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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant:   ☒
Filed by a Party other than the Registrant: ☐
Check the appropriate box:

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to Section 240.14a-12
Alliqua BioMedical, Inc.
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):

No fee required.

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1)
Title of each class of securities to which transaction applies:
Common Stock and Preferred Stock of Adynxx, Inc. par value $0.001
(2)
Aggregate number of securities to which transaction applies:
30,070,361 shares of common stock of Alliqua BioMedical, Inc. (“Alliqua”) to be issued or issuable pursuant to that certain Agreement and Plan of Merger and Reorganization, dated as of October 11, 2018, by and among Alliqua, Embark Merger Sub Inc., a wholly owned subsidiary of Alliqua, and Adynxx, Inc. (“Adynxx”), assuming the Exchange Ratio determined based on information as to equity ownership as of November 7, 2018 and other assumptions discussed in this proxy statement, including the assumption that Adynxx stockholders will own approximately 86% of the combined company and that Alliqua stockholders will own approximately 14% of the combined company.
(3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined):
The maximum aggregate value was determined based upon 30,070,361 shares of Alliqua common stock being issued in the transaction to Adynxx stockholders, multiplied by $1.64, which is the average of the high and low trading prices as reported on The Nasdaq Capital Market within five business days prior to November  26, 2018. The filing fee was determined by multiplying $0.0001212 by the maximum aggregate value of the transaction as determined in accordance with the preceding sentence.
(4)
Proposed maximum aggregate value of transaction:
$49,315,392.04
(5)
Total fee paid:
$5,977.03

Fee paid previously with preliminary materials.

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
(1)
Amount previously paid:
   
(2)
Form, Schedule or Registration Statement No.:
   
(3)
Filing Party:
   
(4)
Date Filed:
   

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SUBJECT TO COMPLETION
PRELIMINARY PROXY STATEMENT, DATED NOVEMBER 26, 2018

Alliqua BioMedical, Inc.
2150 Cabot Blvd., West
Suite B
Langhorne, PA 19047
Telephone: (215) 702-8550
           , 2018
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders (the “Special Meeting”), of Alliqua BioMedical, Inc. (“Alliqua”), which will be held on                  , at 9:00 A.M. Eastern Time, at 2150 Cabot Blvd., West, Suite B, Langhorne, PA 19047, unless postponed or adjourned to a later date. This is an important Special Meeting that affects your investment in Alliqua.
As previously announced, on October 11, 2018, Alliqua, Embark Merger Sub Inc., (“Merger Sub”), and Adynxx, Inc. (“Adynxx”), entered into an Agreement and Plan of Merger and Reorganization, as thereafter amended or supplemented (the “Merger Agreement”), pursuant to which Merger Sub, a wholly owned subsidiary of Alliqua, will merge with and into Adynxx, with Adynxx surviving as a wholly owned subsidiary of Alliqua. Following the acquisition of Adynxx by Alliqua (the “Merger”), Alliqua will change its name to “Adynxx, Inc.” (“New Adynxx” or the “combined company”). Under the terms of the Merger Agreement, the number of shares of the Alliqua’s common stock to be issued to Adynxx stockholders will be based on an Exchange Ratio (as defined herein), which is subject to adjustment taking into consideration Alliqua’s and Adynxx’s equity capitalization immediately prior to the Effective Time as well as the Financing (as defined below). Pursuant to the Exchange Ratio, immediately following the Effective Time (as defined herein) of the Merger, Adynxx’s equityholders are expected to own approximately 86% of the combined company, and Alliqua’s equityholders are expected to own approximately 14% of the combined company. For a complete description of how the ownership percentages and Exchange Ratio will be determined at the Effective Time of the Merger, please see the section entitled “The Merger Agreement — Exchange Ratio” beginning on page 77 of this proxy statement.
Alliqua is holding a Special Meeting of its stockholders in order to obtain the stockholder approvals necessary to complete the Merger. Pursuant to rules of The Nasdaq Stock Market LLC (“Nasdaq”), the issuance of Alliqua’s common stock requires Alliqua’s stockholders’ approval because it exceeds 20% of the number of shares of Alliqua common stock outstanding prior to the issuance and does not constitute a “public offering” as defined under Nasdaq’s rules. Furthermore, the issuance of the shares requires Alliqua’s approval under Nasdaq’s rules because it will result in a “change of control” of Alliqua. At the Special Meeting of stockholders, you will be asked to consider and vote upon:
1. A proposal to approve the Merger, the Merger Agreement, the issuance of Alliqua’s common stock pursuant to the Merger Agreement and transactions contemplated by the Merger, as well as the resulting “change of control” of Alliqua under Nasdaq rules (the “Merger Proposal”);
2. A proposal to amend Alliqua’s amended and restated certificate of incorporation to effect a reverse stock split of Alliqua’s common stock, (the “Reverse Stock Split Proposal”); and
3. A proposal to adjourn or postpone the Special Meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of the Merger Proposal and the Reverse Stock Split Proposal, (the “Adjournment Proposal”).
After careful consideration, Alliqua’s board of directors has unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable, fair to and in the best interests of Alliqua and its stockholders and recommends that you vote “FOR” the Merger Proposal (Proposal 1); “FOR” the Reverse Stock Split Proposal (Proposal 2); and “FOR” the Adjournment Proposal (Proposal 3) if necessary to solicit additional proxies if there are not sufficient votes to approve the Merger Proposal or the Reverse Stock Split Proposal.
The accompanying proxy statement contains important information concerning the Special Meeting, the transactions contemplated by the Merger Agreement and related matters, including information as to

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how to cast your vote. We encourage you to read the accompanying proxy statement and the Merger Agreement and other annexes to the proxy statement carefully and in their entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “RISK FACTORS” BEGINNING ON PAGE 17.
Your vote is very important, regardless of the number of shares of our voting securities that you own. I encourage you to vote by telephone, over the Internet, or if you requested to receive printed proxy materials, by marking, signing, dating and returning your proxy card so that your shares will be represented and voted at the Special Meeting, whether or not you plan to attend. If you attend the Special Meeting, you will, of course, have the right to revoke the proxy and vote your shares in person.
If your shares are held in the name of a broker, bank or other nominee, and you receive notice of the Special Meeting through your broker, bank or other nominee, please vote or return the materials in accordance with the instructions provided to you by such broker, bank or other nominee or contact your broker, bank or other nominee directly in order to obtain a proxy issued to you by your nominee holder to attend the meeting and vote in person. Failure to do so may result in your shares not being eligible to be voted by proxy at the meeting.
On behalf of Alliqua’s board of directors, I urge you to submit your proxy as soon as possible, even if you currently plan to attend the meeting in person.
Thank you for your support of our company. I look forward to seeing you at the Special Meeting.
Sincerely,
   
David I. Johnson
President, Chief Executive Officer and Director
Neither the Securities and Exchange Commission nor any state securities regulatory agency has approved or disapproved of the Merger described in this proxy statement or the Alliqua common stock to be issued in connection with the Merger or determined if this proxy statement is accurate or adequate. Any representation to the contrary is a criminal offence.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR
THE STOCKHOLDER MEETING TO BE HELD ON                  :
Our official Notice of Special Meeting of Stockholders and Proxy Statement are available at:
www.proxyvote.com
The accompanying proxy statement is dated November   , 2018, and is first being mailed to stockholders on or about November   , 2018.

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Alliqua BioMedical, Inc.
2150 Cabot Blvd., West
Suite B
Langhorne, PA 19047

Telephone: (215) 702-8550
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To be held on                  
To the Stockholders of Alliqua BioMedical, Inc.:
A Special Meeting of stockholders of Alliqua, will be held at 9:00 A.M. Eastern Time, on                  , at 2150 Cabot Blvd., West, Suite B, Langhorne, PA 19047, to consider and act upon the following matters:
1. To approve the Merger, the Merger Agreement, the issuance of Alliqua’s common stock pursuant to the Merger Agreement and transactions contemplated by the Merger, as well as the resulting “change of control” of Alliqua under Nasdaq rules;
2. To approve an amendment to Alliqua’s amended and restated certificate of incorporation to effect a reverse stock split of Alliqua’s common stock; and
3. To consider and vote upon an adjournment or postponement of the Special Meeting, if necessary or appropriate, for the purpose of soliciting additional votes for the approval of Proposals 1 and 2.
Stockholders also will consider and act on any other matters as may properly come before the Special Meeting or any adjournment or postponement thereof, including any procedural matters incident to the conduct of the Special Meeting.
Alliqua’s common stock is the only type of security entitled to vote at the Special Meeting. The board of directors has fixed November 7, 2018 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Special Meeting and any adjournment or postponement thereof. Only holders of record of shares of Alliqua’s common stock at the close of business on the record date are entitled to notice of, and to vote at, the Special Meeting. At the close of business on the record date, Alliqua expects to have 5,005,210 shares of common stock outstanding and entitled to vote at the Special Meeting. Each holder of record of shares of common stock on the record date will be entitled to one vote for each share held on all matters to be voted upon at the Special Meeting.
Your vote is important. The affirmative vote of the majority of votes cast affirmatively or negatively is required for approval of Proposals 1 and 3. The affirmative vote of holders of a majority of the outstanding shares of Alliqua’s common stock entitled to vote at the Special Meeting is required for approval of Proposal 2.
Whether or not you plan to attend the Special Meeting in person, please submit your proxy promptly by telephone or via the internet in accordance with the instructions on the enclosed proxy card or complete, date, sign and promptly return the accompanying proxy card in the enclosed postage paid envelope to ensure that your shares will be represented and voted at the Special Meeting. If you date, sign and return your proxy card without indicating how you wish to vote, your proxy will be counted as a vote in favor of Proposals 1 through 3. If you fail either to return your proxy card or to vote in person at the Special Meeting, your shares will not be counted for purposes of determining whether a quorum is present at the Special Meeting and will have the same effect as a vote against Proposal 2, but assuming a quorum is present at the Special Meeting, will have no effect on the outcome of Proposal 1 or Proposal 3. If you attend the Special Meeting, you may, upon your written request, withdraw your proxy and vote in person. You may revoke your proxy at any time before the polls close at the Special Meeting by sending a written notice to the Corporate Secretary of Alliqua, by providing a duly executed proxy card bearing a later date than the proxy being revoked, by submitting a proxy on a later date by telephone or via the internet (only your last telephone or internet proxy will be counted) before 9:00 A.M. Eastern Time on                   or by attending the Special Meeting and voting in person.

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If your shares are registered in your name, even if you plan to attend the Special Meeting or any postponement or adjournment of the Special Meeting in person, we request that you vote by telephone, over the Internet, or complete, sign and mail your proxy card to ensure that your shares will be represented at the Special Meeting.
If your shares are held in the name of a broker, bank or other nominee, and you receive notice of the Special Meeting through your broker, bank or other nominee, please vote or complete and return the materials in accordance with the instructions provided to you by such broker, bank or other nominee or contact your broker, bank or other nominee directly in order to obtain a proxy issued to you by your nominee holder to attend the Special Meeting and vote in person. Failure to do so may result in your shares not being eligible to be voted by proxy at the Special Meeting.

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REFERENCES TO ADDITIONAL INFORMATION
This proxy statement under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules thereunder, contains a notice of meeting with respect to the Special Meeting of stockholders at which Alliqua’s stockholders will consider and vote on the Merger Proposal, the Reverse Stock Split Proposal and the Adjournment Proposal.
Additional business and financial information about Alliqua can be found in documents previously filed by Alliqua with the U.S. Securities and Exchange Commission (the “SEC”). This information is available to you without charge on the SEC’s website. Alliqua stockholders will also be able to obtain the proxy statement, free of charge, from Alliqua by requesting copies in writing using the following contact information:
ALLIQUA BIOMEDICAL, INC.
Attn: Corporate Secretary
2150 Cabot Blvd., West
Suite B
Langhorne, PA 19047

Tel: (215) 702-8550
You may also request additional copies from Alliqua’s proxy solicitor, D.F. King, using the following contact information:
Banks and brokers may call D.F. King at (212) 269-5550.
Stockholders may call D.F. King toll-free at (800) 884-5101.
See “Where You Can Find More Information” beginning on page 168.

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SUMMARY
This summary highlights information contained elsewhere in this proxy statement and may not contain all the information that is important to you with respect to the Merger, Merger Agreement, the issuance of Alliqua’s common stock pursuant to the Merger Agreement and transactions contemplated by the Merger and the other matters being considered at the Special Meeting of the Alliqua’s stockholders to which this proxy statement relates. We urge you to read carefully the remainder of this proxy statement, including the attached annexes, and the other documents to which we have referred you. For additional information on the Alliqua, see the section entitled “Where You Can Find More Information” beginning on page 168. We have included page references in this summary to direct you to a more complete description of the topics presented below.
All references in this proxy statement to:

“Alliqua,” the “Company,” “we,” “us,” or “our” refer to Alliqua BioMedical, Inc.,

“Adynxx” refer to Adynxx, Inc.,

“Effective Time” refer to the effective time of the Merger,

“Merger Sub” refer to Embark Merger Sub Inc.,

the “Merger Agreement” refer to the Agreement and Plan of Merger and Reorganization, dated as of October 11, 2018, by and between Alliqua, Merger Sub and Adynxx,

“Nasdaq” refer to The Nasdaq Capital Market or The Nasdaq Global Market, as applicable, and

“New Adynxx” or the “combined company” refer to Adynxx, Inc. as the combined company immediately following the Effective Time.
The Companies
Alliqua BioMedical, Inc.
2150 Cabot Blvd., West
Suite B
Langhorne, PA 19047

(215) 702-8550
Alliqua is a Delaware corporation that was originally formed in 1997 under the name Zeta Corporation. On April 17, 2003, Alliqua changed its name to Hepalife Technologies, Inc. and, on December 20, 2010, Alliqua changed its name to Alliqua, Inc. On June 6, 2014, pursuant to an agreement and plan of Merger between us and our wholly owned Delaware subsidiary, Alliqua BioMedical, Inc., Alliqua merged with and into Alliqua BioMedical, Inc. for the purposes of changing our name to Alliqua BioMedical, Inc. and state of domicile from Florida to Delaware. Alliqua manufactures high water content, electron beam cross-linked, aqueous polymer hydrogels, or gels, used for wound care, medical diagnostics, transdermal drug delivery and cosmetics. Alliqua believes that it is one of the leading manufacturers of high performance gels in the United States. Alliqua specializes in custom gels by capitalizing on proprietary manufacturing technologies. Alliqua has, historically, served as a contract manufacturer, supplying its gels to third parties who incorporate them into their own products. Alliqua is a regenerative technologies company that commercializes differentiated regenerative medical products which assist the body in the repair or replacement of soft tissue.
Our common stock is traded on Nasdaq under the symbol “ALQA.”
Embark Merger Sub Inc.
2150 Cabot Blvd., West
Suite B
Langhorne, PA 19047

(215) 702-8550
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Merger Sub is a wholly owned subsidiary of Alliqua that was recently incorporated in Delaware for the purpose of the Merger. It does not conduct any business and has no material assets.
Adynxx, Inc.
100 Pine St., Suite 500
San Francisco, CA 94111

(415) 512-7740
Adynxx is a clinical stage biopharmaceutical company focused on bringing to market novel, disease-modifying products for the treatment of pain and inflammatory diseases. Since its founding in 2007, Adynxx has worked to discover and develop transcription factor decoys to modify the course of pain. Adynxx’s resulting pipeline includes brivoligide, a Phase 2 drug candidate intended to address postoperative pain in a readily-identified group of patients with a greater risk of experiencing increased pain and elevated opioid use following surgery, and AYX2, a pre-clinical candidate intended to resolve chronic syndromes of pain, including both inflammatory and neuropathic pain. Both programs were discovered by Adynxx as part of the AYX decoy technology platform. Adynxx plans to continue development of brivoligide and AYX2, plans to collaborate with twoXAR, Inc. (“twoXAR”) to use twoXAR’s artificial intelligence-driven drug discovery platform to identify endometriosis treatments, and also seeks to identify potential in-licensing opportunities to build a pipeline of complementary product candidates in pain and inflammation.
The Combined Company
Immediately following the Effective Time of the Merger, the current equityholders of Alliqua and current equityholders of Adynxx are expected to own approximately 14% and 86% of the combined company, respectively, which is subject to adjustment based on how much Adynxx is able to raise as part of a permitted financing (the “Permitted Financing”), as discussed in “The Merger Agreement — Exchange Ratio.” The principal executive office of the combined company is expected to be located in San Francisco, California.
Summary of the Merger
Upon the terms and subject to the conditions of the Merger Agreement, Merger Sub, a wholly owned subsidiary of Alliqua formed by Alliqua in connection with the Merger, will merge with and into Adynxx. The Merger Agreement provides that upon the consummation of the Merger the separate existence of Merger Sub shall cease. Adynxx will continue as the surviving corporation and will be a wholly owned subsidiary of Alliqua. Immediately following the Effective Time of the Merger, Adynxx’s equityholders will own approximately 86% of the combined company and Alliqua’s equityholders will own approximately 14% of the combined company. Following the Merger, Alliqua will change its name to “Adynxx, Inc.”
Reasons for the Merger (see page 65)
The board of directors of Alliqua considered various reasons for the Merger, as described herein.
Opinion of Alliqua’s Financial Advisor (see page 67 and Annex H)
At a meeting held on October 5, 2018, Alliqua’s financial advisor, H.C. Wainwright & Co. (“Wainwright”), rendered its oral opinion to our board of directors (which was subsequently confirmed in writing by delivery of Wainwright’s written opinion dated the same date) (the “Opinion”) to the effect that based upon and subject to the assumptions, factors, qualifications and limitations set forth in the written opinion described herein, as of October 5, 2018, the Exchange Ratio was fair, from a financial point of view, to Alliqua.
Wainwright’s opinion was prepared solely for the information of the board of directors of Alliqua and only addressed the fairness, from a financial point of view, to Alliqua of the Exchange Ratio in the Merger Agreement. Wainwright was not requested to opine as to, and Wainwright’s opinion does not address, the relative merits of the Merger or any alternatives to the Merger, Alliqua’s underlying decision to proceed
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with or effect the Merger, or any other aspect of the Merger. Wainwright’s opinion does not address the fairness of the Merger to the holders of any class of securities, creditors or other constituencies of Alliqua and is not a valuation of Alliqua or Adynxx or their respective assets or any class of their securities. Wainwright did not express an opinion about the fairness of the amount or nature of any compensation payable or to be paid to any of the officers, directors or employees, of Adynxx, whether or not relative to the Merger.
The summary of Wainwright’s opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is included as Annex H to this proxy statement and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Wainwright in preparing its opinion. Wainwright’s opinion was prepared solely for the information of the board of directors of Alliqua for its use in connection with its consideration of the Merger. Neither Wainwright’s written opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and they do not constitute, advice or a recommendation to any stockholder as to how such stockholder should act or vote with respect to any matter relating to the Merger or any other matter.
Overview of the Merger Agreement
Merger Consideration (see page 77)
At the closing of the Merger:

any shares of Adynxx ordinary shares or preferred shares held as treasury stock or held or owned by Adynxx or any of its subsidiaries or Merger Sub shall be cancelled and retired and cease to exist and no consideration shall be delivered in exchange therefor;

each share of Adynxx preferred stock outstanding shall be converted to Adynxx common stock, which shall have the right to receive a number of Alliqua common stock equal to the Exchange Ratio, and each share of Adynxx common stock outstanding shall be converted solely into the right to receive a number of shares of Alliqua common stock equal to such Exchange Ratio; and

