of Signal Effecting the Reverse Stock Split—Material U.S. Federal Income Tax Consequences of the Reverse Stock Split” on page 167.

Q: What are the material U.S. federal income tax consequences of the Merger to Miragen stockholders?

A: Each of Signal and Miragen intends the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Code. In general, and subject to the qualifications and limitations set forth in the section titled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger,” if the Merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code, the material tax consequences to U.S. Holders of Miragen common stock will be as follows:

 

•

a Miragen stockholder will not recognize gain or loss upon the exchange of Miragen common stock for Signal common stock pursuant to the Merger, except to the extent of cash received in lieu of a fractional share of Miragen common stock as described below;

 

•

a Miragen stockholder who receives cash in lieu of a fractional share of Signal common stock in the Merger will recognize capital gain or loss in an amount equal to the difference between the amount of cash received in lieu of a fractional share and the stockholder’s tax basis allocable to such fractional share;

 

•

a Miragen stockholder’s aggregate tax basis for the shares of Signal common stock received in the Merger (including any fractional share interest for which cash is received) will equal the stockholder’s aggregate tax basis in the shares of Miragen common stock surrendered in the Merger; and

 

•

the holding period of the shares of Signal common stock received by a Miragen stockholder in the Merger will include the holding period of the shares of Miragen common stock surrendered in exchange therefor.

Tax matters are very complicated, and the tax consequences of the Merger to a particular Miragen stockholder will depend on such stockholder’s circumstances. Accordingly, you are strongly urged to consult your tax advisor for a full understanding of the tax consequences of the Merger to you, including the applicability and effect of federal, state, local and non-U.S. income and other tax laws. For more information, please see the section titled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 115.

 

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Q: Who can help answer my questions?

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

ADVANTAGE PROXY

Telephone: (877) 870-8565 (toll free); (206) 870-8565 (collect)

Email: ksmith@advantageproxy.com

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

Miragen Therapeutics, Inc.

6200 Lookout Road

Boulder, CO 80301

Telephone: (720) 407-4595

Attn: Investor Relations

Email: investorrelations@miragenrx.com

 

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RISK FACTORS

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

Risks Related to the Merger

The Exchange Ratio is not adjustable based on the market price of Signal 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.

It is currently anticipated that, at the closing of the Merger, the Exchange Ratio would be approximately 0.6995 pre-split shares of Signal common stock and would be within a range of approximately 0.6995 and 0.0466 post-split shares of Signal common stock. These estimates are subject to adjustment prior to closing of the Merger, including (i) adjustments to account for the issuance of any additional shares of Miragen or Signal common stock, as applicable, prior to the consummation of the Merger, provided that, the issuance of Miragen common stock in the concurrent financing will not impact the Exchange Ratio, or (ii) an upward adjustment to the extent that Signal’s net cash at the effective time of the Merger is less than negative $100,000 (and as a result, Signal securityholders could own less, and Miragen securityholders could own more, of the combined company). Any changes in the market price of Signal common stock before the completion of the Merger will not affect the number of shares Miragen securityholders will be entitled to receive pursuant to the Merger Agreement. Therefore, if before the completion of the Merger the market price of Signal common stock declines from the market price on the date of the Merger Agreement, then Miragen securityholders could receive Merger consideration with substantially lower value. Similarly, if before the completion of the Merger the market price of Signal common stock increases from the market price on the date of the Merger Agreement, then Miragen securityholders could receive Merger consideration with substantially more value for their shares of Miragen capital stock than the parties had negotiated for in the establishment of the Exchange Ratio. The Merger Agreement does not include a price-based termination right. However, Miragen’s obligation to consummate the Merger is conditioned upon Signal having “Net Cash” that is greater than or equal to negative $300,000, as defined and described under “The Merger Agreement—Conditions to the Completion of the Merger.” Because the Exchange Ratio does not adjust as a result of changes in the value of Signal common stock, for each one percentage point that the market value of Signal 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 Miragen securityholders.

Failure to complete the Merger may result in Signal or Miragen paying a termination fee to the other party and could harm the common stock price of Signal and future business and operations of each company.

If the Merger is not completed, Signal and Miragen are subject to the following risks:

 

•

if the Merger Agreement is terminated under specified circumstances, Signal or Miragen will be required to pay the other party a termination fee of $300,000 and/or up to $100,000 in expense reimbursements;

 

•

the price of Signal common stock may decline and remain volatile;

 

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•

costs related to the Merger, such as legal and accounting fees, which Signal and Miragen estimate will total approximately $800,000 and $1.1 million, respectively, some of which must be paid even if the Merger is not completed; and

 

•

Signal may be forced to cease its operations, dissolve and liquidate its assets.

In addition, if the Merger Agreement is terminated and the board of directors of Signal or Miragen determines to seek another business combination, there can be no assurance that either Signal or Miragen 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 Merger is approved by the stockholders of Miragen and change of control and related share issuance are approved by the stockholders of Signal, specified conditions must be satisfied or waived to complete the Merger. These conditions are set forth in the Merger Agreement and described in the section titled “The Merger Agreement—Conditions to the Completion of the Merger” in this proxy statement/prospectus/information statement. Signal and Miragen 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 Signal and Miragen each may lose some or all of the intended benefits of the Merger.

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

In general, either Signal or Miragen can refuse to complete the Merger if there is a material adverse change affecting the other party between October 31, 2016, the date of the Merger Agreement, and the closing of the Merger. 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 Signal or Miragen, including:

 

•

any effect, change, event, circumstance or development in the conditions generally affecting the industries in which Miragen and Signal operate or the U.S. or global economy or capital markets as a whole;

 

•

the failure by Miragen to complete the concurrent financing in connection with the Merger;

 

•

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

 

•

any change in accounting requirements or principles or any change in applicable laws, rules or regulations or the interpretation thereof;

 

•

any effect resulting from the announcement or pendency of the Merger or any related transactions;

 

•

any failure by Signal or Miragen to meet internal projections or forecasts or third-party revenue or earnings predictions for any period ending on or after October 31, 2016;

 

•

with respect to Signal, any change in the price or trading volume of Signal common stock;

 

•

any rejection by a governmental body of a registration or filing by Miragen or Signal relating to specified intellectual property rights; or

 

•

with respect to Miragen, any change in the cash position of Miragen which results from operations in the ordinary course of business.

If adverse changes occur and Signal and Miragen still complete the Merger, the stock price of the combined company may suffer. This in turn may reduce the value of the Merger to the stockholders of Signal, Miragen or both.

 

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While Miragen has commitments for the sale of $40.7 million in shares of its common stock, consummation of this financing is not a condition to closing the Merger. If Miragen and Signal complete the Merger, but Miragen does not complete the concurrent financing, then the combined company may need to raise additional capital by issuing securities or debt or through licensing arrangements, which may be on worse commercial terms than the concurrent financing, cause significant dilution to the combined company’s stockholders, restrict the combined company’s operations or require the combined company to relinquish proprietary rights.

Since the concurrent financing is not a condition to the Merger, Miragen and Signal may complete the Merger, but Miragen may not complete the concurrent financing. If this were to occur, the combined company would have substantially less funds than Miragen and Signal currently anticipate and 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, the terms of such an issuance may be on worse commercial terms than the concurrent financing and may cause more 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 arrangements, it may be necessary to relinquish potentially valuable rights to current product candidates and potential products or proprietary technologies, or grant licenses on terms that are not favorable to the combined company.

Some Signal and Miragen 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.

Some officers and directors of Signal and Miragen participate in arrangements that provide them with interests in the Merger that are different from yours, including, among others, the continued service as an officer or director of the combined company, severance and retention benefits, the acceleration of stock option and restricted stock vesting, payment of deferred and current year incentive compensation, additional premiums associated with outstanding indebtedness, continued indemnification and the potential ability to sell an increased number of shares of common stock of the combined company in accordance with Rule 144 under the Securities Act of 1933, as amended, or the Securities Act. For more information regarding the interests of the Signal and Miragen executive officers and directors in the Merger, see the sections titled “The Merger—Interests of the Signal Directors and Executive Officers in the Merger” and “The Merger—Interests of Miragen Directors and Executive Officers in the Merger” of this proxy statement/prospectus/information statement.

The market price of Signal common stock following the Merger may decline as a result of the Merger.

The market price of Signal common stock may decline as a result of the Merger for a number of reasons, including if:

 

•

investors react negatively to the prospects of the combined company’s business and prospects from the Merger;

 

•

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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Miragen and Signal securityholders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined company as compared to their current ownership and voting interest in the respective companies following the completion of the Merger.

After the completion of the Merger, the current stockholders of Miragen and Signal will own a smaller percentage of the combined company than their ownership of their respective companies prior to the Merger. Immediately after the Merger, Miragen securityholders will own approximately 96% of the fully-diluted common stock of Signal, with Signal securityholders, whose shares of Signal common stock will remain outstanding after the Merger, owning approximately 4% of the fully-diluted common stock of the combined company, each assuming that Miragen closes its concurrent financing immediately prior to the effective time of the Merger. If the concurrent financing does not close, then Miragen’s securityholders would own approximately 94% of the fully-diluted common stock of the combined company and Signal’s securityholders would own approximately 6% of the fully-diluted common stock of the combined company. These estimates are based on the anticipated pre-split Exchange Ratio and post-split Exchange Ratios and are subject to adjustment. In addition, the seven-member board of directors of the combined company will initially consist of William S. Marshall, Ph.D., Bruce L. Booth, Ph.D., John W. Creecy, Thomas E. Hughes, Ph.D., Kevin Koch, Ph.D., Kyle A. Lefkoff and Joseph L. Turner. Consequently, securityholders of Miragen and Signal will be able to exercise less influence over the management and policies of the combined company than they currently exercise over the management and policies of their respective companies.

During the pendency of the Merger, Signal and Miragen 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 Signal and Miragen to make acquisitions, subject to specified exceptions relating to fiduciary duties or complete other transactions that are not in the ordinary course of business pending completion of the Merger. As a result, if the Merger is not completed, the parties may be at a disadvantage to their competitors during that period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting, initiating, encouraging or entering into specified extraordinary transactions, such as a Merger, sale of assets or other business combination, with any third party, subject to specified exceptions. Any such transactions could be favorable to such party’s stockholders.

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

The terms of the Merger Agreement prohibit each of Signal and Miragen from soliciting competing proposals or cooperating with persons making unsolicited takeover proposals, except in limited circumstances when such party’s board of directors determines in good faith, after consultation with its independent financial advisor, if any, and outside counsel, that an unsolicited competing proposal constitutes, or would reasonably be expected to result in, a superior competing proposal and that failure to take such action would be reasonably likely to result in a breach of the fiduciary duties of the board of directors. In addition, if Signal or Miragen terminate the Merger Agreement under specified circumstances, including terminating because of a decision of a board of directors to recommend a superior competing proposal, Signal or Miragen would be required to pay a termination fee of $300,000 and/or up to $100,000 in expense reimbursements to the other party. If the Merger Agreement is terminated under specified circumstances, Signal or Miragen will be required to pay the other party a termination fee of $300,000, and/or up to $100,000 in expense reimbursements, as defined and described under “The Merger Agreement—Termination of the Merger Agreement and Termination Fee.” This termination fee may discourage third parties from submitting competing proposals to Signal or Miragen or their stockholders, and may cause the respective boards of directors to be less inclined to recommend a competing proposal.

 

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Because the lack of a public market for Miragen’s capital stock makes it difficult to evaluate the fairness of the Merger, the stockholders of Miragen may receive consideration in the Merger that is less than the fair market value of Miragen’s capital stock and/or Signal may pay more than the fair market value of Miragen’s capital stock

The outstanding capital stock of Miragen is privately held and is not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of Miragen’s capital stock. Because the percentage of Signal equity to be issued to Miragen stockholders was determined based on negotiations between the parties, it is possible that the value of the Signal common stock to be received by Miragen stockholders will be less than the fair market value of Miragen’s capital stock, or Signal may pay more than the aggregate fair market value for Miragen’s capital stock.

Risks Related to Signal

Signal is an early stage company with a limited commercial history and a history of net losses; Signal expects to incur net losses in the future and may never achieve sustained profitability.

Signal is a diagnostics company with a limited commercial history. Substantially all of Signal’s revenue has been derived from its MyPRS testing services, which was launched in 2011. Signal has historically incurred substantial net losses. Signal incurred losses attributable to stockholders of Signal Genetics, Inc. (or members of Signal Genetics LLC, as applicable) of $11.3 million and $7.9 million during the years ended December 31, 2015 and 2014, respectively. As of September 30, 2016, Signal had cash and cash equivalents totaling $5.4 million. Signal’s existing cash resources will not be sufficient to meet its operating plan for the full 12-month period after the date of this proxy statement/prospectus/information statement. Based on available resources, Signal believes it can maintain its current operations into the second quarter of 2017. Signal expects its losses to continue as a result of ongoing research and development expenses, increased selling and marketing costs and increased general and administrative costs to support Signal’s planned growth. These losses have had, and will continue to have, an adverse effect on Signal’s working capital, total assets and stockholders’ equity. Because of the numerous risks and uncertainties associated with Signal’s research, development and commercialization efforts, Signal is unable to predict when it will become profitable, and Signal may never become profitable. Even if Signal does achieve profitability, it may not be able to sustain or increase profitability on a quarterly or annual basis. Signal’s inability to achieve and then maintain profitability would negatively affect its business, financial condition, results of operations and cash flows.

If the Merger is not completed, Signal would need to raise substantial additional funding to the extent it continues its commercialization and research and development efforts, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force Signal to dissolve or liquidate its operations.

Signal’s operations have consumed substantial amounts of cash since inception. As of September 30, 2016, Signal’s cash, cash equivalents and investments were approximately $5.4 million. Signal’s total operating expenses were $9.6 million and $10.1 million for the nine months ended September 30, 2016 and 2015, respectively. Signal believes that its existing cash, cash equivalents and investments will enable it to fund its operations into the second quarter of 2017. However, Signal has historically incurred substantial net losses and maintaining and growing revenues from MyPRS depends on the availability of adequate coverage and reimbursement for Signal’s tests from third-party payors, including government programs such as Medicare, private insurance plans and managed care programs. Therefore, Signal will need to raise substantial additional capital to fund future activities.

Any additional fundraising efforts may divert Signal’s management from their day-to-day activities, which may adversely affect its ability to develop and commercialize additional diagnostic tests. In addition, it cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to Signal, if at all. If Signal is unable to obtain funding on a timely basis, it may be required to significantly curtail or be unable to

 

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deploy the capital necessary to refocus or expand its operations or otherwise capitalize on its business opportunities, as desired, any of which could materially adversely affect its business, financial condition and results of operations and could even require it to cease operations entirely.

If the Merger is not completed, raising additional funds through debt or equity financing is likely to be difficult, could be dilutive and may cause the market price of Signal’s common stock to decline further.

To the extent that Signal raises additional capital through the sale of equity or convertible debt securities, the issuance of those securities could result in substantial dilution for Signal’s current stockholders and the terms may include liquidation or other preferences that adversely affect the rights of its current stockholders. Furthermore, the issuance of additional securities, whether equity or debt, by Signal, or the possibility of such issuance, may cause the market price of its common stock to decline further and existing stockholders may not agree with its financing plans or the terms of such financings.

If the Merger is not completed, Signal will require, and may not be able to obtain, substantial additional financial resources in order to carry out planned activities and to continue as a going concern beyond the second quarter of 2017.

As of September 30, 2016, Signal has cash and cash equivalents totaling $5.4 million. Signal’s existing cash resources will not be sufficient to meet its operating plan for the full 12-month period after the date of this proxy statement/prospectus/information statement. Based on available resources, Signal believes it can maintain its current operations into the second quarter of 2017. As a result, to continue to fund Signal’s ongoing operations beyond the second quarter of 2017, Signal would need to (i) raise additional capital through the issuance of equity, debt or other securities, (ii) convert its existing debt into equity, (iii) enter into strategic partnerships, alliances, collaborations or other similar transactions or (iv) a combination thereof. Due to current market conditions, Signal’s current liquidity position and its stock price, Signal believes it may be difficult to obtain additional equity or debt financing on terms acceptable to Signal, if at all, thus raising substantial doubt about Signal’s ability to continue as a going concern. If Signal is unable to raise additional capital or successfully complete the Merger or another strategic partnership, alliance, collaboration or other similar transaction, Signal will need to delay or reduce expenses or limit or curtail operations, any of which would have a material adverse effect on its business. Further, if Signal is unable to raise additional capital or successfully complete the Merger or a strategic partnership, alliance, collaboration or other similar transaction on a timely basis and on terms that are acceptable, Signal may also be required to sell or license its assets, sell the company or otherwise liquidate all or a portion of Signal’s assets and/or cease its operations altogether. If Signal cannot continue as a viable entity, its stockholders might lose some or all of their investment. Signal’s financial statements do not include any adjustments that might be necessary if Signal is unable to continue as a going concern.

Signal’s business to date has been almost entirely dependent on the success of MyPRS, and a small number of test ordering sites account for most of the sales of Signal’s tests and services. 

Due to the early stage nature of Signal’s business and its limited selling and marketing activities to date, Signal has historically derived a significant portion of Signal’s revenue from a limited number of test ordering sites. In particular, the most significant portion of Signal’s revenue is generated from its MyPRS test services provided at its clinical laboratory in Little Rock, Arkansas for three major customers, including UAMS. Revenue sourced either from or through UAMS as a percentage of net revenue during the first nine months of 2016 and 2015 were 22% and 64%, respectively. The decrease in revenue is due to the decrease in research funds available at UAMS for such programs. Signal expects continued declining revenue from the UAMS research programs. Signal’s test ordering sites are largely hospitals and cancer centers. Oncologists and pathologists at these sites order the tests on behalf of their oncology patients or as part of a clinical trial sponsored by a pharmaceutical company in which the patient is enrolled. Signal generally does not enter into formal written agreements with such test ordering sites and, as a result, Signal may lose the business of any of these test ordering sites at any time.

 

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Signal has suspended certain activities to reduce operating expenses while seeking a merger or sale. There can be no assurance that the proposed Merger transaction will be approved or consummated, or if consummated, that it would enhance stockholder value. If the Merger is not consummated, there also can be no assurance that Signal can increase its revenue.

There is no assurance that the proposed Merger between Signal and Miragen will be completed in a timely manner or at all. If the Merger with Miragen is not consummated, Signal’s business could suffer materially and its stock price could decline.

The consummation of the proposed Merger between Signal and Miragen is subject to a number of closing conditions, including the approval by Signal stockholders and other customary closing conditions. The parties are targeting a closing of the transaction in the first quarter of 2017, however, there can be no assurance that the proposed Merger will be consummated on their desired timeframe, or at all.

If the proposed Merger between Signal and Miragen is not consummated, Signal may be subject to a number of material risks, and its business and stock price could be adversely affected, as follows:

 

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Signal has incurred and expects to continue to incur significant expenses related to the proposed Merger with Miragen even if the Merger is not consummated;

 

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Signal could be obligated to pay Miragen a $300,000 termination fee and/or up to $100,000 in expense reimbursements in connection with the termination of the Merger Agreement, depending on the reason for the termination;

 

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The market price of Signal’s 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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If the sale of the MyPRS intellectual property assets is approved by the stockholders of Signal or as a result of limited financial resources, Signal may not pursue an alternate merger transaction if the proposed Merger with Miragen is not completed.

If the Merger is not completed, Signal’s board of directors may decide to pursue a dissolution and liquidation of the company. In such an event, the amount of cash available for distribution to its 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.

There can be no assurance that the Merger will be completed. If the Merger is not completed, Signal’s board of directors may decide to pursue a dissolution and liquidation of the company. In such an event, the amount of cash available for distribution to its 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 Signal continues to fund its operations. In addition, if Signal’s board of directors were to approve and recommend, and its stockholders were to approve, a dissolution and liquidation of the company, it would be required under Delaware corporate law to pay its outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to its stockholders. Signal’s commitments and contingent liabilities may include (i) non-cancelable lease obligations and (ii) non-cancellable operating expenses associated with winding down operations. As a result of this requirement, a portion of Signal’s assets may need to be reserved pending the resolution of such obligations. In addition, Signal may be subject to litigation or other claims related to a dissolution and liquidation of its company. If a dissolution and liquidation were pursued, Signal’s board of directors, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of its common stock could lose all or a significant portion of their investment in the event of Signal’s liquidation, dissolution or winding up.

 

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If Signal fails to continue to meet all applicable NASDAQ Capital Market requirements and NASDAQ determines to delist Signal’s common stock, the delisting could adversely affect the value of the Merger, market liquidity of its common stock and the market price of its common stock could decrease.

Signal’s common stock is listed on The NASDAQ Capital Market. In order to maintain the listing, Signal 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 it is not characterized as a “public shell company.” If Signal is unable to comply with NASDAQ’s listing standards, NASDAQ may determine to delist its common stock from The NASDAQ Capital Market. If its common stock is delisted for any reason, it could reduce the value of its common stock and its liquidity. Delisting could also adversely affect the ability to obtain financing for the continuation of Signal’s operations, if Signal chooses to reestablish its business, or to use its common stock in acquisitions, including the Merger. Delisting could result in the loss of confidence by suppliers and employees. Delisting would prevent Signal from satisfying a closing condition for the Merger, and, in such event, Miragen may elect not to consummate the Merger. In addition, the combined company must submit a new application for listing on NASDAQ after the Merger pursuant to the reverse merger rules, and the combined company will need to meet NASDAQ’s minimum listing requirements condition.

If Signal is unable to complete the sale of the MyPRS intellectual property assets and receive the anticipated cash proceeds from the sale as planned, then Signal may have incurred additional expenses that may not allow Signal to satisfy the closing net cash requirement contained in the Merger Agreement.

The Merger Agreement contains a condition precedent to the obligation of Miragen to complete the Merger, which, unless waived by Miragen, requires that Signal have net cash, as defined, of greater than or equal to negative $300,000. If Signal is unable to complete the sale of the MyPRS intellectual property assets and receive the anticipated cash proceeds from that transaction as planned, Signal may have incurred additional expenses that may not allow Signal to meet the closing net cash requirement in the Merger Agreement, and as a consequence, Miragen will have the right to terminate the Merger Agreement.

If Signal is unable to obtain adequate coverage and reimbursement for its tests, it is unlikely that Signal’s tests will gain widespread acceptance.

Maintaining and growing revenues from MyPRS depends on the availability of adequate coverage and reimbursement for Signal’s tests from third-party payors, including government programs such as Medicare and Medicaid, private insurance plans and managed care programs. Health care providers that order diagnostic services such as MyPRS generally expect that those diagnostic services are covered and reimbursed by third-party payors for all or part of the costs and fees associated with the diagnostic tests they order. If such diagnostic tests are not covered and reimbursed then their patients may be responsible for the entire cost of the test, which can be substantial. Therefore, health care providers generally do not order tests that are not covered and reimbursed by third-party payors in order to avoid subjecting their patients to such financial liability. The existence of adequate coverage and reimbursement for the procedures performed with MyPRS by government and private insurance plans is central to the acceptance of MyPRS and any future services Signal provides. During the past several years, third-party payors have undertaken cost-containment initiatives including different payment methods, monitoring health care expenditures, and anti-fraud initiatives. For example, the Centers for Medicare & Medicaid Services, or CMS, which administers the Medicare program, has taken the position that the algorithm portion of multi-analyte algorithmic assays, or MAAAs, such as MyPRS, is not a clinical laboratory test and is therefore not reimbursable under the Medicare program. Although this position is only applicable to tests with a CMS determined national payment amount, it is possible that the local MACs, who make coverage and payment determinations for tests like MyPRS may adopt this policy and reduce payment for MyPRS. If that were to happen, reimbursement might be made for each gene used in the MyPRS test and coverage and the amount of reimbursement for the genes Signal uses in MyPRS would be uncertain. Signal may not be able to achieve or maintain profitability if third-party payors deny coverage or reduce their current levels of payment, or if Signal’s costs of production increase faster than increases in reimbursement levels. For some

 

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governmental programs, such as Medicaid, coverage and reimbursement differ from state to state, and some state Medicaid programs may not pay an adequate amount for MyPRS or may make no payment at all. As the portion of the U.S. population over the age of 65 and eligible for Medicare continues to grow, Signal may be more vulnerable to coverage and reimbursement limitations imposed by CMS. Furthermore, the health care industry in the United States has experienced a general trend toward cost containment as government and private insurers seek to control health care costs through various mechanisms, including imposing limitations on payment rates and negotiating reduced contract rates with service providers, among other things. Therefore, Signal cannot be certain that Signal’s services will be reimbursed at a level that is sufficient to meet Signal’s costs.

There is a scarcity of experienced professionals in the cancer diagnostic industry. If Signal is not able to retain and recruit personnel with the requisite technical skills, Signal may be unable to successfully execute its business strategy.

The specialized nature of Signal’s industry results in an inherent scarcity of experienced personnel in the field. Signal’s future success depends upon its ability to attract and retain highly skilled personnel (including medical, scientific, technical, commercial, business, regulatory and administrative personnel) necessary to support its anticipated growth, develop Signal’s business and perform certain contractual obligations. Given the scarcity of professionals with the scientific knowledge that Signal requires and the competition for qualified personnel among life science businesses, Signal may not succeed in attracting or retaining the personnel it requires to continue and grow Signal’s operations. The loss of a key employee, the failure of a key employee to perform in his or her current position or its inability to attract and retain skilled employees could result in Signal’s’ inability to continue to grow Signal’s business or to implement its business strategy.

If Signal is unable to increase sales of its laboratory tests and services or to successfully develop and commercialize other indications for its proprietary tests, Signal’s revenues will be insufficient for it to achieve profitability.

Signal’s revenue is derived primarily from its laboratory testing services. Signal currently offers the MyPRS test through its state-of the-art Clinical Laboratory Improvement Amendments of 1988, or CLIA,-certified, College of American Pathologists, or CAP,-accredited and state licensed laboratory in Little Rock, Arkansas. MyPRS is not assigned a specific Current Procedural Terminology, also referred to as a CPT code, but Signal’s local MAC and Blue Cross Blue Shield, or BCBS, of Arkansas have established a specific payment amount for the test, which is billed under a nonspecific code. Signal is in varying stages of research and development for other diagnostic tests that it may offer. Signal does not currently offer any other testing services. If Signal is unable to increase sales of MyPRS or to successfully develop and commercialize other diagnostic tests, Signal will not produce sufficient revenues to become profitable. Signal’s laboratory testing services are expensive and may be a negative factor for gaining routine reimbursement.

If pathologists and oncologists decide not to order Signal’s diagnostic tests, Signal may be unable to generate sufficient revenue to sustain its business.

To increase awareness and adoption of Signal’s molecular diagnostic tests and services, Signal will need to educate oncologists and pathologists on the clinical utility, benefits and value of each type of test Signal provides through published papers, presentations at scientific conferences and one-on-one education sessions by members of its commercial team. In addition, Signal will need to assure oncologists and pathologists of its ability to obtain and maintain adequate reimbursement coverage from third-party payors. Signal may need to hire additional commercial, scientific, technical, selling and marketing and other personnel to support this process. If Signal’s educational efforts fail and medical practitioners do not order its diagnostic tests or other tests Signal may develop, utilization of its tests in sufficient volume for Signal to achieve sustained profitability or, perhaps, viability may not be possible.

 

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Signal’s business depends on its ability to successfully develop and commercialize novel cancer diagnostic tests and services, which is time consuming and complex, and Signal’s development efforts may fail.

Signal’s current business strategy focuses on discovering, developing and commercializing molecular diagnostic tests and services. Signal believes the success of its business depends on its ability to fully commercialize its existing diagnostic tests and services and to develop and commercialize new diagnostic tests. In particular, it is essential to Signal’s business strategy that it expand the indications for use of MyPRS. The first additional indications for which Signal hopes MyPRS will be used include MGUS and SMM. Collectively, these precursor conditions are referred to as AMG. However, Signal may be unsuccessful and MyPRS may never be used for these indications. Signal may not succeed because it may never be accepted by the oncologist community, third-party payors may not pay for it, and the recent peer-reviewed publication that could support these indications for MyPRS may not be sufficient to drive adoption support coverage and reimbursement and the results may not be duplicated in additional studies.

In addition, prior to commercializing its diagnostic tests, Signal must undertake time-consuming and costly development activities, sometimes including clinical trials, and may be required to obtain regulatory clearance or approval, which may be denied. This development process involves a high degree of risk, substantial expenditures and will occur over several years. Signal development efforts may fail for many reasons, including:

 

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failure of the tests at the research or development stage;

 

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difficulty in accessing archival tissue samples, especially tissue samples with known clinical results; or

 

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lack of clinical validation data to support the effectiveness of the test.

Tests that appear promising in early development may fail to be validated in subsequent studies, and even if Signal achieves positive results, Signal may ultimately fail to obtain the necessary regulatory clearances, approvals or coverage and reimbursement. There is substantial risk that Signal’s research and development projects will not result in commercially viable tests, and that success in early clinical studies will not be replicated in later studies. At any point, Signal may abandon development of a test or be required to expend considerable resources repeating clinical trials, which would adversely impact its ability to generate revenues from that test. In addition, as Signal develops tests, it will have to make significant investments in research, development and marketing resources. If a clinical validation study of a particular test fails to meet its endpoint, Signal might choose to abandon the development of that test. Further, its ability to develop and launch diagnostic tests will likely depend on its receipt of additional funding beyond that obtained through its public offerings. If Signal’s discovery and development programs yield fewer commercial tests than Signal expects, it may be unable to execute its business plan, which may adversely affect its business, financial condition and results of operations.

If Signal is unable to execute its marketing strategy for its cancer diagnostic tests and is unable to gain acceptance in the market, Signal may be unable to generate sufficient revenue to sustain its business.

Signal is an early-stage company and has engaged in only limited selling and marketing activities for MyPRS. There is not currently widespread awareness or adoption of its MyPRS testing system. Although Signal believes that MyPRS represents a promising commercial opportunity, it may never gain significant acceptance in the marketplace and therefore may never generate substantial revenue or profits for Signal. This is also true for any additional diagnostic tests Signal may market. Signal will need to establish a market for its diagnostic tests and build that market through physician education and awareness programs. Gaining acceptance in medical communities requires publication in leading peer-reviewed journals of results from studies using its tests. The process of publication in leading medical journals is subject to a peer review process and peer reviewers may not consider the results of its studies sufficiently novel or worthy of publication. Failure to have its studies published in peer-reviewed journals would limit the adoption of its tests and future coverage and reimbursement decisions for its tests could be negatively affected.

 

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Signal’s ability to successfully market the diagnostic tests that it may develop will depend on numerous factors, including:

 

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whether health care providers believe its diagnostic tests are clinically useful;

 

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whether the medical community accepts that its diagnostic tests are sufficiently sensitive and specific to be meaningful in patient care and treatment decisions; and

 

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whether health insurers, government health programs and other third-party payors will cover and pay for Signal’s diagnostic tests and, if so, whether they will adequately reimburse Signal.

If any of these do not occur, Signal could fail to achieve widespread market acceptance of its diagnostic tests and its business would be materially harmed, as would its financial condition and results of operations.

If Signal’s tests do not perform as expected, its operating results, reputation and business will suffer.

Signal’s success depends on the market’s confidence that it can continue to provide reliable, high-quality diagnostic tests. Signal believes that its customers are likely to be particularly sensitive to test defects and errors, such as false positive or false negative results which could affect the patient’s eventual diagnosis and/or treatment. As a result, the failure of its tests or services to perform as expected would significantly impair its reputation and the public image of its tests and services, and Signal may be subject to legal claims arising from any defects or errors.

Signal may implement a product recall or voluntary market withdrawal of MyPRS due to test defects or enhancements and modifications, which would significantly increase its costs.

The marketing of MyPRS and any future diagnostic tests that it may develop involves an inherent risk that such tests may prove to be defective. In that event, Signal may voluntarily implement a market withdrawal of such tests or may be required to do so by a regulatory authority. A recall of MyPRS or one of its future diagnostic tests, or a similar product or service offered by another provider, could impair sales of the services Signal markets as a result of confusion concerning the scope of the recall or as a result of the damage to its reputation for quality and safety.

If Signal’s sole laboratory facility becomes damaged or inoperable, or Signal is required to vacate the facility, Signal’s ability to provide services and pursue its research and development efforts may be jeopardized.

Signal currently derives substantially all of its revenues from its laboratory testing services. Signal does not have any clinical reference laboratory facilities other than its facility in Little Rock, Arkansas. Signal’s facilities and equipment could be harmed or rendered inoperable by natural or man-made disasters, including fire, flooding and power outages, which may render it difficult or impossible for Signal to perform its tests or provide laboratory services for some period of time. The inability to perform Signal’s tests or the backlog of tests that could develop if its facility is inoperable for even a short period of time may result in the loss of customers or harm to its reputation or relationships with collaborators, and Signal may be unable to regain those customers or repair its reputation in the future. Furthermore, Signal’s facilities and the equipment Signal uses to perform its research and development work could be costly and time-consuming to repair or replace, which could further delay its ability to provide testing services.

Additionally, a key component of its research and development process involves using biological samples and the resulting data sets and medical histories, as the basis for its diagnostic test development. In some cases, these samples are difficult to obtain. If the parts of Signal’s laboratory facility where it stores these biological samples are damaged or compromised, Signal’s ability to pursue its research and development projects, as well as Signal’s reputation, could be jeopardized. Signal carries insurance for damage to its property and the disruption of its business, but this insurance may not be sufficient to cover all of Signal’s potential losses and may not continue to be available to Signal on acceptable terms, if at all.

 

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Further, if Signal’s laboratory became inoperable, it may not be able to license or transfer its proprietary technology to a third party, with established state licensure and CLIA certification under the scope of which its diagnostic tests could be performed following validation and other required procedures, to perform the tests. Even if Signal finds a third party with such qualifications to perform its tests, such party may not be willing to perform the tests for Signal on commercially reasonable terms. Signal may have to reapply for state licensure and CLIA certification if Signal is unable to find a third party with such qualifications.

If Signal cannot compete successfully with its competitors, Signal may be unable to increase or sustain its revenues or achieve and sustain profitability.

Signal’s principal competition comes from the existing mainstream diagnostic methods that pathologists and oncologists use and have used for many years. It may be difficult to change the methods or behavior of the referring pathologists and oncologists to incorporate its molecular diagnostic testing in their practices. However, Signal believes that it can introduce its diagnostic tests successfully due to their clinical utility and the desire of pathologists and oncologists to find solutions for more accurate diagnosis, prognosis and personalized treatment options for MM and AMG patients. But this is not certain and if the health care providers who are in a position to order its tests do not adopt them, it could adversely affect Signal’s business.

