Schedule 14A


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ANNEX A:

  

AMENDED AND RESTATED SHARE PURCHASE AGREEMENT

 

 

ANNEX B:

  

TOKAI STOCK PURCHASE AGREEMENT

 

 

ANNEX C:

  

FORM OF CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF TOKAI PHARMACEUTICALS, INC. (REGARDING THE REVERSE STOCK SPLIT)

 

 

ANNEX D:

  

OPINION OF WEDBUSH SECURITIES INC.

 

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SUMMARY

This summary, together with the section of this proxy statement entitled “Questions and Answers About the Special Meeting and the Otic Transaction,” highlights selected information from this proxy statement and may not contain all of the information that is important to you as a stockholder of Tokai or that you should consider before voting on the proposals being considered at the special meeting. To better understand the Otic Transaction and the related Equity Financing, you should read carefully this entire proxy statement and all of its annexes, including the Share Purchase Agreement, which is attached as Annex A, and the Tokai Stock Purchase Agreement, which is attached as Annex B, before voting on the proposals being considered at the special meeting. This summary includes page references directing you to more complete descriptions. For more information, please see the section entitled “Where You Can Find More Information; Incorporation by Reference,” beginning on page 186 of this proxy statement.

The Parties Involved in the Transaction

Tokai Pharmaceuticals, Inc.

Tokai Pharmaceuticals, Inc. (“Tokai”) is a biopharmaceutical company focused on developing and commercializing innovative therapies for prostate cancer and other hormonally driven diseases. Tokai has focused substantially all of its research and development efforts on the development of galeterone, an oral small molecule, including clinical trials of galeterone for the treatment of patients with metastatic castration-resistant prostate cancer (“ mCRPC ”). Tokai also has a drug discovery program, known as ARDA (androgen receptor degradation agents), under which it was seeking to identify and develop novel compounds for patients with androgen receptor signaling diseases, including prostate cancer, either alone or in combination with other products.

In July 2016, Tokai announced its plan to discontinue ARMOR3-SV, its pivotal Phase 3 clinical trial comparing galeterone to XtandiIn September 2016, Tokai completed a workforce reduction, which was designed to reduce its operating expenses while it conducted a review of development options for galeterone and its ARDA program.

For more information on Tokai’s business, see the section entitled “Tokai’s Business,” beginning on page 133 of this proxy statement.

Otic Pharma, Ltd.

Otic Pharma, Ltd. (“Otic”) is a clinical-stage, specialty pharmaceutical company focused on the acquisition and development of products for disorders of the ear, nose, and throat (“ ENT ”). The company has two novel technologies that are initially being developed for conditions of the ear.

OP-01 is a foam-based technology. It was developed by Otic with the intent to be used as a delivery vehicle for drugs which are to be placed into the ears, as well as the nasal and sinus cavities. OP-01 is currently being developed as an improved treatment option for acute otitis externa (“ AOE ” or “swimmers ear”), a common medical condition of the outer ear canal that globally affects tens of millions of adults and children every year.

 

 

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Otic has completed four clinical trials of OP-01 in 353 subjects, including a successful phase 2b study with a steroid-free, antibiotic-only formulation of OP-01 that performed similarly to standard of care.

In 2016, Otic stopped development of the first-generation, antibiotic-only OP-01 product and began development of a second-generation formulation of OP-01 that is a modification of the first-generation formulation. The goal for this second-generation formulation is to produce a clinically differentiated product that rapidly resolves ear pain (an unmet need in AOE), as well as eradicate infection with fewer than seven days of dosing. This second-generation formulation will include the same antibiotic as the first-generation formulation, plus a second active ingredient to address ear pain. Otic intends to include data from the first generation antibiotic-only OP-01 formulation to support the development of the second-generation formulation. Since both active ingredients in the second generation formulation are included in approved products, Otic believes that phase 1 studies will not be needed but that phase 2 studies with the second-generation formulation will be needed. Otic believes a product of this nature would meaningfully improve upon the standard of care and may become a best-in-class treatment option for AOE.