each outstanding Adynxx stock option, whether vested or unvested, and warrant that has not previously been exercised prior to the time of which the Merger becomes effective will be converted into a stock option or warrant, as the case may be, to purchase shares of Alliqua common stock at the Exchange Ratio.
No fractional shares of Alliqua common stock will be issuable pursuant to the Merger to Adynxx stockholders. Instead, each Adynxx stockholder who would otherwise be entitled to receive a fraction of a share of Alliqua common stock will be aggregated and then, if a fraction of a share of Alliqua common stock results from that aggregation, be rounded up to the nearest whole share of Alliqua common stock.
Under the Exchange Ratio formula in the Merger Agreement, as of immediately following the Merger, but excluding the effect of certain financings (as further described in the Merger Agreement), Adynxx equityholders are expected to own approximately 86% of the aggregate number of shares of the combined company and Alliqua equityholders are expected to own approximately 14% of the combined company. The Exchange Ratio will be fixed immediately prior to the Effective Time to reflect Alliqua’s and Adynxx’s equity capitalization as of immediately prior to such time. In addition, to the extent Adynxx consummates a Permitted Financing (as further described in the Merger Agreement and elsewhere in this proxy statement), in excess of  $10 million dollars prior to the Effective Time, the Exchange Ratio may be further adjusted in a manner that would reduce the percentage of the combined company held by Alliqua stockholders as of immediately prior to the Merger. See “The Merger Agreement — Exchange Ratio” for more information.
Stock Options (see page 78)
The number of shares of Alliqua common stock underlying such options and the exercise prices for unexpired and unexercised option to purchase shares of Alliqua common stock will be appropriately adjusted to reflect Alliqua’s proposed reverse stock split, if consummated. The terms governing options to purchase shares of Alliqua common stock will otherwise remain in full force and effect following the closing of the merger.
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At the Effective Time of the Merger, each stock option to acquire shares of Adynxx stock, whether vested or unvested, that has not previously been exercised will be assumed by Alliqua and converted into an option to purchase, on the same terms and conditions, a number of shares of Alliqua common stock equal to the product of  (a) the number of shares of Adynxx common stock subject to such option, multiplied by (b) the Exchange Ratio, at an exercise price per share of Alliqua common stock equal to the quotient of (i) the exercise price per share of Adynxx common stock subject to such option divided by (ii) the Exchange Ratio.
Warrants (see page 79)
At the Effective Time of the Merger, each Adynxx warrant that is outstanding and unexercised immediately prior to the Effective Time will be converted into and become a warrant to purchase Alliqua’s common stock. All rights with respect to Adynxx’s common stock under Adynxx warrants assumed by Alliqua will thereupon be converted into rights with respect to Alliqua common stock. The replacement warrant shall be exercisable for a number of shares of common stock of the combined company equal to (a) the number of shares of Series A Preferred Stock of Adynxx that the existing warrant is exercisable for multiplied by (b) the Exchange Ratio, at a per share price equal to (i) the exercise price per share of Series A Preferred Stock of Adynxx under the existing warrant divided by (ii) the Exchange Ratio.
Conditions to the Closing of the Merger (see page 79)
Consummation of the Merger is subject to the satisfaction or waiver of a number of conditions (subject to certain exceptions in the Merger Agreement), including, among others, the following:

there shall not have been issued any temporary restraining order, preliminary or permanent injunction or other order preventing the closing of the Merger by any court of competent jurisdiction or other governmental entity of competent jurisdiction, and no law, statute, resolution, ordinance, code, rule, regulation, requirement, ruling or decree shall be in effect which has the effect of making the closing of the Merger illegal;

(a) the holders of a majority of the shares of outstanding Adynxx common stock and outstanding Adynxx preferred stock, voting as a single class on an as converted to Adynxx common stock basis and (b) the holders of a majority of the shares of outstanding Adynxx preferred stock, voting as a separate class on an as converted to Adynxx common stock basis, shall have adopted and approved the Merger Agreement, the Merger and the transactions contemplated by the Merger Agreement, and the holders of a majority of the outstanding shares of Alliqua common stock entitled to vote at the Special Meeting shall have approved the reverse stock split and the affirmative vote of the majority of votes cast affirmatively or negatively at the Special Meeting shall have approved the issuance of shares of Alliqua common stock in the merger;

all waiting periods applicable to any filing under the Hart-Scott-Rodino Antitrust Improvements Act by Alliqua, Adynxx or any Adynxx stockholder shall have expired or been terminated; and

the shares of Alliqua’s common stock to be issued in the Merger shall have been approved for listing on the Nasdaq, subject to official notice of issuance.
In addition, the obligation of Alliqua and Merger Sub to complete the Merger is further subject to the satisfaction or waiver of certain additional conditions, including the following:

certain fundamental representations and warranties of Adynxx shall have been true and correct in all respects on the date of the Merger Agreement and shall be true and correct on the closing date of the Merger with the same force and effect as if made on and as of the date on which the Merger is to be completed or, if such representations and warranties address matters as of a particular date, then such fundamental representations and warranties shall be true and correct as of that particular date;

all other representations and warranties of Adynxx in the Merger Agreement shall have been true and correct as of the date of the Merger Agreement and shall be true and correct on the closing date of the Merger with the same force and effect as if made on the date on which the Merger is to be completed or, if such representations and warranties address matters as of a particular date,
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then such representations and warranties shall be true and correct as of that particular date, except where the failure of these representations and warranties to be true and correct, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the other party;

Adynxx must have complied with and performed each of the covenants and obligations in the Merger Agreement that Adynxx is required to comply with or to perform at or prior to the closing;

there shall have been no effect, change, event, circumstance, or development that is or could reasonably be expected to be materially adverse to, or has or could reasonably be expected to have or result in a material adverse effect on the business, financial condition, assets or operations of Adynxx and its subsidiaries taken as a whole; or the ability of Adynxx to consummate the Merger or any of the other contemplated transactions or to perform any of its covenants or obligations under the Merger Agreement in all material respects, each referred to as a material adverse effect as it relates to Adynxx; and

such other conditions set forth on page 84 of this proxy statement.
In addition, the obligation of Adynxx to complete the Merger is further subject to the satisfaction or waiver of the following conditions:

certain fundamental representations and warranties of Alliqua shall have been true and correct in all respects on the date of the Merger Agreement and shall be true and correct on the closing date of the Merger with the same force and effect as if made on and as of the date on which the Merger is to be completed or, if such representations and warranties address matters as of a particular date, then such fundamental representations and warranties shall be true and correct as of that particular date;

all other representations and warranties of Alliqua in the Merger Agreement shall have been true and correct as of the date of the Merger Agreement and shall be true and correct on the closing date of the Merger with the same force and effect as if made on the date on which the Merger is to be completed or, if such representations and warranties address matters as of a particular date, then such representations and warranties shall be true and correct as of that particular date, except where the failure of these representations and warranties to be true and correct, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the other party;

Alliqua and Merger Sub shall have performed or complied with in all material respects all of its covenants and agreements in the Merger Agreement required to be performed or complied with by it on or before the closing of the Merger; and

such other conditions set forth on page 88.
No Solicitation (see page 83)
Each of Alliqua and Adynxx agreed that, subject to certain exceptions, Alliqua and Adynxx and any of their respective subsidiaries will not, and each party will use its reasonable best efforts to cause each of its officers, directors, employees, investment bankers, attorneys, accountants, representatives, consultants or other agents retained by it or any of its subsidiaries not to, directly or indirectly:

solicit, initiate, knowingly encourage, induce or knowingly facilitate the communication, making, submission or announcement of, any “acquisition proposal” as defined in the Merger Agreement, or take any action that could reasonably be expected to lead to an acquisition proposal or an acquisition inquiry;

furnish any non-public information with respect to it to any person in connection with or in response to an acquisition proposal or an acquisition inquiry;

engage in discussions or negotiations with any person with respect to any acquisition proposal or acquisition inquiry;
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subject to certain exceptions for Alliqua, approve, endorse or recommend an acquisition proposal;

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

publicly propose to do any of the foregoing.
Covenants (see page 84)
Alliqua has agreed that, except as permitted by the Merger Agreement, as required by law, or unless Adynxx shall have provided written consent, during the period commencing on the date of the Merger Agreement and continuing until the earlier to occur of the closing of the Merger and the termination of the Merger Agreement, Alliqua will conduct its business and operations in the ordinary course consistent with past practices and in compliance with all applicable laws, regulations and certain contracts (other than the Spin-off). Alliqua has also agreed that, subject to certain limited exceptions, without the consent of Adynxx, it will not take certain actions described in the Merger Agreement, during the period commencing on the date of the Merger Agreement and continuing until the earlier to occur of the closing of the Merger and the termination of the Merger Agreement.
Termination of the Merger Agreement (see page 90)
Either Alliqua or Adynxx can terminate the Merger Agreement under specified circumstances, which would prevent the Merger from being consummated.
Termination Fee (see page 91)
The Merger Agreement provides for the payment of a termination fee of  $249,000 by each of Alliqua and Adynxx to the other party upon termination of the Merger Agreement under specified circumstances.
Nasdaq Listing (see page 94)
Pursuant to the Merger Agreement, Alliqua agreed to use its reasonable best efforts to cause the shares of Alliqua common stock being issued in the Merger to be approved for listing on Nasdaq at or prior to the Effective Time of the Merger.
Voting Agreements (see page 92)
Concurrently with the execution of the Merger Agreement, certain Alliqua stockholders, owning in the aggregate approximately 10% of Alliqua’s fully-diluted common stock (including common stock which may be issued upon exercise of options and vesting of restricted stock units or settlement of vested restricted stock units), and certain Adynxx stockholders, owning in the aggregate approximately 35% of Adynxx’s outstanding capital stock (on an as-converted to Adynxx common stock basis), entered into voting agreements with Alliqua and Adynxx. The voting agreements provide, among other things, that the parties to the voting agreements will vote the shares of Alliqua capital stock and Adynxx capital stock held by them in favor of the transactions contemplated by the Merger Agreement and against any actions that could adversely affect the consummation of the Merger and grant a proxy to vote such shares in favor of the transactions. In addition, the voting agreements place restrictions on the transfer of the shares of Alliqua capital stock and Adynxx capital stock held by the respective signatory stockholders.
In addition, pursuant to the conditions of the Merger Agreement, holders of the number of shares of Adynxx capital stock required to approve the Merger have already approved the Merger via written consent.
Lock-up Agreements (see page 92)
Concurrently with the execution of the Merger Agreement, certain Alliqua stockholders owning in the aggregate approximately 10% of Alliqua’s fully-diluted common stock (including common stock which may be issued upon exercise of options and vesting of restricted stock units or settlement of vested restricted stock units) and certain Adynxx stockholders, owning in the aggregate approximately 35% of Adynxx’s outstanding capital stock (on an as-converted to Adynxx common stock basis), entered into lock-up
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agreements, pursuant to which such parties have agreed not to, except in limited circumstances, sell or transfer, or engage in swap or similar transactions with respect to, shares of Alliqua’s common stock, including, as applicable, shares received in the Merger and issuable upon exercise of certain warrants and options, from the closing of the Merger until 180 days from the closing date of the Merger.
Management Following the Merger (see page 145)
At the Effective Time of the Merger, the executive management team of the combined company is expected to include the following individuals:
Name
Position with the Combined Company
Current Position
Rick Orr
Chief Executive Officer
Chief Executive Officer
Donald Manning, M.D., Ph.D.
Chief Medical Officer
Chief Medical Officer
Julien Mamet, Ph.D.
Chief Scientific Officer
Chief Scientific Officer
The Board of Directors Following the Merger (see page 145)
At the Effective Time of the Merger, the combined company will initially have a     -member board of directors, comprised of,      as Chairperson,      and     . Alliqua has the right to designate one member to the board of directors.
Interests of Alliqua’s Directors and Executive Officers in the Merger (see page 75)
Alliqua’s directors and executive officers have economic interests in the Merger that are different from, or in addition to, those of Alliqua’s stockholders generally. These interests include:

Alliqua’s executive officers are parties to employment agreements or offer letters that may provide for severance benefits in the event of certain qualifying terminations of employment following the Merger; and

Alliqua’s directors and executive officers are entitled to continued indemnification and insurance coverage under indemnification agreements and the Merger Agreement.
These interests are discussed in more detail in the section entitled “The Merger — Interests of Alliqua’s Directors and Executive Officers in the Merger” beginning on page 75. The Alliqua board of directors was aware of and considered these interests, among other matters, in reaching its decision to approve and declare advisable the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement.
Federal Securities Law Consequences; Resale Restrictions (see page 75)
The issuance of Alliqua’s common stock in the Merger to Adynxx stockholders will be effected by means of a private placement, which is 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 Rule 506 of Regulation D or Regulation S promulgated thereunder and such shares will be “restricted securities.” The shares issued in connection with the Merger will not be registered under the Securities Act upon issuance and will not be freely transferable. Holders of such shares may not sell their respective shares unless the shares are registered under the Securities Act or an exemption is available under the Securities Act.
Material U.S. Federal Income Tax Consequences of the Merger (see page 75)
The Merger has been structured to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). Alliqua stockholders will not sell, exchange or dispose of any shares of Alliqua common stock as a result of the Merger. Thus, there should be no material U.S. federal income tax consequences to Alliqua or its stockholders as a result of the Merger.
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Risk Factors (see page 17)
The Merger, including the possibility that the Merger may not be consummated, poses a number of risks to Alliqua and its stockholders. In addition, both Alliqua and Adynxx are subject to various risks associated with their businesses and their industries, and the combined business will also be subject to those and other risks.
Regulatory Approvals (see page 10)
Neither Alliqua nor Adynxx is required to make any filings or to obtain approvals or clearances from any antitrust regulatory authorities in the United States or other countries to consummate the Merger. In the United States, Alliqua must comply with applicable federal and state securities laws and Nasdaq rules and regulations in connection with the issuance of shares of Alliqua’s common stock in the Merger and the private placement, including the filing with the SEC of this proxy statement.
Anticipated Accounting Treatment (see page 76)
The Merger will be treated by Alliqua as a reverse merger and recapitalization effected by a share exchange for financial accounting and reporting purposes since substantially all of Alliqua’s operations will be disposed of immediately prior to the consummation of the merger. Since Alliqua had no operations upon the merger taking place, Alliqua is not considered to be a business for accounting purposes. Accordingly, no goodwill or intangible assets will be recorded as a result of the merger.
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
Except as specifically indicated, the following information and all other information contained in this proxy statement does not give effect to the reverse stock split described in Proposal 2.
The following questions and answers are intended to briefly address commonly asked questions as they pertain to the Special Meeting, the Merger Agreement, the issuance of Alliqua’s common stock pursuant to the Merger and the reverse stock split. These questions and answers may not address all questions that may be important to you as a stockholder. Please refer to the “Summary” beginning on page 1 and the more detailed information contained elsewhere in this proxy statement and the annexes to this proxy statement, each of which you should read carefully.
Q:
What is the Merger?
A.:
Alliqua, Embark Merger Sub Inc. and Adynxx have entered into the Merger Agreement that contains the terms and conditions of the proposed business combination of Alliqua and Adynxx. Under the Merger Agreement, the Merger Sub, will merge with and into Adynxx, with Adynxx surviving as a wholly owned subsidiary of Alliqua. Immediately following the Effective Time of the Merger, Adynxx equityholders will own approximately 86% of the combined company and Alliqua equityholders will own approximately 14% of the combined company, subject to adjustment of the Exchange Ratio as described elsewhere in this proxy statement.
For a more complete description of the Merger, please see the section entitled “The Merger Agreement” beginning on page 77 of this proxy statement.
Q:
What will happen to Alliqua if, for any reason, the Merger with Adynxx does not close?
A.:
Alliqua has invested significant time and incurred, and expects to continue to incur, significant expenses related to the proposed Merger with Adynxx. If Alliqua does not consummate the Merger, Alliqua may be subject to certain material risks, including, the following: (i) under certain circumstances, Alliqua may be required to pay a termination fee to Adynxx of  $249,000; (ii) the price of Alliqua’s stock may decline and remain volatile; and (iii) certain costs related to the Merger, such as legal and accounting fees, must be paid even if the Merger is not completed. In addition, if the Merger is not completed and Alliqua’s board of directors determines to seek another business combination, it may not be able to find a third party willing to provide equivalent or more attractive consideration than the consideration to be provided by each party in the Merger. In such circumstances, Alliqua’s board of directors may elect to, among other things, divest all or a portion of Alliqua’s business, or take the steps necessary to liquidate all of Alliqua’s business and assets, and in either such case, the consideration that Alliqua receives may be less attractive than the consideration to be received by Alliqua pursuant to the Merger Agreement.
Q:
Why is Alliqua proposing to merge with Adynxx?
A.:
Alliqua’s board of directors considered a number of factors that supported its decision to approve the Merger Agreement. In the course of its deliberations, Alliqua’s board of directors also considered a variety of risks and other countervailing factors related to entering into the Merger Agreement.
For a more complete discussion of Alliqua’s reasons for the Merger, please see the section entitled “The Merger — Alliqua’s Reasons for the Merger; Recommendations of the Alliqua Board of Directors” beginning on page 65 of this proxy statement
Q:
What is required to consummate the Merger?
A.:
To consummate the Merger, Alliqua’s stockholders must approve the issuance of shares of Alliqua’s common stock in the Merger and the resulting “change of control” of Alliqua under Nasdaq rules, which require the affirmative vote of a majority of the votes cast affirmatively or negatively on the Merger Proposal. In addition, Adynxx’s stockholders must adopt the Merger Agreement, which requires the affirmative vote (or action by written consent) of the holders of  (a) a majority of the shares of Adynxx’s capital stock outstanding, voting together on an as converted to Adynxx common
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stock basis; and (b) the holders of a majority of the outstanding shares of Adynxx preferred shares, voting together on an as converted to Adynxx common stock basis. The stockholders of Adynxx are expected to approve the consummation of the transactions under the Merger Agreement by written consent concurrently with the Special Meeting. In addition to obtaining stockholder approval, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived in order to consummate the Merger. Alliqua’s board of directors expects that a reverse stock split of Alliqua common stock will increase the market price of Alliqua common stock so that Alliqua is able to maintain compliance with the relevant Nasdaq listing requirements for the foreseeable future.
For a more complete description of the closing conditions under the Merger Agreement, please see the section entitled “The Merger Agreement — Conditions to the Closing of the Merger” beginning on page 79 of this proxy statement.
Q:
Are there any federal or state regulatory requirements that must be complied with or federal or state regulatory approvals or clearances that must be obtained in connection with the Merger?
A.:
Neither Alliqua nor Adynxx is required to make any filings or to obtain any approvals or clearances from any antitrust regulatory authorities in the United States or other countries to consummate the Merger. In the United States, Alliqua must comply with applicable federal and state securities laws and Nasdaq rules and regulations in connection with the issuance of shares of Alliqua’s common stock in the Merger, including the filing with the SEC of this proxy statement and the required stockholder approval for the resulting “change of control” of Alliqua under Nasdaq rules. Prior to consummation of the Merger, Alliqua intends to file an initial listing application with Nasdaq pursuant to Nasdaq’s “reverse merger” rules and to effect the initial listing of Alliqua’s common stock issuable in connection with the Merger.
Q:
What will Adynxx’s stockholders receive in the Merger?
A.:
On a pro forma basis, based upon the number of shares of Alliqua’s common stock to be issued in the Merger, current Alliqua’s equityholders will own approximately 14% of the combined company and current Adynxx equityholders will own approximately 86% of the combined company, subject to adjustments to the Exchange Ratio as further described under “The Merger Agreement — Exchange Ratio” beginning on page 77 of this proxy statement.
Q:
What are the material federal income tax consequences of the Merger to me?
A.:
The Merger has been structured to qualify as a reorganization within the meaning of Section 368(a) of the Code. Alliqua stockholders will not sell, exchange or dispose of any shares of Alliqua common stock as a result of the Merger. Thus, there should be no material U.S. federal income tax consequences to Alliqua stockholders as a result of the Merger.
For a more complete description of the tax consequences of the Merger, please see the section entitled “The Merger — Material U.S. Federal Income Tax Consequences of the Reverse Stock Split and the Merger” beginning on page 75 of this proxy statement.
Q:
Why is Alliqua seeking stockholder approval to issue shares of common stock to existing stockholders of Adynxx in the Merger?
A.:
Because Alliqua’s common stock is listed on Nasdaq, we are subject to Nasdaq Listing Rules. Rule 5635(a) of the Nasdaq Listing Rules requires stockholder approval with respect to issuances of Alliqua’s common stock, among other instances, when the shares to be issued are being issued in connection with the acquisition of the stock or assets of another company and are equal to 20% or more of the outstanding shares of Alliqua’s common stock before the issuance. Rule 5635(b) of the Nasdaq Listing Rules also requires stockholder approval when any issuance or potential issuance will result in a “change of control” of the issuer. Although Nasdaq has not adopted any rule on what constitutes a “change of control” for purposes of Rule 5635(b), Nasdaq has previously indicated that the acquisition of, or right to acquire, by a single investor or affiliated investor group, as little as 20% of the common stock (or securities convertible into or exercisable for common stock) or voting power of an issuer could constitute a change of control.
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In the case of the Merger, Alliqua will be issuing approximately      shares of its common stock on a fully diluted basis, and the common stock to be issued pursuant to the Merger Agreement will represent greater than 20% of its voting stock. Accordingly, Alliqua is seeking stockholder of approval of this issuance under Nasdaq Listing Rules.
Q:
What is the reverse stock split and why is it necessary?
A.:
Immediately prior to the Effective Time of the Merger, the outstanding shares of Alliqua’s common stock will be combined into a lesser number of shares to be mutually agreed upon by Alliqua and Adynxx prior to the Effective Time within the range approved by Alliqua’s stockholders and publicly announced by Alliqua. The board of directors of Alliqua believes that a reverse stock split may be desirable for a number of reasons. Alliqua common stock is currently, and will be following the completion of the Merger, listed on Nasdaq. According to applicable Nasdaq rules, in order for Alliqua common stock to continue to be listed on Nasdaq, Alliqua must satisfy certain requirements established by Nasdaq. The Alliqua board of directors expects that a reverse stock split of Alliqua common stock will increase the market price of Alliqua common stock so that Alliqua is able to maintain compliance with the relevant Nasdaq listing requirements for the foreseeable future.
Q:
What is the Spin-off?
A:
Prior to the Effective Time, pursuant to the Merger Agreement, Alliqua will use commercially reasonable efforts to consummate the divestiture of AquaMed Technologies, Inc. (“AquaMed”), a wholly owned subsidiary of Alliqua engaged in the custom hydrogel manufacturing business (“SpinCo”), in the form of a pro rata distribution of the common equity of SpinCo to Alliqua’s stockholders. We refer to the divestiture transactions as the Spin-off. While all of the terms of the Spin-off have not yet been determined, following the Spin-off, Alliqua expects that it will no longer own any assets or be subject to any liabilities or obligations relating to the custom hydrogel manufacturing business. While Alliqua may remain subject to liabilities related to the operation of the custom hydrogel manufacturing business prior to the time of the Spin-off, AquaMed is expected to indemnify Alliqua for all such liabilities incurred prior to the Spin-off. Alliqua may divest the custom hydrogel manufacturing business as a standalone business or as a part of a business combination between the custom hydrogel manufacturing business and a third-party engaged in a synergistic business. So long as Alliqua exercises commercially reasonable efforts to cause the Spin-off to occur concurrently with the Effective Time, the occurrence of the Spin-off is not a condition of Adynxx’s obligations to the consummate the transactions contemplated by the Merger Agreement. The consummation of the Merger, however, is a condition to the closing of the Spin-off. In the event that Alliqua’s stockholders do not approve Proposal 1 and the Merger is not consummated, then Alliqua may, in its discretion, determine not to effect the Spin-off, in which case, SpinCo will remain a wholly-owned subsidiary of Alliqua.
Q:
Why am I receiving this proxy statement?
A.:
You are receiving this proxy statement because you have been identified as a stockholder of Alliqua as of the record date, and thus you are entitled to vote at Alliqua’s Special Meeting. This document serves as a proxy statement used to solicit proxies for the Special Meeting. This document contains important information about the Merger and the Special Meeting of Alliqua, and you should read it carefully.
Q:
How does Alliqua’s board of directors recommend that Alliqua’s stockholders vote?
A.:
After careful consideration, Alliqua’s board of directors unanimously recommends that Alliqua’s stockholders vote:
Proposal 1 — FOR the Merger Proposal;
Proposal 2 — FOR the Reverse Stock Split Proposal; and
Proposal 3 — FOR the Adjournment Proposal.
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Q:
What risks should Alliqua’s stockholders consider in deciding whether to vote in favor of the share issuance and the reverse stock split?
A.:
Alliqua’s stockholders should carefully read the section of this proxy statement entitled “Risk Factors” beginning on page 17, which sets forth certain risks and uncertainties related to the Merger and reverse stock split, risks and uncertainties to which the combined company’s business will be subject, risks and uncertainties to which Alliqua, as an independent company, is subject and risks and uncertainties to which Adynxx, as an independent company, is subject.
Q:
When do you expect the Merger to be consummated?
A.:
Alliqua and Adynxx anticipate that the consummation of the Merger will occur as promptly as practicable after the Special Meeting and following satisfaction or waiver of all closing conditions. However, the exact timing of the consummation of the Merger is not yet known. For a more complete description of the closing conditions under the Merger Agreement, please see the section entitled “The Merger Agreement — Conditions to the Closing of the Merger” beginning on page 79 of this proxy statement.
Q:
How will the Merger affect share options to acquire Adynxx capital stock?
A.:
Upon the effectiveness of the Merger, each outstanding option to purchase Adynxx capital stock, whether vested or unvested will be assumed by Alliqua and become options to purchase Alliqua’s common stock and each share of Adynxx preferred shares outstanding shall be converted to common stock, which shall have the right to receive a number of Alliqua’s common stock equal to an Exchange Ratio. For a more complete discussion of the Exchange Ratio at the Effective Time of the Merger, please see the section entitled “The Merger Agreement — Merger Consideration” beginning on page 77 of this proxy statement.
Q:
How will the reverse stock split and the Merger affect stock options and warrants to acquire Alliqua’s common stock and Alliqua’s stock option plans?
A.:
As of the effective time of the reverse stock split, Alliqua will adjust and proportionately decrease the number of shares of Alliqua’s common stock reserved for issuance upon exercise of, and adjust and proportionately increase the exercise price of, all options and warrants to acquire Alliqua’s common stock. All stock options and warrants to acquire shares of Alliqua’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. In addition, as of the effective time of the reverse stock split, Alliqua will adjust and proportionately decrease the total number of shares of Alliqua’s common stock that may be the subject of future grants under Alliqua’s stock option plans.
Q:
What do I need to do now?
A.:
You are urged to read this proxy statement carefully, including each of the annexes, and to consider how the Merger affects you. Your vote is very important to us and we hope that you will attend the Special Meeting. However, whether or not you plan to attend the Special Meeting, please vote by proxy in accordance with the instructions on your proxy card or voting instruction card (from your broker, bank or other nominee). There are three convenient ways of submitting your vote:

By Telephone or Internet — All record holders can vote by touchtone telephone from the United States using the toll free telephone number on the proxy card, or over the Internet, using the procedures and instructions described on the proxy card. “Street name” holders may vote by telephone or Internet if their bank, broker or other nominee makes those methods available, in which case the bank, broker or other nominee will enclose the instructions with the proxy materials. The telephone and Internet voting procedures are designed to authenticate stockholders’ identities, to allow stockholders to vote their shares, and to confirm that their instructions have been recorded properly.

In Person — All record holders may vote in person at the Special Meeting. “Street name” holders may vote in person at the Special Meeting if their bank, broker or other nominee has
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furnished a legal proxy. If you are a “street name” holder and would like to vote your shares by proxy, you will need to ask your bank, broker or other nominee to furnish you with a nominee issued proxy. You will need to bring the nominee issued proxy with you to the Special Meeting and hand it in with a signed ballot that will be provided to you at the Special Meeting. You will not be able to vote your shares without a nominee issued proxy. Note that a broker letter that identifies you as a stockholder is not the same as a nominee issued proxy.

By Written Proxy — All record holders can vote by written proxy card, if they have requested to receive printed proxy materials. If you are a “street name” holder and you request to receive printed proxy materials, you will receive a written proxy card and a voting instruction card from your bank, broker or other nominee.
The Board has appointed David Johnson, President and Chief Executive Officer to serve as the proxy for the Special Meeting.
If you complete all of the proxy card except one or more of the voting instructions, then the designated proxies will vote your shares as to which you provide no voting instructions in the manner described under “What if I do not specify how I want my shares voted?” below. We do not anticipate that any other matters will come before the Special Meeting, but if any other matters properly come before the meeting, then the designated proxies will vote your shares in accordance with applicable law and their judgment.
If you hold your shares in “street name,” and complete the voting instruction card provided by your broker, bank or other nominee except with respect to one or more of the voting instructions, then your broker, bank or other nominee may be unable to vote your shares with respect to the proposal as to which you provide no voting instructions. See “What is a broker non-vote?” below.
Even if you currently plan to attend the Special Meeting, we recommend that you vote by telephone or Internet or return your proxy card or voting instructions as described above so that your votes will be counted if you later decide not to attend the Special Meeting or are unable to attend.
Q:
What is the quorum requirement?
A:
The presence, in person or by proxy, of the holders of a majority of the shares of the stock entitled to vote at the Special Meeting is necessary to constitute a quorum to transact business. If you are a stockholder of record, your shares will be counted towards the quorum only if you appear in person at the Special Meeting or submit a valid proxy to ensure your shares are represented at the Special Meeting. If you are a beneficial owner of shares held in “street name,” your shares will be counted towards the quorum if your broker, bank or other nominee submits a proxy for your shares at the Special Meeting. Abstentions and broker non-votes, if any, will be counted towards the quorum requirement. If a quorum is not present or represented at the Special Meeting, the chairman of the meeting may adjourn the Special Meeting from time to time without notice or other announcement until a quorum is present or represented.
Q:
What if I do not specify how I want my shares voted?
A:
If you are a record holder who returns a completed proxy card that does not specify how you want to vote your shares on one or more proposals, the designated proxies will vote your shares for each proposal as to which you provide no voting instructions, and such shares will be voted in the following manner:
Proposal 1 — FOR the Merger Proposal;
Proposal 2 — FOR the Reverse Stock Split Proposal; and
Proposal 3 — FOR the Adjournment Proposal
If you are a “street name” holder and do not provide voting instructions on one or more proposals, your bank, broker or other nominee may be able to vote those shares. See “What is a broker non-vote?” below.
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Q:
Who counts the votes?
A:
All votes will be tabulated by Jennie Carcel, Controller, the inspector of election appointed for the Special Meeting. Each proposal will be tabulated separately.
Q:
How do I vote if I hold my shares in “street name”?
A:
If you hold your shares in “street name,” then you received this proxy statement from your broker, bank or other nominee, along with a form from your broker, bank or other nominee seeking instruction from you as to how to vote your shares of our common stock. In order to vote your shares, you will need to return the provided form instructing your broker, bank or other nominee as to how to vote your shares. If you hold your shares in “street name” and would like to vote in person at the Special Meeting, you must bring to the Special Meeting a proxy from the broker, bank or other nominee that holds your shares authorizing you to vote those shares at the Special Meeting.
Q:
What happens if I fail to attend the Special Meeting or abstain from voting?
A:
If you are a stockholder of record and neither attend the Special Meeting nor deliver a proxy, it will have the same effect as a vote “AGAINST” the approval of the Reverse Stock Split Proposal, but, assuming a quorum is present, will have no effect on the outcomes of the Merger Proposal and Adjournment Proposal. If you attend the Special Meeting or deliver a proxy but abstain from voting, your abstention will have the same effect as a vote “AGAINST” the approval of the Reverse Stock Split Proposal. Abstentions will have no effect on the outcome of the Merger Proposal and the Adjournment Proposal.
Q:
If I am a beneficial owner of shares, can my brokerage firm vote my shares?
A:
If you are a beneficial owner and do not vote via the Internet or telephone or by returning a signed voting instruction card to your broker, your shares may be voted only with respect to so-called “routine” matters where your broker has discretionary voting authority over your shares. Accordingly, brokers will have such discretionary authority to vote on the Adjournment Proposal and may vote “FOR” the Adjournment Proposal.
We encourage you to provide instructions to your brokerage firm via the Internet or telephone or by returning your signed voting instruction card. This ensures that your shares will be voted at the Special Meeting with respect to all of the proposals described in this proxy statement.
Q:
What is a broker non-vote?
A:
Broker non-votes occur when shares are held in “street name” through a broker, bank or other intermediary on behalf of a beneficial owner and the broker submits a proxy but does not vote for a matter because the broker has not received voting instructions from the beneficial owner and the broker does not have discretionary voting authority on the matter. Under applicable stock exchange rules, brokers are permitted to exercise discretionary voting authority only on “routine” matters when voting instructions have not been timely received from a beneficial owner. The Adjornment Proposal is considered a “routine” matter. Therefore, if you do not provide voting instructions to your broker regarding the Adjournment Proposal, your broker will be permitted to exercise discretionary voting authority to vote your shares on such proposal. The Merger Proposal and the Reverse Stock Split Proposal are considered “non-routine” matters. Therefore, if you do not provide voting instructions to your broker regarding the Merger Proposal and/or Reverse Stock Split Proposal, your broker will not be permitted to exercise voting authority to vote your shares on such proposals and will result in a broker non-vote.
Q:
Can I change my vote?
A:
Yes. If you are a record holder, you may revoke your proxy at any time by any of the following means:

Attending the Special Meeting and voting in person. Your attendance at the Special Meeting will not by itself revoke a proxy. You must vote your shares by ballot at the Special Meeting to revoke your proxy.
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Voting again by telephone or over the Internet (only your latest telephone or Internet vote submitted prior to the Special Meeting will be counted).

If you requested and received written proxy materials, completing and submitting a new valid proxy bearing a later date.

Giving written notice of revocation to the Alliqua addressed to our Chief Financial Officer, Treasurer and Secretary, Joe Warusz, at the Alliqua’s address above, which notice must be received before noon, Eastern Time, on                  .
If you are a street name holder, your bank, broker or other nominee should provide instructions explaining how you may change or revoke your voting instructions.
Q:
Should Alliqua’s stockholders send in their stock certificates now?
A:
No. After the Merger is consummated, Alliqua’s stockholders will receive written instructions, as applicable, from Alliqua’s transfer agent for exchanging their certificates representing shares of Alliqua’s common stock for new certificates giving effect to the reverse stock split.
Q:
Am I entitled to appraisal or dissenters’ rights in connection with the Merger?
A:
No. You are not entitled to appraisal or dissenters’ rights under Delaware law or under Alliqua’s certificate of incorporation or bylaws in connection with the Merger.
Q:
Have any of Alliqua’s stockholders agreed to vote in favor of the issuance of the shares in the Merger?
A:
Yes. In connection with the execution of the Merger Agreement, holders of approximately 10% of Alliqua’s fully-diluted common stock (including common stock which may be issued upon exercise of options and vesting of restricted stock units or settlement of vested restricted stock units) have entered into agreements with Adynxx and Alliqua that provide, among other things, that the stockholders subject to these agreements will vote in favor of the issuance of shares of Alliqua’s common stock in the Merger and grant to Adynxx an irrevocable proxy to vote all of such stockholders’ shares of Alliqua’s common stock in favor of the approval of the issuance of the shares of Alliqua’s common stock in the Merger and against any proposal made in opposition to, or in competition with, the issuance of shares of Alliqua’s common stock in the Merger.
Q:
What are the solicitation expenses and who pays the cost of this proxy solicitation?
A:
Alliqua’s board of directors is asking for your proxy and we will pay all of the costs of asking for stockholder proxies. We will reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses for forwarding solicitation material to the beneficial owners of common stock and collecting voting instructions. We may use our officers and employees to ask for proxies, as described below. In addition, we have retained D.F. King to assist in the solicitation of proxies for a fee of  $10,000 plus reimbursement of expenses.
Q:
Who can help answer my questions?
A:
The information provided above in this “Question and Answer” format is for your convenience only and is merely a summary of the information contained in this proxy statement. We urge you to carefully read this entire proxy statement, including the documents we refer to in this proxy statement. If you have any questions, need additional material, or require assistance in voting your shares, please feel free to contact D.F. King, the firm assisting us in the solicitation of proxies. Banks and brokers may call D.F. King at (212) 269-5550. Stockholders may call D.F. King toll-free at (800) 884-5101.
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MARKET AND DIVIDEND INFORMATION
Alliqua’s common stock is listed on Nasdaq under the symbol “ALQA.” Adynxx is a private company and its capital stock is not publicly traded. There has never been, nor is there expected to be in the future, a public market for Adynxx’s capital stock. As of November 15, 2018, there were 19,548,969 shares of Adynxx’s common stock outstanding and held of record by 14 stockholders.
Following the consummation of the Merger, and subject to successful application for initial listing with Nasdaq, Alliqua’s common stock will continue to be listed on Nasdaq, but will trade under the symbol “            ” and under the combined company’s new name, “Adynxx, Inc.”
Alliqua has never declared or paid cash dividends on its capital stock. However, as previously announced, Alliqua intends to declare a special cash dividend to its stockholders of record prior to the Effective Time. Alliqua’s board of directors has not yet declared the special dividend or determined the amount of the special dividend. Following the Effective Time, Alliqua intends to retain earnings, if any, to finance the growth and development of its business, and does not expect to pay any additional cash dividends to its stockholders in the foreseeable future. Payment of future dividends, if any, will be at the discretion of Alliqua’s board of directors.
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RISK FACTORS
You should consider the following factors in evaluating whether to approve the issuance of shares of Alliqua’s common stock in the Merger and the resulting “change of control” of Alliqua under Nasdaq rules and the amendment to Alliqua’s amended and restated certificate of incorporation to effect a reverse stock split of Alliqua’s common stock. These factors should be considered in conjunction with the other information included or incorporated by reference by Alliqua in this proxy statement.
Risks Related to the Merger
If the proposed Merger with Adynxx is not consummated, Alliqua’s business could suffer materially and Alliqua’s stock price could decline.
The consummation of the proposed Merger with Adynxx is subject to a number of closing conditions, including the approval by Alliqua’s stockholders, approval by Nasdaq of Alliqua’s application for initial listing of Alliqua’s common stock in connection with the Merger, and other customary closing conditions. Alliqua is targeting a closing of the transaction by the first quarter of 2019.
If the proposed Merger is not consummated, Alliqua may be subject to a number of material risks, and its business and stock price could be adversely affected, as follows:

Alliqua has incurred and expects to continue to incur significant expenses related to the proposed Merger with Adynxx even if the Merger is not consummated.

the Merger Agreement contains covenants relating to Alliqua’s solicitation of competing acquisition proposals and the conduct of Alliqua’s business between the date of signing the Merger Agreement and the closing of the Merger. As a result, significant business decisions and transactions before the closing of the Merger require the consent of Adynxx. Accordingly, Alliqua may be unable to pursue business opportunities that would otherwise be in its best interest as a standalone company. If the Merger Agreement is terminated after Alliqua has invested significant time and resources in the transaction process, Alliqua will have a limited ability to continue its current operations without obtaining additional financing to fund its operations.