Signal also faces competition from companies that currently offer or are developing products to profile genes, gene expression or protein biomarkers in various cancers. Personalized genetic diagnostics is a new area of science, and Signal cannot predict what tests others will develop that may compete with or provide results superior to the results Signal is able to achieve with the tests Signal develops. Signal’s competitors include public companies such as NeoGenomics, Inc., Quest Diagnostics, Abbott Laboratories, Inc., Johnson & Johnson, Roche Molecular Systems, Inc., Genomic Health, Inc., Myriad Genetics Inc., Qiagen N.V., Foundation Medicine, Inc., Cancer Genetics, Inc., and many private companies, including Agendia B.V. and bioTheranostics, Inc. Another source of competition comes from other scientific teams attempting to develop GEP signatures utilizing other genes or a subset of the genes utilized in Signal’s MyPRS test. Two groups of note include the French IFM-15 gene signature and the Netherlands EMC-92 gene signature which have been studied by independent groups and compared to the UAMS GEP test, or MyPRS.

Signal provides services in a segment of the health care industry that is highly fragmented and extremely competitive. Any failure to respond to technological advances and emerging industry standards could impair Signal’s ability to attract and retain clients. This industry is characterized by rapid technological change. It is anticipated that competition will continue to increase due to such factors as the potential for commercial applications of biotechnology and the continued availability of investment capital and government funding for cancer-related research. Signal’s competitors may succeed in developing diagnostic tests and/or services that are superior to Signal’s tests and technologies, including Signal’s pipeline tests. This could render its tests obsolete and, as a result, they might not be ordered, thus impairing the viability of Signal’s business.

Signal expects that pharmaceutical and biopharmaceutical companies will increasingly focus attention and resources on the personalized diagnostic sector as the potential and prevalence increases for molecularly targeted oncology therapies approved by the FDA along with companion diagnostics. For example, the FDA has approved two such agents—Xalkori^® (crizotinib) from Pfizer Inc. along with its companion anaplastic lymphoma kinase, fluorescence in situ hybridization (FISH) test from Abbott Laboratories, Inc. and Zelboraf^® (vemurafenib) from Genentech USA Incorporated and Daiichi-Sankyo Inc. along with its companion B-RAF kinase V600 mutation test from Roche Molecular Systems, Inc. These two FDA approvals are the second and third instances of simultaneous approvals of a drug and companion diagnostic, the first being the 1998 approval of Genentech, Inc.’s Herceptin^® (trastuzumab) for HER2 positive breast cancer along with the HercepTest^TM from partner Dako A/S.

Signal also face competition from companies such as Genoptix, Inc. (a Novartis AG company), Neogenomics, Inc., Cancer Genetics, Inc., Bio-Reference Laboratories, Inc. (a division of OPKO Health, Inc.), Intergrated

 

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Genetics (a LabCorp Specialty Testing Group) and Foundation Medicine, Inc., which offer products or services or have conducted research to develop genetic profiles, or genetic or protein biomarkers for various cancers. Additionally, projects related to cancer genomics have received increased government funding, both in the United States and internationally. As more information regarding cancer genomics becomes available to the public, Signal anticipates that more products and services aimed at predicting patient outcome as well as identifying targeted treatment options will be developed and that these products and services may compete with the services Signal offers. In addition, competitors may develop their own versions of Signal’s tests in countries where Signal did not apply for patents or where Signal’s patents have not issued and compete with Signal in those countries, including promoting the use of their test(s) by physicians or patients in other countries.

Many of its present and potential competitors have widespread brand recognition and substantially greater financial and technical resources and development, production and marketing capabilities than Signal does. Others may develop lower-priced, less complex tests that payors, pathologists and oncologists could view as functionally equivalent to Signal’s tests, which could force Signal to lower the list price of Signal’s tests and impact its operating margins and its ability to achieve profitability. In addition, technological innovations that result in the creation of enhanced diagnostic tools may enable other clinical laboratories, hospitals, physicians or medical providers to provide specialized diagnostic services similar to ours in a more patient-friendly, efficient or cost-effective manner than is currently possible. If Signal cannot compete successfully against current or future competitors, Signal may be unable to increase market acceptance and sales of its tests, which could prevent Signal from increasing or sustaining its revenues or achieving or sustaining profitability.

The loss of Signal’s Chairman or key members of its executive management team could adversely affect its business.

Signal’s success in implementing its business strategy depends largely on the skills, experience and performance of the Chairman of its board of directors, Bennett S. LeBow, key members of Signal’s executive management team and others in key management positions, including Samuel D. Riccitelli, its president and chief executive officer, and Tamara A. Seymour, Signal’s chief financial officer. The collective efforts of each of these persons working as a team are critical as Signal continues to develop its technologies, tests and research and development and sales programs. As a result of the difficulty in locating qualified new management, the loss or incapacity of existing members of its executive management team could adversely affect its operations. If Signal were to lose one or more of these key employees, Signal could experience difficulties in finding qualified successors, competing effectively, developing its technologies and implementing its business strategy. Signal’s president and chief executive officer, Samuel D. Riccitelli, Signal’s chief financial officer, Tamara A. Seymour, and other members of the executive team have employment agreements with Signal. However, the existence of an employment agreement does not guarantee retention of members of its executive management team or its key employees and Signal may not be able to retain those individuals for the duration of or beyond the end of their respective terms.

If Signal were sued for product liability or professional liability, Signal could face substantial liabilities that exceed its resources.

The marketing, sale and use of Signal’s tests could lead to the filing of product liability claims were someone to allege that its tests failed to perform as designed. Signal may also be subject to liability for errors in the test results Signal provides to pathologists and oncologists or for a misunderstanding of, or inappropriate reliance upon, the information Signal provides. A product liability or professional liability claim could result in substantial damages and be costly and time-consuming for Signal to defend.

Although Signal believes that its existing product and professional liability insurance is adequate, Signal’s insurers may fail to defend Signal or Signal’s insurance may not fully protect Signal from the financial impact of defending against product liability or professional liability claims. Any product liability or professional liability claim brought against Signal, with or without merit, could increase its insurance rates or prevent Signal from

 

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securing insurance coverage in the future. Additionally, any product liability lawsuit could damage its reputation, or cause current clinical partners and collaborators to terminate existing agreements and potential clinical partners to seek other partners, cause customers to terminate their relationship with Signal and potential customers to seek alternative testing solutions, any of which could impact Signal’s results of operations.

Declining general economic or business conditions may have a negative impact on Signal’s business.

Continuing concerns over U.S. health care reform legislation and energy costs, geopolitical issues, the availability and cost of credit and government stimulus programs in the United States and other countries have contributed to increased volatility and diminished expectations for the global economy. These factors, combined with low business and consumer confidence and high unemployment, precipitated an economic slowdown and recession. If the economic climate does not improve or deteriorates, Signal’s business, including its access to patient samples and the addressable market for diagnostic tests that Signal may successfully develop, as well as the financial condition of Signal’s suppliers and Signal’s third-party payors, could be adversely affected, resulting in a negative impact on Signal’s business, financial condition and results of operations.

Signal depends on its information technology and telecommunications systems, and any failure of these systems could harm its business.

Signal depends on information technology and telecommunications systems for significant aspects of its operations. In addition, Signal’s third-party billing and collections provider depends upon telecommunications and data systems provided by outside vendors and information Signal provides on a regular basis. These information technology and telecommunications systems support a variety of functions, including test processing, sample tracking, quality control, customer service and support, billing and reimbursement, research and development activities and Signal’s general and administrative activities. Information technology and telecommunications systems are vulnerable to damage from a variety of sources, including telecommunications or network failures, malicious human acts and natural disasters. Moreover, despite network security and back-up measures, some of its systems are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Despite the precautionary measures Signal has taken to prevent unanticipated problems that could affect its information technology and telecommunications systems, failures or significant downtime of Signal’s information technology or telecommunications systems or those used by its third-party service providers could prevent Signal from processing tests, providing test results to pathologists, oncologists, billing payors, processing reimbursement appeals, handling patient or physician inquiries, conducting research and development activities and managing the administrative aspects of Signal’s business. Any disruption or loss of information technology or telecommunications systems on which critical aspects of its operations depend could have an adverse effect on Signal’s business. Furthermore, Signal depends on FedEx as its courier. Any disruption in any of Signal’s mail services or transportation logistics could result in spoiled or lost samples, which could reduce revenue. Moreover, Signal is required to comply with laws governing the transmission, security and privacy of health information that require significant compliance costs, and any failure to comply with these laws could result in material criminal and civil penalties and civil liabilities.

Signal or its suppliers and/or manufacturers may be subject to litigation relating to, among other things, payor and customer disputes, regulatory actions, professional liability, intellectual property, employee-related matters, product liability and other potential claims, which could adversely affect its business.

Signal or its suppliers and/or manufacturers may become subject in the ordinary course of business to material litigation related to things, payor or customer disputes, professional liability, regulatory actions, intellectual property, employee-related matters, product liability and other potential claims, as well as investigations by governmental agencies and governmental payors relating to the specialized diagnostic services Signal provides. Responding to these types of claims, regardless of their merit, could result in significant expense and divert the time, attention and resources of its management. Legal actions could result in substantial monetary damages as well as significant harm to its reputation with Signal’s oncologist customers and with payors, which could

 

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adversely affect Signal’s business, financial condition and results of operations. Signal’s laboratory directors and other laboratory professionals may be sued, or may be added as an additional party, under physician liability or other liability law for acts or omissions by its lab directors, laboratory personnel, and other employees and consultants, including but not limited to being sued for misdiagnoses or liabilities arising from the professional interpretations of test results. Signal may periodically become involved as defendants in medical malpractice and other lawsuits, and are subject to the attendant risk of substantial damage awards, in particular in connection with Signal’s MyPRS test. Signal’s laboratory directors are insured for medical malpractice risks on a claims-made basis under traditional professional liability insurance policies. Signal also maintains general liability insurance that covers certain claims to which Signal may be subject. Signal’s general insurance does not cover all potential liabilities that may arise, including governmental fines and penalties that it may be required to pay, liabilities it may incur under indemnification agreements and certain other uninsurable losses that Signal may suffer. It is possible that future claims will not be covered by or will exceed the limits of Signal’s insurance coverage or that Signal’s insurers will refuse to defend Signal against claims. The suppliers and manufacturers of the diagnostic tests it performs, which are critical to the performance of its specialized diagnostic services, may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that their diagnostic tests infringe the intellectual property rights of these third parties. In such event, Signal could no longer have access to, or may be prohibited from marketing or performing, such diagnostic tests unless Signal obtained a license from such third party. A license may not be available on acceptable terms, if at all. If Signal is unable to license diagnostic tests that are important to its specialized diagnostic services, its business, financial condition and results of operations may be adversely affected.

Regulatory Risks Relating to Signal’s Business

Signal’s commercial success could be compromised if third-party payors, including managed care organizations and Medicare, do not provide coverage and reimbursement, breach, rescind or modify their contracts or reimbursement policies or delay payments for Signal’s molecular diagnostic tests.

Pathologists and oncologists may not order Signal’s molecular diagnostic tests unless third-party payors, such as managed care organizations and government payors such as Medicare and Medicaid, pay a substantial portion of the test price. Coverage and reimbursement by a third-party payor may depend on a number of factors, including a payor’s determination that tests using Signal’s technologies are:

 

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experimental or investigational;

 

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not medically necessary;

 

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not appropriate for the specific patient;

 

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not cost-effective;

 

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not supported by peer-reviewed publications; and/or

 

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not included in clinical practice guidelines.

Uncertainty surrounds third-party payor reimbursement of any test incorporating new technology, including tests developed using microarrays. Technology assessments of new medical tests and devices conducted by research centers and other entities may be disseminated to interested parties for informational purposes. Third-party payors and health care providers may use such technology assessments as grounds to deny coverage for a test or procedure. To Signal’s knowledge, no technology assessments have been performed on its tests to date. However, if any technology assessments on Signal’s tests are performed, they could conclude that its tests are not clinically useful and this could result in payor non-coverage decisions, which would adversely affect its business.

Because each payor generally determines for its own enrollees or insured patients whether to cover or otherwise establish a policy to reimburse Signal’s diagnostic tests, seeking coverage and reimbursement is a time-consuming and costly process. Signal cannot be certain that coverage for Signal’s tests will be provided in the

 

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future by additional third-party payors or that existing contracts, agreements or policy decisions or reimbursement levels will remain in place or be fulfilled under existing terms and provisions. If Signal cannot obtain coverage and reimbursement from private and governmental payors such as Medicare and Medicaid for Signal’s current tests, or new tests or test enhancements that Signal may develop in the future, Signal’s ability to generate revenues could be limited, which may have a material adverse effect on Signal’s financial condition, results of operations and cash flow. Further, Signal has experienced in the past, and will likely experience in the future, delays and temporary interruptions in the receipt of payments from third-party payors due to missing documentation and other issues, which could cause delay in collecting its revenue.

In some circumstances, being contracted with private third-party payors may limit the amount of reimbursement.

Signal is currently considered a “non-contracted provider” by a number of private third-party payors because Signal has not entered into a specific contract to provide Signal’s specialized diagnostic services to their insured patients at specified rates of reimbursement. If Signal were to become a contracted provider in the future, the amount of overall reimbursement Signal would receive may decrease because Signal could be reimbursed less at a contracted rate than it would be at a non-contracted rate, which could have a negative impact on its revenues. Further, Signal may be unable to collect payments from patients beyond that which is paid by their insurance and may experience lost revenue as a result.

Because of certain Medicare billing rules, Signal may not receive reimbursement for all tests provided to Medicare patients.

Under current Medicare billing rules, claims for Signal’s tests performed on Medicare beneficiaries who were hospital patients when the tumor tissue samples were obtained and whose tests were ordered less than 14 days from discharge must be included in the payment that the hospital receives for the patient services provided. Accordingly, Signal must bill individual hospitals for tests performed on Medicare beneficiaries during these timeframes in order to receive payment for its tests. Because Signal generally does not have a written agreement in place with these hospitals that purchase these tests, Signal may not be paid for Signal’s tests or may have to pursue payment from the hospital on a case-by-case basis. This could be especially problematic for Signal if the hospital does not receive separate payment from Medicare for its test.

Because a portion of Signal’s revenues is from third-party payors with whom Signal is not currently contracted, Signal may be required to make positive or negative adjustments to accounting estimates with respect to contractual allowances, which may adversely affect Signal’s results of operations, its credibility with financial analysts and investors, and its stock price.

Signal records revenues net of contractual allowances. Signal estimates contractual allowances for non-contracted insurance companies based on its historical collection experience for each type of payor. In the event that the actual amount of payment received differs from the previously recorded estimate, an adjustment to revenue is made in the current period at the time of final collection and settlement. Signal’s estimates of net revenue for non-contracted insurance companies are subject to change based on the contractual status and payment policies of the third-party payors with whom Signal deals. Signal regularly refines its estimates in order to make its estimated revenue as accurate as possible based on Signal’s most recent collection experience with each third-party payor. There can be no assurances that Signal will not be required to make similar adjustments to estimates with respect to contractual allowances in the future, which could adversely affect Signal’s results of operations, its credibility with financial analysts and investors, and its stock price.

Complying with numerous regulations pertaining to Signal’s business is an expensive and time-consuming process, and any failure to comply could result in substantial penalties.

Signal is subject to CLIA, a federal law regulating clinical laboratories that perform testing on specimens derived from humans for the purpose of providing information for the diagnosis, prevention or treatment of disease.

 

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Signal’s clinical laboratory must be certified under CLIA in order for Signal to perform testing on human specimens. In addition, Signal’s proprietary tests must also be categorized as part of its CLIA certification so that Signal can offer them in Signal’s laboratory. CLIA is intended to ensure the quality and reliability of clinical laboratories in the United States by mandating specific standards in the areas of personnel qualifications, administration, and participation in proficiency testing, patient test management, quality control, quality assurance and inspections. Signal has a current certificate under CLIA to perform high complexity testing. To renew this certificate, Signal is subject to survey and inspection every two years. Moreover, CLIA inspectors may make periodic inspections of its clinical reference laboratory outside of the renewal process. Because Signal is also CAP-accredited, Signal is subject to published accreditation standards to which Signal must conform in order to maintain Signal’s accreditation, and subject to periodic unannounced laboratory audits.

The law also requires Signal to maintain a state laboratory license to conduct testing. Signal’s laboratory is located in Arkansas and must have an Arkansas state license. Arkansas laws establish standards for day-to-day operation of Signal’s clinical reference laboratory, including the training and skills required of personnel and quality control. In addition, several other states require that Signal holds licenses to test specimens from patients in those states. Other states may have similar requirements or may adopt similar requirements in the future. Finally, Signal may be subject to regulation in foreign jurisdictions as Signal seeks to expand international distribution of its tests.

If Signal were to lose its CLIA certificate or Arkansas laboratory license, whether as a result of a revocation, suspension or limitation, Signal would no longer be able to offer its tests, which would limit its revenues and harm Signal’s business. If Signal were to lose its license in other states where Signal is required to hold licenses, Signal would not be able to test specimens from those states.

Signal is subject to federal and state health care fraud and abuse laws and regulations and could face substantial penalties if it is unable to fully comply with such laws.

Signal is subject to health care fraud and abuse regulation and enforcement by both the federal government and the states in which Signal conducts its business. These health care laws and regulations include, for example:

 

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the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from soliciting, receiving, offering or providing remuneration, directly or indirectly, in return for, to induce or to arrange for the referral of an individual for, or the purchase, order or recommendation of, any items or services for which payment may be made under a federal health care program such as the Medicare and Medicaid programs;

 

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the federal physician self-referral prohibition, commonly known as the Stark Law, which prohibits physicians from referring Medicare or Medicaid patients to providers of “designated health services” with whom the physician or a member of the physician’s immediate family has an ownership interest or compensation arrangement, unless a statutory or regulatory exception applies;

 

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the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which establishes federal crimes for knowingly and willfully executing a scheme to defraud any health care benefit program or making false statements in connection with the delivery of or payment for health care benefits, items or services;

 

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the federal False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent;

 

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the federal Physician Payment Sunshine Act requirements under the ACA, which require manufacturers of drugs, devices, biologics and medical supplies to report to HHS information related to payments and other transfers of value made to or at the request of covered recipients, such as physicians and teaching hospitals, and physician ownership and investment interests in such manufacturers. Payments made to physicians and research institutions for clinical trials are included within the ambit of this law; and

 

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•

state law equivalents of each of the above federal laws, which may apply more broadly, contain additional restrictions, or carry different types of penalties.

Signal seeks to comply with these laws. However, it is possible that Signal could be the subject of a government investigation regarding its compliance with these or other laws and that the government could take the position that Signal is not in compliance with one or more of them. In such case, Signal may be judged to be in violation of those laws and subject to civil and criminal penalties. In addition, many of these laws and regulations are vague or indefinite and have not been interpreted by the courts or regulatory agencies. These laws and regulations may be interpreted or applied by a prosecutorial, regulatory or judicial authority in a manner that could subject Signal to liability and/or require Signal to make changes in Signal’s operations.

Signal believes that federal and state governments continue to strengthen their enforcement efforts against health care fraud. In addition, the ACA increases the funding, power, penalties and remedies to pursue suspected cases of fraud and abuse and provides the government with expanded opportunities to pursue actions under the federal Anti-Kickback Statute, the False Claims Act, and the Stark Law. For example, the ACA narrowed the public disclosure bar under the False Claims Act, allowing increased opportunities for whistleblower litigation. In addition, the legislation modified the intent standard under the federal Anti-Kickback Statute, making it easier for prosecutors to prove that alleged violators had met the requisite knowledge requirement. The ACA and final regulations promulgated thereunder also require Medicare Part A and B providers and suppliers to report and return Medicare overpayments by the later of 60 days after the date on which the overpayment was identified or, if applicable, the date any corresponding cost report is due. Overpayments are considered to be “identified” when the provider or supplier has or should have, through the exercise of reasonable diligence, determined that it has received an overpayment, and quantified the amount of the overpayment. The ACA also provides that claims that include items or services resulting from a violation of the Anti-Kickback Statute constitutes a false or fraudulent claims for purposes of the False Claims Act. Any action brought against Signal for violation of these laws or regulations, even if Signal successfully defends against it, could cause Signal to incur significant legal expenses and divert Signal’s management’s attention from the operation of its business. If Signal’s operations are found to be in violation of any of these laws and regulations, Signal may be subject to any applicable penalty associated with the violation, including civil and criminal penalties, damages and fines, and/or exclusion from participation in Medicare, Medicaid or other state or federal health care programs, Signal could be required to refund payments received by Signal, and Signal could be required to curtail or cease its operations. Any of the foregoing consequences could seriously harm its business, its financial condition and results of operations.

Signal is required to comply with laws governing the transmission, security and privacy of health information that require significant compliance costs, and any failure to comply with these laws could result in material criminal and civil penalties.

Under the administrative simplification provisions of HIPAA, HHS has issued regulations which establish uniform standards governing the conduct of certain electronic health care transactions and protecting the privacy and security of Protected Health Information, or PHI, used or disclosed by health care providers and other covered entities. Three principal regulations with which Signal is currently required to comply have been issued in final form under HIPAA: privacy regulations, security regulations and standards for electronic transactions.

The privacy regulations cover the use and disclosure of PHI by health care providers. It also sets forth certain rights that an individual has with respect to his or her PHI maintained by a health care provider, including the right to access or amend certain records containing PHI or to request restrictions on the use or disclosure of PHI. Signal has also implemented policies, procedures and standards to comply appropriately with the final HIPAA security regulations, which establish requirements for safeguarding the confidentiality, integrity and availability of PHI, which is electronically transmitted or electronically stored. The HIPAA privacy and security regulations establish a uniform federal “floor” and do not supersede state laws that are more stringent or provide individuals with greater rights with respect to the privacy or security of, and access to, their records containing PHI. As a result, Signal is required to comply with both HIPAA privacy regulations and varying state privacy and security

 

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laws. Almost all U.S. states now require notification to affected individuals and state authorities, as well as the media in certain cases, in the event of a breach of the security of personal information (including PHI in a few states), often with significant financial penalties for noncompliance.

The Health Information Technology for Economic and Clinical Health Act, or HITECH Act, enacted pursuant to the American Recovery and Reinvestment Act of 2009, or ARRA, made sweeping changes to the health information privacy and security regulations of HIPAA by expanding the scope and application of the statute. These changes include, among other things: (1) establishing an affirmative obligation to provide patient data breach notification in the event of the unauthorized acquisition, access, use or disclosure of unsecured PHI; (2) elaborating upon the standard for “minimum necessary” uses and disclosures of PHI by a covered entity; (3) restricting certain uses of PHI for marketing purposes (by expanding the definition of marketing activities requiring authorization); (4) prohibiting certain sales of PHI; (5) establishing an affirmative obligation to provide an accounting of disclosures made for payment, treatment and health care operations (up to three years made through an electronic health record); (6) requiring covered entities to agree to individuals’ requests to restrict disclosure of PHI in certain circumstances; (7) applying the security regulations and certain provisions of the privacy regulations to business associates; and (8) modifying an individuals’ right to access PHI in an electronic format. HHS issued modifications to the HIPAA Regulations, effective March 26, 2013, implementing some of these changes including the obligation to provide patient data breach notifications, which subject the company to additional administrative requirements in the United States. With regard to the accounting of disclosures, the HITECH Act provides for removing the exception in the existing HIPAA privacy regulations’ accounting of disclosures of PHI requirement for disclosures of PHI for payment, treatment, and health care operations purposes made through an electronic health record (within the past three years). HHS issued proposed regulations to implement this provision of the HITECH Act in May 2011, but those regulations have not been finalized.

The HITECH Act also implemented measures to strengthen enforcement of HIPAA and increased applicable penalties for HIPAA violations. Penalties are now tiered and range from $100 to $50,000 per violation with an annual cap for the same violations of $25,000 to $1,500,000. The Office for Civil Rights of the HHS, or the OCR, has increased enforcement activities and has recently levied large penalties for violations. In addition, as mandated by the HITECH Act, OCR has begun an audit program to assess compliance by covered entities and their business associates with the HIPAA privacy and security rules and breach notification standards.

Signal seeks to comply with HIPAA privacy regulations and state privacy laws. In addition, Signal is in the process of taking necessary steps to comply with HIPAA’s standards for electronic transactions, which establish standards for common health care transactions. Given the complexity of HIPAA, the HITECH Act and state privacy restrictions, the possibility that the regulations may change, and the fact that the regulations are subject to changing and potentially conflicting interpretation, Signal’s ability to comply with HIPAA, the HITECH Act and state privacy requirements is uncertain and the costs of compliance are significant. To the extent that Signal or its third-party billing company submit electronic health care claims and payment transactions that do not comply with the electronic data transmission standards established under HIPAA and the HITECH Act, payments to Signal may be delayed or denied. Additionally, the costs of complying with any changes to HIPAA, the HITECH Act and state privacy restrictions may have a negative impact on Signal’s operations. Signal could be subject to criminal penalties and civil sanctions for failing to comply with HIPAA, the HITECH Act and state privacy restrictions, which could result in the incurrence of significant monetary penalties.

Risks Related to Signal’s Reliance on Third Parties

Signal licenses its billing and collections web-based software platform from a third-party provider. Signal’s provider may fail in its obligations to maintain the system and thereby reduce its cash collections and harm its business.

Billing for laboratory tests is complicated and is subject to extensive and non-uniform rules and administrative requirements. Missing or incorrect information on requisitions adds complexity to and slows the billing process,

 

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creates backlogs and increases the aging of accounts receivable and bad debt expenses. Failure to timely or correctly bill may lead to Signal not being reimbursed for its services or an increase in aging of Signal’s accounts receivable. In addition, failure to comply with applicable federal and state laws relating to billing, including, but not limited, to the federal False Claims Act may lead to various penalties including civil and criminal fines and penalties, recoupment efforts, and exclusion from participation in Medicare and other federal health care programs. Signal relies heavily on a single third party to provide Signal with key software for Signal’s billing. If that third party is unable or unwilling to provide these software systems to Signal for any reason, or violates the law, Signal may not be able to submit claims promptly or at all and Signal may be subject to an investigation and potential civil and criminal penalties. Delays in invoicing can lead to delays in collections, and inaccuracies in its billing could result in lost revenue. If Signal fails to adapt quickly and effectively to changes affecting Signal’s costs, pricing and billing, its profitability and cash flow will be adversely affected.

Signal depends on third parties for the supply of certain tissue samples and biological materials that Signal uses in its research and development efforts. If these costs increase or Signal’s third-party collaborators terminate their relationship with Signal, Signal’s business may be materially harmed.

Under standard clinical practice in the United States, tumor biopsies removed from patients are chemically preserved, embedded in paraffin wax and stored. Signal’s clinical development relies on its ability to access these archived tumor biopsy samples, as well as information pertaining to their associated clinical outcomes. Other companies often compete with Signal for access. Additionally, the process of negotiating access to archived samples is lengthy, because it typically involves numerous parties and approvals to resolve complex issues such as usage rights, institutional review board approval, privacy rights, publication rights, intellectual property ownership and research parameters.

UAMS and other institutions provide Signal with tissue samples and other biological materials that Signal uses in developing and validating its tests. Signal does not have written agreements with some of these third parties, and, in many of the cases in which the agreements are in writing, Signal’s relationships with such third parties are terminable on 30 days’ notice or less. Disagreements or disputes might cause delays or termination of the research, development or commercialization of testing systems or additional test indications, might lead to additional responsibilities or costs to Signal or might result in litigation or arbitration, any of which could divert management attention and resources and be time-consuming and expensive. If one or more of these suppliers terminate their relationship with Signal, Signal will need to identify other third parties to provide Signal with tissue samples and biological materials, which could result in a delay in its research and development activities and negatively affect its business. In addition, as Signal grows, research and academic institutions may begin to seek financial contributions from Signal, which may negatively affect Signal’s results of operations. Potential suppliers may elect not to work with Signal based on their assessment of Signal’s financial, regulatory or intellectual property position. Even if it establishes new agreements, this may not result in the successful development of future testing systems or additional test indications.

Signal relies on a limited number of third parties for manufacture and supply of all of its laboratory instruments, tests and materials, and Signal may not be able to find replacement suppliers or manufacturers in a timely manner in the event of any disruption, which could adversely affect its business.

Signal relies on third parties for the manufacture and supply of all of Signal’s laboratory instruments, equipment and materials, such as reagents, microarray chips and disposable test kits, that Signal needs to perform its specialized diagnostic services, and rely on a limited number of suppliers for certain laboratory materials and some of the laboratory equipment with which Signal performs its diagnostic services. Signal does not have long-term contracts with its suppliers and manufacturers that commit them to supply equipment and materials to Signal. Certain of its suppliers provide Signal with analyte specific regents, or ASRs, which serve as building blocks in the diagnostic tests Signal conducts in its laboratory. These suppliers are subject to regulation by the FDA, and must comply with federal regulations related to the manufacture and distribution of ASR products. Because Signal cannot ensure the actual production or manufacture of such critical equipment and materials, or

 

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the ability of its suppliers to comply with applicable legal and regulatory requirements, Signal may be subject to significant delays caused by interruption in production or manufacturing. If any of its third-party suppliers or manufacturers were to become unwilling or unable to provide this equipment or these materials in required quantities or on Signal’s required timelines, Signal would need to identify and acquire acceptable replacement sources on a timely basis. While Signal has developed alternate sourcing strategies for the equipment and materials it uses, Signal cannot be certain that these strategies will be effective and even if Signal were to identify other suppliers and manufacturers for the equipment and materials Signal needs to perform its specialized diagnostic services, there can be no assurance that Signal will be able to enter into agreements with such suppliers and manufacturers or otherwise obtain such items on a timely basis or on acceptable terms, if at all. If Signal encounters delays or difficulties in securing necessary laboratory equipment or materials, including consumables, Signal will face an interruption in its ability to perform its specialized diagnostic services and experience other disruptions that would adversely affect its business, results of operations and financial condition.

Intellectual Property Risks Related to Signal’s Business

If Signal is unable to maintain intellectual property protection, its competitive position could be harmed.

Signal’s ability to protect its proprietary discoveries and technologies affects its ability to compete and to achieve sustained profitability. Currently, Signal relies on a combination of issued U.S. patents, U.S. and foreign patent applications, copyrights, trademarks and trademark applications, confidentiality or non-disclosure agreements, material transfer agreements, licenses, work-for-hire agreements and invention assignment agreements to protect Signal’s intellectual property rights. Signal also maintains certain company know-how, trade secrets and technological innovations designed to provide Signal with a competitive advantage in the market place as trade secrets.

Currently, Signal is the worldwide exclusive licensee, in Signal’s licensed field, and the owner of 14 issued patents (12 issued U.S. patents, one issued European patent validated in nine countries: Switzerland, Germany, Denmark, Spain, France, United Kingdom, Italy, Netherlands, and Sweden, and one issued Japanese patent) and 11 pending patent applications, which include both U.S. and foreign patent applications, relating to various aspects of its technology. Of the 11 pending patent applications, two are owned outright by Signal Genetics, Inc. Signal’s exclusive field of use covers, inter alia, therapeutic, diagnostic, prognostic, and personalized medicine applications worldwide, excluding applications using FISH and some claims directly covering DKK1 inhibitors and their uses.

While Signal intends to pursue additional patent applications, it is possible that Signal’s pending patent applications and any future applications may not result in issued patents. Even if patents are issued, third parties may independently develop similar or competing technology that avoids the claims of Signal’s patents or may challenge the validity of its patents. Further, Signal cannot be certain that the steps it has taken will prevent the misappropriation of Signal’s trade secrets and other confidential information as well as the misuse of its patents and other intellectual property, particularly in foreign countries where Signal has not filed for patent protection.

From time to time the U.S. Supreme Court, other federal courts, the U.S. Congress or the U.S. Patent and Trademark Office, or USPTO, as well as counterpart agencies and bodies in corresponding foreign jurisdictions, may change the standards of patentability and any such changes could have a negative impact on its business.

For instance, on October 30, 2008, the Court of Appeals for the Federal Circuit issued a decision that methods or processes cannot be patented unless they are tied to a machine or involve a physical transformation. The U.S. Supreme Court later reversed that decision in Bilski v. Kappos, or Bilski, finding that the “machine-or-transformation” test is not the only test for determining patent eligibility. The Court, however, declined to specify how and when processes are patentable. On March 20, 2012, in Mayo v. Prometheus, or Mayo, the U.S. Supreme Court reversed the Federal Circuit’s application of Bilski and invalidated a patent focused on a diagnostic process

 

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because the patent claim embodied a law of nature. On July 30, 2012, the USPTO released a memorandum titled “2012 Interim Procedure for Subject Matter Eligibility Analysis of Process Claims Involving Laws of Nature,” with guidelines for determining patentability of diagnostic or other processes in line with the Mayo decision. On June 13, 2013, in Association for Molecular Pathology v. Myriad Genetics, or Myriad, the Supreme Court held that a naturally occurring DNA segment is a product of nature and not patent eligible merely because it has been isolated, but cDNA is patent eligible because it is not naturally occurring. The Supreme Court’s decision reversed in part and affirmed in part the earlier decision of the Federal Circuit that both isolated genes and cDNA were patent eligible, however, the Supreme Court specifically did not address the patentability of any method claims involving the use of such isolated genes. On March 4, 2014, the USPTO released a memorandum titled “2014 Procedure For Subject Matter Eligibility Analysis Of Claims Reciting Or Involving Laws Of Nature/Natural Principles, Natural Phenomena, And/Or Natural Products,” which Signal refers to as the March 4, 2014 memorandum. This memorandum provides guidelines for the USPTO’s new examination procedure for subject matter eligibility under 35 U.S.C. §101 for claims embracing natural products or natural principles. On December 16, 2014, the USPTO issued a “2014 Interim Guidance on Patent Subject Matter Eligibility,” which Signal refers to as the 2014 Interim Guidance, for use by USPTO personnel in determining subject matter eligibility in view of recent decisions by the U.S. Supreme Court, which superseded the March 4, 2014 memorandum. On July 2015, the USPTO published an updated guidance document titled “July 2015 Update on Subject Matter Eligibility” that includes new examples and discussion of relevant issues. Although the guidelines do not have the force of law, patent examiners have been instructed to follow them.

Some aspects of Signal’s technology involve products and/or processes that may be subject to this evolving standard and Signal cannot guarantee that any of its pending claims will be patentable as a result of such evolving standards or that issued patents will be held valid, if challenged under these changing standards.