OP-02 is a surfactant-based technology. It was originally developed by Otodyne, Inc. and subsequently licensed to Otic in November 2015. OP-02 is currently being developed as a potential first-in-class treatment option for patients with otitis media (“ OM ”) and Eustachian tube dysfunction (“ ETD ”). OM and ETD are common medical conditions of the middle ear that globally affect more than 700 million adults and children every year. OM is a common disorder seen in pediatric practice and is the most frequent reason children are prescribed antibiotics and undergo surgery. OP-02 is a daily nasal spray, designed to improve and maintain the Eustachian tube’s ability to drain and ventilate the middle ear. Otic is currently developing a formulation of OP-02 to be used in human clinical trials. Otic expects to conduct two phase 1 clinical studies in 2018 to explore the safety and tolerability of OP-02, including one study that will explore how OP-02 affects Eustachian tube function (pharmacodynamics). These phase 1 studies will evaluate single and repeated intranasal doses of OP-02 in adults. Upon completion of these studies, Otic intends to initiate phase 2 studies of OP-02, with a focus on prevention of acute, recurrent, and/or chronic OM in children.

For more information on Otic’s business, see the section entitled “Otic’s Business,” beginning on page 134 of this proxy statement.

The Transaction Structure

(pages 72, 102)

Upon the terms and subject to the conditions set forth in the Share Purchase Agreement, as amended and restated on March 2, 2017 (the “ Share Purchase Agreement ”), by and among Tokai, Otic and the shareholders of Otic (each a “ Seller ” and collectively, the “ Sellers ”), Tokai will acquire all of the ordinary and preferred shares of Otic in exchange for the issuance to the Sellers of a specified number of shares of Tokai common stock and to assume all outstanding share options and warrants of Otic. Following the Otic Transaction, Otic will be a wholly owned subsidiary of Tokai.

Under the Share Purchase Agreement, Tokai agreed to issue up to an aggregate of 36,911,631 shares of its common stock to the Sellers and to the holders of warrants and options of Otic upon the exercise of such options and warrants, which shares shall be allocated among the Otic equityholders in accordance with the Articles of Association of Otic and the share incentive plan of Otic based on the average closing price of the Tokai common stock on the NASDAQ Global Market over the twenty trading days ending the third trading day prior to the closing of the Otic Transaction. If all of Otic’s outstanding options and warrants are exercised prior to closing, then following the closing, the 36,911,631 shares of Tokai common stock the shareholders of Otic would receive represents approximately 62% of the outstanding shares of Tokai common stock, excluding for this purpose the effect on ownership of the issuance of shares in the Equity Financing. Based on the warrants to purchase shares of Otic and the conversion of certain outstanding debt facilities of Otic into shares of Otic that are expected to be

 

 

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exercised or converted prior to closing, and assuming a Tokai common stock price of $1.05 per share at the time of the closing (which was the average closing price of the Tokai common stock on the NASDAQ Global Market over the twenty trading days ending on December 21, 2016), Tokai would issue to the Otic shareholders 34,653,770 shares of Tokai common stock at the closing (or 60.5% of the outstanding shares of Tokai common stock, excluding for this purpose the effect on ownership of the issuance of shares in the Equity Financing). The relative percentage was derived using a stipulated value of Otic of approximately $50.0 million and of Tokai of approximately $33.0 million. After giving effect to the issuance of 3,603,601 shares of Tokai common stock in the Equity Financing, if all of Otic’s outstanding options, warrants and convertible debt facilities are exercised or converted prior to closing, the shareholders of Otic would hold approximately 64% of the Tokai common stock.

The issuance of Tokai common stock to the Sellers will be issued in transactions exempt from registration under the Securities Act of 1933, as amended (the “ Securities Act ”) in reliance on Section 4(a)(2) of the Securities Act and Regulation D or Regulation S promulgated thereunder, as each of the Sellers is either an “accredited investor” within the meaning of Rule 501(a) under the Securities Act or not a “U.S. person” within the meaning of Rule 902 of Regulation S of the Securities Act. The shares of Tokai common stock may not be offered or sold by the holders of those shares absent registration or an applicable exemption from registration requirements.