Alliqua could be obligated to pay Adynxx a $249,000 termination fee in connection with the termination of the Merger Agreement, depending on the reason for the termination.

Alliqua’s customers, prospective customers, collaborators and other business partners and investors in general may view the failure to consummate the Merger as a poor reflection on its business or prospects.

some of Alliqua’s suppliers, distributors, collaborators and other business partners may seek to change or terminate their relationships with Alliqua as a result of the proposed Merger.

as a result of the proposed Merger, current and prospective employees could experience uncertainty about their future roles within the combined company. This uncertainty may adversely affect Alliqua’s ability to retain its key employees, who may seek other employment opportunities.

Alliqua’s management team may be distracted from day to day operations as a result of the proposed Merger.

the market price of Alliqua’s common stock may decline to the extent that the current market price reflects a market assumption that the proposed Merger will be completed.
In addition, if the Merger Agreement is terminated and Alliqua’s board of directors determines to seek another business combination, it may not be able to find a third party willing to provide equivalent or more attractive consideration than the consideration to be provided by each party in the Merger. In such circumstances, Alliqua’s board of directors may elect to, among other things, divest all or a portion of Alliqua’s business, or take the steps necessary to liquidate all of Alliqua’s business and assets, and in either such case, the consideration that Alliqua receives may be less attractive than the consideration to be received by Alliqua pursuant to the Merger Agreement.
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The Exchange Ratio is not adjustable based on the market price of Alliqua common stock so the merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed.
The Merger Agreement has set the Exchange Ratio formula for the Adynxx common stock, and the Exchange Ratio is only adjustable upward or downward to reflect Alliqua’s and Adynxx’s equity capitalization as of immediately prior to the Effective Time and upward depending on completion of the Permitted Financing. Any changes in the market price of common stock before the completion of the Merger will not affect the number of shares Adynxx securityholders will be entitled to receive pursuant to the Merger Agreement. Therefore, if before the completion of the Merger the market price of Alliqua common stock declines from the market price on the date of the Merger Agreement, then Alliqua securityholders could receive merger consideration with substantially lower value. Similarly, if before the completion of the Merger the market price of Alliqua common stock increases from the market price on the date of the Merger Agreement, then Adynxx securityholders could receive merger consideration with substantially more value for their shares of Adynxx capital stock than the parties had negotiated for in the establishment of the Exchange Ratio.
Failure to complete the Merger may result in Alliqua and Adynxx paying a termination fee or expenses to the other party and could harm the common stock price of Alliqua and future business and operations of each company.
If the Merger is not completed, Alliqua and Adynxx are subject to the following risks:

if the Merger Agreement is terminated under certain circumstances, Alliqua may be required to pay a termination fee to Adynxx of  $249,000;

the price of Alliqua stock may decline and remain volatile; and

costs related to the Merger, such as legal and accounting fees which Alliqua estimates will total approximately $     and $10,000, respectively, some of which must be paid even if the Merger is not completed.
In addition, if the Merger Agreement is terminated and the board of directors of Alliqua determines to seek another business combination, there can be no assurance that either Alliqua will be able to find a partner willing to provide equivalent or more attractive consideration than the consideration to be provided by Adynxx.
If the conditions to the Merger are not met, the Merger may not occur.
Even if the Merger is approved by the stockholders of Alliqua and Adynxx, specified conditions must be satisfied or waived to complete the Merger. These conditions are set forth in the Merger Agreement and described in the section entitled “The Merger Agreement — Conditions to the Merger” in this proxy statement. Alliqua and Adynxx 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 Alliqua and Adynxx each may lose some or all of the intended benefits of the Merger.
Some of Alliqua’s officers and directors have conflicts of interest that may influence them to support or approve the Merger.
Officers and directors of Alliqua participate in arrangements that provide them with interests in the Merger, including, among others, their continued service as a director of the combined company, retention and severance benefits, the acceleration of restricted stock and option vesting and continued indemnification. These interests, among others, may influence the officers and directors of Alliqua to support or approve the Merger. For a more detailed discussion see “The Merger — Interests of Alliqua’s Directors and Executive Officers in the Merger” beginning on page 75 of this proxy statement.
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 party can refuse to complete the Merger if there is a material adverse change affecting the other party between October 11, 2018, the date of the Merger Agreement, and the closing. However,
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some types of changes do not permit either party to refuse to complete the Merger, even if such changes would have a material adverse effect on Alliqua or Adynxx, to the extent they resulted from the following and do not have a materially disproportionate effect on Alliqua or Adynxx, as the case may be:

changes in general economic, business, financial or market conditions;

changes or events affecting the industries or industry sectors in which the parties operate generally;

changes in generally accepted accounting principles;

changes in laws, rules, regulations, decrees, rulings, ordinances, codes or requirements issued, enacted, adopted or otherwise put into effect by or under the authority of any governmental body;

changes caused by the announcement or pendency of the Merger;

changes caused by any action taken by either party with the prior written consent of the other party;

changes caused by any decision, action, or inaction by the U.S. Federal Drug Administration (the “FDA”) or another comparable foreign governmental body, with respect to any product candidate of either party;

changes caused by any act of war, terrorism, national or international calamity or any other similar event;

with respect to Alliqua, a decline in Alliqua’s stock price; or

with respect to Alliqua, a change in the listing status of Alliqua’s common stock on Nasdaq.
If adverse changes occur but Alliqua and Adynxx must still complete the Merger, the combined company’s stock price may suffer.
The market price of the combined company’s common stock may decline as a result of the Merger.
The market price of the combined company’s common stock may decline as a result of the Merger for a number of reasons including if:

the combined company does not achieve the perceived benefits of the Merger as rapidly or to the extent anticipated by financial or industry analysts;

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

investors react negatively to the effect on the combined company’s business and prospects from the Merger.
Alliqua’s stockholders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with the Merger.
If the combined company is unable to realize the strategic and financial benefits currently anticipated from the Merger, Alliqua’s stockholders will have experienced substantial dilution of their ownership interest without receiving any commensurate benefit. Significant management attention and resources will be required to integrate the two companies. Delays in this process could adversely affect the combined company’s business, financial results, financial condition and stock price following the Merger. Even if the combined company were able to integrate the business operations successfully, there can be no assurance that this integration will result in the realization of the full benefits of synergies, innovation and operational efficiencies that may be possible from this integration and that these benefits will be achieved within a reasonable period of time.
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During the pendency of the Merger, Alliqua may not be able to enter into a business combination with another party and will be subject to contractual limitations on certain actions because of restrictions in the Merger Agreement.
Covenants in the Merger Agreement impede the ability of Alliqua or Adynxx to make acquisitions 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. In addition, while the Merger Agreement is in effect and subject to limited exceptions, each party is prohibited from soliciting, initiating, encouraging or taking actions designed to facilitate any inquiries or the making of any proposal or offer that could lead to the entering into certain extraordinary transactions with any third party, such as a sale of assets, an acquisition of Alliqua’s common stock, a tender offer for Alliqua’s common stock, a Merger or other business combination outside the ordinary course of business. Any such transactions could be favorable to such party’s stockholders.
Because the lack of a public market for Adynxx’s capital stock makes it difficult to evaluate the fairness of the Merger, Adynxx’s stockholders may receive consideration in the Merger that is greater than or less than the fair market value of Adynxx’s capital stock.
The outstanding share capital of Adynxx 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 Adynxx. Since the percentage of Alliqua’s equity to be issued to Adynxx’s stockholders was determined based on negotiations between the parties, it is possible that the value of the Alliqua’s common stock to be issued in connection with the Merger will be greater than the fair market value of Adynxx. Alternatively, it is possible that the value of the shares of Alliqua’s common stock to be issued in connection with the Merger will be less than the fair market value of Adynxx.
The combined company will incur significant transaction costs as a result of the Merger, including investment banking, legal and accounting fees. In addition, the combined company will incur significant consolidation and integration expenses which cannot be accurately estimated at this time. These costs could include the possible relocation of certain operations from Pennsylvania to other offices of the combined company as well as costs associated with terminating existing office leases and the loss of benefits of certain favorable office leases. Actual transaction costs may substantially exceed Adynxx’s estimates and may have an adverse effect on the combined company’s financial condition and operating results.
Failure of the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Code could harm the combined company.
The parties intend for the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Code, as amended. For a full description of the tax consequences of the Merger, see “The Merger — Material U.S. Federal Income Tax Consequences of the Reverse Stock Split and the Merger” beginning on page 75 of this proxy statement. To comply with the requirements for a Section 368(a) reorganization, certain structural and other requirements for the transaction must be met; if not satisfied, the Adynxx stockholders could be subject to tax liability.
The Merger is expected to result in a limitation on Alliqua’s ability to utilize our net operating loss carryforward.
Under Section 382 of the Code, use of Alliqua’s net operating loss carryforwards (“NOLs”) will be limited if Alliqua experiences a cumulative change in ownership of greater than 50% in a moving three year period. Alliqua will experience an ownership change as a result of the Merger and therefore its ability to utilize its NOLs and certain credit carryforwards remaining at the Effective Time will be limited. The limitation will be determined by the fair market value of Alliqua’s common stock outstanding prior to the ownership change, multiplied by the applicable federal rate. Limitations imposed on Alliqua’s ability to utilize NOLs could cause U.S. federal and state income taxes to be paid earlier than would be paid if such limitations were not in effect and could cause such NOLs to expire unused, in each case reducing or eliminating the benefit of such NOLs.
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The opinion received by Alliqua’s board of directors from Wainwright has not been, and is not expected to be, updated to reflect changes in circumstances that may have occurred since the date of the opinion.
At a meeting held on October 5, 2018, Alliqua’s financial advisor, Wainwright, rendered its Opinion to the effect that, based upon and subject to the assumptions, factors, qualifications and limitations set forth in the written opinion described herein, as of October 5, 2018, the Exchange Ratio was fair, from a financial point of view, to Alliqua. The Opinion does not speak as of the time the Merger will be completed or any date other than the date of such Opinion. The Opinion does not reflect changes that may occur or may have occurred after the date of the Opinion, including changes to the operations and prospects of Alliqua or Adynxx, changes in general market and economic conditions or regulatory or other factors. Any such changes may materially alter or affect the relative values of Alliqua and Adynxx. Wainwright does not have any obligation to update, revise or reaffirm its opinion to reflect subsequent developments and has not done so. See the section entitled “The Merger — Opinion of Alliqua’s Financial Advisor” beginning on page 67 and Annex H to this proxy statement.
Certain stockholders could attempt to influence changes within Alliqua which could adversely affect Alliqua’s operations, financial condition and the value of Alliqua’s common stock.
Alliqua’s stockholders may from time to time seek to acquire a controlling stake in Alliqua, engage in proxy solicitations, advance stockholder proposals or otherwise attempt to effect changes. Campaigns by stockholders to effect changes at publicly-traded companies are sometimes led by investors seeking to increase short-term stockholder value through actions such as financial restructuring, increased debt, special dividends, stock repurchases or sales of assets or the entire company. Responding to proxy contests and other actions by activist stockholders can be costly and time-consuming, and could disrupt Alliqua’s operations and divert the attention of the Alliqua board of directors and senior management from the pursuit of the proposed Merger transaction. These actions could adversely affect Alliqua’s operations, financial condition, Alliqua’s ability to consummate the Merger and the value of Alliqua common stock.
Alliqua and Adynxx may become involved in securities litigation or stockholder derivative litigation in connection with the Merger, and this could divert the attention of Alliqua and Adynxx management and harm the combined company’s business, and insurance coverage may not be sufficient to cover all related costs and damages.
Securities litigation or stockholder derivative litigation frequently follows the announcement of certain significant business transactions, such as the sale of a business division or announcement of a business combination transaction. Alliqua and Adynxx may become involved in this type of litigation in connection with the Merger, and the combined company may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could adversely affect the business of Alliqua, Adynxx and the combined company.
Risks Related to the Reverse Stock Split
The reverse stock split may not increase Alliqua’s stock price over the long term.
The principal purpose of the reverse stock split is to increase the per-share market price of Alliqua’s common stock above the minimum bid price requirement under The Nasdaq Listing Rules so that the listing of the combined company and the shares of Alliqua common stock being issued in the Merger on either Nasdaq will be approved. It cannot be assured, however, that the reverse stock split will accomplish this objective for any meaningful period of time. While it is expected that the reduction in the number of outstanding shares of common stock will proportionally increase the market price of Alliqua’s common stock, it cannot be assured that the reverse stock split will increase the market price of its common stock by a multiple of the reverse stock split ratio to be mutually agreed upon by Alliqua and Adynxx, or result in any permanent or sustained increase in the market price of Alliqua’s common stock, which is dependent upon many factors, including Alliqua’s business and financial performance, general market conditions, and prospects for future success. Thus, while the stock price of the combined company might meet the continued listing requirements for Nasdaq initially, it cannot be assured that it will continue to do so.
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The reverse stock split may decrease the liquidity of Alliqua’s common stock.
Although the board of directors believes that the anticipated increase in the market price of Alliqua’s common stock could encourage interest in its common stock and possibly promote greater liquidity for its stockholders, such liquidity could also be adversely affected by the reduced number of shares outstanding after the reverse stock split. The reduction in the number of outstanding shares may lead to reduced trading and a smaller number of market makers for Alliqua’s common stock.
The reverse stock split may lead to a decrease in Alliqua’s overall market capitalization.
Should the market price of Alliqua’s common stock decline after the reverse stock split, the percentage decline may be greater, due to the smaller number of shares outstanding, than it would have been prior to the reverse stock split. A reverse stock split is often viewed negatively by the market and, consequently, can lead to a decrease in Alliqua’s overall market capitalization. If the per share market price does not increase in proportion to the reverse stock split ratio, then the value of the combined company, as measured by its stock capitalization, will be reduced. In some cases, the per-share stock price of companies that have effected reverse stock splits subsequently declined back to pre-reverse split levels, and accordingly, it cannot be assured that the total market value of Alliqua’s common stock will remain the same after the reverse stock split is effected, or that the reverse stock split will not have an adverse effect on Alliqua’s stock price due to the reduced number of shares outstanding after the reverse stock split.
Risks Related to Alliqua
Alliqua has limited sources of revenue, which may negatively impact the value and liquidity of Alliqua’s common stock.
On January 5, 2018, Alliqua entered into an Asset Purchase Agreement with Celularity, Inc. (“Celularity”) pursuant to which Alliqua agreed to sell substantially all of its assets to Celularity (the “Asset Sale Transaction”). Since the consummation of the Asset Sale Transaction, Alliqua’s operations have been curtailed. Currently, Alliqua’s sole source of revenue is its hydrogel manufacturing business. In connection with the consummation of the Merger, Alliqua intends to divest the hydrogel manufacturing business as described in the section entitled “The Spin-off” beginning on page 89 of this proxy statement.
The report of Alliqua’s independent registered public accounting firm contains an explanatory paragraph as to Alliqua’s ability to continue as a going concern.
Because Alliqua has had recurring losses and negative cash flows from operating activities, among other factors, the report of Marcum LLP, Alliqua’s independent registered public accounting firm, with respect to Alliqua’s financial statements at December 31, 2017, and for the year ended December 31, 2017, contains an explanatory paragraph as to Alliqua’s potential inability to continue as a going concern. This opinion indicates that substantial doubt exists regarding Alliqua’s ability to remain in business.
Alliqua has experienced significant losses and expect losses to continue for the foreseeable future.
Alliqua has incurred annual net losses of  $25.7 million and $28.2 million, during the years ended December 31, 2017 and 2016, respectively. As of December 31, 2017, Alliqua had an accumulated deficit of $150.0 million. Alliqua expects to incur additional operating losses for the foreseeable future.
Alliqua depends on key personnel.
Alliqua believes that its success depends, in part, upon its ability to retain and attract skilled personnel, which may require substantial additional funds. There can be no assurance that Alliqua will be able to find and attract additional qualified employees or retain any such personnel. Alliqua’s inability to hire qualified personnel, the loss of services of Alliqua’s key personnel, or the loss of services of executive officers or key employees that may be hired in the future may have a material and adverse effect on Alliqua’s business.
Alliqua’s future success depends upon market acceptance of Alliqua’s existing and future products.
Alliqua believes that its success will depend in part upon the acceptance of its existing and future products by the medical community, hospitals and physicians and other health care providers, third-party
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payers, and end-users. Such acceptance may depend upon the extent to which the medical community and end-users perceive Alliqua’s products as safer, more effective or cost-competitive than other similar products. Ultimately, for Alliqua’s products to gain general market acceptance, it may also be necessary for Alliqua to develop marketing partners for the distribution of its products. There can be no assurance that Alliqua’s products will achieve significant market acceptance on a timely basis, or at all. Failure of some or all of Alliqua’s future products to achieve significant market acceptance could have a material adverse effect on Alliqua’s business, financial condition, and results of operations.
Alliqua is dependent on significant customers.
Alliqua’s hydrogel manufacturing business is currently its sole source of revenue, and much of this revenue is generated from a limited number of clients, who account for a substantial percentage of Alliqua’s total revenues. For the nine-month period ended September 30, 2018, two major customers accounted for approximately 76% of AquaMed’s revenue, with each customer individually accounting for 63%, and 13%, respectively. The loss of any of Alliqua’s significant customers would have a significantly negative effect on Alliqua’s overall operations.
Alliqua operates in a highly competitive industry.
Competition from other hydrogel manufacturers is intense. There can be no assurance that Alliqua can develop products that are more effective or achieve greater market acceptance than competitive products, or that Alliqua’s competitors will not succeed in developing or acquiring products and technologies that are more effective than those being developed by Alliqua, that would render Alliqua’s products and technologies less competitive or obsolete.
Alliqua’s competitors enjoy several competitive advantages over Alliqua, including some or all of the following:

large and established distribution networks in the United States and/or in international markets;

greater financial, managerial and other resources for products research and development, sales and marketing efforts and protecting and enforcing intellectual property rights;

significantly greater name recognition;