In addition, on February 5, 2010, the Secretary’s Advisory Committee on Genetics, Health and Society voted to approve a report titled “Gene Patents and Licensing Practices and Their Impact on Patient Access to Genetic Tests.” That report defines “patent claims on genes” broadly to include claims to isolated nucleic acid molecules as well as methods of detecting particular sequences or mutations. The report also contains six recommendations, including the creation of an exemption from liability for infringement of patent claims on genes for anyone making, using, ordering, offering for sale or selling a test developed under the patent for patient care purposes, or for anyone using the patent-protected genes in the pursuit of research. The report also recommended that the Secretary should explore, identify and implement mechanisms that will encourage more voluntary adherence to current guidelines that promote nonexclusive in-licensing of diagnostic genetic and genomic technologies. It is unclear whether the HHS will act upon these recommendations, or if the recommendations would result in a change in law or process that could negatively impact its patent portfolio or future research and development efforts.

Signal may face intellectual property infringement claims that could be time-consuming and costly to defend, and could result in Signal’s loss of significant rights and the assessment of treble damages.

From time to time Signal may face intellectual property infringement, misappropriation, or invalidity/non-infringement claims from third parties. Some of these claims may lead to litigation. The outcome of any such litigation can never be guaranteed, and an adverse outcome could affect Signal negatively. For example, were a third party to succeed on an infringement claim against Signal, Signal may be required to pay substantial damages (including up to treble damages if such infringement were found to be willful). In addition, Signal could face an injunction, barring Signal from conducting the allegedly infringing activity. The outcome of the litigation could require Signal to enter into a license agreement which may not be under acceptable, commercially reasonable, or practical terms or Signal may be precluded from obtaining a license at all.

It is also possible that an adverse finding of infringement against Signal may require Signal to dedicate substantial resources and time in developing non-infringing alternatives, which may or may not be possible. In the case of diagnostic tests, Signal would also need to include non-infringing technologies which would require

 

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Signal to re-validate its tests. Any such re-validation, in addition to being costly and time consuming, may be unsuccessful.

Finally, Signal may initiate claims to assert or defend its own intellectual property against third parties. If one or more of its patents were held to be invalid or not infringed, Signal might not be able to exclude others from offering similar or identical tests to ours. Any intellectual property litigation, irrespective of whether Signal is the plaintiff or the defendant, and regardless of the outcome, is expensive and time-consuming, and could divert its management’s attention from its business and negatively affect its operating results or financial condition.

Risks Related to Ownership of Signal’s Common Stock

The price of Signal’s common stock may be volatile and fluctuate substantially, which could result in substantial losses for Signal stockholders.

Signal’s stock price is likely to be volatile. The stock market in general and the market for smaller diagnostic services companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, Signal stockholders may not be able to sell its common stock at or above the price they paid for it. The market price for Signal’s common stock may be influenced by many factors, including:

 

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announcements related to the Merger;

 

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issuances of new equity securities pursuant to a future offering, including issuances of preferred stock;

 

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the success of competitive products, services or technologies;

 

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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 patents or other proprietary rights;

 

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the recruitment or departure of key personnel;

 

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actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

 

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

 

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changes in the structure of health care payment systems;

 

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market conditions in the diagnostic services sector;

 

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general economic, industry and market conditions; and

 

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

Provisions in Signal’s corporate charter documents and under Delaware law could make an acquisition of Signal, which may be beneficial to its stockholders, more difficult and may prevent attempts by its stockholders to replace or remove its current management.

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

 

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the authorized number of directors can be changed only by resolution of Signal’s board of directors;

 

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•

Signal’s bylaws may be amended or repealed by its board of directors or Signal stockholders;

 

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stockholders may not call special meetings of the stockholders or fill vacancies on the board of directors;

 

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Signal’s board of directors will be authorized to issue, without stockholder approval, preferred stock, the rights of which will be determined at the discretion of the board of directors and that, if issued, could operate as a “poison pill” to dilute the stock ownership of a potential hostile acquirer to prevent an acquisition that Signal’s board of directors does not approve;

 

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Signal stockholders do not have cumulative voting rights, and therefore its stockholders holding a majority of the shares of common stock outstanding will be able to elect all of its directors; and

 

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its stockholders must comply with advance notice provisions to bring business before or nominate directors for election at a stockholder meeting.

Moreover, because Signal is incorporated in Delaware, Signal is governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of Signal’s outstanding voting stock from merging or combining with Signal for a period of three years after the date of the transaction in which the person acquired in excess of 15% of Signal’s outstanding voting stock, unless the Merger or combination is approved in a prescribed manner.

Signal’s failure to meet the continued listing requirements of The NASDAQ Capital Market could result in a delisting of its common stock.

The listing standards of NASDAQ provide, among other things, that a company may be delisted if the bid price of its stock drops below $1.00 for a period of 30 consecutive business days. The bid price of Signal’s stock has recently been below $1.00 for a period of greater than 30 consecutive business days. As such, on November 24, 2015, Signal received a notice from The NASDAQ Listing Qualifications Department informing Signal that it must regain compliance with listing requirements or face delisting. After an initial 180-day grace period, Signal received a second letter from NASDAQ dated May 25, 2016 regarding the expiration of the 180-day grace period and granting Signal a second 180-day grace period until November 21, 2016. In order to regain compliance, the bid price of Signals’ common stock must close at a price of at least $1.00 per share for a minimum of 10 consecutive business days prior to November 21, 2016. The notice stated that NASDAQ will provide Signal with written notification when its common stock has regained compliance. In order to achieve compliance this listing standard, Signal implemented a one-for-15 reverse split of its common stock effective as of 5:01 p.m. Eastern Time on November 4, 2016. On November 22, 2016, NASDAQ notified Signal that it had regained compliance with the minimum bid price requirement for its common stock. While this reverse split of Signal common stock allowed Signal to regain compliance with the listing standards of The NASDAQ Capital Market, there is no guarantee that Signal will be able to maintain compliance with these requirements or that its common stock will not again fall below the minimum bid price requirements for The NASDAQ Capital Market.

While Signal is exercising diligent efforts to maintain the listing of its common stock on NASDAQ, it is possible that Signal may fail to satisfy one of the other the continued listing requirements of The NASDAQ Capital Market, such as the corporate governance requirements or the minimum shareholders’ equity, publicly held shares or market value of publicly held shares requirements. If that were to occur, NASDAQ may take steps to delist Signal’s common stock. Such a delisting would likely have a negative effect on the price of Signal’s common stock and would impair your ability to sell or purchase Signal’s common stock when you wish to do so. In the event of a delisting, Signal would take actions to restore Signal’s compliance with NASDAQ’s listing requirements, but Signal can provide no assurance that any such action taken by Signal would allow its common stock to become listed again, stabilize the market price or improve the liquidity of its common stock, prevent Signal’s common stock from dropping below the NASDAQ minimum bid price requirement again or prevent future non-compliance with NASDAQ’s listing requirements. Further, if Signal were to be delisted from The NASDAQ Capital Market, its common stock would cease to be recognized as covered securities and Signal would be subject to regulation in each state in which Signal offers its securities.

 

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Delisting from NASDAQ could adversely affect Signal’s ability to raise additional financing through the public or private sale of equity securities, would significantly affect the ability of investors to trade its securities and would negatively affect the value and liquidity of Signal’s common stock. Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities.

If Signal’s shares become subject to the penny stock rules, it may be more difficult to sell Signal shares.

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The OTC Bulletin Board does not meet such requirements and if the price of Signal’s common stock remains less than $5.00 and Signal is no longer listed on a national securities exchange, its common stock may be deemed a penny stock. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that prior to effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive: (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for Signal’s common stock, and therefore stockholders may have difficulty selling their shares.

An active trading market for Signal’s common stock may not develop.

Prior to Signal’s initial public offering in June 2014, there was no public market for its common stock. The listing of Signal’s common stock on The NASDAQ Capital Market does not assure that a meaningful, consistent and liquid trading market exists. Although Signal’s common stock is listed on The NASDAQ Capital Market, trading volume in its common stock has been limited and an active trading market for Signal’s shares may never develop or be sustained. If an active market for Signal’s common stock does not develop, it may be difficult for investors to sell their shares without depressing the market price for the shares or at all.

Reports published by securities or industry analysts, including projections in those reports that exceed Signal’s actual results, could adversely affect its common stock price and trading volume.

Securities research analysts may establish and publish their own periodic projections for Signal’s business. These projections may vary widely from one another and may not accurately predict the results Signal actually achieves. Signal’s stock price may decline if its actual results do not match securities research analysts’ projections. Similarly, if one or more of the analysts who writes reports on Signal downgrades its stock or publishes inaccurate or unfavorable research about its business, Signal’s stock price could decline. If one or more of these analysts ceases coverage of Signal’s company or fails to publish reports on Signal regularly, Signal’s stock price or trading volume could decline. While Signal expects securities research analyst coverage, if no securities or industry analysts begin to cover Signal, the trading price for its stock and the trading volume could be adversely affected.

Future sales of Signal’s common stock, or the perception that future sales may occur, may cause the market price of its common stock to decline, even if its business is doing well.

Sales of substantial amounts of Signal’s common stock in the public market, or the perception that these sales may occur, could materially and adversely affect the price of its common stock and could impair its ability to

 

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raise capital through the sale of additional equity securities. Signal maintains a shelf registration statement on Form S-3 with the SEC pursuant to which Signal may, from time to time, sell up to an aggregate of $50 million of its common stock, preferred stock, debt securities, warrants, rights and units. Signal has established an “at-the-market” offering pursuant to which Signal may offer and sell shares of its common stock, if and when Signal’s public float increases. Sales of securities under the registration statement will result in dilution of its stockholders and could cause its stock price to fall.

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

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

 

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

 

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

 

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

 

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reduced disclosure obligations regarding executive compensation; and

 

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

Signal has taken advantage of reduced reporting burdens in its periodic disclosure reports. In particular, Signal has not included all of the executive compensation related information that would be required if Signal were not an emerging growth company. Signal cannot predict whether investors will find Signal’s common stock less attractive if Signal relies on these exemptions. If some investors find Signal’s common stock less attractive as a result, there may be a less active trading market for its common stock and its stock price may be more volatile.

Signal has elected to avail itself of the extended transition period for adopting new or revised accounting standards available to emerging growth companies under the JOBS Act and will, therefore, not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies, which could make Signal’s common stock less attractive to investors.

The JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of these accounting standards until they would otherwise apply to private companies. Signal has elected to avail itself of this extended transition period for adopting new or revised accounting standards and therefore, Signal will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result of this election, its financial statements may not be comparable to companies that comply with public company effective dates.

Signal cannot predict whether investors will find its stock less attractive as a result of this election. If some investors find Signal’s common stock less attractive as a result of this election, there may be a less active trading market for Signal’s common stock and its stock price may be more volatile.

 

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Since Signal’s initial public offering in June 2014, Signal has incurred significantly increased costs and its management has had to devote substantial time as a result of operating as a public company; and such costs are expected to further increase after Signal is no longer an “emerging growth company.”

As a public company, Signal incurs significant legal, accounting and other expenses that Signal did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The NASDAQ Capital Market and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Signal’s management and other personnel have had to devote a substantial amount of time to these compliance initiatives since becoming a public company. Moreover, these rules and regulations have increased its legal and financial compliance costs and have made certain activities more time-consuming and costly.

Because Signal only recently became a public company, Signal cannot yet predict or estimate the costs Signal may incur in the future with respect to these compliance initiatives or the timing of such costs. In addition, these rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

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

Because Signal does not anticipate paying any cash dividends on its capital stock in the foreseeable future, capital appreciation, if any, will be Signal’s sole source of gain.

Signal does not anticipate paying future dividends on its capital stock. Signal currently intends to retain all of its future earnings, as applicable, to finance the growth and development of its business. In addition, the terms of any future debt agreements may preclude Signal from paying dividends. As a result, capital appreciation, if any, of Signal’s common stock will be your sole source of gain for the foreseeable future.

Certain of Signal’s net operating loss carryforwards have been limited.

Net operating losses incurred by Signal as of June 17, 2014 and prior to the corporate conversion of Signal Genetics LLC into Signal Genetics, Inc. have been used by the members of Signal Genetics LLC to offset gains on other interests and are therefore not able to be carried forward to Signal. The net operating loss carryforward for federal tax purposes held by Signal after the corporate conversion through December 31, 2015 totaled $10.6 million.

 

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Risks Related to Miragen’s Financial Condition and Capital Requirements

Miragen has incurred losses since its inception, has a limited operating history on which to assess its business, and anticipates that it will continue to incur significant losses for the foreseeable future.

Miragen is a clinical development-stage biopharmaceutical company with a limited operating history. Miragen has incurred net losses in each year since its inception in 2006, including net losses of $15.7 million and $5.9 million for the years ended December 31, 2015 and 2014, respectively, and $11.3 million for the nine months ended September 30, 2016. As of September 30, 2016, Miragen had an accumulated deficit of $61.1 million.

As of September 30, 2016, Miragen had cash and cash equivalents of $24.6 million. In September 2016, Miragen received $16.1 million in financing through a follow-on sale of its Series C preferred stock. Additionally, in October 2016, Miragen entered into the Subscription Agreement pursuant to which specified investors agreed to purchase, immediately prior to the consummation of the Merger, shares of Miragen common stock for an aggregate purchase price of $40.7 million. Miragen will continue to require substantial additional capital to continue its clinical development and potential commercialization activities. Accordingly, Miragen will need to raise substantial additional capital to continue to fund its operations. The amount and timing of its future funding requirements will depend on many factors, including the pace and results of its clinical development efforts. Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on its financial condition and its ability to develop its product candidates.

Miragen has devoted substantially all of its financial resources to identify, acquire, and develop its product candidates, including conducting clinical trials and providing general and administrative support for its operations. To date, Miragen has financed its operations primarily through the sale of equity securities and convertible promissory notes. The amount of its future net losses will depend, in part, on the rate of its future expenditures and its ability to obtain funding through equity or debt financings, strategic collaborations, or grants. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. Miragen expects losses to increase as it completes Phase 1 development and advances into Phase 2 development its lead product candidates. Miragen has not yet commenced pivotal clinical trials for any product candidate and it may be several years, if ever, before Miragen completes pivotal clinical trials and has a product candidate approved for commercialization. Miragen expects to invest significant funds into the research and development of its current product candidates to determine the potential to advance these product candidates to regulatory approval.

If Miragen obtains regulatory approval to market a product candidate, its future revenue will depend upon the size of any markets in which its product candidates may receive approval, and its ability to achieve sufficient market acceptance, pricing, reimbursement from third-party payors, and adequate market share for its product candidates in those markets. Even if Miragen obtains adequate market share for its product candidates, because the potential markets in which its product candidates may ultimately receive regulatory approval could be very small, Miragen may never become profitable despite obtaining such market share and acceptance of its products.

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

 

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continues the clinical development of its product candidates;

 

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continues efforts to discover new product candidates;

 

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

 

•

advances its programs into larger, more expensive clinical trials;

 

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initiates additional pre-clinical, clinical, or other trials or studies for its product candidates;

 

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seeks regulatory and marketing approvals and reimbursement for its product candidates;

 

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•

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

 

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

 

•

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

 

•

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

 

•

seeks to attract and retain skilled personnel; and

 

•

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

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

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

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

 

•

completing research and development of its product candidates;

 

•

obtaining regulatory and marketing approvals for its product candidates;

 

•

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

 

•

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

 

•

gaining market acceptance of its product candidates as treatment options;

 

•

addressing any competing products;

 

•

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

 

•

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

 

•

obtaining reimbursement or pricing for its product candidates that supports profitability; and

 

•

attracting, hiring, and retaining qualified personnel.

Even if one or more of the product candidates that Miragen develops is approved for commercial sale, Miragen anticipates incurring significant costs associated with commercializing any approved product candidate. Portions of its current pipeline of product candidates have been in-licensed from third parties, which make the commercial sale of such in-licensed products potentially subject to additional royalty and milestone payments to such third-parties. Miragen will also have to develop or acquire manufacturing capabilities or continue to contract with contract manufacturers in order to continue development and potential commercialization of its product

 

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candidates. For instance, Miragen’s current costs of manufacturing its drug product is not commercially feasible and it will need to develop or procure its drug product in a commercially feasible manner in order to successfully commercialize any future approved product, if any. Additionally, if Miragen is not able to generate revenue from the sale of any approved products, Miragen may never become profitable.

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

To the extent that Miragen raises additional capital through the sale of equity, convertible debt or other securities convertible into equity, including the issuance of shares of capital stock in its concurrent financing in connection with the Merger, the ownership interest of Miragen’s stockholders will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect rights of Miragen’s stockholders. Debt financing, if available at all, would likely involve agreements that include covenants limiting or restricting Miragen’s ability to take specific actions, such as incurring additional debt, making capital expenditures, making additional product acquisitions, or declaring dividends. For instance, Miragen’s loan and security agreement with Silicon Valley Bank limits Miragen’s ability to enter into an asset sale, enter into any change of control, incur additional indebtedness, pay any dividends or enter into specified transactions with its affiliates. If Miragen raises additional funds through strategic collaborations or licensing arrangements with third parties, Miragen may have to relinquish valuable rights to its product candidates or future revenue streams or grant licenses on terms that are not favorable to Miragen. Miragen cannot be assured that it will be able to obtain additional funding if and when necessary to fund its entire portfolio of product candidates to meet its projected plans. If Miragen is unable to obtain funding on a timely basis, Miragen may be required to delay or discontinue one or more of its development programs or the commercialization of any product candidates or be unable to expand its operations or otherwise capitalize on potential business opportunities, which could materially harm Miragen’s business, financial condition, and results of operations.

Miragen has also historically received funds from state and federal government grants for research and development. The grants have been, and any future government grants and contracts Miragen may receive may be, subject to the risks and contingencies set forth below under the risk factor titled “Reliance on government funding for Miragen’s programs may add uncertainty to its research and commercialization efforts with respect to those programs that are tied to such funding and may impose requirements that limit its ability to take specified actions, increase the costs of commercialization and production of product candidates developed under those programs and subject it to potential financial penalties, which could materially and adversely affect its business, financial condition and results of operations.” Although Miragen might apply for government contracts and grants in the future, it cannot assure you that it will be successful in obtaining additional grants for any product candidates or programs.

Risks Related to the Development of Miragen’s Product Candidates

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

Clinical development is expensive, time consuming and involves significant risk. Miragen cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical trials can occur at any stage of development. Events that may prevent successful or timely completion of clinical development include but are not limited to:

 

•

inability to generate satisfactory pre-clinical, toxicology, or other in vivo or in vitro data or diagnostics to support the initiation or continuation of clinical trials;

 

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

 

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

 

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failure to permit the conduct of a clinical trial by regulatory authorities, after review of an investigational new drug or equivalent foreign application or amendment;

 

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delays in recruiting qualified patients in its clinical trials;

 

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

 

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failure by Miragen clinical sites, CROs or other third parties to perform in accordance with the good clinical practices requirements of the U.S. Food and Drug Administration, or the FDA, or applicable foreign regulatory guidelines;

 

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patients dropping out of Miragen’s clinical trials;

 

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adverse events or tolerability or animal toxicology issues significant enough for the FDA or other regulatory agencies to put any or all clinical trials on hold;

 

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

 

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

 

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

 

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

 

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

Any inability to successfully complete clinical development and obtain regulatory approval for its product candidates could result in additional costs to Miragen or impair its ability to generate revenue. In addition, if Miragen makes manufacturing or formulation changes to its product candidates, Miragen may need to conduct additional pre-clinical trials or the results obtained from such new formulation may not be consistent with previous results obtained. Clinical trial delays could also shorten any periods during which its products have patent protection and may allow competitors to develop and bring products to market before Miragen does, which could impair its ability to successfully commercialize its product candidates and may harm its business and results of operations.

The approach Miragen is taking to discover and develop novel therapeutics using microRNA is unproven and may never lead to marketable products.

The scientific discoveries that form the basis for Miragen’s efforts to discover and develop its product candidates are relatively recent. To date, neither Miragen nor any other company has received regulatory approval to market therapeutics utilizing microRNA targeted molecules. The scientific evidence to support the feasibility of developing drugs based on these discoveries is both preliminary and limited. Successful development of microRNA therapeutic products by Miragen will require solving a number of issues, including providing suitable methods of stabilizing the microRNA material and delivering it into target cells in the human body. In addition, any product candidates that Miragen develops may not demonstrate in patients the chemical and pharmacological properties ascribed to them in laboratory and pre-clinical trials, and they may interact with human biological systems in unforeseen, ineffective or even harmful ways. For instance, Miragen’s clinical and pre-clinical data to date is not validated and Miragen has no way of knowing if after validation Miragen’s clinical trial data will be complete and consistent. If Miragen does not successfully develop and commercialize product candidates based upon this technological approach, it may not become profitable and the value of its capital stock may decline.

Further, Miragen’s focus on microRNA technology for developing product candidates as opposed to multiple, more proven technologies for drug development increases the risk associated with its business. If Miragen is not

 

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successful in developing an approved product using microRNA technology, it may not be able to identify and successfully implement an alternative product development strategy. In addition, work by other companies pursuing similar technologies may encounter setbacks and difficulties that regulators and investors may attribute to Miragen’s product candidates, whether appropriate or not.

Miragen’s microRNA therapeutic product candidates are based on a relatively novel technology, which makes it difficult to predict the time and cost of development and of subsequently obtaining regulatory approval, if at all. To date, no microRNA therapeutics have been approved in the United States.

Miragen has concentrated its research and development efforts to date on a limited number of product candidates based on its microRNA therapeutic platform and identifying its initial targeted disease indications. Miragen’s future success depends on its successful development of viable product candidates. Currently, only two of its product candidates, MRG-106 and MRG-201, are in clinical development, and the remainder of its product candidates are in pre-clinical development. There can be no assurance that Miragen will not experience problems or delays in developing its product candidates and that such problems or delays will not cause unanticipated costs, or that any such development problems can be solved.

Additionally, the FDA has relatively limited experience with microRNA-targeted therapeutics. No regulatory authority has granted approval to any person or entity, including Miragen, to market or commercialize microRNA therapeutics, which may increase the complexity, uncertainty and length of the regulatory approval process for Miragen’s product candidates. If Miragen’s microRNA product candidates fail to prove to be safe, effective or commercially viable, its product candidate pipeline would have little, if any, value, which would have a material adverse effect on its business, financial condition or results of operations.

The clinical trial and manufacturing requirements of the FDA, the European Medicines Agency, or the EMA, and other regulatory authorities, and the criteria these regulators use to determine the safety and efficacy of a product candidate, vary substantially according to the type, complexity, novelty and intended use and market of the product candidate. The regulatory approval process for novel product candidates such as microRNA therapeutics can be more expensive and take longer than for other, better known or more extensively studied product candidates. It is difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for Miragen’s product candidates in either the United States or the European Union or how long it will take to commercialize its product candidates, even if approved for marketing. Approvals by the European Commission may not be indicative of what the FDA, and vice versa, may require for approval and different or additional pre-clinical trials or clinical trials may be required to support regulatory approval in each respective jurisdiction. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product candidate to market could decrease Miragen’s ability to generate sufficient product revenue, and Miragen’s business, financial condition, results of operations and prospects may be harmed.

Miragen may not be able to develop or identify a technology that can effectively deliver MRG-106, MRG-201 or any other of its microRNA-targeted product candidates to the intended diseased cells or tissues, and any failure in such delivery technology could adversely affect and delay the development of MRG-106, MRG-201 and its other product candidates.

In connection with its Phase 1 clinical trials of MRG-106 and MRG-201, Miragen has used subcutaneous and intradermal injections as the route of product candidate administration. Miragen cannot be certain that subcutaneous or intradermal injections will be capable of delivering adequate levels of MRG-106, MRG-201 or its other product candidates to produce a therapeutic response for all indications. While Miragen is continuing to evaluate the use of subcutaneous, intraveneous and intradermal injections in different indications, and additional delivery technologies and routes of administration that might enable it to target specific cells with its product candidates, Miragen cannot be certain whether it will be successful in developing such alternative delivery mechanisms. Miragen’s failure to effectively deliver any of its product candidates to the intended diseased cells or tissues could adversely affect and delay the development of its product candidates.

 

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Miragen’s product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial viability of an approved label, or result in significant negative consequences following marketing approval, if any.

Undesirable side effects caused by its product candidates could cause Miragen or regulatory authorities to interrupt, delay, or terminate clinical trials or even if approved, result in a restrictive label or delay regulatory approval by the FDA or comparable foreign authorities.

In addition, Miragen’s MRG-106 and MRG-201 product candidates have been studied in only a limited number of patients with a confirmed diagnosis of MF and healthy volunteers, respectfully, and the most common adverse events of any grade were injection site reactions, including pain, itchiness and swelling. Miragen may experience a higher rate or severity of adverse events and comparable or higher rates of discontinuation in testing in its future clinical trials. There is no guarantee that additional or more severe side effects will not be identified through ongoing clinical trials of Miragen’s product candidates for current and other indications. Undesirable side effects and negative results for other indications may negatively impact the development and potential for approval of Miragen’s product candidates for their proposed indications.

Additionally, even if one or more of its product candidates receives marketing approval, and Miragen or others later identify undesirable side effects caused by such products, potentially significant negative consequences could result, including but not limited to:

 

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regulatory authorities may withdraw approvals of such products;

 

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regulatory authorities may require additional warnings on the label;

 

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Miragen may be required to create a Risk Evaluation and Mitigation Strategy, or REMS, plan, which could include a medication guide outlining the risks of such side effects for distribution to patients, a communication plan for healthcare providers, and/or other elements to assure safe use;

 

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Miragen could be sued and held liable for harm caused to patients; and

 

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its reputation may suffer.

Any of these events could prevent Miragen from achieving or maintaining market acceptance of a product candidate, even if approved, and could significantly harm its business, results of operations, and prospects.

Miragen’s product development program may not uncover all possible adverse events that patients who take MRG-106, MRG-201 or its other product candidates may experience. The number of subjects exposed to MRG-106, MRG-201 or its other product candidates and the average exposure time in the clinical development program may be inadequate to detect rare adverse events, or chance findings, that may only be detected once the product is administered to more patients and for greater periods of time.

Clinical trials by their nature utilize a sample of the potential patient population. However, with a limited number of subjects and limited duration of exposure, Miragen cannot be fully assured that rare and severe side effects of MRG-106, MRG-201 or its other product candidates will be uncovered. Such rare and severe side effects may only be uncovered with a significantly larger number of patients exposed to the drug. If such safety problems occur or are identified after MRG-106, MRG-201 or another product candidate reaches the market, the FDA may require that Miragen amend the labeling of the product or recall the product, or may even withdraw approval for the product.

Miragen’s microRNA therapeutic approach is novel. Negative public opinion and increased regulatory scrutiny of microRNA or other nucleic acid based therapies may damage public perception of the safety of its product candidates and adversely affect its ability to conduct its business or obtain regulatory approvals for its product candidates.

MicroRNA therapy remains a novel technology, with no microRNA therapy product approved to date in the United States. Public perception may be influenced by claims that microRNA therapy is unsafe, and microRNA

 

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therapy may not gain the acceptance of the public or the medical community. In particular, Miragen’s success will depend upon physicians who specialize in the treatment of the diseases targeted by Miragen’s product candidates, prescribing treatments that involve the use of its product candidates in lieu of, or in addition to, existing treatments with which they are familiar and for which greater clinical data may be available. More restrictive government regulations or negative public opinion regarding microRNA or other nucleic acid based therapeutics could have an adverse effect on Miragen’s business, financial condition or results of operations and may delay or impair the development and commercialization of its product candidates or demand for any products Miragen may develop. Serious adverse events in microRNA clinical trials for Miragen’s competitors’ products, even if not ultimately attributable to the relevant product candidates, and the resulting publicity, could result in increased government regulation, unfavorable public perception, potential regulatory delays in the testing or approval of Miragen’s product candidates, stricter labeling requirements for those product candidates that are approved and a decrease in demand for any such product candidates. For instance, in June 2016, the FDA placed a regulatory hold on the clinical trial of a microRNA or nucleic acid focused biopharmaceutical company with a microRNA product candidate for the treatment of hepatitis C virus due to serious adverse events in that trial. Another microRNA-focused biopharmaceutical company also voluntarily halted an ongoing Phase 1 trial for a microRNA therapy for multiple cancers in September 2016 due to multiple immune-related severe adverse events. Miragen cannot predict what effect, if any, these clinical holds will have on the government and public perception of Miragen’s product candidates.

Miragen is heavily dependent on the success of its product candidates, which are in the early stages of clinical development. Some of its product candidates have produced results in pre-clinical settings to date, or for other indications than those for which Miragen contemplates conducting development and seeking FDA approval, and Miragen cannot give any assurance that it will generate data for any of its product candidates sufficient to receive regulatory approval in its planned indications, which will be required before they can be commercialized.

Miragen has invested substantially all of its efforts and financial resources to identify, acquire and develop its portfolio of product candidates. Its future success is dependent on its ability to successfully further develop, obtain regulatory approval for, and commercialize one or more product candidates. Miragen currently generates no revenue from sales of any products, and Miragen may never be able to develop or commercialize a product candidate.

Miragen currently has two product candidates in Phase 1 clinical trials. Of these Miragen product candidates, MRG-106 has only been administered in volunteers with MF. This is only one of the multiple indications for which Miragen plans to develop this product candidate. Additionally, Miragen’s clinical and pre-clinical data to date is not validated and Miragen has no way of knowing if after validation Miragen’s clinical trial data will be complete and consistent. There can be no assurance that the data that Miragen develops for its product candidates in its planned indications will be sufficient to obtain regulatory approval.

In addition, none of its product candidates have advanced into a pivotal clinical trial for Miragen’s proposed indications and it may be years before any such clinical trial is initiated and completed, if at all. Miragen is not permitted to market or promote any of its product candidates before it receives regulatory approval from the FDA or comparable foreign regulatory authorities, and Miragen may never receive such regulatory approval for any of its product candidates. Miragen cannot be certain that any of its product candidates will be successful in clinical trials or receive regulatory approval. Further, its product candidates may not receive regulatory approval even if they are successful in clinical trials. If Miragen does not receive regulatory approvals for its product candidates, Miragen may not be able to continue its operations.

Product development involves a lengthy and expensive process with an uncertain outcome, and results of earlier pre-clinical and clinical trials may not be predictive of future clinical trial results.

Clinical testing is expensive and generally takes many years to complete, and the outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of pre-clinical trials and early

 

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clinical trials of Miragen’s product candidates may not be predictive of the results of larger, later-stage controlled clinical trials. Product candidates that have shown promising results in early-stage clinical trials may still suffer significant setbacks in subsequent clinical trials. Miragen’s clinical trials to date have been conducted on a small number of patients in limited numbers of clinical sites for a limited number of indications. Miragen will have to conduct larger, well-controlled trials in its proposed indications to verify the results obtained to date and to support any regulatory submissions for further clinical development. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles despite promising results in earlier, smaller clinical trials. For instance, in June 2016, the FDA placed a regulatory hold on the clinical trial of a microRNA-focused biopharmaceutical company with a microRNA product candidate for the treatment of hepatitis C virus due to serious adverse events in that trial. Another microRNA-focused biopharmaceutical company also voluntarily halted an ongoing Phase 1 trial for a microRNA therapy for multiple cancers in September 2016 due to multiple immune-related severe adverse events. Moreover, clinical data are often susceptible to varying interpretations and analyses. Miragen does not know whether any Phase 2, Phase 3, or other clinical trials Miragen may conduct will demonstrate consistent or adequate efficacy and safety with respect to the proposed indication for use sufficient to receive regulatory approval or market its drug candidates.

Miragen may use its financial and human resources to pursue a particular research program or product candidate and fail to capitalize on programs or product candidates that may be more profitable or for which there is a greater likelihood of success.

Because Miragen has limited financial and human resources, it may forego or delay pursuit of opportunities with some programs or product candidates or for other indications that later prove to have greater commercial potential. Miragen’s resource allocation decisions may cause it to fail to capitalize on viable commercial products or more profitable market opportunities. Miragen’s spending on current and future research and development programs and future product candidates for specific indications may not yield any commercially viable products. Miragen may also enter into additional strategic collaboration agreements to develop and commercialize some of its programs and potential product candidates in indications with potentially large commercial markets. If Miragen does not accurately evaluate the commercial potential or target market for a particular product candidate, it may relinquish valuable rights to that product candidate through strategic collaborations, licensing or other royalty arrangements in cases in which it would have been more advantageous for Miragen to retain sole development and commercialization rights to such product candidate, or Miragen may allocate internal resources to a product candidate in a therapeutic area in which it would have been more advantageous to enter into a partnering arrangement.

Miragen may find it difficult to enroll patients in its clinical trials given the limited number of patients who have the diseases for which its product candidates are being studied. Difficulty in enrolling patients could delay or prevent clinical trials of its product candidates.

Identifying and qualifying patients to participate in clinical trials of Miragen’s product candidates is essential to its success. The timing of Miragen’s clinical trials depends in part on the rate at which Miragen can recruit patients to participate in clinical trials of its product candidates, and Miragen may experience delays in its clinical trials if Miragen encounters difficulties in enrollment.

The eligibility criteria of Miragen’s planned clinical trials may further limit the available eligible trial participants as Miragen expects to require that patients have specific characteristics that Miragen can measure or meet the criteria to assure their conditions are appropriate for inclusion in its clinical trials. For instance, Miragen’s Phase 1 clinical trial of MRG-106 includes patients with MF. The estimated prevalence of MF is 16,000 to 20,000 cases in the United States and only a subset of this group satisfies the enrollment criteria for Miragen’s MRG-106 clinical trial. Miragen may not be able to identify, recruit, and enroll a sufficient number of patients to complete its clinical trials in a timely manner because of the perceived risks and benefits of the product candidate under study, the availability and efficacy of competing therapies and clinical trials, and the

 

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willingness of physicians to participate in its planned clinical trials. If patients are unwilling to participate in Miragen’s clinical trials for any reason, the timeline for conducting trials and obtaining regulatory approval of its product candidates may be delayed.

If Miragen experiences delays in the completion of, or termination of, any clinical trials of its product candidates, the commercial prospects of its product candidates could be harmed, and its ability to generate product revenue from any of these product candidates could be delayed or prevented. In addition, any delays in completing its clinical trials would likely increase its overall costs, impair product candidate development and jeopardize its ability to obtain regulatory approval relative to its current plans. Any of these occurrences may harm its business, financial condition, and prospects significantly.

Miragen may face potential product liability, and, if successful claims are brought against it, Miragen may incur substantial liability and costs. If the use or misuse of Miragen’s product candidates harms patients, or is perceived to harm patients even when such harm is unrelated to its product candidates, Miragen’s regulatory approvals, if any, could be revoked or otherwise negatively impacted and Miragen could be subject to costly and damaging product liability claims. If Miragen is unable to obtain adequate insurance or is required to pay for liabilities resulting from a claim excluded from, or beyond the limits of, its insurance coverage, a material liability claim could adversely affect its financial condition.