Effect of the Otic Transaction on Otic Share Options, Otic Warrants and Tokai Stock Options

(pages 73, 103-104)

Otic Share Options and Otic Warrants

Pursuant to the Share Purchase Agreement, at closing Tokai will assume the outstanding share option awards and warrants of Otic (other than warrants of Otic that are exercised in connection with the Otic Transaction). Each of these options and warrants will become options and warrants to acquire a number of shares of Tokai common stock at an exercise price per share calculated pursuant to Otic’s Articles of Association and Otic’s share incentive plan. Notwithstanding the foregoing, in no event will the number of shares of Tokai common stock issued in connection with the outstanding share option awards and warrants of Otic, together with the aggregate number of shares of Tokai common stock issuable to the shareholders of Otic pursuant to the Share Purchase Agreement, exceed 36,911,631 shares of Tokai common stock. Based on the warrants to purchase shares of Otic that are expected to be exercised prior to closing, and assuming a Tokai common stock price of $1.05 per share at the time of the closing (which was the average closing price of the Tokai common stock on the NASDAQ Global Market over the twenty trading days ending on December 21, 2016), Tokai would assume options to purchase approximately 2,257,765 shares of Tokai common stock at a weighted average exercise price of $0.49 per share.

Tokai Options

Upon closing of the Otic Transaction, all of Tokai’s outstanding stock options will remain outstanding and in effect. Tokai’s board of directors has determined that the Otic Transaction constitutes a change in control for purposes of Tokai’s stock options. As a result, if any holder of Tokai stock options (other than Tokai’s non-employee directors) is terminated without cause or resigns for good reason following the closing, such holder’s stock options will immediately vest in full. Stock options held by Tokai’s non-employee directors will vest in full immediately upon closing.

Expected Timing of the Otic Transaction

(page 73)

Unless the Share Purchase Agreement is earlier terminated pursuant to its terms, the Otic Transaction will be consummated as promptly as practicable, but in no event later than the second business day following the satisfaction or waiver of the conditions to closing, or as Tokai and Otic agree. However, because the Otic Transaction is subject to a number of conditions to closing, neither Tokai nor Otic can predict exactly when the closing will occur or if it will occur at all.

 

 

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Tokai Board Recommendation and Reasons for the Otic Transaction

(pages 66-67, 85-88, 108-109, 123-124, 131-132)

The Tokai board of directors has determined and believes that each of the proposals to be voted on at the special meeting is fair to, advisable, and in the best interests of Tokai and its stockholders and has approved such items. The Tokai board of directors recommends that Tokai stockholders vote “FOR” each of the proposals to be voted on. For more information on the Tokai board of directors’ recommendation see the section entitled “ Information About the Special Meeting—Recommendation of the Tokai Board of Directors ,” beginning on page 66 of this proxy statement, and the section entitled “ Terms of the Share Purchase Agreement—Changes to Board Recommendation ,” beginning on page 108 of this proxy statement.

In reaching its unanimous decision to approve the Share Purchase Agreement and the issuance of Tokai common stock pursuant to the Share Purchase Agreement, the Tokai board of directors considered a number of factors, including, among others,

 

 



 

that Otic’s portfolio of products for ENT disorders, including Otic’s lead candidate, which is a nasally-administered, combination drug product (OP-02) intended to address the underlying cause of otitis media and Eustachian tube dysfunction (OM/ETD), represents a meaningful market opportunity, and may provide new medical benefits for patients;

 

 



 

that the Otic Transaction would provide existing Tokai stockholders with the opportunity to participate in the potential growth of the combined company following the transaction; and

 

 



 

that Tokai had discontinued its pivotal Phase 3 clinical trial of galeterone following the recommendation made by the trial’s independent data monitoring committee and has discontinued enrollment in its Phase 2 clinical trial of galeterone.

For more information on the Tokai board of directors’ reasons for approving the Otic Transaction, see the section entitled “ The Otic Transaction—Reasons for the Otic Transaction ,” beginning on page 86 of this proxy statement.
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