more expansive portfolios of intellectual property rights; and

greater experience in obtaining and maintaining regulatory approvals and/or clearances from the U.S. Food and Drug Administration and other regulatory agencies.
Alliqua’s competitors’ products will compete directly with Alliqua’s products. In addition, Alliqua’s competitors, as well as new market entrants, may develop or acquire new products that will compete directly or indirectly with Alliqua’s products. The presence of this competition in Alliqua’s market may lead to pricing pressure which would make it more difficult to sell Alliqua’s products at a price that will make Alliqua profitable or prevent Alliqua from selling its products at all. Alliqua’s failure to compete effectively would have a material and adverse effect on Alliqua’s business, results of operations and financial condition.
Alliqua is subject to governmental regulations.
As a manufacturer of medical products, Alliqua is generally subject to regulation by the U.S. Food and Drug Administration and the Federal Trade Commission, among other state and federal governmental authorities in the U.S., with respect to the manufacturing, marketing, labeling, record keeping, claims and advertising of Alliqua’s products. Alliqua’s hydrogel manufacturing facility is also subject to various state regulations.
Failure to comply with applicable regulatory requirements can result in, among other things, suspensions or withdrawals of approvals or clearances, seizures or recalls of products, injunctions against the manufacture, holding, distribution, marketing and sale of a product, civil and criminal sanctions. Furthermore, changes in existing regulations or the adoption of new regulations could prevent Alliqua
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from obtaining, or affect the timing of, future regulatory approvals. Meeting regulatory requirements and evolving government standards may delay marketing of Alliqua’s products for a considerable period of time, impose costly procedures upon Alliqua’s activities and result in a competitive advantage to larger companies that compete against Alliqua.
Alliqua has limited sales, marketing and distribution capabilities.
Alliqua currently has limited sales, marketing and distribution capabilities. Alliqua must either develop its own sales, marketing and distribution capabilities, which will be expensive and time consuming, or make arrangements with third parties to perform these services for Alliqua. If Alliqua enters into third party arrangements, the third parties may not be capable of successfully selling any of Alliqua’s products. If Alliqua decides to market any of its products on its own, Alliqua will have to commit significant resources to developing a marketing and sales force and supporting distribution capabilities. If Alliqua decides to enter into arrangements with third parties for performance of these services, Alliqua may find that they are not available on terms acceptable to it, or at all. If Alliqua is not able to establish and maintain successful arrangements with third parties or build its own sales and marketing infrastructure, its business and financial condition will be adversely affected.
Alliqua may face intellectual property infringement claims that could be time-consuming, costly to defend and could result in Alliqua’s loss of significant rights and, in the case of patent infringement claims, the assessment of treble damages.
On occasion, Alliqua may receive notices of claims of Alliqua’s infringement, misappropriation or misuse of other parties’ proprietary rights. Alliqua may have disputes regarding intellectual property rights with the parties that have licensed those rights to Alliqua. Alliqua may also initiate claims to defend Alliqua’s intellectual property. Intellectual property litigation, regardless of its outcome, is expensive and time-consuming, could divert management’s attention from Alliqua’s business and have a material negative effect on Alliqua’s business, operating results or financial condition. In addition, the outcome of such litigation may be unpredictable. If there is a successful claim of infringement against Alliqua, Alliqua may be required to pay substantial damages — including treble damages if Alliqua were to be found to have willfully infringed a third party’s patent — to the party claiming infringement, and to develop non-infringing technology, stop selling Alliqua’s products or using technology that contains the allegedly infringing intellectual property or enter into royalty or license agreements that may not be available on acceptable or commercially practical terms, if at all. Alliqua’s failure to develop non-infringing technologies or license the proprietary rights on a timely basis could harm Alliqua’s business. In addition, modifying Alliqua’s products to exclude infringing technologies could require Alliqua to seek re-approval or clearance from various regulatory bodies for Alliqua’s products, which would be costly and time consuming. Also, Alliqua may be unaware of pending patent applications that relate to Alliqua’s technology. Parties making infringement claims on future issued patents may be able to obtain an injunction that would prevent Alliqua from selling Alliqua’s products or using technology that contains the allegedly infringing intellectual property, which could harm Alliqua’s business.
Alliqua’s products risk exposure to product liability claims.
Alliqua is exposed to potential product liability risks, which are inherent in the testing, manufacturing and marketing of its products. Alliqua may incur significant expense investigating and defending any product liability claims, even if they do not result in liability. Moreover, even if no judgments, fines, damages or liabilities are imposed on Alliqua, Alliqua’s reputation could suffer, which could have a material adverse effect on Alliqua’s business, financial condition and results of operations.
Alliqua is reliant upon two manufacturers for key ingredients of the manufacture of Alliqua’s hydrogels.
The Dow Chemical Company and the BASF Corporation are the principal manufacturers of the two polymers, polyethylene oxide and polyvinylpyrrolidone, respectively, that Alliqua primarily uses in the manufacture of hydrogels. Although Alliqua has not experienced significant production delays attributable to supply changes, Alliqua believes that developing alternative sources of supply for the polymers used to make its current hydrogels would be difficult over a short period of time. Because Alliqua has no direct
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control over its third-party suppliers, interruptions or delays in the products and services provided by these third parties may be difficult to remedy in a timely fashion. In addition, if such suppliers are unable or unwilling to deliver the necessary raw materials or products, Alliqua may be unable to redesign or adapt its technology to work without such raw materials or products or find alternative suppliers or manufacturers. In such events, Alliqua could experience interruptions, delays, increased costs or quality control problems, which would have a material and adverse effect on Alliqua’s business, results of operations and financial condition.
Risks Related to the Spin-off
The proposed Spin-off of Alliqua’s custom hydrogel manufacturing business may not be completed on the currently contemplated timeline or terms, or at all, may be more expensive than anticipated and may not achieve the intended benefits.
The terms of the proposed Spin-off of Alliqua’s custom hydrogel manufacturing business via SpinCo have not been finalized and remain subject to change, and there can be no assurance as to whether or when such a transaction will occur. While all of the terms of the Spin-off have not yet been determined, following the Spin-off, Alliqua expects that it will no longer own any assets or be subject to any liabilities or obligations relating to the custom hydrogel manufacturing business. While Alliqua may remain subject to liabilities related to the operation of the custom hydrogel manufacturing business prior to the time of the Spin-off, AquaMed is expected to indemnify Alliqua for all such liabilities incurred prior to the Spin-off; however, there can be no assurances that Alliqua will be able to successfully enforce such indemnity to cover all or a portion of any such liabilities. Alliqua may divest the custom hydrogel manufacturing business as a standalone business or as a part of a business combination between the custom hydrogel manufacturing business and a third-party engaged in a synergistic business.
Alliqua expects that the process of completing the Spin-off will be time-consuming and involve significant costs and expenses, which may be significantly higher than what Alliqua currently anticipates, may increase in the event that the timing of the transaction is delayed and may not yield a benefit if the transaction is not completed. In particular, if the Spin-off is not completed prior to the Merger, the combined company will continue to incur all of the costs and other obligations associated with the operation of the custom hydrogel manufacturing business, which could divert resources from Adynxx’s business.
The Spin-off will likely not qualify for tax-free treatment.
We do not believe that the Spin-off of Alliqua’s custom hydrogel manufacturing business via SpinCo would qualify as tax-free to holders of Alliqua’s common stock. The receipt of SpinCo common stock will likely be treated as if such stockholder received a taxable distribution in an amount equal to the fair market value of SpinCo common stock received (including any fractional share deemed to be received by and sold on behalf of the stockholder), which will result in: (a) a dividend to the extent of such stockholder’s ratable share of Alliqua’s current and accumulated earnings and profits; then (b) a reduction in such stockholder’s basis in Alliqua’s common stock (but not below zero) to the extent the amount received exceeds the amount referenced in clause (a); and then (c) gain from the sale or exchange of Alliqua common stock to the extent the amount received exceeds the sum of the amounts referenced in clauses (a) and (b).
Potential indemnification liabilities in connection with the Spin-off could materially and adversely affect Alliqua.
In connection with the Spin-off, Alliqua expects that it will provide indemnification obligations designed to make Alliqua financially responsible for liabilities retained by Alliqua following the Spin-off. If Alliqua is required to indemnify SpinCo under those circumstances, Alliqua could be subject to substantial liabilities.
After the Spin-off, certain of Alliqua directors and officers may have actual or potential conflicts of interest because of their previous or continuing positions at Alliqua.
Because of their current or former positions with Alliqua, certain of SpinCo’s expected directors and officers own Alliqua common stock and equity awards. Following the Spin-off, even though SpinCo’s board
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of directors is expected to consist of a majority of directors who are independent, some of its directors and officers will continue to have a financial interest in Alliqua common stock and equity awards. Continuing ownership of Alliqua common stock and equity awards, or service as a director at both companies could create, or appear to create, potential conflicts of interest if SpinCo has disagreements with Alliqua about any continuing contracts between SpinCo and Alliqua or faces decisions that could have different implications for SpinCo and Alliqua.
Risks Related to Adynxx’s Financial Condition and Capital Requirements
Adynxx 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.
Adynxx is a clinical development-stage biopharmaceutical company with a limited operating history. Adynxx has incurred net losses in each year since its inception in 2007 with the exception of 2013, including net losses of  $6.7 million and $11.6 million for the years ended December 31, 2016 and 2017, respectively, and $4.4 million for the nine months ended September 30, 2018. As of September 30, 2018, Adynxx had an accumulated deficit of  $35.7 million.
The audit report to Adynxx’s financial statements for the year ended December 31, 2017, which appears elsewhere herein, includes an explanatory paragraph related to Adynxx’s ability to continue as a going concern. As of September 30, 2018, Adynxx had cash of  $1.8 million. Between November 2015 and January 2016, Adynxx received $5.0 million in financing under a secured loan agreement with Oxford Finance, LLC (“Oxford”). As of September 30, 2018, $4.2 million of principal and accrued interest was outstanding and matures on November 1, 2019. In March 2018, Adynxx received $1.5 million in financing under a series of convertible promissory notes from current investors which are due and payable upon the request of the majority of note holders on or after March 29, 2019. In September 2018, Adynxx received an additional $1.5 million in financing under the same series of convertible promissory notes from current investors which are due and payable upon the request of the majority of note holders on or after September 27, 2019. In the event of an equity financing with total proceeds to Adynxx of at least $5.0 million (excluding conversion of the convertible promissory notes), all outstanding principal plus unpaid accrued interest of the notes will convert at a conversion price equal to 80% of the cash price paid per share for equity securities by investors in the equity financing. Adynxx’s current capital resources, if the transactions contemplated by this proxy statement are not completed, are insufficient to fund its planned operations for a 12-month period, and therefore, raise substantial doubt about its ability to continue as a going concern. Adynxx will continue to require substantial additional capital to continue its clinical development and potential commercialization activities. Accordingly, Adynxx 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.
Adynxx has devoted substantially all of its financial resources to identifying and developing its product candidates, including conducting clinical studies and providing general and administrative support for its operations. To date, Adynxx has financed its operations primarily through the sale of equity securities, payments associated with strategic collaborations, secured loan agreements 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. Adynxx expects losses to increase as it continues Phase 2 development of its lead program in potentially two models of postoperative pain and advances additional product candidates through IND-enabling activities and into clinical development. While Adynxx has not yet commenced pivotal clinical studies for any product candidate and it may be several years, if ever, before Adynxx completes pivotal clinical studies and has a product candidate approved for commercialization, Adynxx expects to invest significant funds into these clinical candidates to determine the potential to advance these compounds to regulatory approval.
If Adynxx 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
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sufficient market acceptance, hospital formulary access, pricing, reimbursement from third-party payors, and adequate market share for its product candidates in those markets. Even if Adynxx 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, Adynxx may never become profitable despite obtaining such market share and acceptance of its products.
Adynxx expects to continue to incur significant expenses and increasing operating losses for the foreseeable future and its expenses will increase substantially if and as Adynxx:

continues the clinical development of its product candidates;

undertakes the manufacturing or has manufactured its product candidates;

advances its programs into larger, more expensive clinical studies;

initiates additional nonclinical, clinical, or other studies for its product candidates;

identifies, educates and develops potential commercial opportunities, such as reduction in postoperative pain for patients scoring greater than or equal to 16 (≥16) on the Pain Catastrophizing Scale (“PCS”) for the brivoligide product candidate;

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

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

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

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

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

seeks to attract and retain skilled personnel;

creates additional infrastructure to support its operations as a public company and its product development and planned future commercialization efforts; 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 Adynxx 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.
Adynxx has never generated any revenue from product sales and may never be profitable.
Adynxx has no products approved for commercialization and has never generated any revenue from product sales. Adynxx’s ability to generate revenue and achieve profitability depends on its ability, alone or with strategic collaboration partners, to successfully complete the development of, and obtain the regulatory and marketing approvals necessary to commercialize one or more of its product candidates. Adynxx does not anticipate generating revenue from product sales for the foreseeable future. Adynxx’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 meet regulatory requirements and Adynxx’s supply needs in sufficient quantities to meet market demand for its product candidates, if approved;
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marketing, launching and commercializing product candidates for which Adynxx 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 Adynxx 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 Adynxx develops is approved for commercial sale, Adynxx anticipates incurring significant costs associated with commercializing any approved product candidate. Adynxx will have to develop or acquire commercial-scale manufacturing capabilities in order to continue development and potential commercialization of its product candidates. Additionally, if Adynxx is not able to generate revenue from the sale of any approved products, Adynxx may never become profitable.
Servicing Adynxx’s indebtedness requires a significant amount of cash, and we may not have sufficient cash flow from Adynxx’s business to pay Adynxx substantial indebtedness.
As of September 30, 2018, Adynxx’s total indebtedness was $7.3 million, of which $4.2 million was secured indebtedness, collateral for which includes but is not limited to a negative lien against Adynxx’s intellectual property rights. Adynxx’s ability to make scheduled payments of the principal, to pay interest on, to refinance the loan agreement or convertible notes or to make cash payments in connection with any conversion of the Notes depends on Adynxx’s future performance, which is subject to economic, financial, competitive and other factors beyond Adynxx’s control. We may not be able to raise sufficient capital or generate cash flow from operations in the future sufficient to service Adynxx’s indebtedness and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives if they are available to us based on the terms of the indenture governing the indebtedness, such as selling assets, restructuring indebtedness or obtaining additional equity capital on terms that may be onerous or highly dilutive. Adynxx’s ability to refinance Adynxx’s indebtedness will depend on the capital markets and Adynxx’s financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on Adynxx’s debt obligations.
Despite Adynxx’s current indebtedness levels, Adynxx may still incur substantially more indebtedness or take other actions which would intensify the risks discussed above.
Despite Adynxx’s current indebtedness levels, and the restrictions Adynxx is under based on the terms of the secured loan agreement with Oxford from incurring additional senior indebtedness, Adynxx may be able to incur substantial additional indebtedness in the future, subject to any restrictions contained in Adynxx’s then-existing debt instruments, some of which may be secured indebtedness, however the terms of such indebtedness may not be commercially attractive, if available.
Raising additional capital may cause dilution to Adynxx’s stockholders, restrict its operations or require Adynxx to relinquish rights.
To the extent that Adynxx raises additional capital through the sale of equity, debt or other securities convertible into equity, your ownership interest will be diluted, and the terms of these new securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, if available at all, would likely involve agreements that include covenants limiting or restricting Adynxx’s ability to take specific actions, such as incurring additional debt, making capital expenditures, making additional product acquisitions, or declaring dividends. If Adynxx raises additional funds through collaborations, strategic alliances or licensing arrangements with third parties, Adynxx may have to
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relinquish valuable rights to its product candidates or future revenue streams or grant licenses on terms that are not favorable to Adynxx. Adynxx cannot assure you 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 Adynxx is unable to obtain funding on a timely basis, Adynxx 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 affect Adynxx’s business, financial condition, and results of operations.
Risks Related to the Development of Adynxx’s Product Candidates
Adynxx is heavily dependent on the success of its product candidates, which are in the early stages of clinical development. Adynxx 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.
To date, Adynxx has invested substantially all of its efforts and financial resources to identify 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. Adynxx currently generates no revenue from sales of any drugs, and Adynxx may never be able to develop or commercialize a product candidate.
Adynxx’s product candidate brivoligide, which is currently in Phase 2 of clinical development, is being developed for the reduction of postoperative pain in patients scoring ≥16 on the PCS. Adynxx has not prospectively demonstrated a statistically significant clinical benefit in this patient population for the primary endpoint in any clinical study and may not be able to do so. Furthermore, the FDA has not previously granted an indication for the reduction of postoperative pain in patients scoring ≥16 on the PCS. Additionally, in order to obtain an indication for the reduction of postoperative pain without restriction by type of surgical procedure, current draft FDA guidance suggests that a general postoperative pain indication would require at least one successful trial in both visceral and non-visceral models of pain. Adynxx has studied brivoligide to date in total knee arthroplasty (“TKA”), a non-visceral model of postoperative pain, and in order to obtain an indication for the reduction of general postoperative pain Adynxx will be required to evaluate brivoligide in a visceral model of postoperative pain. Adynxx may not be able to successfully demonstrate the safety and efficacy of brivoligide in a visceral model of postoperative pain. Failure to do so may limit the likelihood of FDA approval for brivoligide and may limit the addressable patient population and related commercial opportunity. Further, Adynxx may not be able to replicate or develop additional data to satisfy regulatory requirements for approval. Adynxx’s other product candidate, AYX2, has not yet been evaluated in clinical studies and may fail to show the desired safety and efficacy during clinical development. There can be no assurance that the data that Adynxx develops for its product candidates in its planned indications will be sufficient to obtain regulatory approval.
Adynxx’s current product candidates are for the treatment of pain. The evaluation of pain therapeutics often relies upon patient-reported outcomes such as the Numerical Rating Scale (“NRS”) of pain as clinical study endpoints. While these endpoints are well-validated and accepted by the FDA and comparable foreign authorities for evaluation of efficacy of product candidates for the treatment of pain, there may be increased variability associated with these patient-reported outcomes as compared to objective measures used in evaluation of efficacy for product candidates treating other disease states. If these patient-reported endpoints are associated with increased variability in future studies, the data generated may not be sufficient to obtain regulatory approval.
In addition, none of its product candidates have advanced into a pivotal study for Adynxx’s proposed indications and it may be years before such study is initiated and completed, if at all. Adynxx 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 Adynxx may never receive such regulatory approval for any of its product candidates. Adynxx cannot be certain that any of its product candidates will be successful in clinical studies or receive regulatory approval. Further, its product candidates may not receive regulatory approval even if they are successful in clinical studies. If Adynxx does not receive regulatory approvals for its product candidates, Adynxx may not be able to continue its operations.
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Adynxx research and development is focused on discovering and developing novel drugs based on transcription factor decoys, and the approach Adynxx is taking to discover and develop drugs is not proven and may never lead to marketable products.
The discovery and development of drugs based on transcription factor decoys is an emerging field, and the scientific discoveries that form the basis for Adynxx’s efforts to discover and develop product candidates are relatively new. The scientific evidence to support the feasibility of developing differentiated product candidates based on these discoveries is both preliminary and limited, and has not led to products which have obtained regulatory approval by the FDA and comparable foreign authorities. Therefore, Adynxx does not know if its approach will be successful.
Adynxx has yet to present the current clinical data to the relevant regulatory authorities to give an opinion on the adequacy of the current clinical data set and planned studies for potential regulatory approval
Adynxx plans to present the clinical and non-clinical data sets to the FDA and relevant foreign regulatory authorities after completion of the planned Phase 2 studies at an End of Phase 2 meeting or receipt of scientific advice from the EMA, as applicable. Until the results of these meetings are known and documented, there can no assurance as to what requirements may be imposed for filing an NDA or Marketing Approval in the EMA for brivoligide. Adynxx is currently relying on opinions from experts and regulatory precedents to design its development program. It is possible that the official position of the regulatory authorities would be substantially different from the advice Adynxx has received and that could increase both the time and cost of further development for brivoligide, which may limit or prohibit further development of brivoligide, resulting in a material harm to Adynxx’s business, financial condition, results of operations and prospects.
Even if Adynxx successfully completes the necessary preclinical studies and clinical trials, Adynxx cannot predict when, or if, Adynxx will obtain regulatory approval to commercialize a product candidate and the regulatory approval may be for a more narrow indication than Adynxx seeks.
The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable, typically takes many years following the commencement of clinical studies, and depends upon numerous factors. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions, which may cause delays in the approval or the decision not to approve an application. Adynxx has not obtained regulatory approval for any product candidate, and it is possible that none of its existing product candidates or any product candidates Adynxx may seek to develop in the future will ever obtain regulatory approval.
Applications for Adynxx’s product candidates could fail to receive regulatory approval for many reasons, including but not limited to the following:

the FDA or comparable foreign regulatory authorities may disagree with the design, size or implementation of its clinical studies;

the FDA or comparable foreign regulatory authorities may disagree with the use of and definition of one visceral and one non-visceral surgical model of postoperative pain as appropriate for approval for general postoperative pain;

the FDA or comparable foreign regulatory authorities may disagree with the use of the PCS as a tool for patient selection for treatment with brivoligide;