The use or misuse of Miragen’s product candidates in clinical trials and the sale of any products for which Miragen may obtain marketing approval exposes Miragen to the risk of potential product liability claims. Product liability claims might be brought against Miragen by consumers, healthcare providers, pharmaceutical companies or others selling or otherwise coming into contact with its product candidates and approved products, if any. There is a risk that Miragen’s product candidates may induce adverse events. If Miragen cannot successfully defend against product liability claims, it could incur substantial liability and costs. Some of its microRNA therapeutics have shown in clinical trials adverse events, including injection site reactions and pain at the injection site, nausea, decreased white blood cell count, neutropenia, elevated aspartate aminotransferase, alanine aminotransferase and creatine kinase levels, prolonged partial thromboplastin time, fatigue, headache and microscopic hematuria, among others. There is a risk that Miragen’s future product candidates may induce similar or more severe adverse events. Patients with the diseases targeted by Miragen’s product candidates may already be in severe and advanced stages of disease and have both known and unknown significant preexisting and potentially life-threatening health risks. During the course of treatment, patients may suffer adverse events, including death, for reasons that may be related to Miragen’s product candidates. Such events could subject Miragen to costly litigation, require it to pay substantial amounts of money to injured patients, delay, negatively impact or end its opportunity to receive or maintain regulatory approval to market its products, or require Miragen to suspend or abandon its commercialization efforts. Even in a circumstance in which an adverse event is unrelated to Miragen’s product candidates, the investigation into the circumstance may be time-consuming or inconclusive. These investigations may delay Miragen’s regulatory approval process or impact and limit the type of regulatory approvals its product candidates receive or maintain. As a result of these factors, a product liability claim, even if successfully defended, could have a material adverse effect on Miragen’s business, financial condition or results of operations.

Although Miragen has product liability insurance, which covers its clinical trials in the United States, for up to $5.0 million per occurrence, up to an aggregate limit of $5.0 million, its insurance may be insufficient to reimburse it for any expenses or losses Miragen may suffer. Miragen will also likely be required to increase its product liability insurance coverage for the advanced clinical trials that it plans to initiate. If Miragen obtains marketing approval for any of its product candidates, it will need to expand its insurance coverage to include the sale of commercial products. There is no way to know if Miragen will be able to continue to obtain product liability coverage and obtain expanded coverage if it requires it, in sufficient amounts to protect it against losses due to liability, on acceptable terms, or at all. Miragen may not have sufficient resources to pay for any liabilities resulting from a claim excluded from, or beyond the limits of, its insurance coverage. Where Miragen has provided indemnities in favor of third parties under its agreements with them, there is also a risk that these third

 

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parties could incur liability and bring a claim under such indemnities. An individual may bring a product liability claim against Miragen alleging that one of its product candidates causes, or is claimed to have caused, an injury or is found to be unsuitable for consumer use. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties. Claims could also be asserted under state consumer protection acts. Any product liability claim brought against Miragen, with or without merit, could result in:

 

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withdrawal of clinical trial volunteers, investigators, patients or trial sites or limitations on approved indications;

 

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the inability to commercialize, or if commercialized, decreased demand for, its product candidates;

 

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if commercialized, product recalls, withdrawals of labeling, marketing or promotional restrictions or the need for product modification;

 

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initiation of investigations by regulators;

 

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loss of revenues;

 

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substantial costs of litigation, including monetary awards to patients or other claimants;

 

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liabilities that substantially exceed Miragen’s product liability insurance, which Miragen would then be required to pay itself;

 

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an increase in Miragen’s product liability insurance rates or the inability to maintain insurance coverage in the future on acceptable terms, if at all;

 

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the diversion of management’s attention from Miragen’s business; and

 

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damage to Miragen’s reputation and the reputation of its products and its technology.

Product liability claims may subject Miragen to the foregoing and other risks, which could have a material adverse effect on its business, financial condition or results of operations.

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

A potential breakthrough therapy designation by the FDA for Miragen’s product candidates may not lead to a faster development or regulatory review or approval process, and it does not increase the likelihood that Miragen’s product candidates will receive marketing approval.

Miragen may seek a breakthrough therapy designation from the FDA for some of its product candidates. A breakthrough therapy is defined as a drug or biological product that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug or biological product may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. For drugs or biological products that have been designated as breakthrough therapies, interaction and communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the number of patients placed in ineffective control regimens. Drugs designated as breakthrough therapies by the FDA could also be eligible for accelerated approval.

Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if Miragen believes one of its product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt of a breakthrough therapy designation for a product candidate may not result in a faster development process, review or approval compared to drugs considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of Miragen’s product candidates qualify and are designated as breakthrough therapies, the FDA may later decide that the drugs or biological products no longer meet the conditions for designation and the designation may be rescinded.

 

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Miragen may seek Fast Track designation for one or more of its product candidates, but it might not receive such designation, and even if Miragen does, such designation may not actually lead to a faster development or regulatory review or approval process.

If a product candidate is intended for the treatment of a serious condition and nonclinical or clinical data demonstrate the potential to address unmet medical need for this condition, a product sponsor may apply for FDA Fast Track designation. If Miragen seeks Fast Track designation for a product candidate, Miragen may not receive it from the FDA. However, even if Miragen receives Fast Track designation, Fast Track designation does not ensure that Miragen will receive marketing approval or that approval will be granted within any particular timeframe. Miragen may not experience a faster development or regulatory review or approval process with Fast Track designation compared to conventional FDA procedures. In addition, the FDA may withdraw Fast Track designation if it believes that the designation is no longer supported by data from Miragen’s clinical development program. Fast Track designation alone does not guarantee qualification for the FDA’s priority review procedures.

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

If any of Miragen’s product candidates are approved, Miragen will be subject to ongoing regulatory requirements with respect to manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing clinical trials, and submission of safety, efficacy and other post-approval information, including both federal and state requirements in the United States and requirements of comparable foreign regulatory authorities.

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

Any regulatory approvals that Miragen receives for its product candidates may be subject to limitations on the approved indicated uses for which the product candidate may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product candidate. Miragen will be required to report adverse reactions and production problems, if any, to the FDA and comparable foreign regulatory authorities. Any new legislation addressing drug safety issues could result in delays in product development or commercialization, or increased costs to assure compliance. If its original marketing approval for a product candidate was obtained through an accelerated approval pathway, Miragen could be required to conduct a successful post-marketing clinical trial in order to confirm the clinical benefit for its products. An unsuccessful post-marketing clinical trial or failure to complete such a trial could result in the withdrawal of marketing approval.

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

 

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issue warning letters;

 

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impose civil or criminal penalties;

 

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suspend or withdraw regulatory approval;

 

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suspend any of Miragen’s ongoing clinical trials;

 

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•

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

 

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

 

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require a product recall.

Any government investigation of alleged violations of law would be expected to require Miragen to expend significant time and resources in response and could generate adverse publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect its ability to develop and commercialize its products and the value of Miragen and its operating results would be adversely affected.

Healthcare legislative reform measures may have a material adverse effect on Miragen’s business, financial condition or results of operations.

In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or the Health Care Reform Law, was passed, which substantially changes the way health care is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry. The Health Care Reform Law, among other things, addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted, or injected, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of specified branded prescription drugs, and promotes a new Medicare Part D coverage gap discount program.

In addition, other legislative changes have been proposed and adopted in the United States since the Health Care Reform Law was enacted and Miragen expects that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand or lower pricing for its product candidates, or additional pricing pressures.

Miragen may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, and health information privacy and security laws. If Miragen is unable to comply, or has not fully complied, with such laws, it could face substantial penalties.

If Miragen obtains FDA approval for any of its product candidates and begins commercializing those products in the United States, its operations may be subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute, the federal False Claims Act, and physician sunshine laws and regulations. These laws may impact, among other things, its proposed sales, marketing, and education programs. In addition, Miragen may be subject to patient privacy regulation by both the federal government and the states in which Miragen conduct its business. The laws that may affect its ability to operate include:

 

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the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs;

 

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federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payors that are false or fraudulent;

 

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

 

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HIPAA, as amended by the Health Information Technology and Clinical Health Act, and its implementing regulations, which imposes specified requirements relating to the privacy, security, and transmission of individually identifiable health information;

 

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the federal physician sunshine requirements under the Health Care Reform Laws requires manufacturers of drugs, devices, biologics, and medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members and applicable group purchasing organizations; and

 

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state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including governmental and private payors, to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, and state laws governing the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of Miragen’s business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform legislation has strengthened these laws. For example, the Health Care Reform Law, among other things, amends the intent requirement of the federal anti-kickback and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. Moreover, the Health Care Reform Law provides that the government may assert that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim for purposes of the False Claims Act.

If Miragen’s operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to Miragen, Miragen may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in government health care programs, such as Medicare and Medicaid, imprisonment, and the curtailment or restructuring of its operations, any of which could adversely affect its ability to operate Miragen’s business and its results of operations.

Reliance on government funding for Miragen’s programs may add uncertainty to its research and commercialization efforts with respect to those programs that are tied to such funding and may impose requirements that limit its ability to take specified actions, increase the costs of commercialization and production of product candidates developed under those programs and subject Miragen to potential financial penalties, which could materially and adversely affect its business, financial condition and results of operations.

During the course of Miragen’s development of its product candidates, it has been funded in part through federal and state grants, including but not limited to the funding it received from Yale University, or Yale, pursuant to a subcontract agreement with Yale. In addition to the funding Miragen has received to date, it has applied and intends to continue to apply for federal and state grants to receive additional funding in the future. Contracts and grants funded by the U.S. government, state governments and their related agencies include provisions that reflect the government’s substantial rights and remedies, many of which are not typically found in commercial contracts, including powers of the government to:

 

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require repayment of all or a portion of the grant proceeds, in specified cases with interest, in the event Miragen violates specified covenants pertaining to various matters that include a failure to achieve

 

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specified milestones or to comply with terms relating to use of grant proceeds, or failure to comply with specified laws;

 

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terminate agreements, in whole or in part, for any reason or no reason;

 

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reduce or modify the government’s obligations under such agreements without the consent of the other party;

 

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claim rights, including intellectual property rights, in products and data developed under such agreements;

 

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audit contract related costs and fees, including allocated indirect costs;

 

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suspend the contractor or grantee from receiving new contracts pending resolution of alleged violations of procurement laws or regulations;

 

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impose U.S. manufacturing requirements for products that embody inventions conceived or first reduced to practice under such agreements;

 

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impose qualifications for the engagement of manufacturers, suppliers and other contractors as well as other criteria for reimbursements;

 

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suspend or debar the contractor or grantee from doing future business with the government;

 

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control and potentially prohibit the export of products;

 

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pursue criminal or civil remedies under the False Claims Act, False Statements Act and similar remedy provisions specific to government agreements; and

 

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limit the government’s financial liability to amounts appropriated by the U.S. Congress on a fiscal year basis, thereby leaving some uncertainty about the future availability of funding for a program even after it has been funded for an initial period.

In addition to those powers set forth above, the government funding Miragen may receive could also impose requirements to make payments based upon sales of its products, if any, in the future.

Miragen may not have the right to prohibit the U.S. government from using specified technologies developed by it, and Miragen may not be able to prohibit third-party companies, including its competitors, from using those technologies in providing products and services to the U.S. government. The U.S. government generally takes the position that it has the right to royalty-free use of technologies that are developed under U.S. government contracts. These and other provisions of government grants may also apply to intellectual property Miragen licenses now or in the future.

In addition, government contracts and grants normally contain additional requirements that may increase Miragen’s costs of doing business, reduce its profits, and expose it to liability for failure to comply with these terms and conditions. These requirements include, for example:

 

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specialized accounting systems unique to government contracts and grants;

 

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mandatory financial audits and potential liability for price adjustments or recoupment of government funds after such funds have been spent;

 

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public disclosures of some contract and grant information, which may enable competitors to gain insights into Miragen’s research program; and

 

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mandatory socioeconomic compliance requirements, including labor standards, non-discrimination and affirmative action programs and environmental compliance requirements.

If Miragen fails to maintain compliance with any such requirements that may apply to it now or in the future, Miragen may be subject to potential liability and to termination of Miragen’s contracts.

 

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

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

Risks Related to Miragen’s Intellectual Property

Miragen may not be successful in obtaining or maintaining necessary rights to microRNA targets, product compounds and processes for its development pipeline through acquisitions and in-licenses.

Presently, Miragen has rights to the intellectual property, through licenses from third parties and under patents and patent applications that Miragen owns, to modulate only a subset of the known microRNA targets. Because Miragen’s programs may involve a range of microRNA targets, including targets that require the use of proprietary rights held by third parties, the growth of its business will likely depend in part on Miragen’s ability to acquire, in-license or use these proprietary rights. In addition, Miragen’s product candidates may require specific formulations to work effectively and efficiently and these rights may be held by others. Miragen may be unable to acquire or in-license any compositions, methods of use, processes or other third-party intellectual property rights from third parties that it identifies. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that Miragen may consider attractive. These established companies may have a competitive advantage over Miragen due to their size, cash resources and greater clinical development and commercialization capabilities.

For example, Miragen has previously and may continue to collaborate with U.S. and foreign academic institutions to accelerate its pre-clinical research or development under written agreements with these institutions. Typically, these institutions provide an option to negotiate a license to any of the institution’s rights in technology resulting from the collaboration. Regardless of such right of first negotiation for intellectual property, Miragen may be unable to negotiate a license within the specified time frame or under terms that are acceptable to it. If Miragen is unable to do so, the institution may offer the intellectual property rights to other parties, potentially blocking Miragen’s ability to pursue its program.

In addition, companies that perceive Miragen to be a competitor may be unwilling to assign or license rights to it. Miragen also may be unable to license or acquire third-party intellectual property rights on terms that would allow it to make an appropriate return on its investment. If Miragen is unable to successfully obtain rights to third-party intellectual property rights, its business, financial condition and prospects for growth could suffer.

 

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Miragen intends to rely on patent rights for its product candidates and any future product candidates. If Miragen is unable to obtain or maintain exclusivity from the combination of these approaches, Miragen may not be able to compete effectively in its markets.

Miragen relies or will rely upon a combination of patents, trade secret protection, and confidentiality agreements to protect the intellectual property related to its technologies and product candidates. Its success depends in large part on its and its licensors’ ability to obtain regulatory exclusivity and maintain patent and other intellectual property protection in the United States and in other countries with respect to its proprietary technology and products.

Miragen has sought to protect its proprietary position by filing patent applications in the United States and abroad related to its product candidates that are important to its business. This process is expensive and time consuming, and Miragen may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that Miragen will fail to identify patentable aspects of its research and development output before it is too late to obtain patent protection.

The patent position of biotechnology and pharmaceutical companies generally is highly uncertain and involves complex legal and factual questions for which legal principles remain unsolved. The patent applications that Miragen owns or in-licenses may fail to result in issued patents with claims that cover its product candidates in the United States or in other foreign countries. There is no assurance that all potentially relevant prior art relating to its patents and patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application. Even if patents do successfully issue, and even if such patents cover Miragen’s product candidates, third parties may challenge their validity, enforceability, or scope, which may result in such patents being narrowed, found unenforceable or invalidated. Furthermore, even if they are unchallenged, Miragen’s patents and patent applications may not adequately protect its intellectual property, provide exclusivity for its product candidates, or prevent others from designing around the Miragen claims. Any of these outcomes could impair Miragen’s ability to prevent competition from third parties, which may have an adverse impact on its business.

Miragen, independently or together with its licensors, has filed several patent applications covering various aspects of its product candidates. Miragen cannot offer any assurances about which, if any, patents will issue, the breadth of any such patent or whether any issued patents will be found invalid and unenforceable or will be threatened by third parties. Any successful opposition to these patents or any other patents owned by or licensed to Miragen after patent issuance could deprive Miragen of rights necessary for the successful commercialization of any product candidates that Miragen may develop. Further, if Miragen encounters delays in regulatory approvals, the period of time during which Miragen could market a product candidate under patent protection could be reduced.

If Miragen cannot obtain and maintain effective protection of exclusivity from its regulatory efforts and intellectual property rights, including patent protection or data exclusivity, for its product candidates, Miragen may not be able to compete effectively and its business and results of operations would be harmed.

Miragen may not have sufficient patent term protections for its product candidates to effectively protect its business.

Patents have a limited term. In the United States, the statutory expiration of a patent is generally 20 years after it is filed. Although various extensions may be available, the life of a patent, and the protection it affords, is limited. Even if patents covering its product candidates are obtained, once the patent life has expired for a product candidate, Miragen may be open to competition from generic medications. In addition, upon issuance in the United States any patent term can be adjusted based on specified delays caused by the applicant(s) or the USPTO.

Patent term extensions under the Hatch-Waxman Act in the United States and under supplementary protection certificates in Europe may be available to extend the patent or data exclusivity terms of Miragen’s product

 

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candidates. Miragen will likely rely on patent term extensions, and Miragen cannot provide any assurances that any such patent term extensions will be obtained and, if so, for how long. As a result, Miragen may not be able to maintain exclusivity for its product candidates for an extended period after regulatory approval, if any, which would negatively impact its business, financial condition, results of operations and prospects. If Miragen does not have sufficient patent terms or regulatory exclusivity to protect its product candidates, its business and results of operations will be adversely affected.

Changes in U.S. patent law could diminish the value of patents in general, thereby impairing Miragen’s ability to protect its products, and recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of its patent applications and the enforcement or defense of its issued patents.

As is the case with other biotechnology companies, Miragen’s success is heavily dependent on patents. Obtaining and enforcing patents in the biotechnology industry involve both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in specified circumstances and weakened the rights of patent owners in specified situations. In addition to increasing uncertainty with regard to Miragen’s ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken Miragen’s ability to obtain new patents or to enforce Miragen’s existing patents and patents that it might obtain in the future. Some of Miragen’s patent claims may be affected by the recent U.S. Supreme Court decision in Association for Molecular Pathology v. Myriad Genetics. In Myriad, the Supreme Court held that unmodified isolated fragments of genomic sequences, such as the DNA constituting the BRCA1 and BRCA2 genes, are not eligible for patent protection because they constitute a product of nature. The exact boundaries of the Supreme Court’s decision remain unclear as the Supreme Court did not address other types of nucleic acids, such as isolated microRNAs.

On December 16, 2014, the USPTO issued guidance to patent examiners titled 2014 Interim Guidance on Patent Subject Matter Eligibility (Fed. Reg. 79 (241): 74618-33. These guidelines instruct USPTO examiners on the ramifications of the Prometheus and Myriad rulings and apply the Myriad ruling to natural products and principles including all naturally occurring nucleic acids. In addition, the USPTO continues to provide updates to its guidance and this is a developing area. The recent USPTO guidance could make it impossible for Miragen to pursue similar patent claims in patent applications Miragen may prosecute in the future.

Miragen’s patent portfolio contains claims of various types and scope, including chemically modified mimics, as well as methods of medical treatment. The presence of varying claims in Miragen’s patent portfolio significantly reduces, but may not eliminate, its exposure to potential validity challenges under Myriad or future judicial decisions. However, it is not yet clear what, if any, impact this recent Supreme Court decision or future decisions will have on the operation of Miragen’s business.

For Miragen’s U.S. patent applications containing a claim not entitled to priority before March 16, 2013, there is a greater level of uncertainty in the patent law. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The USPTO has promulgated regulations and developed procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, did not come into effect until March 16, 2013. Accordingly, it is not yet clear what, if any, impact the Leahy-Smith Act will have on the operation of Miragen’s business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of its patent applications and the enforcement or defense of its issued patents, all of which could have a material adverse effect on Miragen’s business, financial condition or results of operations.

 

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An important change introduced by the Leahy-Smith Act is that, as of March 16, 2013, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third party that files a patent application in the USPTO after that date but before Miragen could therefore be awarded a patent covering an invention of Miragen’s even if Miragen had made the invention before it was made by the third party. This will require Miragen to be cognizant going forward of the time from invention to filing of a patent application. Furthermore, Miragen’s ability to obtain and maintain valid and enforceable patents depends on whether the differences between its technology and the prior art allow its technology to be patentable over the prior art. Since patent applications in the United States and most other countries are confidential for a period of time after filing, Miragen cannot be certain that it was the first to either (i) file any patent application related to its product candidates or (ii) invent any of the inventions claimed in its patents or patent applications.

Among some of the other changes introduced by the Leahy-Smith Act are changes that limit where a patentee may file a patent infringement suit and new procedures providing opportunities for third parties to challenge any issued patent in the USPTO. Included in these new procedures is a process known as Inter Partes Review, or IPR, which has been generally used by many third parties over the past two years to invalidate patents. The IPR process is not limited to patents filed after the Leahy-Smith Act was enacted, and would therefore be available to a third party seeking to invalidate any of Miragen’s U.S. patents, even those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal court necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate Miragen’s patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action.

If Miragen is unable to maintain effective proprietary rights for its product candidates or any future product candidates, Miragen may not be able to compete effectively in its proposed markets.

In addition to the protection afforded by patents, Miragen relies on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that Miragen elects not to patent, processes for which patents are difficult to enforce and any other elements of its product candidate discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets can be difficult to protect. Miragen seeks to protect its proprietary technology and processes, in part, by entering into confidentiality agreements with its employees, consultants, scientific advisors, and contractors. Miragen also seeks to preserve the integrity and confidentiality of its data and trade secrets by maintaining physical security of its premises and physical and electronic security of its information technology systems. While Miragen has confidence in these individuals, organizations and systems, agreements or security measures may be breached, and Miragen may not have adequate remedies for any breach. In addition, its trade secrets may otherwise become known or be independently discovered by competitors.

Although Miragen expects all of its employees and consultants to assign their inventions to Miragen, and all of its employees, consultants, advisors, and any third parties who have access to its proprietary know-how, information, or technology to enter into confidentiality agreements, Miragen cannot provide any assurances that all such agreements have been duly executed or that its trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to its trade secrets or independently develop substantially equivalent information and techniques. Misappropriation or unauthorized disclosure of Miragen’s trade secrets could impair its competitive position and may have a material adverse effect on its business, financial condition or results of operations. Additionally, if the steps taken to maintain its trade secrets are deemed inadequate, Miragen may have insufficient recourse against third parties for misappropriating the trade secret.

 

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Third-party claims of intellectual property infringement may prevent or delay Miragen’s development and commercialization efforts.

Miragen’s commercial success depends in part on its ability to develop, manufacture, market and sell its product candidates and use its proprietary technology without infringing the patent rights of third parties. Numerous third-party U.S. and non-U.S. issued patents and pending applications exist in the area of microRNA. Miragen is aware of U.S. and foreign patents and pending patent applications owned by third parties that cover therapeutic uses of microRNA replacements and inhibitors. Miragen is currently monitoring these patents and patent applications. Miragen may in the future pursue available proceedings in the U.S. and foreign patent offices to challenge the validity of these patents and patent applications. In addition, or alternatively, Miragen may consider whether to seek to negotiate a license of rights to technology covered by one or more of such patents and patent applications. If any patents or patent applications cover its product candidates or technologies, Miragen may not be free to manufacture or market its product candidates, including MRG-106 or MRG-201, as planned, absent such a license, which may not be available to Miragen on commercially reasonable terms, or at all.

It is also possible that Miragen has failed to identify relevant third-party patents or applications. For example, applications filed before November 29, 2000 and applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Moreover, it is difficult for industry participants, including Miragen, to identify all third-party patent rights that may be relevant to its product candidates and technologies because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. Miragen may fail to identify relevant patents or patent applications or may identify pending patent applications of potential interest but incorrectly predict the likelihood that such patent applications may issue with claims of relevance to its technology. In addition, Miragen may be unaware of one or more issued patents that would be infringed by the manufacture, sale or use of a current or future product candidate, or Miragen may incorrectly conclude that a third-party patent is invalid, unenforceable or not infringed by its activities. Additionally, pending patent applications that have been published can, subject to specified limitations, be later amended in a manner that could cover Miragen’s technologies, its product candidates or the use of its product candidates.

There have been many lawsuits and other proceedings involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions, and reexamination proceedings before the USPTO and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which Miragen is developing product candidates. As the biotechnology and pharmaceutical industries expand and more patents are issued, the risk increases that its product candidates may be subject to claims of infringement of the patent rights of third parties.

Parties making claims against Miragen may obtain injunctive or other equitable relief, which could effectively block its ability to further develop and commercialize one or more of its product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial diversion of employee resources from its business. In the event of a successful claim of infringement against Miragen, Miragen may have to pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign its infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.

Miragen may not be successful in meeting its obligations under its existing license agreements necessary to maintain its product candidate licenses in effect. In addition, if required in order to commercialize its product candidates, Miragen may be unsuccessful in obtaining or maintaining necessary rights to its product candidates through acquisitions and in-licenses.

Miragen currently has rights to the intellectual property, through licenses from third parties and under patents that Miragen does not own, to develop and commercialize its product candidates. Because its programs may

 

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require the use of proprietary rights held by third parties, the growth of its business will likely depend in part on its ability to maintain in effect these proprietary rights. Any termination of license agreements with third parties with respect to its product candidates would be expected to negatively impact its business prospects.

Miragen may be unable to acquire or in-license any compositions, methods of use, processes, or other third-party intellectual property rights from third parties that Miragen identifies as necessary for its product candidates. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that Miragen may consider attractive. These established companies may have a competitive advantage over Miragen due to their size, cash resources, and greater clinical development and commercialization capabilities. In addition, companies that perceive Miragen to be a competitor may be unwilling to assign or license rights to Miragen. Even if Miragen is able to license or acquire third-party intellectual property rights that are necessary for its product candidates, there can be no assurance that they will be available on favorable terms.

Miragen collaborates with U.S. and foreign academic institutions to identify product candidates, accelerate its research and conduct development. Typically, these institutions have provided Miragen with an option to negotiate an exclusive license to any of the institution’s rights in the patents or other intellectual property resulting from the collaboration. Regardless of such option, Miragen may be unable to negotiate a license within the specified timeframe or under terms that are acceptable to Miragen. If Miragen is unable to do so, the institution may offer the intellectual property rights to other parties, potentially blocking its ability to pursue a program of interest to Miragen.

If Miragen is unable to successfully obtain and maintain rights to required third-party intellectual property, Miragen may have to abandon development of that product candidate or pay additional amounts to the third-party, and its business and financial condition could suffer.

The patent protection and patent prosecution for some of Miragen’s product candidates is dependent on third parties.

While Miragen normally seeks and gains the right to fully prosecute the patents relating to its product candidates, there may be times when patents relating to its product candidates are controlled by its licensors. For instance, this is the case with its agreement with Santaris Pharma A/S, which has changed its name to Roche Innovation Center Copenhagen A/S, or RICC, who is primarily responsible for the prosecution of patents and patent applications licensed to Miragen under the applicable agreement. If they or any of its future licensors fail to appropriately and broadly prosecute and maintain patent protection for patents covering any of its product candidates, its ability to develop and commercialize those product candidates may be adversely affected and Miragen may not be able to prevent competitors from making, using, importing, and selling competing products. In addition, even where Miragen now has the right to control patent prosecution of patents and patent applications Miragen has licensed from third parties, Miragen may still be adversely affected or prejudiced by actions or inactions of its licensors in effect from actions prior to Miragen assuming control over patent prosecution.

If Miragen fails to comply with obligations in the agreements under which Miragen licenses intellectual property and other rights from third parties or otherwise experience disruptions to its business relationships with its licensors, Miragen could lose license rights that are important to its business.

Miragen is a party to a number of intellectual property license and supply agreements that are important to its business and expects to enter into additional license agreements in the future. Miragen’s existing agreements impose, and Miragen expects that future license agreements will impose, various diligence, milestone payment, royalty, purchasing, and other obligations on it. If Miragen fails to comply with its obligations under these agreements, or Miragen is subject to a bankruptcy, its agreements may be subject to termination by the licensor, in which event Miragen would not be able to develop, manufacture, or market products covered by the license or subject to supply commitments.

 

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Miragen may be involved in lawsuits to protect or enforce its patents or the patents of its licensors, which could be expensive, time consuming, and unsuccessful.

Competitors may infringe Miragen’s patents or the patents of its licensors. If Miragen or one of its licensing partners were to initiate legal proceedings against a third party to enforce a patent covering one of its product candidates, the defendant could counterclaim that the patent covering its product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, written description, clarity or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable.

Interference proceedings provoked by third parties or brought by Miragen or declared by the USPTO may be necessary to determine the priority of inventions with respect to Miragen’s patents or patent applications or those of its licensors. An unfavorable outcome could require Miragen to cease using the related technology or to attempt to license rights to it from the prevailing party. Miragen’s business could be harmed if the prevailing party does not offer Miragen a license on commercially reasonable terms. Its defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract its management and other employees. In addition, the uncertainties associated with litigation could have a material adverse effect on its ability to raise the funds necessary to continue its clinical trials, continue its research programs, license necessary technology from third parties, or enter into development partnerships that would help Miragen bring its product candidates to market.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of Miragen’s confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of its common stock.

Miragen may be subject to claims that its employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties or that its employees have wrongfully used or disclosed alleged trade secrets of their former employers.

Miragen employs individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including Miragen’s competitors or potential competitors. Although Miragen has written agreements and makes every effort to ensure that its employees, consultants, and independent contractors do not use the proprietary information or intellectual property rights of others in their work for Miragen, Miragen may in the future be subject to any claims that its employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties. Litigation may be necessary to defend against these claims. If Miragen fails in defending any such claims, in addition to paying monetary damages, Miragen may lose valuable intellectual property rights or personnel, which could adversely impact its business. Even if Miragen is successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

Miragen may not be able to protect its intellectual property rights throughout the world.

Filing, prosecuting, and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and its intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Competitors may use Miragen’s technologies in jurisdictions where Miragen has not obtained patent protection to develop its own

 

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products and may also export infringing products to territories where Miragen has patent protection, but enforcement is not as strong as that in the United States. These products may compete with its products and its patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of some countries, particularly some developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for Miragen to stop the infringement of its patents or marketing of competing products in violation of its proprietary rights generally. Proceedings to enforce Miragen’s patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert Miragen’s efforts and attention from other aspects of its business, could put Miragen’s patents at risk of being invalidated or interpreted narrowly and its patent applications at risk of not issuing and could provoke third parties to assert claims against Miragen. Miragen may not prevail in any lawsuits that Miragen initiates and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, its efforts to enforce its intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that Miragen develops or licenses.

Risks Related to Miragen’s Reliance on Third Parties

Miragen relies on third parties to conduct its clinical trials, manufacture its product candidates and perform other services. If these third parties do not successfully perform and comply with regulatory requirements, Miragen may not be able to successfully complete clinical development, obtain regulatory approval or commercialize its product candidates and its business could be substantially harmed.

Miragen has relied upon and plans to continue to rely upon third-party CROs to conduct, monitor and manage its ongoing clinical programs. Miragen relies on these parties for execution of clinical trials and manages and controls only some aspects of their activities. Miragen remains responsible for ensuring that each of its trials is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards and its reliance on the CROs does not relieve Miragen of its regulatory responsibilities. Miragen and its CROs and other vendors are required to comply with all applicable laws, regulations and guidelines, including those required by the FDA and comparable foreign regulatory authorities for all of its product candidates in clinical development. If Miragen or any of its CROs or vendors fail to comply with applicable laws, regulations and guidelines, the results generated in its clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require Miragen to perform additional clinical trials before approving its marketing applications. Miragen cannot be assured that its CROs and other vendors will meet these requirements, or that upon inspection by any regulatory authority, such regulatory authority will determine that efforts, including any of its clinical trials, comply with applicable requirements. Its failure to comply with these laws, regulations and guidelines may require Miragen to repeat clinical trials, which would be costly and delay the regulatory approval process.

If any of Miragen’s relationships with these third-party CROs terminate, Miragen may not be able to enter into arrangements with alternative CROs in a timely manner or do so on commercially reasonable terms. In addition, Miragen’s CROs may not prioritize Miragen’s clinical trials relative to those of other customers and any turnover in personnel or delays in the allocation of CRO employees by the CRO may negatively affect its clinical trials. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, Miragen’s clinical trials may be delayed or terminated and Miragen may not be able to meet its current plans with respect to its product candidates. CROs may also involve higher costs than anticipated, which could negatively affect Miragen’s financial condition and operations.

In addition, Miragen does not currently have, nor does Miragen currently plan to establish the capability to manufacture product candidates for use in the conduct of its clinical trials, and Miragen lacks the resources and the capability to manufacture any of its product candidates on a clinical or commercial scale without the use of third-party manufacturers. Miragen plans to rely on third-party manufacturers and their responsibilities will

 

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include purchasing from third-party suppliers the materials necessary to produce its product candidates for its clinical trials and regulatory approval. There are expected to be a limited number of suppliers for the active ingredients and other materials that Miragen expects to use to manufacture its product candidates, and Miragen may not be able to identify alternative suppliers to prevent a possible disruption of the manufacture of its product candidates for its clinical trials, and, if approved, ultimately for commercial sale. Although Miragen generally does not expect to begin a clinical trial unless Miragen believes it has a sufficient supply of a product candidate to complete the trial, any significant delay or discontinuity in the supply of a product candidate, or the active ingredient or other material components in the manufacture of the product candidate could delay completion of its clinical trials and potential timing for regulatory approval of its product candidates, which would harm its business and results of operations.

Miragen relies and expects to continue to rely on third parties to manufacture its clinical product supplies, and Miragen intends to rely on third parties to produce and process its product candidates, if approved, and Miragen’s commercialization of any of its product candidates could be stopped, delayed or made less profitable if those third parties fail to obtain approval of government regulators, fail to provide Miragen with sufficient quantities of drug product, or fail to do so at acceptable quality levels or prices.

Miragen does not currently have nor does it currently plan to develop the infrastructure or capability internally to manufacture its clinical supplies for use in the conduct of Miragen’s clinical trials, and Miragen lacks the resources and the capability to manufacture any of its product candidates on a clinical or commercial scale. Miragen currently relies on outside vendors to manufacture its clinical supplies of its product candidates and plans to continue relying on third parties to manufacture its product candidates on a commercial scale, if approved.

Miragen does not yet have sufficient information to reliably estimate the cost of the commercial manufacturing of its product candidates and its current costs to manufacture its drug products is not commercially feasible, and the actual cost to manufacture its product candidates could materially and adversely affect the commercial viability of its product candidates. As a result, Miragen may never be able to develop a commercially viable product.

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

 

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Miragen may be unable to identify manufacturers on acceptable terms or at all.

 

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

 

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Contract manufacturers may not be able to execute Miragen’s manufacturing procedures appropriately.

 

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

 

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

 

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

 

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

Each of these risks could delay Miragen’s clinical trials, the approval, if any of its product candidates by the FDA or the commercialization of its product candidates or result in higher costs or deprive Miragen of potential

 

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product revenue. In addition, Miragen relies on third parties to perform release testing on its product candidates prior to delivery to patients. If these tests are not appropriately conducted and test data are not reliable, patients could be put at risk of serious harm and could result in product liability suits.

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

Miragen may be unable to realize the potential benefits of any collaboration.

Even if Miragen is successful in entering into a collaboration with respect to the development and/or commercialization of one or more product candidates, there is no guarantee that the collaboration will be successful. Collaborations may pose a number of risks, including:

 

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collaborators often have significant discretion in determining the efforts and resources that they will apply to the collaboration, and may not commit sufficient resources to the development, marketing or commercialization of the product or products that are subject to the collaboration;

 

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collaborators may not perform their obligations as expected;

 

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any such collaboration may significantly limit Miragen’s share of potential future profits from the associated program, and may require it to relinquish potentially valuable rights to its current product candidates, potential products or proprietary technologies or grant licenses on terms that are not favorable to Miragen;

 

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collaborators may cease to devote resources to the development or commercialization of Miragen’s product candidates if the collaborators view its product candidates as competitive with their own products or product candidates;

 

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disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the course of development, might cause delays or termination of the development or commercialization of product candidates, and might result in legal proceedings, which would be time consuming, distracting and expensive;

 

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collaborators may be impacted by changes in their strategic focus or available funding, or business combinations involving them, which could cause them to divert resources away from the collaboration;

 

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collaborators may infringe the intellectual property rights of third parties, which may expose Miragen to litigation and potential liability;

 

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the collaborations may not result in Miragen achieving revenues to justify such transactions; and

 

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collaborations may be terminated and, if terminated, may result in a need for Miragen to raise additional capital to pursue further development or commercialization of the applicable product candidate.

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

For instance, in October 2011, Miragen entered into a strategic alliance with Les Laboratoires Servier and the Institut de Recherches Servier, or Servier, for the research, development, and commercialization of RNA-targeting therapeutics in cardiovascular disease, or the Servier Collaboration Agreement, which was subsequently amended in May 2013, May 2014, May 2015 and September 2016. Under the Servier Collaboration Agreement, Miragen granted Servier an exclusive license to research, develop, and commercialize RNA-targeting therapeutics for three targets in the cardiovascular field. Servier’s rights to each of the targets are limited to therapeutics in the cardiovascular field in their territory, which is worldwide except for the United States and Japan. Miragen retains all rights for each named target in the United States and Japan and for any products or product candidates outside of the cardiovascular field. Miragen cannot guarantee that any product candidate will ever be successfully commercialized under the Servier Collaboration Agreement. If no product candidate subject to the Servier Collaboration Agreement is successfully commercialized, Miragen may never receive additional milestone or any royalty payments under the Servier Collaboration Agreement. Also, due to restrictions contained in the Servier Collaboration Agreement, Miragen may not be able to effectively develop, market or commercialize any such product candidate in the United States and Japan.

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

In the normal course of business, Miragen periodically enters into academic, commercial, service, collaboration, licensing, consulting and other agreements that contain indemnification provisions. With respect to Miragen’s academic and other research agreements, Miragen typically indemnifies the institution and related parties from losses arising from claims relating to the products, processes or services made, used, sold or performed pursuant to the agreements for which Miragen has secured licenses, and from claims arising from Miragen’s or its sublicensees’ exercise of rights under the agreement. With respect to Miragen’s collaboration agreements, Miragen indemnifies its collaborators from any third-party product liability claims that could result from the production, use or consumption of the product, as well as for alleged infringements of any patent or other intellectual property right by a third party. With respect to consultants, Miragen indemnifies them from claims arising from the good faith performance of their services.

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

Risks Related to Commercialization of Miragen’s Product Candidates

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

Although some of its employees may have marketed, launched, and sold other pharmaceutical products in the past while employed at other companies, Miragen has no experience selling and marketing its product candidates

 

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and Miragen currently has no marketing or sales organization. To successfully commercialize any products that may result from its development programs, Miragen will need to find one or more collaborators to commercialize its products or invest in and develop these capabilities, either on its own or with others, which would be expensive, difficult and time consuming. Any failure or delay in the timely development of Miragen’s internal commercialization capabilities could adversely impact the potential for success of its products.

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

Miragen may attempt to form collaborations in the future with respect to its product candidates, but it may not be able to do so, which may cause it to alter its development and commercialization plans.

Miragen may attempt to form strategic collaborations, create joint ventures or enter into licensing arrangements with third parties with respect to its programs that it believes will complement or augment its existing business. Miragen may face significant competition in seeking appropriate strategic collaborators, and the negotiation process to secure appropriate terms is time consuming and complex. Miragen may not be successful in its efforts to establish such a strategic collaboration for any product candidates and programs on terms that are acceptable to it, or at all. This may be because Miragen’s product candidates and programs may be deemed to be at too early of a stage of development for collaborative effort, its research and development pipeline may be viewed as insufficient, the competitive or intellectual property landscape may be viewed as too intense or risky, and/or third parties may not view its product candidates and programs as having sufficient potential for commercialization, including the likelihood of an adequate safety and efficacy profile.

Any delays in identifying suitable collaborators and entering into agreements to develop and/or commercialize Miragen’s product candidates could delay the development or commercialization of its product candidates, which may reduce their competitiveness even if they reach the market. Absent a strategic collaborator, Miragen would need to undertake development and/or commercialization activities at its own expense. If Miragen elects to fund and undertake development and/or commercialization activities on its own, it may need to obtain additional expertise and additional capital, which may not be available to it on acceptable terms or at all. If Miragen is unable to do so, it may not be able to develop its product candidates or bring them to market and its business may be materially and adversely affected.

If the market opportunities for its product candidates are smaller than Miragen believes they are, Miragen may not meet its revenue expectations and, assuming approval of a product candidate, its business may suffer. Because the patient populations in the market for its product candidates may be small, Miragen must be able to successfully identify patients and acquire a significant market share to achieve profitability and growth.

Given the small number of patients who have the diseases that Miragen is targeting, its eligible patient population and pricing estimates may differ significantly from the actual market addressable by its product candidates. For instance, Miragen’s Phase 1 clinical trial in MRG-106 is focused on MF. The estimated prevalence of MF is 16,000 to 20,000 cases in the United States, only a subset of which may benefit from treatment with MRG-106. Miragen’s projections of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with its product candidates, are based on its beliefs and estimates. These estimates have been derived from a variety of sources, including the scientific literature, patient foundations, or market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these diseases. The number of patients may turn out to be lower than expected. Additionally, while Miragen believes that the data in its Phase 1 clinical trials for MRG-106 and

 

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MRG-201 are supportive of application to other indications, there can be no assurance that its clinical trials will successfully address any additional indications. Likewise, the potentially addressable patient population for each of its product candidates may be limited or may not be amenable to treatment with its product candidates, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect its business, financial condition, results of operations and prospects.

Miragen faces substantial competition and its competitors may discover, develop or commercialize products faster or more successfully than Miragen.

The development and commercialization of new drug products is highly competitive. Miragen faces competition from major pharmaceutical companies, specialty pharmaceutical companies, biotechnology companies, universities and other research institutions worldwide with respect to MRG-106, MRG-201 and the other product candidates that it may seek to develop or commercialize in the future. Miragen is aware that the following companies have therapeutics marketed or in development for CTCL: Actelion Ltd, Bristol-Myers Squibb Company, Celgene Corporation, Merck & Co., Inc., Mylan Pharmaceuticals Inc., Novartis International AG, Spectrum Pharmaceuticals, Inc., Seattle Genetics, Inc., Takeda Pharmaceutical Company Ltd, and Valeant Pharmaceuticals International, Inc. Miragen is also aware that the several companies have marketed therapeutics for pulmonary fibrosis, including Boehringer Ingelheim GmbH and F. Hoffmann-La Roche Ltd. Miragen’s competitors may succeed in developing, acquiring or licensing technologies and drug products that are more effective or less costly than MRG-106, MRG-201 or any other product candidates that Miragen is currently developing or that it may develop, which could render its product candidates obsolete and noncompetitive.

In addition to the competition Miragen faces from alternative therapies for the diseases it intends to target with its product candidates, Miragen is also aware of several companies that are also working specifically to develop microRNA therapeutics, including Mirna Therapeutics, Inc., Regulus Therapeutics, Inc., Microlin Bio, Inc. and InteRNA Technologies B.V. Further there are several companies working to develop other types of oligonucleotide therapeutic products, including Ionis Pharmaceuticals, Inc., Alnylam Pharmaceuticals, Inc., Dicerna Pharmaceuticals, Inc., RaNa Therapeutics, Inc., RXi Pharmaceuticals Corporation, and Silence Therapeutics AG. Many of Miragen’s competitors have substantially greater financial, technical and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations. Third-party payors, including governmental and private insurers, may also encourage the use of generic products. For example, if MRG-106 or MRG-201 is approved, it may be priced at a significant premium over other competitive products. This may make it difficult for MRG-106, MRG-201 or any other future products to compete with these products.

If Miragen’s competitors obtain marketing approval from the FDA or comparable foreign regulatory authorities for their product candidates more rapidly than Miragen, it could result in its competitors establishing a strong market position before Miragen is able to enter the market.

Many of Miragen’s competitors have materially greater name recognition and financial, manufacturing, marketing, research and drug development resources than it does. Additional mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in its competitors. Large pharmaceutical companies in particular have extensive expertise in pre-clinical and clinical testing and in obtaining regulatory approvals for drugs. In addition, academic institutions, government agencies, and other public and private organizations conducting research may seek patent protection with respect to potentially competitive products or technologies. These organizations may also establish exclusive collaborative or licensing relationships with Miragen’s competitors. Failure of MRG-106, MRG-201 or other product candidates to effectively compete against established treatment options or in the future with new products currently in development would harm Miragen’s business, financial condition, results of operations and prospects.

 

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The commercial success of any of Miragen’s current or future product candidates will depend upon the degree of market acceptance by physicians, patients, third-party payors, and others in the medical community.

Even with the approvals from the FDA and comparable foreign regulatory authorities, the commercial success of Miragen’s products will depend in part on the health care providers, patients, and third-party payors accepting its product candidates as medically useful, cost-effective, and safe. Any product that Miragen brings to the market may not gain market acceptance by physicians, patients and third-party payors. The degree of market acceptance of any of Miragen’s products will depend on a number of factors, including but not limited to:

 

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the efficacy of the product as demonstrated in clinical trials and potential advantages over competing treatments;

 

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the prevalence and severity of the disease and any side effects;

 

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the clinical indications for which approval is granted, including any limitations or warnings contained in a product’s approved labeling;

 

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the convenience and ease of administration;

 

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the cost of treatment;

 

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the willingness of the patients and physicians to accept these therapies;

 

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the perceived ratio of risk and benefit of these therapies by physicians and the willingness of physicians to recommend these therapies to patients based on such risks and benefits;

 

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the marketing, sales and distribution support for the product;

 

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the publicity concerning its products or competing products and treatments; and

 

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the pricing and availability of third-party insurance coverage and reimbursement.

Even if a product displays a favorable efficacy and safety profile upon approval, market acceptance of the product remains uncertain. Efforts to educate the medical community and third-party payors on the benefits of the products may require significant investment and resources and may never be successful. If its products fail to achieve an adequate level of acceptance by physicians, patients, third-party payors, and other health care providers, Miragen will not be able to generate sufficient revenue to become or remain profitable.

Miragen may not be successful in any efforts to identify, license, discover, develop, or commercialize additional product candidates.

Although a substantial amount of Miragen’s effort will focus on the continued clinical testing, potential approval, and commercialization of its existing product candidates, the success of Miragen’s business is also expected to depend in part upon its ability to identify, license, discover, develop, or commercialize additional product candidates. Research programs to identify new product candidates require substantial technical, financial, and human resources. Miragen may focus its efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful. Miragen’s research programs or licensing efforts may fail to yield additional product candidates for clinical development and commercialization for a number of reasons, including but not limited to the following:

 

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

 

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

 

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its product candidates may not succeed in pre-clinical or clinical testing;

 

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

 

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

 

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

 

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

 

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

 

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

If any of these events occur, Miragen may be forced to abandon its development efforts for a program or programs, or Miragen may not be able to identify, license, discover, develop, or commercialize additional product candidates, which would have a material adverse effect on its business, financial condition or results of operations and could potentially cause Miragen to cease operations.

Failure to obtain or maintain adequate reimbursement or insurance coverage for products, if any, could limit Miragen’s ability to market those products and decrease its ability to generate revenue.

The pricing, coverage, and reimbursement of Miragen’s approved products, if any, must be sufficient to support its commercial efforts and other development programs and the availability and adequacy of coverage and reimbursement by third-party payors, including governmental and private insurers, are essential for most patients to be able to afford expensive treatments. Sales of Miragen’s approved products, if any, will depend substantially, both domestically and abroad, on the extent to which the costs of its approved products, if any, will be paid for or reimbursed by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or government payors and private payors. If coverage and reimbursement are not available, or are available only in limited amounts, Miragen may have to subsidize or provide products for free or Miragen may not be able to successfully commercialize its products.

In addition, there is significant uncertainty related to the insurance coverage and reimbursement for newly approved products. In the United States, the principal decisions about coverage and reimbursement for new drugs are typically made by CMS, an agency within the U.S. Department of Health and Human Services, as CMS decides whether and to what extent a new drug will be covered and reimbursed under Medicare. Private payors tend to follow the coverage reimbursement policies established by CMS to a substantial degree. It is difficult to predict what CMS will decide with respect to reimbursement for novel product candidates such as Miragen’s and what reimbursement codes its product candidates may receive if approved.

Outside the United States, international operations are generally subject to extensive governmental price controls and other price-restrictive regulations, and Miragen believes the increasing emphasis on cost-containment initiatives in Europe, Canada, and other countries has and will continue to put pressure on the pricing and usage of products. In many countries, the prices of products are subject to varying price control mechanisms as part of national health systems. Price controls or other changes in pricing regulation could restrict the amount that Miragen is able to charge for its products, if any. Accordingly, in markets outside the United States, the potential revenue may be insufficient to generate commercially reasonable revenue and profits.

Moreover, increasing efforts by governmental and private payors in the United States and abroad to limit or reduce healthcare costs may result in restrictions on coverage and the level of reimbursement for new products and, as a result, they may not cover or provide adequate payment for its products. Miragen expects to experience pricing pressures in connection with products due to the increasing trend toward managed healthcare, including the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs has and is expected to continue to increase

 

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in the future. As a result, profitability of Miragen’s products, if any, may be more difficult to achieve even if they receive regulatory approval.

Risks Related to Miragen’s Business Operations

Miragen’s future success depends in part on its ability to retain its president and chief executive officer and to attract, retain, and motivate other qualified personnel.

Miragen is highly dependent on William S. Marshall, Ph.D., its president and chief executive officer, the loss of whose services may adversely impact the achievement of its objectives. Dr. Marshall could leave Miragen’s employment at any time, as he is an “at will” employee. Recruiting and retaining other qualified employees, consultants, and advisors for Miragen’s business, including scientific and technical personnel, will also be critical to Miragen success. There is currently a shortage of highly qualified personnel in Miragen’s industry, which is likely to continue. Additionally, this shortage of highly qualified personnel is particularly acute in the area where Miragen is located. As a result, competition for personnel is intense and the turnover rate can be high. Miragen may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for individuals with similar skill sets. In addition, failure to succeed in development and commercialization of Miragen’s product candidates may make it more challenging to recruit and retain qualified personnel. The inability to recruit and retain qualified personnel, or the loss of the services of Dr. Marshall may impede the progress of Miragen’s research, development, and commercialization objectives and would negatively impact Miragen’s ability to succeed in its product development strategy.

Miragen will need to expand its organization and Miragen may experience difficulties in managing this growth, which could disrupt its operations.

As of November 30, 2016, Miragen had 45 full-time employees. As Miragen’s development and commercialization plans and strategies develop, Miragen expects to need additional managerial, operational, sales, marketing, financial, legal, and other resources. Its management may need to divert a disproportionate amount of its attention away from its day-to-day activities and devote a substantial amount of time to managing these growth activities. Miragen may not be able to effectively manage the expansion of its operations, which may result in weaknesses in its infrastructure, operational mistakes, loss of business opportunities, loss of employees, and reduced productivity among remaining employees. Miragen’s expected growth could require significant capital expenditures and may divert financial resources from other projects, such as the development of additional product candidates. If its management is unable to effectively manage its growth, its expenses may increase more than expected, its ability to generate and/or grow revenue could be reduced and Miragen may not be able to implement its business strategy. Miragen’s future financial performance and its ability to commercialize product candidates and compete effectively will depend, in part, on its ability to effectively manage any future growth.

Failure in Miragen’s information technology and storage systems could significantly disrupt the operation of Miragen’s business.

Miragen’s ability to execute its business plan and maintain operations depends on the continued and uninterrupted performance of its information technology, or IT, systems. IT systems are vulnerable to risks and damages from a variety of sources, including telecommunications or network failures, malicious human acts and natural disasters. Moreover, despite network security and back-up measures, some of Miragen’s and its vendors’ servers are potentially vulnerable to physical or electronic break-ins, including cyber-attacks, computer viruses and similar disruptive problems. These events could lead to the unauthorized access, disclosure and use of non-public information. The techniques used by criminal elements to attack computer systems are sophisticated, change frequently and may originate from less regulated and remote areas of the world. As a result, Miragen may not be able to address these techniques proactively or implement adequate preventative measures. If its computer systems are compromised, it could be subject to fines, damages, litigation and enforcement actions, and it could

 

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lose trade secrets, the occurrence of which could harm its business. Despite precautionary measures to prevent unanticipated problems that could affect its IT systems, sustained or repeated system failures that interrupt Miragen’s ability to generate and maintain data could adversely affect its ability to operate its business.

Miragen’s principal stockholders own a significant percentage of its stock and will be able to exert significant control over matters subject to stockholder approval.

Miragen’s principal stockholders and their affiliates currently beneficially own in excess of 76% of Miragen’s outstanding voting stock, without giving effect to Miragen’s concurrent financing in connection with the Merger. Therefore, these stockholders have the ability and may continue to have the ability to influence Miragen through this ownership position. These stockholders may be able to determine some or all matters requiring stockholder approval. For example, these stockholders, acting together, may be able to control elections of directors, amendments of 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 Miragen’s common stock that you may believe are in your best interest as one of Miragen’s stockholders.

Risks Related to the Combined Company

In determining whether you should approve the Merger, the issuance of shares of Signal common stock and other matters related to the Merger, as applicable, you should carefully read the following risk factors in addition to the risks described above.

The market price of the combined company’s common stock 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. 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 Signal’s common stock to fluctuate include:

 

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the ability of the combined company to obtain regulatory approvals for MRG-106, MRG-201 or other product candidates, and delays or failures to obtain such approvals;

 

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failure of any of the combined company’s product candidates, if approved, to achieve commercial success;

 

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failure to maintain its existing third-party license and supply agreements;

 

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failure by Signal or its licensors to prosecute, maintain, or enforce its intellectual property rights;

 

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changes in laws or regulations applicable to its product candidates;

 

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any inability to obtain adequate supply of its 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 products, services, or technologies by its competitors;

 

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failure to meet or exceed financial and development projections Miragen may provide to the public;

 

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failure to meet or exceed the financial and development projections of the investment community;

 

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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 collaborations, joint ventures, or capital commitments by Signal or its competitors;

 

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

 

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additions or departures of key personnel;

 

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significant lawsuits, including patent or stockholder litigation;

 

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if securities or industry analysts do not publish research or reports about its business, 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 Signal or its stockholders in the future;

 

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trading volume of its common stock;

 

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announcements by commercial partners or competitors of new commercial products, clinical progress or the lack thereof, significant contracts, commercial relationships or capital commitments;

 

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adverse publicity relating to microRNA therapeutics generally, including with respect to other products and potential products in such markets;

 

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the introduction of technological innovations or new therapies that compete with potential products of the combined company;

 

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changes in the structure of health care payment systems; and

 

•

period-to-period fluctuations in the combined company’s financial results.

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.

Additionally, a decrease in the stock price of the combined company may cause the combined company’s common stock to no longer satisfy the continued listing standards of The NASDAQ Capital Market. If the combined company is not able to maintain the requirements for listing on The NASDAQ Capital Market, it could be delisted, which could have a materially adverse effect on its ability to raise additional funds as well as the price and liquidity of its common stock.

The combined company will incur costs and demands upon management as a result of complying with the laws and regulations affecting public companies.

The combined company will incur significant legal, accounting and other expenses that Miragen did not incur as a private company, including costs associated with public company reporting requirements. The combined company will also incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act, as well as new rules implemented by the SEC and The NASDAQ Stock Market LLC. These rules and regulations are expected to increase the combined company’s legal and financial compliance costs and to make some activities more time-consuming and costly. For example, the combined company’s management team will consist of the executive officers of Miragen prior to the Merger, some of whom have not previously managed and operated a public company. These executive officers and other personnel will need to devote substantial time to gaining expertise regarding operations as a public company and compliance with

 

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applicable laws and regulations. These rules and regulations may also make it difficult and expensive for the combined company to obtain directors’ and officers’ liability insurance. As a result, it may be more difficult for the combined company to attract and retain qualified individuals to serve on the combined company’s board of directors or as executive officers of the combined company, which may adversely affect investor confidence in the combined company and could cause the combined company’s business or stock price to suffer.

Anti-takeover provisions in the combined company’s charter documents and 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.

Provisions in the combined company’s certificate of incorporation and bylaws may delay or prevent an acquisition or a change in management. These provisions include a prohibition on actions by written consent of the combined company’s stockholders, assuming that the Signal stockholders approve Signal Proposal No. 10, and the ability of the board of directors to issue preferred stock without stockholder approval. In addition, because the combined company will be incorporated in Delaware, it is governed by the provisions of Section 203 of the Delaware General Corporate Law, which prohibits stockholders owning in excess of 15% of the outstanding combined company voting stock from merging or combining with the combined company. Although Signal and Miragen 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.

The bylaws of the combined company will provide that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between the combined company and its stockholders, which could limit its stockholders’ ability to obtain a favorable judicial forum for disputes with the combined company or its directors, officers or other employees.

The bylaws of the combined company will provide that the Court of Chancery of the State of Delaware is the sole and exclusive forum for any derivative action or proceeding brought on the combined company’s behalf, any action asserting a breach of fiduciary duty owed by any of its directors, officers or other employees to the combined company or its stockholders, any action asserting a claim against it arising pursuant to any provisions of the Delaware General Corporation Law, its certificate of incorporation or its bylaws, or any action asserting a claim against it that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the combined company or its directors, officers or other employees, which may discourage such lawsuits against the combined company and its directors, officers and other employees. If a court were to find the choice of forum provision contained in the bylaws to be inapplicable or unenforceable in an action, the combined company may incur additional costs associated with resolving such action in other jurisdictions.

Signal and Miragen 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.

An active trading market for the combined company’s common stock may not develop and its stockholders may not be able to resell their shares of common stock for a profit, if at all.

Prior to the Merger, there had been no public market for Miragen’s common stock. An active trading market for the combined company’s shares of common stock may never develop or be sustained. If an active market for its

 

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common stock does not develop or is not sustained, it may be difficult for its stockholders to sell their shares at an attractive price or at all.

Future sales of shares by existing stockholders could cause the combined company’s stock price to decline.

If existing stockholders of Signal and Miragen 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 discussed in this proxy statement/prospectus/information statement lapse, the trading price of the common stock of the combined company could decline. Based on shares outstanding as of November 30, 2016, shares expected to be issued upon completion of the Merger, and assuming completion of Miragen’s concurrent financing in connection with the Merger, the combined company is expected to have outstanding a total of approximately 21.0 million shares of common stock immediately following the completion of the Merger, assuming an Exchange Ratio of 0.6995, without giving effect to the reverse stock split. Of the 21.0 million shares of common stock, 11.2 million shares, assuming an Exchange Ratio of 0.6995, without giving effect to the reverse stock split, will be available for sale in the public market beginning 180 days after the closing of the Merger as a result of the expiration of lock-up or similar agreements between certain Miragen stockholders and Miragen. All other outstanding shares of common stock will be freely tradable, without restriction, in the public market. In addition, shares of common stock that are subject to outstanding options of Miragen will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements and Rules 144 and 701 under the Securities Act. If these shares are sold, the trading price of the combined company’s common stock could decline.

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 45% of the outstanding shares of common stock of the combined company following the completion of the Merger and assuming that Miragen closes its concurrent financing immediately prior to the effective time 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.

If equity research analysts do not publish research or reports, or publish unfavorable research or reports, about the combined company, its business or its market, its stock price and trading volume could decline.

The trading market for the combined company’s common stock will be influenced by the research and reports that equity research analysts publish about it and its business. Equity research analysts may elect not to provide research coverage of the combined company’s common stock after the completion of this offering, and such lack of research coverage may adversely affect the market price of its common stock. In the event it does have equity research analyst coverage, the combined company will not have any control over the analysts or the content and opinions included in their reports. The price of the combined company’s common stock could decline if one or more equity research analysts downgrade its stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of the combined company or fails to publish reports on it regularly, demand for its common stock could decrease, which in turn could cause its stock price or trading volume to decline.

 

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The combined company will have broad discretion in the use of proceeds from the concurrent financing in connection with the Merger and may invest or spend the proceeds in ways with which you do not agree and in ways that may not increase the value of your investment.

The combined company will have broad discretion over the use of proceeds from Miragen’s concurrent financing in connection with the Merger. You may not agree with the combined company’s decisions, and its use of the proceeds may not yield any return on your investment. The combined company’s failure to apply the net proceeds of the concurrent financing effectively could compromise its ability to pursue its growth strategy and the combined company might not be able to yield a significant return, if any, on its investment of these net proceeds. You will not have the opportunity to influence its decisions on how to use the net proceeds from the concurrent financing.

Because the Merger will result in an ownership change under Section 382 of the Code for Signal, Signal’s pre-Merger net operating loss carryforwards and certain other tax attributes will be subject to limitation or elimination. The net operating loss carryforwards and certain other tax attributes of Miragen and of the combined company may also be subject to limitations as a result of ownership changes.

If a corporation undergoes an “ownership change” within the meaning of Section 382 of the Code, or Section 382, the corporation’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 by value over a rolling three-year period. Similar rules may apply under state tax laws. The Merger will result in an ownership change for Signal and, accordingly, Signal’s net operating loss carryforwards and certain other tax attributes will be subject to limitation and possibly elimination after the Merger. Miragen has performed an analysis on whether it has experienced any ownership changes in the past. However, it is possible that Miragen’s net operating loss carryforwards and certain other tax attributes may also be subject to limitation as a result of prior shifts in equity ownership and/or the Merger. Additional ownership changes in the future could result in additional limitations on Signal’s, Miragen’s and the combined company’s net operating loss carryforwards and certain other tax attributes. Consequently, even if the combined company achieves profitability, it may not be able to utilize a material portion of Signal’s, Miragen’s or the combined company’s net operating loss carryforwards and certain other tax attributes, which could have a material adverse effect on cash flow and results of operations.

If the combined company fails to maintain proper and effective internal controls, its ability to produce accurate financial statements on a timely basis could be impaired.

The combined company will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of The NASDAQ Stock Market LLC. The Sarbanes-Oxley Act requires, among other things, that the combined company maintain effective disclosure controls and procedures and internal control over financial reporting. The combined company must perform system and process evaluation and testing of its internal control over financial reporting to allow management to report on the effectiveness of its internal controls over financial reporting in its Annual Report on Form 10-K filing for that year, as required by Section 404 of the Sarbanes-Oxley Act. As a private company, Miragen, has never been required to test its internal controls within a specified period. This will require that the combined company incur substantial professional fees and internal costs to expand its accounting and finance functions and that it expend significant management efforts. The combined company may experience difficulty in meeting these reporting requirements in a timely manner.

The combined company may discover weaknesses in its system of internal financial and accounting controls and procedures that could result in a material misstatement of its financial statements. The combined company’s internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control

 

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system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

If the combined company is not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, or if it is unable to maintain proper and effective internal controls, the combined company may not be able to produce timely and accurate financial statements. If that were to happen, the market price of its common stock could decline and it could be subject to sanctions or investigations by The Nasdaq Stock Market LLC, the SEC, or other regulatory authorities.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus/information statement and the documents incorporated by reference into this proxy statement/prospectus/information statement contain forward-looking statements relating to Signal, Miragen and the Merger. These forward-looking statements are based on current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements should not be relied upon as predictions of future events as Miragen and Signal cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify forward-looking statements by the use of forward-looking terminology including “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “pro forma,” “estimates,” or “anticipates” or the negative of these words and phrases or other variations of these words and phrases or comparable terminology. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. For example, forward-looking statements include any statements regarding the strategies, prospects, plans, expectations or objectives of management of Signal or Miragen for future operations of the combined company, the progress, scope or duration of the development of product candidates or programs, the benefits that may be derived from product candidates or the commercial or market opportunity in any target indication, the ability of Signal or Miragen to protect their intellectual property rights, the anticipated operations, financial position, revenues, costs or expenses of Signal, Miragen or the combined company, statements regarding future economic conditions or performance, statements of belief and any statement of assumptions underlying any of the foregoing. Forward looking statements may also include any statements regarding the approval and closing of the Merger, including the timing of the Merger, Signal’s ability to solicit a sufficient number of proxies to approve the Merger, other conditions to the completion of the Merger and the Exchange Ratio as of the closing of the Merger, the expected benefits of the Merger, the ability of Miragen and Signal to complete the Merger, Miragen’s ability to complete the concurrent financing of its common stock in connection with the Merger, Signal’s ability to complete the sale of its MyPRS intellectual property assets and any statement of assumptions underlying any of the foregoing.

For a discussion of the factors that may cause Signal, Miragen or the combined company’s actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied in such forward-looking statements, or for a discussion of risk associated with the ability of Signal and Miragen to complete the Merger and the effect of the Merger on the business of Signal, Miragen and the combined company, see “ Risk Factors” beginning on page 19. Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in reports filed with the SEC by Signal. See “Where You Can Find More Information” beginning on page 301. There can be no assurance that the Merger will be completed, or if it is completed, that it will close within the anticipated time period or that the expected benefits of the Merger will be realized.

If any of these risks or uncertainties materialize or any of these assumptions prove incorrect, the results of Signal, Miragen or the combined company could differ materially from the forward-looking statements. All forward-looking statements in this proxy statement/prospectus/information statement are current only as of the date on which the statements were made. Signal and Miragen do not undertake any obligation (and expressly disclaim any such obligation to) to publicly update any forward-looking statement to reflect events or circumstances after the date on which any statement is made or to reflect the occurrence of unanticipated events.

 

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THE SPECIAL MEETING OF SIGNAL STOCKHOLDERS

Date, Time and Place

The Signal special meeting will be held on         ,             , at 12255 El Camino Real, Suite 300, San Diego, California, 92130, commencing at          local time. Signal is sending this proxy statement/prospectus/information statement to its stockholders in connection with the solicitation of proxies by Signal’s board of directors for use at the Signal special meeting and any adjournments or postponements of the Signal special meeting. This proxy statement/prospectus/information statement is first being furnished to stockholders of Signal on or about         ,         .

Purposes of the Signal Special Meeting

The purposes of the Signal special meeting are:

 

1.

To approve the issuance of shares of Signal common stock to Miragen stockholders pursuant to the terms of the Merger Agreement, a copy of which is attached as Annex A;

 

2.

To approve the change in control of Signal resulting from the Merger contemplated by the Merger Agreement;

 

3.

To approve the conversion of the Note into shares of Signal common stock;

 

4.

To approve the Signal 2016 Equity Incentive Plan, a copy of which is attached as Annex B;

 

5.

To approve the Signal 2016 Employee Stock Purchase Plan, a copy of which is attached as Annex C;

 

6.

To approve an amendment to the certificate of incorporation of Signal changing the Signal corporate name to “Miragen Therapeutics, Inc.” in the form attached as Annex D;

 

7.

To approve an amendment to the certificate of incorporation of Signal effecting a reverse stock split of Signal’s issued and outstanding common stock within a range of every one to 15 shares (or any number in between) of outstanding Signal common stock being combined and reclassified into one share of Signal common stock in the form attached as Annex E, which is referred to as the reverse stock split;

 

8.

To approve an amendment to the certificate of incorporation of Signal increasing the number of authorized shares of Signal common stock from 50,000,000 shares to 100,000,000 shares in the form attached as Annex F;

 

9.

To approve the sale of all of Signal’s intellectual property assets related to its MyPRS test, pursuant to an intellectual property purchase agreement, a copy of which is attached as Annex G;

 

10.

To approve an amendment to the certificate of incorporation of Signal to eliminate the ability of Signal stockholders to act by written consent in the form attached as Annex H;

 

11.

To consider and vote upon an adjournment of the Signal special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the proposals set forth above; and

 

12.

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

Each of Signal Proposal Nos. 1, 2, 3, 4, 5, 6, 7, 8 and 9 are conditioned upon each other and the approval of each such proposal is a condition to the completion of the Merger. Therefore, the Merger cannot be consummated without the approval of Signal Proposal Nos. 1, 2, 3, 4, 5, 6, 7, 8 and 9.

Recommendation of Signal’s Board of Directors

 

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Signal’s board of directors has determined and believes that the issuance of shares of Signal common stock pursuant to the Merger Agreement and the resulting change of control is fair to, in the best

 

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interests of, and advisable to, Signal and its stockholders and has approved such items. Signal’s board of directors recommends that Signal stockholders vote “FOR” Signal Proposal Nos. 1 and 2 to approve the issuance of shares of Signal common stock pursuant to the Merger Agreement and the change of control of Signal resulting from the Merger.

 

•

Signal’s board of directors has determined and believes that the conversion of the Note into shares of Signal common stock is fair to, in the best interests of, and advisable to, Signal and its stockholders and has approved such item. Signal’s board of directors recommends that Signal stockholders vote “FOR” Signal Proposal No. 3 to approve the conversion of the Note.

 

•

Signal’s board of directors has determined and believes that the approval of the Signal 2016 Equity Incentive Plan and the Signal 2016 Employee Stock Purchase Plan and the reservation of shares of common stock for issuance thereunder is fair to, in the best interests of, and advisable to, Signal and its stockholders and has approved and adopted the plans. Signal’s board of directors recommends that Signal stockholders vote “FOR” Proposal Nos. 4 and 5 and the reservation of shares of common stock for issuance thereunder.