the population studied in the clinical program may not be sufficiently broad or representative to assure safety in the full population for which Adynxx seeks approval;

the FDA or comparable foreign regulatory authorities may disagree with Adynxx’s interpretation of data from its development efforts;

the data collected from clinical studies of Adynxx’s product candidates may not be sufficient to support the submission of a new drug application (“NDA”), or other submission or to obtain regulatory approval in the United States or foreign jurisdictions;
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the FDA or comparable foreign regulatory authorities may find failures in Adynxx’s manufacturing processes, validation procedures and specifications, or facilities of its third-party manufacturers with which Adynxx contracts for clinical and commercial supplies that may delay or limit Adynxx’s ability to obtain regulatory approval for its product candidates; and

the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering Adynxx’s NDA or other submission insufficient for approval.
The lengthy and uncertain regulatory approval process, as well as the unpredictability of the results of clinical studies, may result in Adynxx’s failing to obtain regulatory approval to market any of its product candidates, which would significantly harm its business, results of operations, and prospects. Even if Adynxx’s product candidates meet their safety and efficacy endpoints in clinical trials, the regulatory authorities may not complete their review processes in a timely manner, may issue a complete response letter, or ultimately Adynxx may not be able to obtain regulatory approval. In addition, Adynxx may experience delays or rejections if an FDA Advisory Committee or other regulatory authority recommends non-approval or restrictions on approval. In addition, Adynxx may experience delays or rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory authority policy during the period of product development, clinical trials and the review process. Regulatory authorities have substantial discretion in the approval process and may refuse to accept any application or may decide that Adynxx’s data are insufficient for approval and require additional preclinical, clinical or other studies. In addition, varying interpretations of data obtained from preclinical and clinical testing could delay, limit or prevent the receipt of marketing approval for a product candidate.
Even if Adynxx obtains regulatory approval for a product candidate, its products will remain subject to regulatory scrutiny.
Even if Adynxx obtains regulatory approval in a jurisdiction, the applicable regulatory authority may still impose significant restrictions on the indicated uses or marketing of Adynxx’s product candidates, or impose ongoing requirements for potentially costly post-approval studies, post-market surveillance or patient or drug restrictions. Additionally, the holder of an approved NDA is obligated to monitor and report adverse events (“AEs”) and any failure of a product to meet the specifications in the NDA. The holder of an approved NDA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process.
Regulatory authorities also may approve a product candidate for more limited indications than requested or they may impose significant limitations in the form of narrow indications, warnings or Risk Evaluation and Mitigation Strategies (“REMS”). These regulatory authorities may require precautions or contra-indications with respect to conditions of use or they may grant approval subject to the performance of costly post-marketing clinical trials. In addition, regulatory authorities may not approve the labeling claims that are necessary or desirable for the successful commercialization of Adynxx’s product candidates. Any of the foregoing scenarios could materially harm the commercial prospects for Adynxx’s product candidates and materially harm its business, financial condition, results of operations and prospects.
In addition, product manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA and other regulatory authorities for compliance with good manufacturing practices (“GMP”) and adherence to commitments made in the NDA. If Adynxx or a regulatory agency discovers previously unknown problems with a product such as AEs of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions relative to that product or the manufacturing facility, including requiring recall or withdrawal of the product from the market or suspension of manufacturing.
If Adynxx fails to comply with applicable regulatory requirements following approval of any of its product candidates, a regulatory agency may take a variety of actions, including:

issue a warning letter asserting that Adynxx is in violation of the law;

seek an injunction or impose civil or criminal penalties or monetary fines;

suspend or withdraw regulatory approval;
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suspend any ongoing clinical studies;

refuse to approve a pending marketing application, such as a NDA or supplements to a NDA submitted by Adynxx;

seize products; or

refuse to allow Adynxx to enter into supply contracts, including government contracts.
Drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies may not be predictive of future study 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 study process. The results of preclinical studies and early clinical studies of Adynxx’s product candidates may not be predictive of the results of larger, later-stage controlled clinical studies. Product candidates that have shown promising results in early-stage clinical studies may still suffer significant setbacks in subsequent clinical studies. Adynxx’s clinical studies to date have been conducted on a small number of patients in limited numbers of clinical sites. Adynxx will have to conduct larger, controlled studies 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 studies due to lack of efficacy or adverse safety profiles despite promising results in earlier, smaller clinical studies. Moreover, clinical data are often susceptible to varying interpretations and analyses. Adynxx does not know whether any Phase 2, Phase 3, or other clinical studies Adynxx may conduct will demonstrate consistent or adequate efficacy and safety with respect to the proposed indication for use sufficient to obtain regulatory approval to receive regulatory approval or market its drug candidates.
Adynxx may find it difficult to enroll patients in its clinical studies given the limited number of patients scoring ≥16 on the PCS who are undergoing the procedures Adynxx intends to use as its models of postoperative pain for testing of brivoligide. Adynxx may also find it difficult to enroll patients in surgical models that are performed under general anesthesia due to the intrathecal route of administration of brivoligide. Difficulty in enrolling patients could delay or prevent clinical studies of its product candidates.
Identifying and qualifying patients to participate in clinical studies of Adynxx’s product candidates is essential to their success. The timing of Adynxx’s clinical studies depends in part on the rate at which Adynxx can recruit patients to participate in clinical trials of its product candidates, and Adynxx may experience delays in completion of its clinical studies if Adynxx encounters difficulties in enrollment.
In future clinical trials of brivoilgide, Adynxx will be evaluating brivoligide using surgical models including but not limited to TKA. While Adynxx has successfully completed enrollment in three Phase 2 studies of postoperative pain following TKA to date within projected timelines, it may not be able to do so successfully in the future. Some competitors have ongoing clinical trials for product candidates that use the same surgical models as Adynxx’s product candidates, and patients who would otherwise be eligible for its clinical trials may instead enroll in competitors’ clinical trials.
The eligibility criteria of Adynxx’s planned clinical studies may further limit the availability of suitable study participants as Adynxx expects to require that patients have specific measurable characteristics or meet certain criteria to assure that they are appropriate for inclusion in its clinical studies. In future clinical trials of brivoligide, Adynxx will be evaluating brivoligide in patients scoring ≥16 on the PCS. Approximately one third of individuals score ≥16 on the PCS, however if this rate is not reflected in patient populations at the clinical trial sites, Adynxx may have fewer patients eligible for enrollment than expected. In addition, Adynxx may not be able to identify, recruit, and enroll a sufficient number of patients to complete its clinical studies in a timely fashion because of the perceived risks and benefits of the product candidate under study, the availability and efficacy of competing therapies and clinical studies, the willingness of patients to receive an intrathecal injection if undergoing a surgical procedure typically performed under general anesthesia, and the willingness of physicians to participate in its planned clinical studies. If patients are unwilling to participate in Adynxx’s clinical studies for any reason, the timeline for conducting studies and obtaining regulatory approval of its product candidates may be delayed.
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If Adynxx experiences delays in the completion of, or termination of, any clinical study 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 studies would likely increase overall costs, impair product candidate development and jeopardize Adynxx’s ability to obtain regulatory approval relative to its current plans. Any of these occurrences may harm its business, financial condition, and prospects significantly.
Clinical studies are costly, time consuming and inherently risky, and Adynxx may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities.
Clinical development is expensive, time consuming and involves significant risk. Adynxx cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical studies 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 preclinical, toxicology, or other in vivo or in vitro data to support the initiation or continuation of clinical studies;

delays in reaching agreement on acceptable terms with contract research organizations (“CROs”) and clinical study sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical study sites;

delays in obtaining required Institutional Review Board (“IRB”), approval at each clinical study site;

refusal to permit the conduct of a study by regulatory authorities, after review of an investigational new drug (“IND”), or equivalent foreign application or amendment;

delays in recruiting qualified patients in its clinical studies;

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

failure to perform in accordance with the FDA’s Good Clinical Practice requirements (“GCP”), or applicable foreign regulatory guidelines;

high patient drop-out rate in Adynxx’s clinical studies;

occurrence of AEs associated with Adynxx’s product candidates;

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

the cost of clinical studies of Adynxx’s product candidates;

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

delays in reaching agreement on acceptable terms with third party manufacturers and the time for manufacture of sufficient quantities of its product candidates for use in clinical studies.
Any inability to successfully complete clinical development and obtain regulatory approval could result in additional costs to Adynxx or impair its ability to generate revenue. Clinical study 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 Adynxx does, which could impair its ability to successfully commercialize its product candidates and may harm its business and results of operations.
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Adynxx’s product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile 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 Adynxx or regulatory authorities to interrupt, delay, or terminate clinical studies or even if approved, result in a restrictive label or delay regulatory approval by the FDA or comparable foreign regulatory authorities. Adynxx will continue to evaluate its product candidates in additional clinical trials, and there is no guarantee that severe side effects will not be identified.
Brivoligide targets EGR1, a transcription factor that has a role in memory consolidation within the hippocampus. There is a potential risk of transient alteration in memory function with brivoligide if sufficient material is distributed to the brain. This risk has been evaluated in nonclinical studies and in the clinical studies to date, but has not been observed; however, future studies may involve movement of the brivoligide injection to the upper regions of the spinal canal which may involve increased risk of brain exposure and possible transient cognitive or memory dysfunction.
Additionally, even if one or more of its product candidates receives marketing approval, and Adynxx or others later identify undesirable side effects caused by such products, potentially significant negative consequences could result, including but not limited to:

regulatory authorities may withdraw approvals of such products;

regulatory authorities may require additional warnings on the label;

Adynxx may be required to create a 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;

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

its reputation may suffer.
Any of these events could prevent Adynxx from achieving or maintaining market acceptance of a product candidate, even if approved, and could significantly harm its business, results of operations, and prospects.
Adynxx may not be successful in any efforts to identify, license, discover, develop, or commercialize additional product candidates.
Although a substantial amount of Adynxx’s effort will focus on the continued clinical testing, potential approval, and commercialization of its existing product candidates, the success of Adynxx’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. Adynxx may focus its efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful. Adynxx’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:

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

Adynxx’s collaboration with twoXAR, which relies upon artificial intelligence technology to generate potential product opportunities, may not generate viable product candidates;

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

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

its potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval;
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competitors may develop alternatives that render Adynxx’s product candidates obsolete or less attractive;

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

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

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

a product candidate may not be accepted as safe and effective by patients, the medical community, or third-party payors.
If any of these events occur, Adynxx may be forced to abandon its development efforts for a program or programs, or Adynxx may not be able to identify, license, discover, develop, or commercialize additional product candidates, which would have a material adverse effect on its business and could potentially cause Adynxx to cease operations.
Adynxx may not be successful in meeting its diligence obligations under its existing collaboration or under future license agreements necessary to maintain product candidate licenses in effect. In addition, if required in order to commercialize its product candidates, Adynxx may be unsuccessful in obtaining or maintaining necessary rights to its product candidates through acquisitions and in-licenses.
Adynxx has a collaboration with twoXAR and may seek to obtain rights to intellectual property, through licenses from third parties and under patents that Adynxx does not own, to develop and commercialize additional product candidates. Because its programs may require the collaboration with or 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 collaborations and proprietary rights. For example, Adynxx has certain specified diligence obligations under its collaboration with twoXAR. Adynxx may not be able to achieve the required diligence milestones in a timely manner, which may result in a right of termination by twoXAR, and Adynxx may be unable to successfully negotiate an extension or waiver of those termination rights. Any termination of the collaboration with twoXAR or future license agreements with third parties with respect to its product candidates would be expected to negatively impact its business prospects.
Adynxx 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 Adynxx 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 Adynxx may consider attractive. These established companies may have a competitive advantage over Adynxx due to their size, cash resources, and greater clinical development and commercialization capabilities. In addition, companies that perceive Adynxx to be a competitor may be unwilling to assign or license rights to Adynxx. Even if Adynxx 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.
Adynxx collaborates with U.S. and foreign academic institutions to identify product candidates, accelerate its research and conduct development. Typically, these institutions have provided Adynxx 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, Adynxx may be unable to negotiate a license within the specified timeframe or under terms that are acceptable to Adynxx. If Adynxx 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 Adynxx.
If Adynxx is unable to successfully obtain and maintain rights to required third-party intellectual property, Adynxx 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.
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Even if Adynxx obtains regulatory approval for a product candidate, Adynxx will remain subject to ongoing regulatory requirements.
If Adynxx’s product candidates are approved, they will be subject to ongoing regulatory requirements with respect to manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies, 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 (“cGMP”), regulations and corresponding foreign regulatory manufacturing requirements. As such, Adynxx 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 (“MAA”).
Any regulatory approvals that Adynxx 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. Adynxx will be required to report certain 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, Adynxx could be required to conduct a successful post-marketing clinical study in order to confirm the clinical benefit for its products. An unsuccessful post-marketing study or failure to complete such a study could result in the withdrawal of marketing approval.
If a regulatory agency discovers previously unknown problems with a product, such as AEs 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 Adynxx, including requiring withdrawal of the product from the market. If Adynxx fails to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:

issue warning letters;

impose civil or criminal penalties;

suspend or withdraw regulatory approval;

suspend any of Adynxx’s ongoing clinical studies;

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

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

require a product recall.
Any government investigation of alleged violations of law would be expected to require Adynxx 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 Adynxx and its operating results would be adversely affected.
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Adynxx relies on third parties to conduct its clinical studies, and perform other services. If these third parties do not successfully perform and comply with regulatory requirements, Adynxx may not be able to successfully complete clinical development, obtain regulatory approval or commercialize its product candidates and its business could be substantially harmed.
Adynxx has relied upon and plans to continue to rely upon third-party CROs to conduct, monitor and manage its ongoing clinical program. Adynxx relies on these parties for execution of clinical studies and manages and controls only certain aspects of their activities. Adynxx remains responsible for ensuring that each of its studies is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards and its reliance on the CROs does not relieve Adynxx of its regulatory responsibilities. Adynxx 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 Adynxx or any of its CROs or vendors fail to comply with applicable laws, regulations and guidelines, the results generated in its clinical studies may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require Adynxx to perform additional studies before approving its marketing applications. Adynxx cannot guarantee 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 studies, comply with applicable requirements. Failure to comply with these laws, regulations and guidelines may require Adynxx to repeat clinical studies, which would be costly and delay the regulatory approval process.
If any of Adynxx’s relationships with these third-party CROs terminate, Adynxx may not be able to enter into arrangements with alternative CROs in a timely manner or do so on commercially reasonable terms. In addition, Adynxx’s CROs may not prioritize Adynxx’s clinical studies 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 studies. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, Adynxx’s clinical studies may be delayed or terminated and Adynxx may not be able to meet its current plans with respect to its product candidates. CRO contracts may also involve higher costs than anticipated, which could negatively affect Adynxx’s financial condition and operations.
Adynxx relies and expects to continue to rely on third parties to manufacture its clinical product supplies, and Adynxx intends to rely on third parties to produce and process its product candidates, if approved, and Adynxx’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 Adynxx with sufficient quantities of drug product, or fail to do so at acceptable quality levels or prices.
Adynxx does not currently have nor does it plan to acquire the infrastructure or capability internally to manufacture its clinical supplies for use in the conduct of Adynxx’s clinical trials, and Adynxx lacks the resources and the capability to manufacture any of its product candidates on a clinical or commercial scale. Adynxx currently relies on outside vendors to manufacture its clinical supplies of its product candidates and plan to continue relying on third parties to manufacture its product candidates on a commercial scale, if approved. Adynxx plans to rely on third party manufacturers and their responsibilities will include purchasing from third-party suppliers the materials necessary to produce its product candidates for its clinical studies and regulatory approval. There are expected to be a limited number of suppliers for the active ingredients and other materials that Adynxx expects to use to manufacture its product candidates, and Adynxx may not be able to identify alternative suppliers to prevent a possible disruption of the manufacture its product candidates for its clinical studies, and, if approved, ultimately for commercial sale. Although Adynxx generally does not expect to begin a clinical study unless it believes it has a sufficient supply of a product candidate to complete the study, 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 studies and potential delay in regulatory approval of its product candidates, which would harm its business and results of operations.
With respect to its brivoligide product candidate, Adynxx relies on Nitto-Denko Avecia, Inc. (“Avecia”) and CordenPharma GmbH (“Corden”) to supply its clinical study materials and Adynxx does not have long-term supply agreements or commitments from those parties to supply its materials. Moreover, even if
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Adynxx had a longer-term supply arrangement, Adynxx may be precluded from entering into a back-up or alternative supplier arrangement which may increase the risk for further development, regulatory approval, or commercialization of its product candidates. Adynxx has not established clinical study material supply agreements for AYX2 and may not be able to do so.
The facilities used by Adynxx’s contract manufacturers to manufacture its product candidates must be approved by the FDA pursuant to inspections that will be conducted after Adynxx submits its marketing applications to the FDA. Adynxx does not control the manufacturing process of, and is completely dependent on, its contract manufacturing partners for compliance with the regulatory requirements, known as cGMPs, for manufacture of Adynxx’s product candidates. If Adynxx’s contract manufacturers cannot successfully manufacture material that conforms to Adynxx’s specifications and the strict regulatory requirements of the FDA or others, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, Adynxx has no control over the ability of its contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of its product candidates or if it withdraws any such approval in the future, Adynxx may need to find alternative manufacturing facilities, which would significantly impact Adynxx’s ability to develop, obtain regulatory approval for or market its product candidates, if approved.
Adynxx does not yet have sufficient information to reliably estimate the cost of the commercial manufacturing of its product candidates, and the actual cost to manufacture its product candidates could materially and adversely affect the commercial viability of its product candidates. As a result, Adynxx may never be able to develop a commercially viable product.
In addition, Adynxx’s reliance on third-party manufacturers exposes Adynxx to the following additional risks:

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

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

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

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

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

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

Adynxx’s third-party manufacturers could breach or terminate their agreement with Adynxx.
Each of these risks could delay Adynxx’s clinical trials, the approval of any of its product candidates by the FDA or the commercialization of its product candidates or result in higher costs or deprive Adynxx of potential product revenue. In addition, Adynxx 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 often encounter difficulties in production, particularly in scaling up and validating initial production and maintaining absence of contamination. These problems include difficulties with production
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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 Adynxx’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. Adynxx cannot assure that any stability or other issues relating to the manufacture of its product candidates will not occur in the future. Additionally, Adynxx’s manufacturers may experience manufacturing difficulties due to resource constraints or as a result of labor disputes or unstable political environments. If Adynxx’s manufacturers were to encounter any of these difficulties, or otherwise fail to comply with their contractual obligations, Adynxx’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 Adynxx to commence new clinical trials at additional expense or terminate clinical trials completely.
Certain components used in the manufacture of brivoligide are sourced from a single vendor.
Brivoligide is an oligonucleotide, and Adynxx currently uses Avecia as a single supplier for brivoligide drug substance. There are currently a limited number of oligonucleotide manufacturers with commercial scale capabilities globally. While Adynxx intends to develop second sources for manufacturing of its drug candidates in the future it may not be able to do so, or may not be able to do so on commercially reasonable terms. Any interruption in the supply of a key material could significantly delay its research and development process or increase its expenses for commercialization or development products. The quality of materials can be critical to the performance of a drug delivery technology, so a reliable source that provides a consistent supply of materials is important.
Adynxx faces intense competition from other companies developing products for the reduction of postoperative pain.
Brivoligide faces significant competition. If Adynxx is able to successfully develop brivoligide for the reduction of postoperative pain, it will compete with EXPAREL (bupivacaine liposome injectable suspension, marketed by Pacira Pharmaceuticals, Inc.), HTX-011 (bupivacaine and meloxicam, in development by Heron Therapeutics, FDA registration planned in 2018), Ofirmev (intravenous acetaminophen, marketed by Mallinckrodt Pharmaceuticals), branded and generic oral opioid pain therapeutics, branded and generic oral NSAIDs and potentially other products in development for the reduction of postoperative pain that reach the market.
Many of Adynxx’s existing or potential competitors have substantially greater financial, technical and human resources than Adynxx, and significantly greater experience in the discovery and development of product candidates, as well as in obtaining regulatory approvals of those product candidates in the United States and in foreign countries. Many of Adynxx’s current and potential future competitors also have significantly more experience commercializing drugs that have been approved for marketing. Mergers and acquisitions in the pharmaceutical and biotechnology industries could result in even more resources being concentrated among a smaller number of Adynxx’s competitors. Competition may reduce the number and types of patients available to us to participate in clinical trials, because some patients who might have opted to enroll in Adynxx’s trials may instead opt to enroll in a trial being conducted by one of Adynxx’s competitors.
Small or early-stage companies and research institutions may also prove to be significant competitors, particularly through collaborative arrangements with large and established pharmaceutical companies. Adynxx will also face competition from these parties in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, and acquiring or in-licensing technologies and products complementary to its programs or potentially advantageous to its business. If any of Adynxx’s competitors succeed in obtaining approval from the FDA or other regulatory authorities for their products sooner than Adynxx does or for products that are more effective or less costly than Adynxx’s products, its commercial opportunity could be significantly reduced.
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Major technological changes can happen quickly in the biotechnology and pharmaceutical industries, and the development of new mechanisms of action, technologically improved or different products or drug delivery technologies may make Adynxx’s product candidates or platform technologies obsolete or noncompetitive.
Adynxx currently has limited marketing and sales experience. If Adynxx is unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell its product candidates, Adynxx may be unable to generate any revenue.
Adynxx has no experience selling and marketing its product candidates and Adynxx currently has no marketing or sales organization. To successfully commercialize any products that may result from its development programs, Adynxx will need to 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 Adynxx’s internal commercialization capabilities could adversely impact the potential for success of its products.
Further, given its lack of prior experience in marketing and selling pharmaceutical products, Adynxx may rely on future collaborators to commercialize its products. If collaborators do not commit sufficient resources to commercialize its future products and Adynxx is unable to develop the necessary marketing and sales capabilities on its own, Adynxx will be unable to generate sufficient product revenue to sustain or grow its business. Adynxx may be competing with companies that currently have extensive and well-funded marketing and sales operations, in particular in the markets its product candidates are intended to address. Without appropriate capabilities, whether directly or through third party collaborators, Adynxx may be unable to compete successfully against these more established companies.
The commercial success of any of Adynxx’s current or future product candidate will depend upon the degree of market acceptance by physicians, patients, third-party payors, and others in the medical community.
In addition to extensive internal efforts, the successful commercialization of brivoligide will require many third parties, over whom Adynxx has no control, to choose to utilize brivoligide. These third parties include physicians and hospital pharmacy and therapeutics committees (“P&T committees”). Generally, if brivoligide obtains FDA approval, before Adynxx can attempt to sell brivoligide in a hospital, brivoligide must be approved for addition to that hospital’s list of approved drugs, or formulary list, by the hospital’s P&T committee. A hospital’s P&T committee typically governs all matters pertaining to the use of medications within the institution, including the review of medication formulary data and recommendations for the appropriate use of drugs within the institution to the medical staff. The frequency of P&T committee meetings at hospitals varies considerably, and P&T committees often require additional information to aid in their decision-making process. Therefore, Adynxx may experience substantial delays in obtaining formulary approvals. Additionally, hospital pharmacists may be concerned that the cost of acquiring brivoligide for use in their institutions will adversely impact their overall pharmacy budgets, which could cause pharmacists to resist efforts to add brivoligide to the formulary, or to implement restrictions on the usage of brivoligide in order to control costs. Adynxx cannot guarantee that it will be successful in obtaining the approvals needed from enough P&T committees quickly enough to optimize hospital sales of brivoligide.
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 the Centers for Medicare & Medicaid Services (“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 products such as Adynxx’s and what reimbursement codes its products may receive.
Outside the United States, international operations are generally subject to extensive governmental price controls and other price-restrictive regulations, and Adynxx 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
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control mechanisms as part of national health systems. Price controls or other changes in pricing regulation could restrict the amount that Adynxx is able to charge for its products. 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 third-party 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. Adynxx 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 in the future. As a result, profitability of Adynxx’s products may be more difficult to achieve even if they receive regulatory approval.
Even if Adynxx obtains hospital formulary approval for brivoligide, physicians must still prescribe brivoligide for its commercialization to be successful. Because brivoligide is a new drug with a limited track record of sales in the United States, any inability to supply brivoligide to customers in a timely manner, or any unexpected side effects that develop from use of the drug, particularly early in product launch, may lead physicians to not accept brivoligide as a viable treatment. Because administration of brivoligide will be intended for patients scoring ≥16 on the PCS, and will require administration of the one-page PCS evaluation tool prior to surgery, physicians may not accept brivoligide as a viable addition to their patient treatment pathway.
If brivoligide does not achieve broad market acceptance, the revenues that are generated from its sales will be limited. The degree of market acceptance of brivoligide also depends on a number of other factors, including:

changes in the postoperative pain standard of care for the targeted indications for brivoligide, which could reduce the marketing impact of any claims that can be made;

lack of healthcare practitioners’ comfort with intrathecal administration of brivoligide, particularly in surgical procedures which are not currently performed using spinal anesthesia;

the prevalence and severity of AEs associated with brivoligide;

cost of treatment versus economic and clinical benefit in relation to alternative treatments;

the availability of adequate coverage or reimbursement by third parties, such as insurance companies and other healthcare payers, and by government healthcare programs, including Medicare and Medicaid;

the extent and strength of marketing and distribution of brivoligide;

the safety, efficacy and other potential advantages over, and availability of, alternative treatments, including, in the case of brivoligide, a number of products already used to treat postoperative pain in the hospital setting and following hospital discharge; and

distribution and use restrictions imposed by the FDA or to which Adynxx agrees as part of a mandatory REMS or voluntary risk management plan.
Adynxx’s ability to effectively promote and sell brivoligide and any product candidates that it may develop, license or acquire in the hospital marketplace will also depend on pricing and cost effectiveness, including its ability to produce a product at a competitive price and therefore achieve acceptance of the product onto hospital formularies, and its ability to obtain sufficient third-party coverage or reimbursement. Since many hospitals are members of group purchasing organizations, which leverage the purchasing power of a group of entities to obtain discounts based on the collective buying power of the group, Adynxx’s ability to attract customers in the hospital marketplace will also depend on its ability to effectively promote its product candidates to group purchasing organizations. Adynxx will also need to demonstrate acceptable evidence of safety and efficacy, as well as relative convenience and ease of administration. Market acceptance could be further limited depending on the prevalence and severity of any expected or unexpected adverse side effects associated with Adynxx’s product candidates.
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Further, the availability of inexpensive generic forms of postsurgical pain management products may also limit acceptance of brivoligide among physicians, patients, P&T Committees and third-party payers. If brivoligide does not achieve an adequate level of acceptance among physicians, patients and third-party payers, Adynxx may not generate meaningful revenues from brivoligide and may not become profitable.
Risks Related to Adynxx’s Business Operations
Adynxx’s future success depends in part on its ability to retain its President and Chief Executive Officer, Chief Medical Officer, and Chief Scientific Officer, and to attract, retain, and motivate other qualified personnel.
Adynxx is highly dependent upon the efforts of its senior management, including Rick Orr, its President and Chief Executive Officer, Donald C. Manning, Chief Medical Officer, and Julien Mamet, founder and Chief Scientific Officer. The loss of the services provided by these individuals may adversely impact the achievement of its objectives. These individuals could leave Adynxx’s employment at any time, as they are “at will” employees. The loss of the services of these individuals and other members of Adynxx’s senior management could delay or prevent the achievement of research, development, marketing, or product commercialization objectives. Adynxx does not maintain any “key-man” insurance policies on any of the key employees nor does Adynxx intend to obtain such insurance. Recruiting and retaining other qualified employees, consultants, and advisors for Adynxx’s business, including scientific and technical personnel, will also be critical to Adynxx success. There is currently a shortage of highly qualified personnel in Adynxx’s industry, which is likely to continue. As a result, competition for personnel is intense and the turnover rate can be high. Adynxx 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 Adynxx’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 key members of senior management could impede the progress of Adynxx’s research, development, and commercialization objectives.
Adynxx will need to expand its organization and Adynxx may experience difficulties in managing this growth, which could disrupt its operations.
As of September 30, 2018, Adynxx had six full-time employees. As Adynxx’s development and commercialization plans and strategies develop, Adynxx 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. Adynxx 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. Adynxx’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 Adynxx may not be able to implement its business strategy. Adynxx’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 Adynxx’s information technology and storage systems could significantly disrupt the operation of Adynxx’s business.
Adynxx’s ability to execute its business plan and maintain operations depends on the continued and uninterrupted performance of its information technology (“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 Adynxx’s and its vendors’ servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Despite precautionary measures to prevent unanticipated problems that could affect its IT systems, sustained or repeated system failures that interrupt its ability to generate and maintain data could adversely affect its ability to operate its business.
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Adynxx may acquire businesses or products, or form strategic alliances, in the future, and may not realize the benefits of such acquisitions.
Adynxx may acquire additional businesses or products, form strategic alliances, or create joint ventures with third parties that it believes will complement or augment its existing business. If Adynxx acquires businesses with promising markets or technologies, it may not be able to realize the benefit of acquiring such businesses if it is unable to successfully integrate them with its existing operations and company culture. Adynxx may encounter numerous difficulties in developing, manufacturing, and marketing any new products resulting from a strategic alliance or acquisition that delay or prevent it from realizing their expected benefits or enhancing its business. Adynxx cannot provide any assurance that, following any such acquisition, it will achieve the synergies expected in order to justify the transaction, which could result in a material adverse effect on Adynxx’s business and prospects.
The Patient Protection and Affordable Care Act and future legislative changes may increase the difficulty and cost for Adynxx to obtain marketing approval for and commercialize its product candidates and affect the prices that Adynxx may obtain.
In the United States and some foreign jurisdictions, there have been, and Adynxx expects there will continue to be, a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could, among other things, prevent or delay marketing approval of any of Adynxx’s product candidates, restrict or regulate post-approval activities, and affect Adynxx’s ability to profitably sell any products for which it obtains marketing approval.
For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively the Affordable Care Act, was enacted to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the healthcare industry, and impose additional healthcare policy reforms. The law has continued the downward pressure on pharmaceutical pricing, especially under the Medicare program, and increased the industry’s regulatory burdens and operating costs. Among the provisions of the Affordable Care Act of importance to Adynxx’s potential product candidates are the following:

an annual, nondeductible fee payable by any entity that manufactures or imports specified branded prescription drugs and biologic agents;

an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;

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;

a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts (increasing to 70% commencing January 1, 2019) off negotiated prices of applicable brand drugs to eligible beneficiaries under their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D;

extension of manufacturers’ Medicaid rebate liability to individuals enrolled in Medicaid managed care organizations;

expansion of eligibility criteria for Medicaid programs in certain states;

expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;

a new requirement to annually report drug samples that manufacturers and distributors provide to physicians; and

a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.
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Adynxx cannot predict the full impact of the Affordable Care Act on pharmaceutical companies, as many of the reforms require the promulgation of detailed regulations implementing the statutory provisions, some of which have not yet fully occurred. For example, in January 2016, the Centers for Medicare and Medicaid Services issued a final rule regarding the Medicaid Drug Rebate Program, effective April 1, 2016, that, among other things, revises the manner in which the “average manufacturer price” is to be calculated by manufacturers participating in the program and implements certain amendments to the Medicaid rebate statute created under the Affordable Care Act. Further, there have been judicial and Congressional challenges to certain aspects of the Affordable Care Act, and Adynxx expects there will be additional challenges and amendments to the Affordable Care Act in the future. Adynxx continues to evaluate the effect that the Affordable Care Act and its possible repeal and replacement has on its business.
Other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. For example, in August 2011, the President of the United States signed into law the Budget Control Act of 2011, which, among other things, included further reductions to Medicare payments to providers of 2% per fiscal year, which went into effect in April 2013 and, due to subsequent legislative amendments to the statute, will stay in effect through 2027 unless additional Congressional action is taken. Additionally, in January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several types of providers and increased the statute of limitations period in which the government may recover overpayments to providers from three to five years. Further, there have been several recent United States Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the out-of-pocket cost of prescription drugs, and reform government program reimbursement methodologies for drugs.
Moreover, the Drug Supply Chain Security Act, which was enacted in 2012 as part of the Food and Drug Administration Safety and Innovation Act, imposes new obligations on manufacturers of pharmaceutical products related to product tracking and tracing. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. Adynxx is not sure whether additional legislative changes will be enacted, or whether the current regulations, guidance or interpretations will be changed, or what the impact of such changes on Adynxx’s business, if any, may be. In addition, increased scrutiny by the United States Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject Adynxx to more stringent product labeling and post-marketing testing and other requirements.
Adynxx 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 for Adynxx’s product candidate or additional pricing pressures.
Adynxx 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 Adynxx is unable to comply, or has not fully complied, with such laws, it could face substantial penalties.
If Adynxx 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, Adynxx may be subject to patient privacy regulation by both the federal government and the states in which Adynxx conduct its business. The laws that may affect its ability to operate include:

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;

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 (“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;