 

•

Signal’s board of directors has determined and believes that the amendment to the certificate of incorporation of Signal to change the name of Signal to “Miragen Therapeutics, Inc.” is advisable to, and in the best interests of, Signal and its stockholders and has approved such name change. Signal’s board of directors recommends that Signal stockholders vote “FOR” Signal Proposal No. 6 to approve the name change.

 

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Signal’s board of directors has determined and believes that it is advisable to, and in the best interests of, Signal and its stockholders to approve the amendment to the certificate of incorporation of Signal effecting the reverse stock split, as described in this proxy statement/prospectus/information statement. Signal’s board of directors recommends that Signal stockholders vote “FOR” Signal Proposal No. 7 to approve the reverse stock split.

 

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Signal’s board of directors has determined and believes that it is advisable to, and in the best interests of, Signal and its stockholders to approve an amendment to the certificate of incorporation of Signal to increase the number of authorized shares of Signal common stock from 50,000,000 shares to 100,000,000 shares. Signal’s board of directors recommends that Signal stockholders vote “FOR” Signal Proposal No. 8 to approve the increase in the authorized number of shares of Signal common stock.

 

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Signal’s board of directors has determined and believes that the sale of all of Signal’s intellectual property assets related to its MyPRS test in the best interests of, and advisable to, Signal and its stockholders and has approved such item. Signal’s board of directors recommends that Signal stockholders vote “FOR” Signal Proposal No. 9 to approve the sale of all of Signal’s intellectual property assets related to its MyPRS test to Quest Diagnostics Investments LLC.

 

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Signal’s board of directors has determined and believes that it is advisable to, and in the best interests of, Signal and its stockholders to approve an amendment to the certificate of incorporation of Signal to eliminate the ability of Signal stockholders to act by written consent. Signal’s board of directors recommends that Signal stockholders vote “FOR” Signal Proposal No. 10 to approve the amendment to eliminate the ability of Signal stockholders to act by written consent.

 

•

Signal’s board of directors has determined and believes that adjourning the Signal special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Signal Proposal Nos. 1, 2, 3, 4, 5, 6, 7, 8, 9 and 10 is fair to, in the best interests of, and advisable to, Signal and its stockholders and has approved and adopted the proposal. Signal’s board of directors recommends that Signal stockholders vote “FOR” Signal Proposal No. 11 to adjourn the Signal special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Signal Proposal Nos. 1, 2, 3, 4, 5, 6, 7, 8, 9 and 10.

 

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Record Date and Voting Power

Only holders of record of Signal common stock at the close of business on the record date,         ,         , are entitled to notice of, and to vote at, the Signal special meeting. At the close of business on the record date, there were          holders of record of Signal common stock and there were          shares of Signal common stock issued and outstanding. Each share of Signal common stock entitles the holder thereof to one vote on each matter submitted for stockholder approval. See the section titled “Principal Stockholders of Signal” beginning on page 295 of this proxy statement/prospectus/information statement for information regarding persons known to the management of Signal to be the beneficial owners of more than 5% of the outstanding shares of Signal common stock.

Voting and Revocation of Proxies

The proxy accompanying this proxy statement/prospectus/information statement is solicited on behalf of Signal’s board of directors for use at the Signal special meeting.

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

 

•

to vote in person, attend the Signal special meeting and Signal will give you a ballot when you arrive at the meeting;

 

•

to vote using the proxy card, simply mark, sign and date your proxy card and return it promptly, but in any event, before the Signal special meeting to ensure your shares are voted; or

 

•

to vote by telephone or on the Internet, dial the number on the proxy card or go to the website on the proxy card or voting instruction form to complete an electronic proxy card. You will be asked to provide the company number and control number from the enclosed proxy card. Your vote must be received by         ,         , Pacific Time to be counted.

If your Signal shares are held by your broker as your nominee, that is, in “street name,” you should receive voting instructions from the bank, broker or other nominee that holds your shares. If you do not give instructions to your broker, your broker can vote your Signal shares with respect to “discretionary” items but not with respect to “non-discretionary” items. Discretionary items are proposals considered routine under the rules of The NASDAQ Capital Market on which your broker may vote shares held in “street name” in the absence of your voting instructions. On non-discretionary items for which you do not give your broker instructions, the Signal shares will be treated as broker non-votes. It is anticipated that Signal Proposal Nos. 1, 2, 3, 4, 5, 6, 7, 8, 9 and 10 will be non-discretionary items. If your shares of Signal common stock are held in “street name,” you may vote in one the following ways:

 

•

to vote by mail, you should follow the instructions included on the proxy card regarding how to instruct your broker to vote your Signal shares;

 

•

to vote in person at the Signal special meeting, you will need to contact the bank, broker or other nominee that is the stockholder of record for your shares to obtain a broker’s proxy card and then bring the proxy card, an account statement or a letter from the stockholder of record indicating that you beneficially owned the shares as of the record date and a form of government issued picture identification to the Signal special meeting. If you bring all of these materials to the Signal special meeting, you may vote by completing a paper proxy card or a ballot, which will be available at the Signal special meeting. If you do not bring all of these materials, you will not be able to vote at the Signal special meeting; or

 

•

to vote by telephone or over the Internet if you are permitted and wish to do so, you should receive instructions from your bank, broker or other nominee and follow those instructions.

 

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All properly executed proxies that are not revoked will be voted at the Signal special meeting and at any adjournments or postponements of the Signal special meeting in accordance with the instructions contained in the proxy. If a holder of Signal common stock executes and returns a proxy and does not specify otherwise, the shares represented by that proxy will be voted “FOR” Signal Proposal No. 1 to approve the issuance of shares of Signal common stock in the Merger, “FOR” Signal Proposal No. 2 to approve the change of control resulting from the Merger, “FOR” Signal Proposal No. 3 to approve the conversion of the Note into shares of Signal common stock, “FOR” Signal Proposal No. 4 to approve the Signal 2016 Equity Incentive Plan, “FOR” Signal Proposal No. 5 to approve the Signal 2016 Employee Stock Purchase Plan, “FOR” Signal Proposal No. 6 to approve an amendment to the certificate of incorporation of Signal changing the Signal corporate name to “Miragen Therapeutics, Inc.,” “FOR” Signal Proposal No. 7 to approve an amendment to the certificate of incorporation of Signal effecting the reverse stock split, “FOR” Signal Proposal No. 8 to approve the amendment to the certificate of incorporation of Signal to increase the number of authorized shares of Signal common stock, “FOR” Signal Proposal No. 9 to approve the sale of all of Signal’s intellectual property assets related to its MyPRS Test to Quest Diagnostics Investments LLC, “FOR” Signal Proposal No. 10 to approve an amendment to the certificate of incorporation of Signal to eliminate the ability of Signal stockholders to act by written consent and “FOR” Signal Proposal No. 11 to adjourn the Signal special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Signal Proposal Nos. 1, 2, 3, 4, 5, 6, 7, 8, 9 and 10 in accordance with the recommendation of Signal’s board of directors.

If you are a stockholder of record of Signal and you have not executed a support agreement, you may change your vote at any time before your proxy is voted at the Signal special meeting in any one of the following ways:

 

•

you can send a written notice to the Secretary of Signal before the Signal special meeting stating that you would like to revoke your proxy;

 

•

if you have signed and returned a paper proxy card, you may sign a new proxy card bearing a later date and submit it as instructed above;

 

•

if you have voted by telephone or Internet, you may cast a new vote by telephone or over the Internet as instructed above; or

 

•

you can attend the Signal special meeting and vote in person, but attendance alone will not revoke a proxy. You must specifically request at the meeting that it be revoked.

Required Vote

The presence, in person or represented by proxy, at the Signal special meeting of the holders of a majority of the shares of Signal common stock outstanding and entitled to vote at the Signal special meeting is necessary to constitute a quorum at the meeting. Abstentions and broker non-votes will be counted towards a quorum. The affirmative vote of the holders of a majority of the shares of Signal common stock having voting power present in person or represented by proxy at the Signal special meeting, assuming a quorum is present, is required for approval of Signal Proposal Nos. 1, 2, 3, 4, 5 and 11. The affirmative vote of the holders of a majority of shares of Signal common stock entitled to vote outstanding on the record date for the Signal special meeting is required for approval of Signal Proposal Nos. 6, 7, 8, 9 and 10. Each of Signal Proposal Nos. 1, 2, 3, 4, 5, 6, 7, 8 and 9 are conditioned upon each other and the approval of each such proposal is a condition to the completion of the Merger. Therefore, the Merger cannot be consummated without the approval of Proposal Nos. 1, 2, 3, 4, 5, 6, 7, 8 and 9.

Votes will be counted by the inspector of election appointed for the meeting, who will separately count “FOR” and “AGAINST” votes, abstentions and broker non-votes. Abstentions will be counted towards the vote total for each proposal and will have the same effect as “AGAINST” votes for Signal Proposal Nos. 6, 7, 8, 9 and 10, but will have no effect on Signal Proposal Nos. 1, 2, 3, 4, 5 and 11. Similarly, broker non-votes will have the same effect as “AGAINST” votes for Signal Proposal Nos. 6, 7, 8, 9 and 10, but will have no effect on Signal Proposal Nos. 1, 2, 3, 4, 5 and 11.

 

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As of November 30, 2016, the directors and executive officers of Signal owned or controlled 27% of the outstanding shares of Signal common stock entitled to vote at the Signal special meeting. The directors and executive officers of Signal owning these shares are subject to support agreements. Each stockholder that entered into a support agreement has agreed to vote all shares of Signal common stock owned by him as of the record date in favor of Signal Proposal Nos. 1, 2, 3, 4, 5, 6, 7, 8, 9 and 10 and against any “acquisition proposal,” as defined in the Merger Agreement.

Solicitation of Proxies

In addition to solicitation by mail, the directors, officers, employees and agents of Signal may solicit proxies from Signal stockholders by personal interview, telephone, telegram or otherwise. Signal and Miragen will share equally the costs of printing and filing this proxy statement/prospectus/information statement and proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of Signal common stock for the forwarding of solicitation materials to the beneficial owners of Signal common stock. Signal will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials. Signal has retained Advantage Proxy to assist it in soliciting proxies using the means referred to above. Signal will pay the fees of Advantage Proxy, which Signal expects to be approximately $7,500, plus reimbursement of out-of-pocket expenses.

Other Matters

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

 

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THE MERGER

This section and the section titled “The Merger Agreement” in this proxy statement/prospectus/information statement describe the material aspects of the Merger, including the Merger Agreement. While Signal and Miragen believe that this description covers the material terms of the Merger and the Merger Agreement, it may not contain all of the information that is important to you. You should read carefully this entire proxy statement/prospectus/information statement for a more complete understanding of the Merger and the Merger Agreement, including the Merger Agreement, and the other documents to which you are referred herein. See the section titled “Where You Can Find More Information” in this proxy statement/prospectus/information statement beginning on page 301.

Background of the Merger

Historical Background of Signal

Signal is currently marketing and selling its MyPRS test to physicians treating patients suffering from multiple myeloma in academic institutions in all 50 states. Signal has been operating at a net loss since inception, based upon a business plan that anticipated raising additional funds through debt or equity financing to operate beyond the second quarter of 2017. Due to current market conditions, Signal’s current liquidity position and its depressed stock price, Signal came to believe it would be difficult to obtain additional equity or debt financing on acceptable terms, if at all. As a result, Signal’s board of directors began discussing and evaluating its strategic opportunities to maximize stockholder value beginning near the end of 2015. Signal’s management provided Signal’s board of directors with management’s preliminary assessment of a variety of strategic alternatives that Signal could pursue to maximize stockholder value, including engaging in a sale of the company or a merger transaction.

On March 24, 2016, Signal’s board of directors decided to move forward to hire an investment bank to serve as financial advisor to the company in exploring and assessing strategic opportunities. Two investment banks were selected for interview based on the qualifications, expertise and reputation of each investment bank and Signal management’s and the board’s familiarity with their handling of strategic transactions of similar nature (including industry and valuation).

On April 5, 2016, Signal’s board of directors and members of Signal’s management reviewed proposals from the two investment banks by teleconferences with representatives from each investment bank and ultimately selected Cantor as its financial advisor to advise Signal.

On April 28, 2016, Signal executed an engagement letter with Cantor for Cantor to act as Signal’s exclusive financial advisor in connection with, among other things, the possible sale or merger of Signal with a potential acquiror, as well as its exclusive financial advisor and placement agent in connection with a potential capital raise for equity or debt capital.

Beginning in April 2016 and continuing through October 2016, Signal conducted a process of identifying and evaluating potential parties to strategic combinations. In its review of potential public-company combination partners, Signal focused on diagnostic companies possessing the financial resources to integrate MyPRS into their commercial organizations and expand its use among physicians treating patients suffering with multiple myeloma throughout the United States. In its review of potential private company combination partners, Signal focused on biotechnology and diagnostic companies possessing (i) a portfolio of commercialized products or a portfolio of product development candidates with the potential for significant value appreciation, (ii) resources sufficient to achieve potentially meaningful development milestones within such portfolio, including resources to be obtained through financing activities consummated prior to the effectiveness of a combination with Signal, (iii) an ability to enter into an agreement in the near-term for a combination with a public company (i.e., Signal) and thereafter proceed in an orderly manner toward implementing the combination (necessitating, for example,

 

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the availability of the requisite financial statements to accompany a registration statement on Form S-4) and (iv) a management team with the breadth and skills to accomplish the foregoing. At the direction of Signal, Cantor contacted over 30 potential parties to gauge their interest in a potential transaction with Signal. On behalf of Signal, Cantor received 12 fully-executed non-disclosure agreements during May and June 2016. In evaluating the indications of interest received in response to this outreach, including in certain cases through discussions and diligence activities with potential counterparties (see in this regard the discussion below with respect to Signal’s engagement with Parties 1, 2, 3, 5, 6, 7, 8 and 9), Signal ultimately concluded in each instance that (x) one or more desired elements were missing from a potential combination except with respect to Miragen (for example, that the counterparty did not have sufficient resources to achieve potentially meaningful development milestones within its portfolio of product development candidates, or the counterparty’s requirement for Signal to have an unreasonably large cash balance at closing, or the counterparty’s uncertain ability to enter into an agreement in the near-term for a combination with a public company), (y) the terms expected to be available to Signal and its stockholders in a potential combination with parties other than Miragen, including as represented by the potential share of the combined company that might be owned by the pre-combination Signal stockholders immediately following a combination and any concurrent financing, would likely not be fair or appropriate to the pre-combination Signal stockholders, and/or (z) Signal should pursue a combination with Miragen and a sale of the assets relating to the MyPRS business to the exclusion of other possibilities. In the course of its process, Miragen is the only party with which Signal ultimately reached a mutual understanding on deal terms, including the potential share of the combined company that would be owned by the pre-combination Signal stockholders immediately following a combination and any concurrent financing, and moved forward with negotiating a definitive merger agreement. A more detailed chronological description of the Merger process follows below under “The Merger—Background of the Merger—History of Signal Strategic Alternatives and Significant Corporate Events.”

Historical Background of Miragen

Miragen is a clinical stage biopharmaceutical company developing proprietary RNA-targeted therapeutics with a specific focus on microRNAs and their role in diseases where there is a high unmet medical need. microRNAs are short RNA molecules, or oligonucleotides that regulate gene expression and play a vital role in influencing the pathways responsible for many disease processes. Miragen believes its experience in bioinformatics, microRNA biology, drug discovery, and translational medicine provide it with a potential competitive advantage to identify and develop microRNA-targeted drugs designed to regulate gene pathways to result in disease modification. Miragen uses its expertise in systems biology and oligonucleotide chemistry to develop a pipeline of product candidates.

Miragen’s board of directors and executive management regularly review Miragen’s operating and strategic plans, both near term and long- term, as well as potential partnerships in an effort to enhance stockholder value, including debt and/or equity financing, mergers and acquisitions, and other strategic transactions, and engaged in discussions with numerous potential strategic partners, lenders and investors, including then current investors in Miragen and potential new investors.

In 2015, the Miragen management team and board began considering an initial public offering of its common stock as well as various other fundraising strategies to fund future research and development activities. During this time, Miragen was approached by a number of investment banks suggesting a reverse merger as an attractive alternative to an initial public offering and the Miragen management team began to consider various reverse merger opportunities as they presented themselves in parallel with exploring an initial public offering.

In May 2016, Miragen management was contacted by a representative of Cantor acting at the direction of and on behalf of Signal regarding Miragen’s potential interest in a potential transaction involving Signal, which led to discussions among Miragen’s management and several members of Miragen’s board of directors and an eventual indication of interest from Miragen.

 

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History of Signal Strategic Alternatives and Significant Corporate Events

During May and June, 2016, a confidential information memorandum was circulated, at the direction of Signal, by Cantor to the 12 parties that executed non-disclosure agreements with Signal and expressed interest in pursuing a potential strategic combination with Signal. Following receipt of the confidential information memorandum, one party communicated to Signal that it was not interested in a potential transaction with Signal.

Between May 20, 2016 and June 9, 2016, Signal’s management held initial calls with four interested parties, at their request, regarding a potential business combination.

Between June 3, 2016 and June 17, 2016, at the direction of Signal, Cantor distributed process letters to 11 parties asking for bids by June 17, 2016.

Between June 16, 2016 and June 21, 2016, Signal received initial indications of interest from six parties, including Miragen.

On June 21, 2016, Signal’s board of directors held a teleconference to review the initial indications of interest and selected four companies to move into the due diligence phase: Party 1, Party 2, Party 3 and Miragen.

On June 24, 2016, at the direction of Signal, Cantor sent second round process letters to the four companies, which indicated that final bids were due by July 29, 2016.

On June 27, 2016, Signal granted access to its virtual data room to personnel representing the four companies for the purposes of reviewing due diligence materials. Party 3 did not respond after obtaining access.

On July 12, 2016, a vice president and two board members representing Party 1 met with Signal’s management team (i.e., Samuel D. Riccitelli, president and chief executive officer, Tamara A. Seymour, chief financial officer, and Sudipto Sur, Ph.D., chief information officer) in an extensive diligence meeting. Signal’s management team presented information to answer questions submitted by Party 1 prior to the meeting.

On July 15, 2016, Mr. Riccitelli and Ms. Seymour and a representative from Cantor met with Miragen’s management team (i.e., William S. Marshall, Ph.D., president and chief executive officer, Jason A. Leverone, chief financial officer, Adam S. Levy, chief business officer, and Christopher J. Morl, former chief operating officer), at Miragen’s Boulder, Colorado office for an in-depth review of Miragen’s clinical development programs.

On July 19, 2016, Party 1 notified Signal that it would not submit a final indication of interest citing lack of a strategic fit between MyPRS and Party 1’s tests currently in development.

On July 21, 2016, Signal’s management provided an update via teleconference to Signal’s board of directors, indicating that there were two parties interested in a potential merger transaction, Party 2 and Miragen. Signal management noted that if Signal were to move forward in a merger transaction with Miragen, Miragen had indicated it would require the MyPRS business to be divested or wound down prior to the closing of a merger. Also on July 21, 2016, Signal’s chairman contacted Party 5 regarding a potential interest in acquiring MyPRS and determined that Party 5 may be interested. Party 5 indicated that it would be in touch to pursue further conversations.

On July 22, 2016, Signal received a revised indication of interest from Miragen offering Signal stockholders 6% of the fully-diluted stock of the combined company, measured prior to any financing contemplated to take place concurrent with the Merger, with Miragen’s stockholders being issued the remaining 94%.

On July 25, 2016, Mr. Riccitelli held an initial conversation by phone with Party 5’s chief operating officer regarding the acquisition of the MyPRS business, and Party 5 agreed to execute a non-disclosure agreement.

 

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On July 26, 2016, Mr. Riccitelli and Ms. Seymour met with Party 2’s chief executive officer, chief commercial officer, director of finance and financial advisors for an extensive diligence meeting. Each company presented the details of its business.

On July 27, 2016, Party 2 submitted a revised indication of interest, which included the requirement for Signal to have a large cash balance at the closing of a proposed business combination transaction, and offering Signal stockholders 5% of the fully-diluted stock of the combined company, with Party 2’s stockholders being issued the remaining 95%.

On July 29, 2016, Signal’s board of directors met to review the two revised indications of interest from Party 2 and Miragen. Signal’s board of directors determined that Party 2’s requirement for Signal to have a large cash balance at closing, combined with Party 2’s low cash position and significant outstanding debt, among other things, disqualified Party 2 as a viable combination partner for Signal at that time. In contrast, Signal’s board of directors noted that Miragen had a strong balance sheet, experienced management team, strong investor base and viable clinical development program. Therefore, Signal’s board of directors decided to move forward with discussions with Miragen. Mr. Riccitelli and Ms. Seymour and a representative from Cantor were instructed by Signal’s board of directors to reach out to potential acquirers for the lab business or the intellectual property relating to MyPRS, in addition to Party 5, as Miragen had indicated the divestiture of the MyPRS business would be a condition to Miragen closing a merger transaction. Signal’s board of directors also discussed the potential business combination process with its legal counsel, Pillsbury Winthrop Shaw Pittman LLP, or Pillsbury.

During the period of July 31, 2016 through October 6, 2016, Mr. Riccitelli and Ms. Seymour met with, either in person or by phone, Parties 5, 6, 7, 8 and 9 multiple times for diligence discussions regarding potential acquisitions of the MyPRS business. All parties were given access to Signal’s virtual data room for the purpose of reviewing due diligence materials. During such time, Parties 6, 7, 8 and 9 notified Signal management, directly or by communication to Cantor, that they would not be submitting a proposal to acquire the MyPRS business or any other transaction. The primary reason cited by these parties for not submitting proposals was the additional cash burn required in the near term to continue to offer the MyPRS test commercially.

On July 29, 2016, at the request of Mr. Riccitelli, Richard A. Bender, M.D., Signal’s chief medical officer, contacted Charles Strom, M.D. Ph.D., vice president of research and development for Quest Diagnostics, Incorporated, or Quest, via email, to inquire as to whether Quest might be interested in licensing Signal’s MyPRS business. As a result of this communication, on August 5, 2016, Mr. Riccitelli and Dr. Bender met with management and medical team personnel from Quest at Quest’s Orange County, California facility for an in-depth review of MyPRS.

On August 5, 2016, Signal received a proposed draft term sheet from Miragen with respect to a proposed business combination between the parties. The draft term sheet provided that the pre-combination Miragen securityholders would collectively receive 94% of fully-diluted stock of the combined company, measured prior to any financing contemplated to occur concurrent with the Merger, and Signal securityholders would hold 6% of the fully-diluted stock of the combined company, with Miragen having the option to conduct a financing that would close concurrent with the Merger and be dilutive to both Signal and Miragen stockholders.

On August 11, 2016, Signal’s board of directors reviewed a draft term sheet between Miragen and Signal which outlined a potential business combination between the companies and included reference to a concurrent financing that Miragen intended to complete immediately prior to close of a merger transaction, with such concurrent financing to be dilutive to all securityholders. Signal’s board of directors instructed Mr. Riccitelli and Ms. Seymour to continue to negotiate with Miragen regarding a potential business combination between the parties.

On August 15, 2016, Signal and Miragen entered into an amended and restated nondisclosure agreement to include a 30-day exclusivity clause and expand the persons and entities affiliated with Miragen allowed to review Signal’s confidential information.

 

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On August 18, 2016, Quest indicated an interest in moving forward with exploring the potential acquisition of MyPRS to Mr. Riccitelli and requested access to Signal’s virtual data room to review due diligence materials.

On August 23, 2016, Miragen’s legal counsel, Cooley LLP, or Cooley, sent a draft Merger Agreement to Pillsbury for review on behalf of Signal. The draft Merger Agreement provided that the pre-combination Miragen securityholders would collectively receive 94% of fully-diluted stock of the combined company, measured prior to any financing contemplated to occur concurrent with the Merger, and Signal securityholders would hold 6% of the fully-diluted stock of the combined company. The draft Merger Agreement also provided that Miragen would conduct a financing concurrent with the proposed combination which would be dilutive to all securityholders, and that the two-way termination fee payable by the parties in certain circumstances would be $300,000 plus up to $100,000 in expense reimbursements.

On August 30, 2016, Pillsbury and Cooley held a telephone conference to discuss material issues in the draft Merger Agreement.

On September 6, 2016, Signal’s and Miragen’s management teams held an all-hands teleconference, in which their respective attorneys and representatives of Cantor also participated, to discuss status of the draft Merger Agreement and Miragen’s concurrent financing. Miragen indicated it believed it would be able to finalize commitments for its concurrent financing in the near term.

On September 7, 2016, Cooley sent a revised draft Merger Agreement to Pillsbury.

On September 12, 2016, Pillsbury and Cooley held a telephone conference to discuss material issues in the draft Merger Agreement.

On September 14, 2016, Mr. Riccitelli was informed that Quest’s business development committee had approved moving forward with the MyPRS acquisition.

On September 16, 2016, Pillsbury sent a revised draft Merger Agreement to Cooley.

On September 20, 2016, Pillsbury and Cooley held a telephone conference to discuss material issues in the draft Merger Agreement.

On September 26, 2016, Cooley sent a revised draft Merger Agreement to Pillsbury. The draft Merger Agreement provided that the pre-combination Miragen securityholders would collectively receive 94% of fully-diluted capital stock of the combined company, measured prior to any financing concurrent with the Merger, and Signal securityholders would hold 6% of the fully-diluted capital stock of the combined company.

On September 30, 2016, Quest submitted an initial non-binding letter of intent, or LOI, to purchase the lab business from Signal, and then submitted a revised LOI on October 10, 2016 to purchase the intellectual property assets related to MyPRS.

On October 3, 2016, Signal’s and Miragen’s management teams held an all-hands teleconference, in which their respective attorneys and representatives of Cantor also participated, to discuss status of the draft Merger Agreement and Miragen’s concurrent financing. Miragen indicated that it believed the financing would be finalized in the coming weeks.

On October 7, 2016, Party 5 submitted a letter of intent to purchase the lab business. The proposal contained in such letter of intent was not considered a viable offer by Signal’s management team and chairman of the board as it included, among other matters, post-closing obligations by Signal personnel to continue employment or consulting for Party 5 that could not be fulfilled by Signal.

 

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On October 10, 2016, Signal returned a revised LOI to Quest, including revisions that would allow Signal to complete on a concurrent basis both the Merger and the sale to Quest of the MyPRS intellectual property.

On October 10, 2016, Signal’s and Miragen’s management teams held an all-hands teleconference, in which their respective attorneys and representatives of Cantor also participated, to discuss status of the draft Merger Agreement and Miragen’s concurrent financing.

On October 11, 2016, Signal’s board of directors reviewed the proposed non-binding Quest LOI to sell the intellectual property assets related to MyPRS and instructed management to negotiate an asset purchase agreement with Quest, subject to the board’s further review of such agreement. In addition, Signal’s board of directors reviewed Signal’s liquidity and cash requirements necessary to meet its obligations, including costs to wind down operations and terminate its employees prior to the closing of the Merger, with and without the sale to Quest of the MyPRS intellectual property.

On October 11, 2016, Mr. Riccitelli and Ms. Seymour, a representative of Pillsbury, and Quest’s legal and business development representatives held a teleconference to discuss suggested revisions to the letter of intent. Quest’s representatives agreed to seek internal approval on a LOI and return it to Signal as soon as possible.

On October 14, 2016, Signal’s and Miragen’s management teams held an all-hands teleconference, in which their respective attorneys and representatives of Cantor also participated, to discuss status of the draft Merger Agreement and Miragen’s concurrent financing.

On October 18, 2016, Signal’s and Miragen’s management teams held an all-hands teleconference, in which their respective attorneys and representatives of Cantor also participated, to discuss status of the draft Merger Agreement and Miragen’s concurrent financing.

On October 18, 2016, Signal received the revised draft Quest LOI in substantially the same form as presented by Signal to Quest per the draft of October 10, 2016.

On October 19, 2016, Mr. Riccitelli and Mr. Marshall, the chief executive officers of Signal and Miragen, respectively, discussed Miragen’s concurrent financing via telephone. Mr. Marshall expressed confidence in a near-term commitment for the proposed concurrent financing.

On October 19, 2016, Signal’s board of directors reaffirmed its instruction to management to negotiate an asset purchase agreement with Quest based on the Quest LOI dated October 18, 2016, subject to the board’s further review of such agreement.

On October 24, 2016, Signal’s and Miragen’s management teams held an all-hands teleconference, in which their respective attorneys and representatives of Cantor also participated, to discuss status of the draft Merger Agreement and Miragen’s concurrent financing. Miragen’s management indicated that a commitment for the financing had been secured and terms were agreed. They also indicated that they expected to receive subscription agreements for approximately $40 million and to have the executed subscription agreements within the coming week.

On October 26, 2016, Signal’s and Miragen’s management teams held an all-hands teleconference, in which their respective attorneys and representatives of Cantor also participated, to discuss status of the draft Merger Agreement and Miragen’s concurrent financing. Miragen confirmed that the financing would total approximately $40 million. The parties agreed that the Merger Agreement would be finalized by October 31, 2016, if possible. Signal and Miragen each agreed that they would schedule board meetings for October 31, 2016 to consider the proposed Merger Agreement. In addition, Signal’s projected net cash position of less than zero at Merger closing was discussed. It was agreed that Signal and Miragen’s chief executive officers would speak separately to resolve the issue.

 

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On October 27, 2016, Messrs. Riccitelli and Marshall discussed the potential for Signal’s net cash position to be less than zero at closing of the Merger due to delays in the transaction. In the course of those discussions, mutually acceptable thresholds and formulas with respect to net cash were developed to be included in the proposed Merger Agreement.

On October 27, 2016, Mr. Riccitelli and Ms. Seymour and Pillsbury held a teleconference with Quest’s general manager of oncology, legal counsel and business development representative to discuss the diligence process. The parties agreed to a target date for executing a definitive purchase agreement for Signal’s intellectual property assets for its MyPRS test, presuming the completion of satisfactory due diligence.

Between October 27, 2016 and November 23, 2016, there were various teleconferences, in-person meetings, facility tours and email communications among Mr. Riccitelli, Ms. Seymour and Dr. Sur and representatives from Quest’s business development, informatics, operations and management teams regarding Quest’s due diligence review of Signal’s MyPRS test.

On October 28, 2016, Signal and Miragen agreed to Signal’s net cash definition and thresholds to be included in the proposed Merger Agreement and the draft was finalized.

On October 29, 2016, Mr. Riccitelli distributed to Signal’s board of directors copies of the proposed Merger Agreement with respect to a proposed business combination transaction between Signal and Miragen, proposed resolutions for adoption by Signal’s board of directors if it elected to authorize Signal’s management to proceed with such transaction, and related transaction documents, for review prior to the board meeting scheduled for October 31, 2016.

On October 29, 2016, Cooley distributed to Miragen’s board of directors copies of the proposed Merger Agreement and Subscription Agreement, proposed resolutions for adoption by Miragen’s board of directors if it elected to authorize Miragen’s management to proceed with such transactions, and related transaction documents for review prior to the board meeting scheduled for October 31, 2016.

On October 31, 2016, Signal’s board of directors held a meeting that representatives of Pillsbury and Cantor attended at the invitation of Signal’s board of directors. During the meeting, members of Signal’s management reviewed the key features of the proposed business combination between Signal and Miragen, including: structure and timing considerations; the Exchange Ratio for the conversion of Miragen capital stock into Signal common stock as well as the relative percentages of ownership of the existing Signal stockholders, on the one hand, and the Miragen stockholders (including investors in Miragen’s planned concurrent financing), on the other hand, following the completion of the Merger; the planned concurrent financing of Miragen; the terms of support agreements from certain Miragen directors, officers, stockholders and affiliates, as well as Signal directors, officers and affiliates, to vote in favor of the proposed business combination; the closing conditions in the Merger Agreement as well as the subscription agreement for Miragen’s planned concurrent financing; and the termination provisions and termination fees set forth in the Merger Agreement. In addition, representatives of Cantor reviewed with Signal’s board of directors Cantor’s analysis of the Exchange Ratio for the conversion of Miragen capital stock into Signal common stock and rendered Cantor’s opinion to Signal’s board of directors (in its capacity as such), subsequently confirmed by delivery of a written opinion on that same day, that, as of October 31, 2016 and based upon and subject to the assumptions made, procedures followed, matters considered, and qualifications and limitations set forth in the opinion, the Exchange Ratio for the conversion of Miragen capital stock into Signal common stock was fair from a financial point of view to Signal. Representatives from Pillsbury reviewed with Signal’s board of directors the fiduciary duties of the board members in the context of the proposed business combination. During the various discussions, Signal’s board of directors asked questions and discussed the terms and features of the proposed business combination, including provisions of the proposed Merger Agreement and related documentation, as well as Signal’s cash forecast and ability to satisfy its obligations prior to the projected closing date in light of the net cash requirement contained in the Merger Agreement. After further discussion among Signal’s board of directors, the board unanimously

 

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(i) determined that the Merger and the other transactions contemplated by the Merger Agreement were fair to and in the best interests of Signal and its stockholders, (ii) approved and adopted the Merger Agreement and the transactions contemplated thereby, subject to finalization of the Merger Agreement and ancillary documents by Signal’s management in consultation with Signal’s legal counsel, with such changes thereto as Signal’s management deems to be in the best interests of Signal and its stockholders, (iii) resolved to recommend that the Signal stockholders vote to approve the Merger, adopt the Merger Agreement and approve and/or adopt the other transactions and arrangements as contemplated by the Merger Agreement, including the issuance of shares of Signal common stock in the Merger, (iv) approved the Note Amendment to make the Note convertible into shares of Signal common stock in connection with the Merger and pursuant to the terms of the Note Amendment that had been distributed for review in advance of the meeting, and (v) approved a reverse split of Signal’s common stock in a ratio of one-for-15 to be effective at 5:01 p.m. Eastern Time on November 4, 2016, which reverse split had been previously approved by Signal stockholders at the annual meeting.

Later that day, members of the Signal’s and Miragen’s management teams met, together with representatives of Pillsbury and Cooley, to finalize the Merger Agreement and related transaction documents. After finalization, Signal and Miragen entered into the Merger Agreement and related transaction documents.

Signal Reasons for the Merger

Signal’s board of directors considered the following factors in reaching its conclusion to approve and adopt the Merger Agreement and the transactions contemplated thereby and the sale of the MyPRS intellectual property assets and to recommend that the Signal stockholders approve the Merger, adopt the Merger Agreement and other transactions contemplated by the Merger Agreement, including the issuance of shares of Signal common stock in the Merger and approve the sale of the MyPRS intellectual property assets, all of which Signal’s board of directors viewed as supporting its decision to approve the business combination with Miragen:

 

•

Signal’s board of directors believes, based in part on the judgment, advice and analysis of Signal management with respect to the potential strategic, financial and operational benefits of the Merger (which judgment, advice and analysis was informed in part on the business, technical, financial, accounting and legal due diligence investigation performed with respect to Miragen), that:

 

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Miragen is a clinical-stage biopharmaceutical company discovering and developing proprietary RNA-targeted therapeutics with a specific focus on microRNAs and their role in diseases where there is a high unmet medical need;

 

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the combined company will be led by an experienced senior management team from Miragen and a board of directors of seven members designated by Miragen; and

 

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Miragen has commitments for $40.7 million to fund Miragen’s development pipeline from an investor syndicate that includes its existing venture investors, Brace Pharma Capital, Atlas Venture, Boulder Ventures, JAFCO Co., Ltd., MP Healthcare Venture Management, MRL Ventures (a venture fund of Merck, known as MSD outside the United States and Canada), Remeditex Ventures, as well as new investors, Fidelity Management and Research Company. Although not a condition to the completion of the Merger, if closed the concurrent financing, in addition to $16.1 million from the second tranche of Miragen’s Series C Preferred Stock funding, which closed prior to execution of the definitive Merger Agreement, is expected to provide sufficient funding to advance Miragen’s clinical development programs. Each of Miragen’s clinical programs has the potential, if successful, to create value for the stockholders of the merged company and present the combined company with additional fund raising opportunities in the future.

 

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Signal’s board of directors also reviewed with the management of Signal the current plans of Miragen for developing its clinical programs to confirm the likelihood that the combined company would

 

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possess sufficient financial resources to allow the management team to focus initially on the continued development of its clinical programs. Signal’s board of directors also considered the possibility that the combined company would be able to take advantage of the potential benefits resulting from the combination of Signal and Miragen to raise additional funds in the future.

 

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Signal’s board of directors considered the opportunity as a result of the Merger for Signal stockholders to participate in the potential value that may result from development of the Miragen clinical development programs and the potential increase in value of the combined company following the Merger.

 

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Signal’s board of directors concluded that the Merger would provide the existing Signal stockholders with an opportunity to participate in the potential increase in value of the combined company following the Merger.

 

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Signal’s board of directors considered the opinion of Cantor delivered to Signal’s board of directors (in its capacity as such) that, as of October 31, 2016 and based upon and subject to the assumptions made, procedures followed, matters considered, and qualifications and limitations set forth in the opinion, the Exchange Ratio for the conversion of Miragen capital stock into Signal common stock pursuant to the Merger Agreement, was fair to Signal from a financial point of view, as more fully described below under the section titled “The Merger—Opinion of Signal’s Financial Advisor.”

 

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Signal’s board of directors also reviewed various factors impacting the financial condition, results of operations and prospects for Signal, including:

 

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

 

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the consequences of current market conditions, Signal’s current liquidity position, its depressed stock price and continuing net operating losses, and the likelihood that the resulting circumstances for the company would not change for the benefit of the Signal stockholders in the foreseeable future on a stand-alone basis;

 

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the risks of continuing to operate Signal on a stand-alone basis, including the need to continue building the company’s tests services menu, infrastructure and management team to support the laboratory services business with insufficient capital resources; and

 

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Signal management’s belief that it would be difficult to obtain additional equity or debt financing on acceptable terms, if at all.

Signal’s board of directors also reviewed the terms and conditions of the proposed Merger Agreement and associated transactions, as well as the safeguards and protective provisions included therein intended to mitigate risks, including:

 

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the Exchange Ratio used to establish the number of shares of Signal common stock to be issued in the Merger, and the expected relative percentage ownership of Signal stockholders and Miragen stockholders immediately following the completion of the Merger;

 

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the planned concurrent financing in Miragen, the limited number and nature of conditions to the obligation of the proposed investors in Miragen to consummate the planned concurrent financing, and the ability of Signal to specifically enforce the obligations of the investors to complete the investment in Miragen if all of such conditions have been satisfied;

 

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the limited number and nature of the conditions to the Miragen obligation to consummate the Merger and the limited risk of non-satisfaction of such conditions as well as the likelihood that the Merger will be consummated on a timely basis;

 

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•

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

 

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the reasonableness of the potential termination fee of $300,000 and/or expense reimbursements of up to $100,000, which could become payable by either Signal or Miragen if the Merger Agreement is terminated in certain circumstances;

 

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the support agreements, pursuant to which certain directors, officers and affiliated stockholders of Miragen agreed, solely in their capacity as stockholders, to vote all of their shares of Miragen capital stock in favor of adoption of the Merger Agreement;

 

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the agreement of Miragen to provide written consent of its stockholders necessary to adopt the Merger Agreement thereby approving the Merger and related transactions within five business days of the registration statement on Form S-4, of which this proxy statement/prospectus/information statement is a part, becoming effective; and

 

•

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

In the course of its deliberations, Signal’s board of directors also considered a variety of risks and other countervailing factors related to entering into the Merger, including:

 

•

the $300,000 termination fee and/or expense reimbursements of up to $100,000 that may be payable by Signal to Miragen upon the occurrence of certain events, and the potential effect of such termination fee or reimbursement of transaction expenses in deterring other potential acquirors from proposing a competing transaction that may be more advantageous to Signal stockholders;

 

•

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

 

•

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

 

•

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

 

•

the risk that if the sale of the MyPRS business is not completed, then Signal would have incurred additional expenses that may not allow it to meet the closing net cash requirement of the Merger Agreement;

 

•

the risk to Signal’s business, operations and financial results in the event that the Merger is not consummated;

 

•

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

 

•

the fact that the Merger would give rise to substantial limitations on the utilization of Signal’s NOLs;

 

•

the ability to amend the Note so that the indebtedness would convert into shares of Signal common stock; and

 

•

various other risks associated with the combined company and the Merger, including those described in the section titled “Risk Factors” in this proxy statement/prospectus/information statement.

The foregoing information and factors considered by Signal’s board of directors are not intended to be exhaustive, but are believed to include all of the material factors considered by Signal’s board of directors. In view of the wide variety of factors considered in connection with its evaluation of the Merger and the complexity

 

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of these matters, Signal’s board of directors did not find it useful to attempt, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, individual members of Signal’s board of directors may have given different weight to different factors. Signal’s board of directors conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, the Signal management team and the legal and financial advisors of Signal, and considered the factors overall to be favorable to, and to support, its determination.

Miragen Reasons for the Merger

In the course of reaching its decision to approve the Merger, Miragen’s board of directors consulted with its senior management, financial advisor and legal counsel, reviewed a significant amount of information and considered a number of factors, including, among others:

 

•

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

 

•

the potential to access of public market capital, including sources of capital from a broader range of investors to support the clinical development of its product candidates than it could otherwise obtain if it continued to operate as a privately-held company;

 

•

the expectation that the Merger would be a more time- and cost-effective means to access capital than other options considered, including an initial public offering which Miragen was alternatively planning to pursue;

 

•

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

 

•

the likelihood that the Merger will be consummated on a timely basis;

 

•

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

 

•

the determination that an exchange ratio that is not subject to adjustment based on trading prices is appropriate to reflect the expected relative percentage ownership of Signal securityholders, Miragen securityholders and securityholders of those shares sold in the concurrent financing was appropriate based, in the judgment of Miragen’s board of directors;

 

•

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

 

•

the rights of Miragen under the Merger Agreement to consider certain unsolicited competing proposals under certain circumstances should Miragen receive a superior proposal; and

 

•

the conclusion of Miragen’s board of directors that the potential termination fee of $300,000 and/or expense reimbursements of up to $100,000, payable by Signal to Miragen and the circumstances when such fee may be payable, were reasonable.

Miragen’s board of directors also considered a number of uncertainties and risks in its deliberations concerning the Merger and the other transactions contemplated by the Merger Agreement, including the following:

 

•

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

 

•

the termination fee of $300,000 and/or expense reimbursements of up to $100,000, payable by Miragen to Signal upon the occurrence of certain events, and the potential effect of such termination fee in deterring other potential acquirers from proposing a competing transaction that may be more advantageous to Miragen’s stockholders;

 

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•

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

 

•

the expenses to be incurred in connection with the Merger and related administrative challenges associated with combining the companies;

 

•

the additional public company expenses and obligations that Miragen’s business will be subject to following the Merger to which it has not previously been subject; and

 

•

various other risks associated with the combined company and the Merger, including the risks described in the section titled “Risk Factors” in this proxy statement/prospectus/information statement.

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

Opinion of Signal Financial Advisor

On April 28, 2016, Signal engaged Cantor to act as Signal’s financial advisor in connection with potential strategic alternatives for Signal. As part of this engagement, Signal’s board of directors requested that Cantor evaluate the fairness, from a financial point of view, to Signal of the Exchange Ratio for the conversion of Miragen common stock into Signal common stock pursuant to the Merger Agreement. On October 31, 2016, at a meeting of Signal’s board of directors, Cantor rendered its oral opinion to Signal’s board of directors (in its capacity as such), which opinion was subsequently confirmed by delivery of a written opinion dated October 31, 2016, that, as of such date and based upon and subject to the assumptions made, procedures followed, matters considered, and qualifications and limitations set forth in the opinion, the Exchange Ratio for the conversion of Miragen common stock into Signal common stock pursuant to the Merger Agreement was fair, from a financial point of view, to Signal.

The full text of the written opinion of Cantor, dated October 31, 2016, which sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations of the review undertaken in connection with such opinion, is attached as Annex I. Holders of Signal common stock are urged to read this opinion carefully and in its entirety. Cantor’s opinion was provided for the sole benefit and use of Signal’s board of directors (in its capacity as such) in connection with its consideration of the Merger and addresses only the fairness to Signal, from a financial point of view, of the Exchange Ratio for the conversion of Miragen common stock into Signal common stock pursuant to the Merger Agreement. It does not address any other aspects of the Merger and does not constitute a recommendation as to how holders of Signal common stock or Miragen common stock should vote or act in connection with the Merger. The Exchange Ratio was determined through negotiations between Signal and Miragen and not pursuant to any recommendation of Cantor. The summary of the opinion below is qualified in its entirety by reference to the full text of the opinion.

In the course of performing its review and analyses for rendering its opinion, Cantor, among other things:

 

•

reviewed a draft of the Merger Agreement, dated October 30, 2016;

 

•

reviewed a draft of the Subscription Agreement, dated October 30, 2016;

 

•

reviewed certain publicly available business and financial information relating to Signal and Miragen;

 

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•

reviewed certain operating and financial information relating to Signal and Miragen’s respective businesses and Signal’s prospects, as provided to Cantor by Signal’s and Miragen’s management, including projections for Signal for the five years ended December 31, 2020, and monthly cash projections for October, November, and December 2016, as prepared and provided to Cantor by Signal’s management;

 

•

held conference calls with certain members of Signal’s senior management and Signal’s board of directors to discuss Signal’s and Miragen’s respective businesses, operations, historical and projected financial results and future prospects;

 

•

held conference calls with certain members of Miragen’s senior management to discuss Miragen’s business and operations;

 

•

reviewed certain publicly available information with respect to other companies in the biopharmaceutical industry that Cantor deemed to be relevant;

 

•

reviewed the financial terms, to the extent publicly available, of selected recent business combinations and initial public offerings involving companies in the biopharmaceutical industry that Cantor deemed to be relevant; and

 

•

conducted such other studies, analyses, inquiries and investigations as Cantor deemed appropriate.

In rendering its opinion, Cantor relied upon and assumed, without independent verification, the accuracy and completeness of the financial and other information provided to or discussed with it by Signal and Miragen or obtained by it from public sources, including, without limitation, the projections referred to above. With respect to the projections, Cantor relied on representations that they have been reasonably prepared on bases reflecting the best currently available estimates and judgments of the senior management of Signal, as to the expected future performance of and liquidation value of Signal. Cantor assumed no responsibility for the independent verification of any such information, including, without limitation, the projections, and expressed no view or opinion as to such projections and the assumptions upon which they were based. Cantor further relied upon the assurances of senior management of Signal that they were unaware of any facts that would make the information and projections incomplete or misleading. Cantor also relied upon, without independent verifications, the assessment of Signal management and Miragen management as to the viability of, and risks associated with, the current and future products and services of Miragen (including without limitation, the development, testing and marketing of such products and services, the receipt of all necessary governmental and other regulatory approvals for the development, testing and marketing thereof, and the life and enforceability of all relevant patents and other intellectual and other property rights associated with such products and services). Cantor assumed that the executed Merger Agreement and Subscription Agreement would not differ in any material respect from the drafts thereof reviewed by Cantor, and that the Merger and Miragen’s concurrent financing would be consummated in accordance with the terms of the Merger Agreement and the Subscription Agreement, respectively, without waiver, modification or amendment and in compliance with all applicable laws, documents and other requirements. Cantor also assumed that in the course of obtaining the necessary regulatory or third-party approvals, consents and releases for the Merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on Signal, Miragen, or the contemplated benefits of the Merger. Cantor also assumed that the representations and warranties of the parties to the Merger Agreement contained therein were true and correct in all respects material to Cantor’s analysis. Cantor also assumed, at the direction of Signal management, that the Miragen allocation percentage would be no greater than 0.94.

In arriving at its opinion, Cantor did not perform or obtain any independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of Signal and Miragen, nor did it conduct a physical inspection of any of the properties or facilities of Signal or Miragen, nor was it furnished with any such evaluations, appraisals or inspections, nor did it assume any responsibility to obtain any such evaluations, appraisals or inspections. During the course of its engagement, Cantor was directed by Signal’s board of directors to solicit indications of interest from various third parties regarding a transaction with Signal, and it considered the results of such solicitation in

 

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rendering its opinion. Cantor is not a legal, tax, regulatory or accounting advisor and relied on the assessments made by Signal and its advisors with respect to such issues. Cantor’s opinion does not address any legal, tax, regulatory or accounting matters.

Cantor did not express any opinion as to the range of prices at which the shares of Signal common stock may trade subsequent to the announcement or consummation of the Merger or at any time.

The opinion of Cantor was intended solely for the benefit and use of Signal’s board of directors (in its capacity as such) in connection with its consideration of the Merger. Cantor’s opinion is not to be used for any other purpose, or to be reproduced, disseminated, quoted from or referred to at any time, in whole or in part, without its prior written consent; provided, however, that Cantor authorized the inclusion of its written opinion in its entirety in this proxy statement/prospectus/information statement. Cantor’s opinion does not constitute a recommendation to Signal’s board of directors in connection with the Merger, nor does it constitute a recommendation to any holders of Signal common stock or Miragen common stock as to how to vote or act in connection with the Merger. Cantor’s opinion addressed only the fairness of the Exchange Ratio for the conversion of Miragen common stock into Signal common stock pursuant to the Merger Agreement from a financial point of view to Signal. Cantor’s opinion did not address Signal’s underlying business decision to pursue the Merger, the relative merits of the Merger as compared to any alternative business or financial strategies that might exist for Signal or the effects of any other transaction in which Signal might engage. In addition, Cantor’s opinion did not constitute a solvency opinion or a fair value opinion, and Cantor did not evaluate the solvency or fair value of Signal under any federal or state laws relating to bankruptcy, insolvency or similar matters. Furthermore, Cantor did not express any view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation payable to or to be received by any of Signal’s officers, directors or employees, or any class of such persons, in connection with the Merger relative to the Exchange Ratio. Cantor expressed no view as to any other aspect or implication of the Merger or any other agreement, arrangement or understanding entered into in connection with the Merger or otherwise, and expressed no opinion as to the terms of Miragen’s concurrent financing or the sale of all of Signal’s intellectual property assets related to its MyPRS test.

Cantor’s opinion was authorized for issuance by the Fairness Opinion and Valuation Committee of Cantor. Cantor’s opinion is subject to the assumptions, limitations, qualifications and other conditions contained therein and is necessarily based on economic, market and other conditions, and the information made available to Cantor, as of the date thereof. Cantor assumed no responsibility for updating or revising its opinion based on circumstances or events of which it becomes aware after the date thereof.

The following is a summary of the material analyses performed by Cantor in preparing its opinion, dated October 31, 2016, to Signal’s board of directors (in its capacity as such). The preparation of an opinion necessarily is not susceptible to partial analysis or summary description. In performing its analyses, Cantor did not attribute any particular weight to any analysis, methodology or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Cantor’s illustrative analyses must be considered as a whole. Considering any portion of the analyses or the factors considered, without considering all analyses and factors, could create a misleading or incomplete view of Cantor’s analyses.

Selected IPO Analysis

Oncology IPO Companies. Using publicly available information, Cantor reviewed the implied pre-money equity valuations of seven selected biotechnology companies with a therapeutic focus on oncology that completed an initial public offering between September 2013 and October 2016 which raised a minimum of $40 million. The implied pre-money equity valuation is defined as the equity valuation of a company implied by the offering price of such company’s shares in its initial public offering, minus the total gross proceeds of the initial public offering. Cantor noted that, although such companies were deemed relevant for comparative purposes, they may differ from Miragen in one or more ways, including, but not limited to, indications for technology, size and

 

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competitive nature of targeted markets, number of compounds, scientific evidence, attractiveness of pre-clinical and clinical data, perceived quality of management, the boards of directors and investors, intellectual property, cash resources or financial position, and partnerships. Accordingly, there are inherent limitations on the applicability of such companies to the illustrative analysis of Miragen. These selected companies, which are referred to as the Oncology IPO Companies, were:

 

•

Syros Pharmaceuticals, Inc.

 

•

Corvus Pharmaceuticals, Inc.

 

•

Mirna Therapeutics, Inc.

 

•

Loxo Oncology, Inc.

 

•

Immune Design Corp.

 

•

MacroGenics, Inc.

 

•

Five Prime Therapeutics, Inc.

Cantor observed a range of implied pre-money equity valuations for the selected Oncology IPO Companies of between $97 million and $304 million with a mean and median implied pre-money equity valuation of $184 million and $146 million, respectively. Cantor then compared the implied equity values attributable to the 3.1% of the combined company to be held immediately following the Merger by holders of Signal common stock at the time of Cantor’s opinion of approximately $5.7 million and $4.5 million based on the mean and median, respectively, implied pre-money equity valuations for the selected Oncology IPO Companies to Signal’s estimated liquidation value, per Signal management, of negative $559,000.

Early Stage IPO Companies. Using publicly available information, Cantor reviewed the implied pre-money equity valuations of six selected biotechnology companies that had a focus outside of oncology, but which were considered early stage because they had no product candidate beyond Phase 1 clinical trials, who completed initial public offerings between September 2013 and October 2016 which raised a minimum of $40 million. Cantor noted that although such companies were deemed relevant for comparative purposes, they may differ from Miragen in one or more ways, including, but not limited to, indications for technology, size and competitive nature of targeted markets, number of compounds, scientific evidence, attractiveness of pre-clinical and clinical data, perceived quality of management, the boards of directors and investors, intellectual property, cash resources or financial position, and partnerships. Accordingly, there are inherent limitations on the applicability of such companies to the illustrative analysis of Miragen. These selected companies, which are referred to as the Early Stage IPO Companies, were:

 

•

Ra Pharmaceuticals, Inc.

 

•

Protagonist Therapeutics, Inc.

 

•

AveXis, Inc.

 

•

Voyager Therapeutics, Inc.

 

•

MyoKardia, Inc.

 

•

Nivalis Therapeutics, Inc.

Cantor observed a range of implied pre-money equity valuations for the selected Early Stage IPO Companies of between $106 million and $353 million, with a mean and median implied pre-money equity valuation of $213 million $198 million, respectively. Cantor then compared the implied equity values attributable to the 3.1% of the combined company to be held immediately following the Merger by holders of Signal common stock at the time of Cantor’s opinion of approximately $6.6 million and $6.2 million based on the mean and median, respectively, implied pre-money equity valuations for the selected Early Stage IPO Companies to Signal’s estimated liquidation value, per Signal management, of negative $559,000.

 

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Selected Companies Analysis

Oncology Companies. Using publicly available information, Cantor reviewed selected financial data of six selected publicly-traded companies that had aggregate market capitalizations under $500 million and which had a therapeutic focus on oncology. Cantor noted that, although such companies were deemed relevant for comparative purposes, they may differ from Miragen in one or more ways, including, but not limited to, indications for technology, size and competitive nature of targeted markets, number of compounds, scientific evidence, attractiveness of pre-clinical and clinical data, perceived quality of management, the boards of directors and investors, intellectual property, cash resources or financial position, and partnerships. Accordingly, there are inherent limitations on the applicability of such companies to the illustrative analysis of Miragen. These selected companies, which are referred to as the Oncology Companies, were:

 

•

Bellicum Pharmaceuticals, Inc.

 

•

CytomX Therapeutics, Inc.

 

•

Lion Biotechnologies, Inc.

 

•

Curis, Inc.

 

•

Adaptimmune Therapeutics plc

 

•

Idera Pharmaceuticals, Inc.

Cantor observed a range of implied equity valuations for the selected Oncology Companies of between $312 million and $467 million, with a mean and median implied equity valuation of $384 million and $377 million, respectively. Cantor then compared the implied equity values attributable to the 3.1% of the combined company to be held immediately following the Merger by holders of Signal common stock at the time of Cantor’s opinion of approximately $12.0 million and $11.7 million based on the mean and median, respectively, implied equity valuations for the selected Oncology Companies to Signal’s estimated liquidation value, per Signal management, of negative $559,000.

Early Stage Companies. Using publicly available information, Cantor reviewed selected financial data of three selected publicly-traded companies that had aggregate market capitalizations under $500 million and which were considered early stage because they had no product candidate beyond Phase 1 clinical trials (with the exception of Regulus Therapeutics Inc., which has one program in Phase 2 clinical development with two indications). Cantor noted that, although such companies were deemed relevant for the comparative purposes, they may differ from Miragen in one or more ways, including, but not limited to, indications for technology, size and competitive nature of targeted markets, number of compounds, scientific evidence, attractiveness of pre-clinical and clinical data, perceived quality of management, the boards of directors and investors, intellectual property, cash resources or financial position, and partnerships. Accordingly, there are inherent limitations on the applicability of such companies to the illustrative analysis of Miragen. These selected companies, which are referred to as the Early Stage Companies, were:

 

•

Regulus Therapeutics Inc.

 

•

ProQR Therapeutics N.V.

 

•

ContraFect Corporation

Cantor observed a range of implied equity valuations for selected the Early Stage Companies of between $89 million and $141 million, with a mean and median implied equity valuation of $119 million and $128 million, respectively. Cantor then compared the implied equity values attributable to the 3.1% of the combined company to be held immediately following the Merger by holders of Signal common stock at the time of Cantor’s opinion of approximately $3.7 million and $4.0 million based on the mean and median, respectively, implied equity valuations for the selected Early Stage Companies to Signal’s estimated liquidation value, per Signal management, of negative $559,000.

 

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Selected Transactions Analysis

Cantor reviewed publicly available information relating to six selected acquisition transactions, announced since the beginning of 2013, of companies in the biopharmaceutical industry which had either a therapeutic focus on oncology or no products beyond Phase 1 at the time of announcement of the transaction, in each case with an aggregate transaction valuation (based solely upon upfront payments and excluding contingent value rights or other post-closing payments) of less than $1 billion. Cantor noted that, although the companies that were acquired in the selected acquisitions had certain financial and operating characteristics that could be considered similar to those of Miragen, none of these companies had the same management, make-up, technology, size or mix of business as Miragen. Accordingly, there are inherent limitations on the applicability of such companies to the illustrative analysis of Miragen. Additionally, based on publicly available information, none of the target companies in such acquisitions was in the process of winding down operations at the time of the acquisition. Cantor also noted that there have been varying market conditions over the time periods during which the selected acquisitions were announced. These acquisitions, which are referred to as the Selected Transactions, were:

 

•

acquisition of Vitae Pharmaceuticals, Inc. by Allergan plc (announced September 14, 2016)

 

•

acquisition of Admune Therapeutics LLC by Novartis AG (announced October 21, 2015)

 

•

acquisition of OnCore Biopharma, Inc. by Arbutus Biopharma Inc. (fka. Tekmira Pharmaceuticals) (announced January 11, 2015)

 

•

acquisition of iPierian, Inc. by Bristol-Myers Squibb Company (announced April 29, 2014)

 

•

acquisition of Sirna Therapeutics, Inc. by Alnylam Pharmaceuticals, Inc. (announced January 12, 2014)

 

•

acquisition of Amplimmune, Inc. by MedImmune, LLC (announced August 26, 2013)

Cantor observed a range of the disclosed upfront consideration at the time of announcement for the Selected Transactions, not adjusted for stock price differences since announcement of between $140.0 million and $639.0 million, with a mean and median of upfront consideration of $289.3 million and $200.0 million, respectively. Cantor then compared the implied equity values attributable to the 3.1% of the combined company to be held immediately following the Merger by holders of Signal common stock at the time of Cantor’s opinion of approximately $9.0 million and $6.2 million based on the mean and median, respectively, upfront consideration paid in the Selected Transactions to Signal’s estimated liquidation value, per Signal management, of negative $559,000.

General

Cantor acted as a financial advisor to Signal in connection with the Merger and Signal agreed to pay Cantor a fee of approximately $750,000, $250,000 of which was paid upon delivery of Cantor’s opinion. In addition, Signal agreed to reimburse Cantor for certain expenses and to indemnify Cantor against certain liabilities arising out of its engagement.

Cantor had been engaged during the two years preceding the date of its opinion by Signal to provide certain investment banking and other services on matters unrelated to the Merger, for which it has received fees of approximately $178,000. Cantor may seek to provide Signal and its affiliates with certain investment banking and other services unrelated to the Merger in the future.

Consistent with applicable legal and regulatory requirements, Cantor adopted certain policies and procedures to establish and maintain the independence of Cantor’s research departments and personnel. As a result, Cantor’s research analysts may hold views, make statements or investment recommendations and/or publish research reports with respect to Signal, the Merger and other participants in the Merger that differ from the views of Cantor’s investment banking personnel.

In the ordinary course of business, Cantor and its affiliates may actively trade (for their own accounts and for the accounts of their customers) certain equity and debt securities, bank debt and/or other financial instruments

 

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issued by Signal and affiliates, as well as derivatives thereof, and, accordingly, may at any time hold long or short positions in such securities, bank debt, financial instruments and derivatives.

Interests of the Signal Directors and Executive Officers in the Merger

In considering the recommendation of Signal’s board of directors with respect to issuing shares of Signal common stock as contemplated by the Merger Agreement and the other matters to be acted upon by Signal stockholders at the Signal special meeting, Signal stockholders should be aware that certain members of the board of directors and executive officers of Signal have interests in the Merger that may be different from, or in addition to, the interests of Signal stockholders. These interests relate to or arise from the matters described below. The board of directors of each of Signal and Miragen were aware of these potential conflicts of interest and considered them, among other matters, in reaching their respective decisions to approve the Merger Agreement and the Merger, and to recommend, as applicable, that the Signal stockholders approve the Signal proposals to be presented to the Signal stockholders for consideration at the Signal special meeting as contemplated by this proxy statement/prospectus/information statement, and that the Miragen stockholders sign and return the written consent as contemplated by this proxy statement/prospectus/information statement.

Severance and Bonus Payments

Under the original terms of the employment agreements for each of Samuel D. Riccitelli, Signal’s president and chief executive officer, and Tamara A. Seymour, Signal’s chief financial officer, upon the executive’s termination without “Cause,” or in connection with executive’s resignation for “Good Reason,” each as defined in the employment agreements, each executive officer was eligible to receive continued base salary payments (less all applicable withholdings) and COBRA premium payments for twelve months following termination payable each month in monthly installments over the applicable period in accordance with Signal’s payroll period. Neither executive officer was required to mitigate the amount of any severance payments received by seeking other employment during the term of his or her severance period. However, if the executive officer were to obtain other employment during the term of the severance period, Signal would have only needed to pay such executive officer, for the remaining length of the severance period, the difference between such executive officer’s new salary and base salary (as in effect at the time of termination), if the new salary is less than such executive officer’s base salary (i.e., Signal would not have been obligated to make any severance payments to such executive officer if his or her new salary was greater than his or her applicable base salary). Signal was also obligated to reimburse each executive officer for premiums for COBRA coverage for the applicable executive officer (and to the extent he or she has family coverage, his or her family), provided such executive officer elects such coverage, during the applicable period when such executive officer is receiving severance payments, until such time as such executive officer obtains other employment and is entitled to comparable health coverage from his or her new employer.

The employment of Mr. Riccitelli and Ms. Seymour is expected to terminate no later than the consummation of the Merger. The compensation committee of the board of directors deemed it advisable and in the best interests of Signal stockholders to permit lump sum payment of the severance arrangements of Mr. Riccitelli and Ms. Seymour upon his or her termination to the extent permitted under Section 409A of the Code, as opposed to the monthly payments originally contemplated therein to avoid a potential acquirer from having to make continued payments following the closing of a merger. Therefore, on October 11, 2016, the compensation committee of Signal’s board of directors approved modifications to the severance arrangements of Mr. Riccitelli and Ms. Seymour to allow for the payment of severance in a lump sum to the extent such payments can be made in compliance with Section 409A of the Code.

2015 Bonus Payments

The employment agreements for Mr. Riccitelli and Ms. Seymour allow for annual incentive compensation bonus payments to be awarded in the sole discretion of the compensation committee of Signal’s board of directors. The

 

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incentive compensation for Mr. Riccitelli may be paid on the terms established from time to time by the compensation committee of Signal and Ms. Seymour is eligible to receive a bonus payment of up to 30% of her base salary then in effect, which bonus payment will be awarded in the sole discretion of the compensation committee based upon performance goals established by the compensation committee and paid subject to her continued employment through the date of payment.

On March 28, 2016, the compensation committee of Signal’s board of directors approved bonuses for Mr. Riccitelli and Ms. Seymour of up to $135,000 and $105,000, respectively, for the 2015 performance of such executive officers. Of the awarded amounts, $33,750 and $26,250 were paid to Mr. Riccitelli and Ms. Seymour, respectively, in April 2016. The remainder of these amounts, consisting of $101,250 for Mr. Riccitelli and $78,750 for Ms. Seymour would be paid upon the completion of a strategic transaction of Signal and subject to the availability of funds. On October 11, 2016, the compensation committee of Signal’s board of directors approved the payment of the remainder of such bonuses to Mr. Riccitelli and Ms. Seymour of $101,250 and $78,750, respectively, upon the closing of the Merger.

2016 Bonus Payments

As discussed above, incentive compensation for Mr. Riccitelli may be paid on the terms established from time to time by, and at the discretion of, the compensation committee of Signal, and Ms. Seymour is eligible to receive a bonus payment of up to 30% of her base salary then in effect. Such bonus payments are awarded in the sole discretion of the compensation committee based upon performance goals established by the compensation committee. In the event the compensation committee determines that funds are available to provide for the payment of incentive compensation bonus payments for the 2016 performance of Mr. Riccitelli and Ms. Seymour, Mr. Riccitelli and Ms. Seymour are eligible to receive an amount to be determined by the compensation committee. If approved by the compensation committee of Signal’s board of directors, the bonus amounts are expected to be $135,000 for Mr. Riccitelli and $105,000 for Ms. Seymour, and will be paid upon closing of the Merger.

Acceleration of Unvested RSU Awards

The restricted stock unit awards held by the executive officers allowed for vesting acceleration in full upon a “Change in Control” of Signal, as such term is defined in the 2014 Stock Incentive Plan of Signal. As contemplated under the Merger Agreement, the lab business of Signal is expected to be wound down or sold prior to the closing of the Merger. Therefore, the compensation committee of the board of directors recognized that holders of restricted stock unit awards may be terminated prior to the closing of the Merger, or a deemed Change in Control under the 2014 Stock Incentive Plan, without obtaining the benefit of their restricted stock unit awards. Therefore, on October 11, 2016, the compensation committee of the board of directors approved the acceleration in full of the unvested portions of the restricted stock unit awards held by the executive officers, subject to the signing of the Merger Agreement and the signing of a non-binding letter of intent for the sale of Signal’s lab business. The acceleration in full of such unvested portions of such restricted stock unit awards occurred as of the business day prior to the signing of the Merger Agreement on October 28, 2016.

Acceleration of Unvested Option Awards

On October 11, 2016, the compensation committee of Signal’s board of directors approved the acceleration in full of the unvested portions of the stock options held by the Signal directors and Ms. Seymour in connection with the signing of the Merger Agreement. All stock option awards held by Ms. Seymour are currently out-of-the-money. As of November 30, 2016, vested stock options to purchase an aggregate of 4,800 shares of common stock held by Signal directors were in-the-money.

Named Executive Officer Compensation

The following table and the related footnotes present information about the compensation payable to Signal’s named executive officers included in Signal’s most recent filing under the Exchange Act that required disclosure

 

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pursuant to Item 402(c) of Regulation S-K. The compensation shown in the table below is intended to comply with Item 402(t) of Regulation S-K, which requires disclosure of information about compensation for each named executive officer that is based on or otherwise relates to the Merger.

The named executive officers are not entitled to any pension or non-qualified deferred compensation benefits enhancements or any tax reimbursements in connection with the Merger. Further, all stock options held by the named executive officers of Signal are currently out-of-the-money.

Golden Parachute Compensation

 

Name		Cash(1)				Perquisites/ Benefits(2)				Other(3)				Total
Samuel D. Riccitelli		$	551,250			$	27,177			$	135,000			$	713,427
Tamara A. Seymour		$	428,750			$	11,263			$	105,000			$	545,013

 

(1)

The amount in this column for Mr. Riccitelli represents $450,000 in severance payments and reflects the $101,250 remaining payment under his 2015 performance bonus described above under “Severance and Bonus Payments.” The amount in this column for Ms. Seymour represents $350,000 in severance payments and reflects the $78,750 remaining payment under her 2015 performance bonus described above under “Severance and Bonus Payments.”

(2)	The amounts in this column reflect 12 months of health insurance premium payments for Mr. Riccitelli and 12 months of health insurance premium payments for Ms. Seymour.

(3)

The amount in this column represents an estimated amount of cash payments Mr. Riccitelli and Ms. Seymour are eligible to receive pursuant to Signal’s incentive bonus program for 2016 described above under “Severance and Bonus Payments.” Payments under Signal’s incentive bonus program are paid in the sole discretion of the compensation committee of the board of directors. To date, the compensation committee has not approved the payment of any such payments for the 2016 performance of such executive officers.

Amendment to the Bennet S. Lebow Promissory Note

On March 6, 2015, Signal originally issued the Note to Bennett S. LeBow, a member of Signal’s Board of Directors and Signal’s largest stockholder. When issued, the terms of the Note provided (i) for a principal amount of $1,105,009, which accrued interest computed on the basis of the actual number of days elapsed in a 360-day year, at a rate per annum of 8%, (ii) that at any time on or after June 30, 2015, Mr. LeBow may demand payment of the entire outstanding principal of the Note and all unpaid interest accrued thereon and (iii) that upon the occurrence and during the continuance of any event of default by Signal under the Note, the principal balance of the Note shall accrue interest at a rate of 11%.

Given its cash position, Signal would have difficulty operating its business until the closing of a potential merger with a net positive cash position and repaying the outstanding amount due under the Note with Mr. LeBow. Therefore, on October 31, 2016, the board of directors deemed it advisable and in the best interests of Signal stockholders to approve the Note Amendment.

On October 31, 2016, prior to the execution of the Merger Agreement, Signal and Mr. LeBow entered into the Note Amendment. The Note Amendment (i) makes the outstanding principal balance and all accrued interest on the Note, plus a premium of 11% on the outstanding balance, automatically convertible into shares of Signal’s common stock immediately prior to the effective time of the Merger at a conversion price of $5.39 per share, which is the closing price of Signal’s common stock on the effective date of the Note Amendment, after giving effect to Signal’s one-for-15 reverse stock split effected on November 4, 2016, and (ii) modifies the principal amount of the Note to $1,045,000, the original amount advanced to Signal as of June 17, 2014, and the interest of the Note to a rate per annum of 11% commencing on June 17, 2014, with interest computed on the basis of the actual number of days in a 360-day year.

 

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The conversion price is subject to appropriate adjustment in the event of any reverse stock split, forward stock split, stock dividend, combination or other similar recapitalization with respect to Signal’s common stock. Conversion of the Note is subject to and conditioned upon Signal obtaining stockholder approval of any such conversion.

If conversion of the Note is not approved by Signal stockholders at the special meeting, or if the Merger Agreement is terminated prior to completion of the Merger, the outstanding balance due under the Note will not be converted into Signal common stock and the Note will remain outstanding. Moreover, because conversion of the outstanding balance of the Note into shares of Signal common stock is a closing condition of the Merger Agreement, success of the Merger is also dependent upon stockholder approval of conversion of the Note.

Ownership Interests

As of November 30, 2016, directors and executive officers of Signal owned or controlled 27% of the outstanding shares of Signal common stock. Signal directors and executives have entered into support agreements in connection with the Merger. For a more detailed discussion of the support agreements see the section titled “Agreements Related to the Merger—Support Agreements” in this proxy statement/prospectus/information statement.

Indemnification and Insurance for the Signal Officers and Directors

Under the Merger Agreement, from the closing of the Merger through the sixth anniversary of the closing, Signal and the surviving corporation agree that all rights to indemnification, exculpation or advancement of expenses now existing in favor of, and all limitations on the personal liability of, each present and former director or officer, of Signal or Miragen provided for in the respective organizational documents of Miragen and Signal in effect as of October 31, 2016, shall continue to be honored and in full force and effect.

Under the Merger Agreement, the certificate of incorporation and bylaws of Signal and the surviving corporation in the Merger, will contain provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of present and former directors and officers of each of Signal and Miragen than are presently set forth in the certificate of incorporation and bylaws of Signal and Miragen, as applicable, which provisions shall not be amended, modified or repealed for a period of six years’ time from the closing of the Merger in a manner that would materially and adversely affect the rights thereunder of individuals who, at or prior to the closing, were officers or directors of Signal and Miragen.

The Merger Agreement also provides that Signal shall purchase an insurance policy in effect for six years from the closing, providing at least the same coverage as the current directors’ and officers’ liability insurance policies maintained by Miragen and Signal and containing terms and conditions that are not materially less favorable to current and former officers and directors of Miragen and Signal.

Interests of Miragen Directors and Executive Officers in the Merger

In considering the recommendation of Miragen’s board of directors with respect to adopting the Merger Agreement, Miragen stockholders should be aware that certain members of the board of directors and executive officers of Miragen have interests in the Merger that may be different from, or in addition to, interests they may have as Miragen stockholders. Miragen’s board of directors was aware of these potential conflicts of interest and considered them, among other matters, in reaching their respective decisions to approve the Merger Agreement, the Merger and related transactions, and to recommend that the Miragen stockholders sign and return the written consent as contemplated by this proxy statement/prospectus/information statement.

Ownership Interests

Some of Miragen’s directors and executive officers currently hold shares of Miragen’s common stock or shares of convertible preferred stock, of which each share will convert into one share of Miragen common stock prior to

 

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the closing of the Merger. Each one share of Series A convertible preferred stock, Series B convertible preferred stock and Series C convertible preferred stock converts into one share of common stock. The table below sets forth the anticipated ownership of Miragen’s common stock by Miragen’s directors and executive officers immediately prior to the closing of the Merger based on their ownership of Miragen’s capital stock as of November 30, 2016, without giving effect to any shares of common stock that each director, executive officer or any affiliates thereof may purchase in Miragen’s concurrent financing in connection with the Merger.

 

Stockholder Name		Number of Shares of Miragen Common Stock Immediately Prior to the  Closing of the Merger
William S. Marshall, Ph.D.(1)			211,319
Jason A. Leverone(2)			—
Adam S. Levy(3)			—
Paul D. Rubin, M.D.(4)			—
Bruce L. Booth, Ph.D.(5)			—
Reza Halse, Ph.D.(6)			—
John W. Creecy(7)			—
Thomas E. Hughes, Ph.D.(8)			20,000
Kyle A. Lefkoff (9)			—
Kevin Koch, Ph.D.(10)			—
Joseph L. Turner(11)			—

 

(1)

Consists of 150,000 shares of common stock, 37,586 shares of Series A convertible preferred stock, 6,470 shares of Series B convertible preferred stock and 17,263 shares of Series C convertible preferred stock. Dr. Marshall is Miragen’s president and chief executive officer and a member of its board of directors. For additional information regarding shares of Miragen’s common stock issuable to Dr. Marshall upon exercise of outstanding options, please see the table below.

(2)	Mr. Leverone is Miragen’s chief financial officer. For additional information regarding shares of Miragen’s common stock issuable to Mr. Leverone upon exercise of outstanding options, please see the table below.

(3)	Mr. Levy is Miragen’s chief business officer. For additional information regarding shares of Miragen’s common stock issuable to Mr. Levy upon exercise of outstanding options, please see the table below.

(4)	Dr. Rubin is Miragen’s executive vice president, research and development. For additional information regarding shares of Miragen’s common stock issuable to Dr. Rubin upon exercise of outstanding options, please see the table below.

(5)

Dr. Booth is a member of Miragen’s board of directors and a director of Atlas Venture Associates VII, Inc., which is the general partner of Atlas Venture Associates VII, L.P. which is the general partner of Atlas Venture VII, L.P., with each referred to as an Atlas Entity and, collectively, the Atlas Entities. For additional information regarding ownership of Miragen capital stock by the Atlas Entities, please see the table below.

(6)

Dr. Halse is a member of Miragen’s board of directors and a partner of MRL Ventures Fund, LLC. For additional information regarding ownership of Miragen capital stock by MRL Ventures Fund, LLC, please see the table below. Dr. Halse has informed Miragen that he will resign as a member of Miragen’s board of directors immediately prior to the effectiveness of the Merger.

(7)	Mr. Creecy is a member of Miragen’s board of directors and the chief executive officer of Remeditex Ventures LLC. For additional information regarding ownership of Miragen capital stock by Remeditex Ventures LLC, please see the table below.

(8)	Consists of 20,000 shares of common stock. Dr. Hughes is a member of Miragen’s board of directors. For additional information regarding shares of Miragen’s common stock issuable to Dr. Hughes upon exercise of outstanding options, please see the table below.

(9)	Mr. Lefkoff is a member of Miragen’s board of directors and a managing member of BV Partners VI, L.L.C., which is the general partner of Boulder Ventures VI, L.P., and a managing member of BV

 

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Partners V, L.L.C., which is the general partner of Boulder Ventures V, L.P., with each referred to as a BV Entity and, collectively, the BV Entities. For additional information regarding ownership of Miragen capital stock by the BV Entities, please see the table below.

(10)	Mr. Koch is a member of Miragen’s board of directors. For additional information regarding shares of Miragen’s common stock issuable to Mr. Koch upon exercise of outstanding options, please see the table below.

(11)	Mr. Turner is designated by Miragen to be appointed as a member of the combined company’s board of directors effective as of the closing of the Merger.

Some of Miragen’s other stockholders affiliated with Miragen’s directors also currently hold shares of Miragen’s common stock or shares of convertible preferred stock, of which each share will convert into one share of Miragen common stock prior to the closing of the Merger. The table below sets forth the anticipated ownership of Miragen’s common stock by other affiliates of Miragen’s directors immediately prior to the closing of the Merger based on their ownership of Miragen’s capital stock as of November 30, 2016, without giving effect to any shares of common stock that stockholder may purchase in Miragen’s concurrent financing in connection with the Merger.

 

Stockholder Name		Number of Shares of Miragen Common Stock Immediately Prior to the  Closing of the Merger
Atlas Entities(1)			4,469,607
Remeditex Ventures LLC(2)			3,052,163
BV Entities(3)			2,850,548
MRL Ventures Fund, LLC(4)			1,580,135

 

(1)

Consists of 83,250 shares of common stock, 2,661,454 shares of Series A convertible preferred stock, 479,401 shares of Series B convertible preferred stock and 1,245,502 shares of Series C convertible preferred stock. All shares are held directly by Atlas Venture VII, L.P., or Atlas Venture VII. Atlas Venture Associates VII, L.P., or AVA VII LP, is the general partner of Atlas Venture VII, and Atlas Venture Associates VII, Inc., or AVA VII Inc., is the general partner of AVA VII LP. Peter Barrett, Bruce L. Booth, Ph.D., Jean-Francois Formela and Jeff Fagnan is each a director of AVA VII Inc. Dr. Booth is a member of Miragen’s board of directors.

(2)

Consists of 1,083,333 shares of Series B Preferred Stock and 1,968,830 shares of Series C convertible preferred stock. All shares are held directly by Remeditex Ventures LLC, or Remeditex. John H. Creecy is the chief executive officer of Remeditex and may be deemed to be the indirect beneficial owner of the shares owned by Remeditex. Mr. Creecy is a member of Miragen’s board of directors.

(3)

Consists of 55,500 shares of common stock, 1,691,598 shares of Series A convertible preferred stock, 306,027 shares of Series B convertible preferred stock and 797,423 shares of Series C convertible preferred stock. Includes shares held by Boulder Ventures V, L.P., or Boulder Ventures V, and shares held by Boulder Ventures VI, L.P., or Boulder Ventures VI and, collectively with Boulder Ventures V, the Boulder Ventures Funds. BV Partners V, L.L.C., or BV V, is the general partner of Boulder Ventures V. BV Partners VI, L.L.C., or BV VI, is the general partner of Boulder Ventures VI. BV V may be deemed to indirectly beneficially own the shares owned by Boulder Ventures V and BV VI may be deemed to indirectly beneficially own the shares owned by Boulder Ventures VI. Kyle A. Lefkoff, Peter A. Roshko and Jonathan L. Perl are managing members of BV V and Mr. Lefkoff, Mr. Roshko and Mr. Perl are managing members of BV VI. Mr. Lefkoff is a member of Miragen’s board of directors.

(4)

Consists of 1,580,135 shares of Series C convertible preferred stock. All shares are held directly by MRL Ventures Fund, LLC, or MRL Ventures. Reza Halse is a partner of MRL Ventures and may be deemed to be the indirect beneficial owner of the shares owned by MRL Ventures. Dr. Halse is a member of Miragen’s board of directors. Dr. Halse has informed Miragen that he will resign as a member of Miragen’s board of directors immediately prior to the effectiveness of the Merger.

 

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Stock Options

Two of Miragen’s directors, Dr. Hughes and Mr. Koch, and Miragen’s executive officers hold options to purchase shares of Miragen common stock, which, pursuant to the Merger Agreement, will be converted into and become options to purchase shares of Signal common stock. In connection with the conversion of the options, the number of shares subject to the options and the option exercise prices will be adjusted pursuant to the terms of the Merger Agreement. The number of shares subject to each option will be multiplied by the Exchange Ratio, rounding any resulting fractional shares down to the nearest whole share, and the exercise price of each option will be divided by the Exchange Ratio, rounding up to the nearest whole cent. The option terms will remain the same, including any vesting terms. The table below sets forth certain information with respect to the options.

 

Optionholder Name		Grant Date				Expiration Date				Exercise Price ($)				Number of Shares of Common Stock Underlying Option as of November 30, 2016				Number Vested as of November 30, 2016
William S. Marshall, Ph.D.			7/31/2008				7/30/2018				0.40				164,726				164,726
			6/15/2012				6/14/2022				0.86				328,500				328,500
			2/22/2016				2/21/2016				0.74				223,000				41,812
Jason A. Leverone			12/10/2008				12/09/2018				0.40				42,000				42,000
			9/24/2009				9/23/2019				0.40				4,400				4,400
			3/16/2010				3/15/2020				0.40				16,000				16,000
			6/15/2012				6/14/2022				0.86				66,300				66,300
			2/22/2016				2/21/2026				0.74				50,000				9,375
Adam S. Levy			6/15/2016				6/14/2026				0.74				230,883				0
Paul D. Rubin			11/30/2016				11/29/2026				4.00				288,604				0
Thomas E. Hughes, Ph.D.			6/15/2012				6/14/2022				0.86				16,000				16,000
			2/22/2016				2/21/2026				0.74				19,500				4,875
Kevin Koch, Ph.D.			8/18/2016				8/17/2026				0.74				41,600				3,466

Private Placement of Common Stock.

In October 2016, Miragen entered into the Subscription Agreement with certain current stockholders of Miragen and certain new investors in Miragen pursuant to which the purchasers agreed to purchase an aggregate of 9,045,126 shares of Miragen’s common stock at a price per share of $4.50 for an aggregate consideration of approximately $40.7 million immediately prior to, and conditioned upon, the consummation of the Merger. The table below sets forth the number of shares of Miragen’s common stock agreed to be purchased and the purchase price for the shares of common stock for each purchaser that is a director or executive officer of Miragen or are their affiliates.

 

Name of Purchaser		Shares of Common Stock (#)				Purchase Price ($)
Atlas Venture Fund X, L.P.(1)			1,145,835			$	5,156,257.50
Boulder Ventures VI, L.P.(2)			147,419			$	663,385.50
MRL Ventures Fund, LLC (3)			412,774			$	1,857,483.00
Remeditex Ventures LLC(4)			797,308			$	3,587,886.00

 

(1)	The Atlas Entities, together, hold more than 5% of Miragen’s outstanding capital stock. Bruce L. Booth is a member of Miragen’s board of directors and a director of Atlas Venture Associates VII, Inc. and Atlas Venture Associates X, Inc., which are affiliated with the Atlas Entities.

(2)	Boulder Ventures holds more than 5% of Miragen’s outstanding capital stock. Kyle A. Lefkoff is a member of Miragen’s board of directors and a managing member of BV Partners V, L.L.C. and BV Partners VI, L.L.C., which are each affiliated with Boulder Ventures.

 

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(3)

MRL Ventures Fund, LLC holds more than 5% of Miragen’s outstanding capital stock. Reza Halse is a member of Miragen’s board of directors and a partner MRL Ventures Fund, LLC. Dr. Halse has informed Miragen that he will resign as a member of Miragen’s board of directors immediately prior to the effectiveness of the Merger.

(4)	Remeditex Ventures LLC holds more than 5% of Miragen’s outstanding capital stock. John H. Creecy is a member of Miragen’s board of directors and the chief executive officer of Remeditex Ventures LLC.

Management Following the Merger

As described elsewhere in this joint proxy statement/prospectus/information statement, including in “Management Following the Merger” beginning on page 247, Miragen’s directors and executive officers are expected to become directors and executive officers of the combined company upon the closing of the Merger.

Employment Agreements

As described elsewhere in this joint proxy statement/prospectus/information statement, including in “Management Following the Merger—Executive Compensation—Employment Agreements and Potential Payments Upon Termination of Employment or Change in Control” beginning on page 257, Miragen’s executive officers are party to employment agreements which become effective only upon closing of the Merger.

Indemnification and Insurance for the Miragen Officers and Directors

Under the Merger Agreement, from the closing of the Merger through the sixth anniversary of the closing, Signal and the surviving corporation agree that all rights to indemnification, exculpation or advancement of expenses now existing in favor of, and all limitations on the personal liability of, each present and former director or officer, of Signal or Miragen provided for in the respective organizational documents of Miragen and Signal in effect as of October 31, 2016, shall continue to be honored and in full force and effect.

Under the Merger Agreement, the certificate of incorporation and bylaws of Signal and the surviving corporation in the Merger, will contain provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of present and former directors and officers of each of Signal and Miragen than are presently set forth in the certificate of incorporation and bylaws of Signal and Miragen, as applicable, which provisions shall not be amended, modified or repealed for a period of six years’ time from the closing of the Merger in a manner that would materially and adversely affect the rights thereunder of individuals who, at or prior to the closing, were officers or directors of Signal and Miragen.

The Merger Agreement also provides that Signal shall purchase an insurance policy in effect for six years from the closing, providing at least the same coverage as the current directors’ and officers’ liability insurance policies maintained by Miragen and Signal and containing terms and conditions that are not materially less favorable to current and former officers and directors of Miragen and Signal.

Limitations on Liability and Indemnification.

In addition to the indemnification required in the Merger Agreement, Miragen has entered into indemnification agreements with each of its directors and executive officers. These agreements provide for the indemnification of the directors and executive officers of Miragen for all reasonable expenses and liabilities incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were agents of Miragen. Miragen anticipates that the directors and officers of the combined company will enter into substantially similar agreements with the combined company, effective upon consummation of the Merger.

Form of the Merger

The Merger Agreement provides that at the effective time, Merger Sub will be merged with and into Miragen. Upon the consummation of the Merger, Miragen will continue as the surviving corporation and will be a wholly-owned subsidiary of Signal.

 

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After completion of the Merger, assuming Signal Proposal No. 6 is approved by Signal stockholders at the Signal special meeting, Signal will be renamed “Miragen Therapeutics, Inc.” and expects to trade on The NASDAQ Capital Market under the symbol “MGEN.”

Merger Consideration and Exchange Ratio

Immediately prior to the effective time of the Merger, each outstanding shares of preferred stock of Miragen will be converted into common stock. At the effective time of the Merger:

 

•

each outstanding share of common stock of Miragen will be converted into the right to receive that number of shares of Signal common stock as determined pursuant to the Exchange Ratio described in more detail below;

 

•

each outstanding option to purchase shares of Miragen common stock will be assumed by Signal and will be converted into an option to purchase shares of Signal common stock; and

 

•

each outstanding warrant to purchase shares of Miragen capital stock will be assumed by Signal and will be converted into a warrant to purchase shares of Signal common stock.

No fractional shares of Signal common stock will be issued in connection with the Merger. Instead, each Miragen stockholder who otherwise would be entitled to receive a fractional share of Signal common stock (after aggregating all fractional shares of Signal common stock issuable to such holder) will be entitled to receive an amount in cash representing such holder’s proportionate interest, if any, in the proceeds from the sale of the aggregated fractional shares by the exchange agent (reduced by any fees of the exchange agent attributable to such sale) at the then prevailing prices on the NASDAQ Capital Market.

The Exchange Ratio is calculated using a formula intended to allocate existing Miragen securityholders (on a fully-diluted basis), a percentage of the combined company. Based on Miragen’s and Signal’s capitalization as of November 30, 2016, the Exchange Ratio is estimated to be (i) approximately 0.6995 pre-split shares of Signal common stock, subject to adjustment to account for the effect of a reverse stock split of Signal common stock, within a range of one new share for every one to 15 shares outstanding, to be implemented prior to the consummation of the Merger as discussed in this proxy statement/prospectus/information statement or (ii), post-split, between approximately 0.6995 and 0.0466 shares of Signal common stock. These estimates are subject to adjustment prior to closing of the Merger, including (i) adjustments to account for the issuance of any additional shares of Miragen or Signal common stock, as applicable, prior to the consummation of the Merger, provided that, the issuance of Miragen common stock in the concurrent financing will not impact the Exchange Ratio, or (ii) an upward adjustment to the extent that Signal’s net cash at the effective time of the Merger is less than negative $100,000 (and as a result, Signal securityholders could own less, and Miragen securityholders could own more, of the combined company).

Based on the estimates set forth above, immediately after the Merger, Miragen securityholders would own approximately 96% of the fully-diluted common stock of the combined company and Signal securityholders would own approximately 4% of the fully-diluted common stock of the combined company, each assuming that Miragen closes its concurrent financing immediately prior to the effective time of the Merger. If the concurrent financing does not close, then Miragen securityholders would own approximately 94% of the fully-diluted common stock of the combined company and Signal securityholders would own approximately 6% of the fully-diluted common stock of the combined company.

The Exchange Ratio formula is the quotient obtained by dividing the number of Miragen merger shares (defined below) by the Miragen fully-diluted outstanding shares (defined below), where:

 

•

Miragen merger shares is the product determined by multiplying (i) the post-closing Signal shares by (ii) the Miragen allocation percentage.

 

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•

Miragen fully-diluted outstanding shares is the total number of shares of Miragen common stock outstanding immediately prior to the effective time of the Merger on a fully-diluted and an as-converted to common stock basis, assuming the exercise of each outstanding Miragen option and Miragen warrant to purchase Miragen capital stock and the effectiveness of the conversion of all of Miragen’s outstanding preferred stock into Miragen common stock; provided, however, that all shares of Miragen common stock issued in its concurrent financing will be excluded from such amount.

 

•

Post-closing Signal shares is the quotient determined by dividing (i) the Signal fully-diluted outstanding shares by (ii) the Signal allocation percentage.

 

•

Signal fully-diluted outstanding shares is the total number of shares of Signal common stock outstanding immediately prior to the effective time of the Merger on a fully-diluted and an as-converted to common stock basis, assuming (i) the exercise of each outstanding Signal option to purchase Signal common stock (to the extent such option will not be cancelled pursuant to the Merger Agreement), (ii) the settlement in shares of Signal common stock of each outstanding Signal restricted stock unit (to the extent such restricted stock until will not be cancelled pursuant to the Merger Agreement), (iii) the exercise of each outstanding Signal warrant to purchase common stock, and (iv) the conversion of the indebtedness into Signal common stock in accordance with the terms and conditions of the Note Amendment.

 

•

Miragen allocation percentage is 1.00 minus the Signal allocation percentage.

Signal allocation percentage is 0.06; provided, however, solely to the extent that the net cash determined pursuant to the Merger Agreement is less than negative $100,000, then 0.06 shall be reduced by 0.00000002 for each $1.00 that the Net Cash as so determined is less than negative $100,000 (for example, the Signal allocation percentage would be 0.055 if Signal’s net cash is negative $350,000).

Stock Options and Warrants

All warrants to purchase shares of Signal’s common stock that are outstanding immediately prior to the effective time of the Merger will remain outstanding following the effective time of the Merger. All options to purchase shares of Signal common stock and restricted stock units that are not exercised or settled, as applicable, prior to the effective time will be cancelled and terminated upon the effectiveness of the Merger.

At the effective time of the Merger, each outstanding option and warrant, whether or not vested, to purchase shares of Miragen capital stock unexercised immediately prior to the effective time of the Merger will be converted into an option or warrant to purchase shares of Signal common stock. All rights with respect to each Miragen option or warrant will be assumed by Signal in accordance with its terms. Accordingly, from and after the effective time of the Merger each option or warrant assumed by Signal may be exercised solely for shares of Signal common stock.

The number of shares of Signal common stock subject to each outstanding Miragen option or warrant assumed by Signal will be determined by multiplying the number of shares of Miragen capital stock that were subject to such option or warrant, as applicable, by the Exchange Ratio and rounding the resulting number down to the nearest whole number of shares of Signal common stock. The per share exercise price for the shares of Signal common stock issuable upon exercise of each Miragen option or warrant assumed by Signal will be determined by dividing the per share exercise price of Miragen capital stock subject to such option or warrant, as applicable, by the Exchange Ratio and rounding the resulting exercise price up to the nearest whole cent. Any restriction on the exercise of any option or warrant will continue in full force and effect and the term, exercisability, vesting schedule and other provisions of such option or warrant will otherwise remain unchanged.

Effective Time of the Merger

The Merger Agreement requires the parties to consummate the Merger after all of the conditions to the consummation of the Merger contained in the Merger Agreement are satisfied or waived, including the approval

 

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by the Signal stockholders of Signal Proposal Nos. 1, 2, 3, 4, 5, 6, 7, 8 and 9. The Merger will become effective upon the filing of a certificate of Merger with the Secretary of State of the State of Delaware or at such later time as is agreed by Signal and Miragen and specified in the certificate of Merger. Neither Signal nor Miragen can predict the exact timing of the consummation of the Merger.

Regulatory Approvals

Signal must comply with applicable federal and state securities laws and the rules and regulations of The NASDAQ Capital Market in connection with the issuance of shares of Signal common stock and the filing of this proxy statement/prospectus/information statement with the SEC.

Tax Treatment of the Merger

Signal and Miragen intend the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Code. Each of Signal and Miragen will use its commercially reasonable efforts to cause the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Code, and not to permit or cause any affiliate or any subsidiary of Signal or Miragen to, take any action or cause any action to be taken which would cause the Merger to fail to qualify as a reorganization under Section 368(a) of the Code. For a description of material U.S. federal income tax consequences of the Merger, see the section titled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” below.

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

The following is a discussion of material U.S. federal income tax consequences of the Merger applicable to U.S. Holders (as defined below) who exchange their Miragen common stock for Signal common stock in the Merger assuming the Merger is consummated as contemplated herein. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local, or non-U.S. tax laws are not discussed. This discussion is based on the Code, U.S. Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the Internal Revenue Service, or the IRS, each as in effect as of the date of the Merger. These authorities are subject to differing interpretations or change. Any such change, which may or may not be retroactive, could alter the tax consequences to holders of Miragen common stock as described herein.

This discussion does not address all U.S. federal income tax consequences relevant to the particular circumstances of a Miragen common stockholder. In addition, it does not address consequences relevant to holders of Miragen common stock that are subject to particular U.S. or non-U.S. tax rules, including, without limitation:

 

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persons who hold their Miragen common stock in a functional currency other than the U.S. dollar;

 

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persons who hold Miragen common stock that constitutes “qualified small business stock” under Section 1202 of the Code or as “Section 1244 stock” for purposes of Section 1244 of the Code;

 

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persons holding Miragen common stock as part of an integrated investment (including a “straddle,” pledge against currency risk, “constructive” sale or “conversion” transaction or other integrated or risk reduction transactions) consisting of shares of Miragen common stock and one or more other positions;

 

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persons who are not U.S. Holders as defined below;

 

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banks, insurance companies, mutual funds, tax-exempt entities, financial institutions, broker-dealers, real estate investment trusts or regulated investment companies;

 

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persons who do not hold their Miragen common stock as a “capital asset” within the meaning of Section 1221 of the Code;

 

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•

partnerships or other entities classified as partnerships or disregarded entities for U.S. federal income tax purposes, S corporations or other pass-through entities (including hybrid entities);

 

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persons who acquired their Miragen common stock pursuant to the exercise of compensatory options or in other compensatory transactions;

 

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persons who acquired their Miragen common stock pursuant to the exercise of warrants or conversion rights under convertible instruments;

 

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persons holding Miragen common stock who exercise dissenters’ rights;

 

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persons who acquired their Miragen common stock in a transaction subject to the gain rollover provisions of Section 1045 of the Code; and

 

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persons who hold their Miragen common stock through individual retirement accounts or other tax-deferred accounts.

For purposes of this discussion, a “U.S. Holder” is a beneficial owner of Miragen common stock that, for U.S. federal income tax purposes, is or is treated as:

 

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an individual who is a citizen or resident of the United States;

 

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a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;

 

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an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or

 

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a trust if either (i) a court within the United States is able to exercise primary supervision over the administration of such trust and one or more United States persons (within the meaning of Section 7701(a)(30) of the Code) are authorized or have the authority to control all substantial decisions of such trust, or (ii) the trust was in existence on August 20, 1996 and has a valid election in effect under applicable Treasury Regulations to be treated as a United States person for U.S. federal income tax purposes.

If an entity treated as a partnership for U.S. federal income tax purposes holds Miragen common stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. If you are a partnership or a partner of a partnership holding Miragen common stock or any other person excluded from this discussion, you should consult your tax advisor regarding the tax consequences of the Merger.

In addition, the following discussion does not address (i) any U.S. federal non-income tax consequences of the Merger, including estate, gift or other tax consequences, (ii) any state, local or non-U.S. tax consequences of the Merger, (iii) the Medicare contribution tax on net investment income or the alternative minimum tax, (iv) the tax consequences of transactions effectuated before, after or at the same time as the Merger (whether or not they are in connection with the Merger), including, without limitation, transactions in which Miragen common stock is acquired (including, but not limited to, pursuant to the Subscription Agreement) or Miragen preferred stock is converted to Miragen common stock, and (v) the tax consequences to holders of options, warrants or similar rights to purchase Miragen common stock.

IN LIGHT OF THE FOREGOING, HOLDERS OF MIRAGEN COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABLE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER TAX CONSEQUENCES, AND ANY TAX REPORTING REQUIREMENTS OF THE MERGER AND RELATED TRANSACTIONS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.

 

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In connection with the filing of the registration statement of which this proxy statement/prospectus/information statement is a part, Pillsbury will deliver to Signal and Cooley will deliver to Miragen opinions that the statements under the caption “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” constitute the opinions of Pillsbury and Cooley, respectively. In rendering their opinions, counsel assume that the statements and facts concerning the Merger set forth in this proxy statement/prospectus/information statement and in the Merger Agreement, are true and accurate in all respects, and that the Merger will be completed in accordance with this proxy statement/prospectus/information statement and the Merger Agreement. Counsels’ opinions also assume the truth and accuracy of certain representations and covenants as to factual matters made by Signal, Miragen and Merger Sub in tax representation letters provided to counsel. In addition, counsel base their tax opinions on the law in effect on the date of the opinions and assume that there will be no change in applicable law between such date and the time of the Merger. If any of these assumptions is inaccurate, the tax consequences of the Merger could differ from those described in this proxy statement/prospectus/information statement.

No ruling from the IRS has been or will be requested with respect to the tax consequences of the Merger. Opinions of counsel do not bind the courts or the IRS, nor will they preclude the IRS from adopting a position contrary to those expressed in the opinions. Subject to the qualifications and assumptions described in this proxy statement/prospectus/information statement, the Merger will be treated for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code. Accordingly, the tax consequences to U.S. Holders of Miragen common stock will be as follows:

 

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a U.S. Holder will not recognize gain or loss upon the exchange of Miragen common stock for Signal common stock pursuant to the Merger, except to the extent of cash received in lieu of a fractional share of Signal common stock as described below;

 

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a U.S. Holder who receives cash in lieu of a fractional share of Signal common stock in the Merger will recognize capital gain or loss in an amount equal to the difference between the amount of cash received instead of a fractional share and the stockholder’s tax basis allocable to such fractional share;

 

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a U.S. Holder’s aggregate tax basis for the shares of Signal common stock received in the Merger (including any fractional share interest for which cash is received) will equal the stockholder’s aggregate tax basis in the shares of Miragen common stock surrendered in the Merger; and

 

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the holding period of the shares of Signal common stock received by a U.S. Holder in the Merger will include the holding period of the shares of Miragen common stock surrendered in exchange therefor.

Gain or loss recognized by a U.S. Holder who receives cash in lieu of a fractional share of Signal common stock will constitute capital gain or loss and any such gain or loss will constitute long-term capital gain or loss if the U.S. Holder’s holding period in the Miragen common stock surrendered in the Merger is more than one year as of the effective date of the Merger. Under current law, long-term capital gains of non-corporate taxpayers are taxed at a reduced U.S. federal income tax rate. Under current law, the deductibility of capital losses is subject to limitations. In addition, for purposes of the above discussion of the bases and holding periods for shares of Miragen common stock and Signal common stock, U.S. Holders who acquired different blocks of Miragen common stock at different times for different prices must calculate their gains and losses and holding periods separately for each identifiable block of such stock exchanged in the Merger.

As provided in Treasury Regulations Section 1.368-3(d), each U.S. Holder who receives shares of Signal common stock in the Merger is required to retain permanent records pertaining to the Merger, and make such records available to any authorized IRS officers and employees. Such records should specifically include information regarding the amount, basis, and fair market value of all transferred property, and relevant facts regarding any liabilities assumed or extinguished as part of such reorganization. Additionally, U.S. Holders who owned immediately before the Merger at least one percent (by vote or value) of the total outstanding stock of Miragen are required to attach a statement to their tax returns for the year in which the Merger is consummated that contains the information listed in Treasury Regulation Section 1.368-3(b). Such statement must include the

 

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U.S. Holder’s tax basis in such holder’s Miragen common stock surrendered in the Merger, the fair market value of such stock, the date of the Merger and the name and employer identification number of each of Miragen and Signal.

If the Merger fails to qualify as a reorganization within the meaning of Section 368(a) of the Code, then a U.S. Holder would recognize gain or loss upon the exchange of Miragen common stock for Signal common stock equal to the difference between the fair market value, at the time of the Merger, of the Signal common stock received in the Merger (including any cash received in lieu of a fractional share of Signal common stock) and such U.S. Holder’s tax basis in the Miragen common stock surrendered in the Merger. Such gain or loss would be long-term capital gain or loss if the Miragen common stock was held for more than one year at the time of the Merger. In such event, the aggregate tax basis of Signal common stock received in the Merger would equal its fair market value at the time of the closing of the Merger, and the holding period of such Signal common stock would commence the day after the closing of the Merger.

Information Reporting and Backup Withholding

A U.S. Holder of Miragen common stock may be subject to information reporting and backup withholding for U.S. federal income tax purposes on cash paid in lieu of fractional shares in connection with the Merger. The current backup withholding rate is 28 percent. Backup withholding will not apply, however, to a holder who (i) furnishes a correct taxpayer identification number and certifies the holder is not subject to backup withholding on IRS Form W-9 or a substantially similar form, (ii) provides a certification of foreign status on an appropriate IRS Form W-8 or successor form or (iii) certifies the holder is otherwise exempt from backup withholding. U.S. Holders of Miragen common stock should consult their tax advisors regarding their qualification for an exemption f