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

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

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 commercial insurers, state laws that require pharmaceutical companies 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 certain 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 Adynxx’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 Adynxx’s operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to Adynxx, Adynxx 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 Adynxx’s business and its results of operations.
If Adynxx fails to comply with environmental, health and safety laws and regulations, Adynxx could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of its business.
Adynxx’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. Adynxx 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 Adynxx’s and its manufacturers’ facilities pending their use and disposal. Adynxx 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 Adynxx 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, Adynxx cannot guarantee that this is the case or eliminate the risk of accidental contamination or injury from these materials. In such
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an event, Adynxx 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 Adynxx’s use of certain materials and/or interrupt its business operations. Furthermore, environmental laws and regulations are complex, change frequently, and have tended to become more stringent. Adynxx cannot predict the impact of such changes and cannot be certain of its future compliance. Adynxx does not currently carry biological or hazardous waste insurance coverage.
Adynxx or the third parties upon whom it depends may be adversely affected by earthquakes or other natural disasters and its business continuity and disaster recovery plans may not adequately protect Adynxx from a serious disaster.
Adynxx corporate headquarters is located in the San Francisco Bay Area which has in the past experienced severe earthquakes and other natural disasters. Adynxx does not carry earthquake insurance. Earthquakes or other natural disasters could severely disrupt its operations or those of its collaborators, and have a material adverse effect on its business, results of operations, financial condition, and prospects. If a natural disaster, terrorist attack, power outage, or other event occurred that prevented Adynxx from using or damaged critical elements of its business and operations (such as the manufacturing facilities of its third-party contract manufacturers) its business may be disrupted for a substantial period of time. Adynxx has limited or no disaster recovery and business continuity plans in place currently and its business would be impaired in the event of a serious disaster or similar event. Adynxx may incur substantial expenses to develop and implement any disaster recovery and business continuity plans, which could have a material adverse effect on its business.
Adynxx’s principal stockholders own a significant percentage of its stock and will be able to exert significant control over matters subject to stockholder approval.
Adynxx’s principal stockholders and their affiliates currently beneficially own in excess of 70% of Adynxx’s outstanding voting stock. Therefore, these stockholders have the ability and may continue to have the ability to influence Adynxx 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 Adynxx’s common stock that you may believe are in your best interest as one of Adynxx’s stockholders.
Risks Related to Adynxx’s Intellectual Property
Adynxx intends to rely on exclusivity from patent rights for its product candidates and any future product candidates. If Adynxx is unable to obtain or maintain exclusivity, Adynxx may not be able to compete effectively in its markets.
Adynxx 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 can be expensive and time consuming, and Adynxx 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 Adynxx 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. Adynxx owns the rights to issued patents and to patent applications that cover Adynxx’s product candidates and their application. The patent applications that Adynxx owns may fail to result in issued patents with claims that cover its product candidates in the United States or in other foreign countries. Further, third parties may challenge the validity of Adynxx issued patents, their enforceability, or scope, which may result in such patents being narrowed, found unenforceable or invalidated. There is no assurance that all potentially relevant prior art relating to Adynxx patents and patent applications has been found, which can invalidate a patent or prevent a patent from issuing from a pending patent application. Furthermore, even if they are unchallenged, Adynxx’s patents and patent applications may not adequately protect its intellectual property,
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provide exclusivity for its product candidates, or prevent others from designing intellectual property around the Adynxx claims. Any of these outcomes could impair Adynxx’s ability to prevent competition from third parties, which may have an adverse impact on its business.
Adynxx has filed several patent applications covering various aspects of its product candidates. Adynxx 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 Adynxx after patent issuance could deprive Adynxx of rights necessary for the successful commercialization of any product candidates that Adynxx may develop. Further, if Adynxx encounters delays in regulatory approvals, the period of time during which Adynxx could market a product candidate under patent protection could be reduced.
Adynxx may not have sufficient patent term protections for its products 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, Adynxx’s products may be open to competition from generic medications. In addition, upon issuance in the United States any patent term can be adjusted based on certain delays caused by the applicant(s) or the United States Patent and Trademark Office (“USPTO”). For example, a patent term can be reduced based on certain delays caused by the patent applicant during patent prosecution.
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, regulatory exclusivity terms associated with the products. With respect to Adynxx’s product candidates brivoligide and AYX2, a portion of the potential commercial opportunity will likely rely on patent term extensions, and Adynxx cannot provide any assurances that any such patent term extensions will be obtained and, if so, for how long. As a result, Adynxx may not be able to maintain exclusivity for its products for an extended period, which would negatively impact its business and results of operations. If Adynxx does not have sufficient patent terms or regulatory exclusivity to protect its products, its business and results of operations will be adversely affected.
Patent laws and rule changes could increase the uncertainties and costs surrounding the prosecution of Adynxx’s patent applications and the enforcement or defense of its issued patents.
Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of Adynxx’s patents or narrow the scope of their protection. The laws of foreign countries may not protect Adynxx’s patent rights to the same extent as the laws of the United States. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Adynxx therefore cannot be certain that it was the first to make the invention claimed in its owned and licensed patents or pending applications, or that Adynxx was the first to file for patent protection of such inventions. Assuming the other requirements for patentability are met, in the United States prior to March 15, 2013, the first to make the claimed invention is entitled to the patent, while outside the United States, the first to file a patent application is entitled to the patent. After March 15, 2013, under the Leahy-Smith America Invents Act, or the Leahy-Smith Act, enacted on September 16, 2011, the United States has moved to a first to file system. The Leahy-Smith Act also includes a number of significant changes that affect the way patent applications will be prosecuted and may also affect patent litigation. The effects of these changes are currently unclear as the USPTO must still implement various regulations, the courts have yet to address any of these provisions and the applicability of the act and new regulations on specific patents discussed herein have not been determined and would need to be reviewed. In general, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of Adynxx’s patent applications and the enforcement or defense of Adynxx’s issued patents, all of which could have a material adverse effect on Adynxx’s business and financial condition.
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If Adynxx is unable to maintain effective proprietary rights for its product candidates or any future product candidates, Adynxx may not be able to compete effectively in its markets.
In addition to the protection afforded by patents, Adynxx relies on trade secret protection and confidentiality agreements to protect proprietary know-how that is not patentable or that Adynxx 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. Adynxx seeks to protect its proprietary technology and processes, in part, by entering into confidentiality agreements with its employees, consultants, scientific advisors, and contractors. Adynxx 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 Adynxx has confidence in these individuals, organizations and systems, agreements or security measures may be breached, and Adynxx may not have adequate remedies for any breach. In addition, its trade secrets may otherwise become known or be independently discovered by competitors.
Although Adynxx requires all of its employees and consultants to assign their inventions to Adynxx, 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, Adynxx cannot provide any assurances that all such agreements can be duly enforced 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 Adynxx’s trade secrets could impair its competitive position and may have a material adverse effect on its business. Additionally, if the steps taken to maintain its trade secrets are deemed inadequate, Adynxx may have insufficient recourse against third parties for misappropriating the trade secret.
Third-party claims of intellectual property infringement may prevent or delay Adynxx’s development and commercialization efforts.
Adynxx’s commercial success depends in part on avoiding infringement of the patents and proprietary rights of third parties. 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 Adynxx 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.
Third parties may assert that Adynxx is employing their proprietary technology without authorization. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture, or methods for treatment related to the use or manufacture of its product candidates. Adynxx has conducted freedom to operate analyses with respect to only certain of its product candidates, and has not requested independent formal written opinions, and therefore Adynxx does not know whether there are any third-party patents that would impair its ability to commercialize these product candidates. Adynxx also cannot guarantee that any of its analyses are exhaustive, nor can Adynxx be sure that Adynxx has identified each and every patent and pending application in the United States and abroad that is relevant or necessary to the commercialization of its product candidates. Because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that its product candidates may infringe.
In addition, third parties may obtain patents in the future and claim that the use of Adynxx technologies infringes upon their patents. If any third-party patents were held by a court of competent jurisdiction to cover aspects of Adynxx product candidate’s formulations, manufacturing process, methods of use, or of any molecules formed during their manufacturing process or any final product itself, the
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holders of any such patents may be able to block its ability to commercialize such product candidate unless Adynxx obtained a license under the applicable patents, or until such patents expire or are finally determined to be invalid or unenforceable. Such a license may not be available on commercially reasonable terms, or at all.
Parties making claims against Adynxx 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 Adynxx, Adynxx 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.
Adynxx’s product candidates may be subject to generic competition.
Under the Hatch-Waxman Act, a pharmaceutical manufacturer may file an abbreviated new drug application (“ANDA”), seeking approval of a generic copy of an approved innovator product. Under the Hatch-Waxman Act, a manufacturer may also submit an NDA under section 505(b)(2) that references the FDA’s finding of safety and effectiveness of a previously approved drug. A 505(b)(2) NDA product may be for a new or improved version of the original innovator product. Innovative small molecule drugs may be eligible for certain periods of regulatory exclusivity (e.g., five years for new chemical entities, three years for changes to an approved drug requiring a new clinical study, seven years for orphan drugs), which preclude FDA approval (or in some circumstances, FDA filing and review of) an ANDA or 505(b)(2) NDA relying on the FDA’s finding of safety and effectiveness for the innovative drug. In addition to the benefits of regulatory exclusivity, an innovator NDA holder may have patents claiming the active ingredient, product formulation or an approved use of the final drug product, which would be listed with the product in the FDA publication, “Approved Drug Products with Therapeutic Equivalence Evaluations,” known as the “Orange Book.” If there are patents listed in the Orange Book, a generic applicant that seeks to market its product before expiration of the patents must include in the ANDA or 505(b)(2) what is known as a “Paragraph IV certification,” challenging the validity or enforceability of, or claiming non-infringement of, the listed patent or patents. Notice of the certification must be given to the innovator, too, and if within 45 days of receiving notice the innovator sues to protect its patents, approval of the ANDA is stayed for 30 months, or as lengthened or shortened by the court.
If there are patents listed for its product candidates in the Orange Book, ANDAs and 505(b)(2) NDAs with respect to those product candidates would be required to include a certification as to each listed patent indicating whether the ANDA applicant does or does not intend to challenge the patent. Adynxx cannot predict whether any patents issuing from its pending patent applications will be eligible for listing in the Orange Book, how any generic competitor would address such patents, whether Adynxx would sue on any such patents, or the outcome of any such suit.
Adynxx may not be successful in securing or maintaining proprietary patent protection for products and technologies Adynxx develops or licenses. Moreover, if any patents that are granted and listed in the Orange Book are successfully challenged by way of a Paragraph IV certification and subsequent litigation, the affected product could more immediately face generic competition and its sales would likely decline materially. Should sales decline, Adynxx may have to write off a portion or all of the intangible assets associated with the affected product and its results of operations and cash flows could be materially and adversely affected.
All of Adynxx assets are subject to a first-priority lien in favor of Oxford under a security agreement entered into in connection with the Loan Agreement with Oxford, and the Loan Agreement contains a negative pledge on all of Adynxx’s intellectual property. The foreclosure on such assets, including intellectual property related to Adynxx’s product candidates, or exercise of other remedies available to Oxford under the Loan Agreement could materially adversely affect Adynxx’s business operations and future prospects.
All of the assets (including intellectual property rights) owned by Adynxx are subject to a first-priority lien in favor of Oxford under a security agreement entered into in connection with the Loan Agreement with Oxford. There can be no assurance that Adynxx will remain in compliance with its obligations under
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the Loan Agreement. In the event of foreclosure or exercise of other remedies by Oxford under such agreement on the assets (including such intellectual property) pledged to Oxford, Adynxx’s ability to use and develop its product candidates as well as Adynxx’s business operations and future prospects will be materially adversely affected. In addition, the Loan Agreement contains a negative pledge on all of Adynxx’s intellectual property rights.
Although Adynxx is not currently involved in any litigation, Adynxx may be involved in lawsuits to protect or enforce its patents, which could be expensive, time consuming, and unsuccessful.
Competitors may infringe Adynxx’s patents or the patents of its potential licensors. Although Adynxx is not currently involved in any litigation, if Adynxx was 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
Adynxx product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are a commonplace. Grounds for a validity challenge of a patent could be an alleged failure to meet any of several statutory requirements for patentability, including lack of novelty, obviousness, or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability is unpredictable.
Interference proceedings provoked by third parties or brought by Adynxx or declared by the USPTO may be necessary to determine the priority of inventions with respect to Adynxx’s patents or patent applications or those of its licensors. An unfavorable outcome of such interference proceeding could require Adynxx to cease using the related technology or to attempt to license rights to it from the prevailing party. Adynxx’s business could be harmed if the prevailing party does not offer Adynxx 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 Adynxx 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 Adynxx 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.
Adynxx 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.
Adynxx employs individuals who were previously employed at universities or other biotechnology or pharmaceutical companies, including its competitors or potential competitors. Although Adynxx has written agreements and make 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 Adynxx, and Adynxx is not currently subject to any claims that its employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties, Adynxx may in the future be subject to such claims. Litigation may be necessary to defend against these claims. If Adynxx fails in defending any such claims, in addition to paying monetary damages, Adynxx may lose valuable intellectual property rights or personnel, which could adversely impact its business. Even if Adynxx is successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
Adynxx 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 Adynxx’s intellectual property rights in some countries outside the
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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 Adynxx’s technologies in jurisdictions where Adynxx has not obtained patent protection to develop its own products and may also export infringing products to territories where Adynxx 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 certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, particularly those relating to biotechnology products, which could make it difficult for Adynxx to stop the infringement of its patents or marketing of competing products in violation of its proprietary rights generally. Proceedings to enforce Adynxx’s patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert Adynxx’s efforts and attention from other aspects of its business, could put Adynxx’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 Adynxx. Adynxx may not prevail in any lawsuits that Adynxx 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 Adynxx develops or licenses.
Risks Related to the Combined Company
If any of the events described in “Risks Related to Alliqua” or “Risks Related to Adynxx” occur, those events could cause potential benefits of the Merger not to be realized.
Following completion of the Merger, the combined company will be susceptible to many of the risks described in the sections herein entitled “Risks Related to Alliqua” and “Risks Related to Adynxx.” To the extent any of the events in the risks described in those sections occur, those events could cause the potential benefits of the Merger not to be realized and the market price of the combined company’s common stock to decline.
The historical financial information of Alliqua and Adynxx presented herein may not be representative of their respective results or financial condition if they had been operated as a combined company, and as a result may not be representative of the combined company’s results or financial condition after the Merger.
The historical financial information of Alliqua and Adynxx included elsewhere in this proxy statement reflect assumptions and allocations made by Alliqua and Adynxx, respectively. The historical results and financial condition of Alliqua and Adynxx presented herein may be different from those that would have resulted had Alliqua and Adynxx been operated together as a combined company during the applicable periods or at the applicable dates. As a result, the historical financial information of Alliqua and Adynxx is not indicative of future operating results or financial position of the combined company.
The unaudited pro forma condensed combined financial information presented herein may not be representative of the combined companies’ results after the Merger.
The unaudited pro forma condensed combined financial information included elsewhere in this proxy statement has been presented for informational purposes only and is not necessarily indicative of the financial position or results of operations that actually would have occurred had the Merger been completed as of the date indicated, nor is it indicative of future operating results or financial position. The unaudited pro forma condensed combined financial information has been derived from the historical financial statements of Alliqua and Adynxx and adjustments and assumptions have been made regarding the combined company after giving effect to the Merger. The information upon which these adjustments and assumptions have been made is preliminary, and these kinds of adjustments and assumptions are difficult to make with accuracy. Moreover, the unaudited pro forma condensed combined financial information does not reflect all costs that are expected to be incurred by the combined company in connection with the Merger. The assumptions used in preparing the unaudited pro forma condensed
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combined financial information may not ultimately be accurate, and other factors may affect the combined company’s results and financial condition following consummation of the Merger. The unaudited pro forma condensed combined financial information does not reflect the costs of integration activities or transaction-related costs or incremental expenditures associated with the transaction. Accordingly, the unaudited pro forma condensed combined financial information included elsewhere in this proxy statement does not reflect what Alliqua’s or Adynxx’s results or financial condition would have been had Alliqua and Adynxx been a consolidated entity during all periods presented.
Alliqua and Adynxx 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.
Failure by the combined company upon completion of the Merger to comply with the initial listing standards of Nasdaq will prevent its stock from being listed on Nasdaq.
Upon completion of the Merger, Alliqua, under the new name “Adynxx, Inc.,” will be required to meet the initial listing requirements to maintain the listing and continued trading of its shares on Nasdaq. These initial listing requirements are more difficult to achieve than the continued listing requirements. Pursuant to the Merger Agreement, Alliqua agreed to use its reasonable best efforts to cause the shares of Alliqua common stock being issued in the Merger to be approved for listing on Nasdaq at or prior to the Effective Time of the Merger. Based on information currently available to Alliqua, Alliqua anticipates that its stock will be unable to meet the $4.00 (or, to the extent applicable, $3.00) minimum bid price initial listing requirement at the closing of the Merger unless it effects a reverse stock split. The board of directors of Alliqua intends to effect a reverse stock split of the shares of Alliqua common stock at a ratio of between one-for-two to one-for-20, with such specific ratio to be mutually agreed upon by Alliqua and Adynxx. In addition, often times a reverse stock split will not result in a trading price for the affected common stock that is proportional to the ratio of the split. Following the Merger, if Alliqua is unable to satisfy Nasdaq listing requirements, Nasdaq may notify New Adynxx that its shares of common stock will not be listed on Nasdaq.
Upon a potential delisting from Nasdaq, if New Adynxx common stock is not then eligible for quotation on another market or exchange, trading of the shares could be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such event, it is likely that there would be significantly less liquidity in the trading of New Adynxx’s common stock; decreases in institutional and other investor demand for the shares, coverage by securities analysts, market making activity and information available concerning trading prices and volume; and fewer broker dealers willing to execute trades in New Adynxx common stock. Also, it may be difficult for New Adynxx to raise additional capital if New Adynxx’s common stock is not listed on a major exchange. The occurrence of any of these events could result in a further decline in the market price of New Adynxx’s common stock and could have a material adverse effect on New Adynxx.
The Merger will result in changes to Alliqua’s board of directors and the combined company may pursue different strategies than either Alliqua or Adynxx may have pursued independently.
If Alliqua and Adynxx complete the Merger, the composition of Alliqua’s board of directors will change in accordance with the Merger Agreement. Following completion of the Merger, the combined company’s board of directors will consist of       members, one of whom shall be designed by Alliqua and the other of whom shall be designated by Adynxx. Currently, it is anticipated that the combined company will continue to advance the product and development efforts and business strategies of Adynxx primarily. However, because the composition of the board of directors of the combined company will consist of directors from both Alliqua and Adynxx, the combined company may determine to pursue certain business strategies that neither Alliqua nor Adynxx would have pursued independently.
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Future sales of shares by existing stockholders could cause the combined company’s stock price to decline.
If existing stockholders of Alliqua and Adynxx 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 lapse, the trading price of the common stock of the combined company could decline. Based on an assumed closing date of December 31, 2018, the combined company is expected to have outstanding a total of approximately 35 million shares of common stock (prior to giving effect to the proposed reverse stock split) immediately following the closing of the Merger. All of Adynxx’s executive officers and directors and principal stockholders are subject to lock-up agreements that restrict their ability to transfer shares of the combined company’s capital stock during the period ending on, and including, the 180th day after the date of the closing of the Merger, subject to specified exceptions. After the lock-up agreements expire, approximately      million shares of common stock (prior to giving effect to the proposed reverse stock split) held by the combined company’s directors, executive officers and principal stockholders will be subject to volume limitations under Rule 144 under the Securities Act and various vesting agreements.
In addition, upon the closing of the Merger Alliqua expects to assume approximately 19.2 million shares of common stock subject to outstanding Adynxx options (on an as-converted to Alliqua common stock basis and prior to giving effect to the proposed reverse stock split). The combined company intends to register all of the shares of common stock issuable upon exercise of outstanding Adynxx options, and upon the exercise of any options or other equity incentives the combined company may grant in the future, for public resale under the Securities Act. Accordingly, these shares will be able to be freely sold in the public market upon issuance as permitted by any applicable vesting requirements, subject to the lock-up agreements described above.
Ownership of the combined company’s common stock may be highly concentrated, and it may prevent you and other stockholders from influencing significant corporate decisions.
Upon completion of the Merger, Adynxx equityholders are estimated to beneficially own or control approximately 86% of the combined company. Accordingly, Adynxx stockholders will have substantial influence over the outcome of a corporate action of the combined company requiring stockholder approval, including the election of directors, any Merger, consolidation or sale of all or substantially all of the combined company’s assets or any other significant corporate transaction. These stockholders also may exert influence in delaying or preventing a change in control of the combined company, even if such change in control would benefit the other stockholders of the combined company.
The combined company’s management will be required to devote a substantial time to comply with public company regulations.
As a public company, the combined company will incur significant legal, accounting and other expenses that Adynxx did not incur as a private company. The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act as well as rules implemented by the SEC and Nasdaq, impose various requirements on public companies, including those related to corporate governance practices. The combined company’s management and other personnel will need to devote a substantial amount of time to these requirements. Certain members of Adynxx’s management, which will continue as the management of the combined company, do not have significant experience in addressing these requirements. Moreover, these rules and regulations will increase the combined company’s legal and financial compliance costs relative to those of Adynxx and will make some activities more time consuming and costly.
The Sarbanes-Oxley Act requires, among other things, that the combined company maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, the combined company must perform system and process evaluation and testing of its internal control over financial reporting to allow management and the combined company’s independent registered public accounting firm to report on the effectiveness of its internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. The combined company’s compliance with these requirements will require that it incur substantial accounting and related expenses and expend significant management efforts. The combined company will need to hire additional accounting and financial staff to satisfy the ongoing
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requirements of Section 404 of the Sarbanes-Oxley Act. The costs of hiring such staff may be material and there can be no assurance that such staff will be immediately available to the combined company. Moreover, if the combined company is not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, or if the combined company or its independent registered public accounting firm identifies deficiencies in its internal control over financial reporting that are deemed to be material weaknesses, investors could lose confidence in the accuracy and completeness of the combined company’s financial reports, the market price of the combined company’s common stock could decline and the combined company could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities.
The sale or availability for sale of a substantial number of shares of common stock of the combined company after the Merger and after expiration of the lock-up period could adversely affect the market price of such shares after the Merger.
Sales of a substantial number of shares of common stock of the combined company in the public market after the Merger or after expiration of the lock-up period and other legal restrictions on resale, or the perception that these sales could occur, could adversely affect the market price of such shares and could materially impair the combined company’s ability to raise capital through equity offerings in the future. Alliqua and Adynxx are unable to predict what effect, if any, market sales of securities held by significant stockholders, directors or officers of the combined company or the availability of these securities for future sale will have on the market price of the combined company’s common stock after the Merger.
Some provisions of the combined company’s charter document and Delaware law may have antitakeover effects that could discourage an acquisition of the combined company by others, even if an acquisition would be beneficial to the combined company’s stockholders, and may prevent attempts by the combined company’s stockholders to replace or remove the combined company’s management.
Provisions in New Adynxx’s amended and restated certificate of incorporation and bylaws as well as provisions of the DGCL, could make it more difficult for a third party to acquire New Adynxx or increase the cost of acquiring New Adynxx, even if doing so would benefit stockholders, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions include:

establishing a classified board of directors such that not all members of the board are elected at one time;

allowing the authorized number of New Adynxx’s directors to be changed only by resolution of the board of directors;

authorizing the issuance of  “blank check” preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;

eliminating the ability of stockholders to call a Special Meeting of stockholders; and

establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings.
These provisions may frustrate or prevent any attempts by New Adynxx stockholders to replace or remove management by making it more difficult for stockholders to replace members of New Adynxx’s board of directors, which will be responsible for appointing the members of New Adynxx management. In addition, New Adynxx will be subject to Section 203 of the DGCL, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interested stockholder for a period of three years following the date on which the stockholder became an interested stockholder, unless such transactions are approved by the board of directors. This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial to New Adynxx stockholders.
New Adynxx’s business and operations would suffer in the event of system failures, security breaches or cyber-attacks.
New Adynxx’s computer systems, as well as those of various third parties on which New Adynxx relies, including those of New Adynxx’s CROs and other contractors, consultants, and law and accounting firms, may sustain damage from computer viruses, unauthorized access, data breaches, phishing attacks,
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cybercriminals, natural disasters, terrorism, war and telecommunication and electrical failures. New Adynxx relies on third-party providers to implement effective security measures and identify and correct for any such failures, deficiencies or breaches. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Adynxx has experienced phishing attacks in the past, which have not had a material impact on Adynxx’s operations; however, New Adynxx may in the future experience material system failures or security breaches that could cause interruptions in New Adynxx’s operations or result in a material disruption of New Adynxx’s drug development programs. For example, the loss of nonclinical or clinical trial data from completed, ongoing or planned trials could result in delays in New Adynxx’s regulatory approval efforts and significantly increase New Adynxx’s costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to New Adynxx’s data or applications, or inappropriate disclosure of personal, confidential or proprietary information, New Adynxx could incur liability and the further development of New Adynxx’s product candidates could be delayed.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference into this proxy statement and the attached annexes may constitute “forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements include statements concerning our outlook for the future, as well as other statements of beliefs, future plans and strategies or anticipated events, and similar expressions concerning matters that are not historical facts. These statements can be identified by the use of forward-looking terminology such as “believes,” “estimates,” “expects,” “may,” “will,” “should,” “could,” or “anticipates,” or the negative thereof or other variations thereon or other comparable terminology. The forward-looking statements included in this proxy statement, the documents incorporated by reference into this proxy statement or the attached annexes are based on management’s current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict and could cause actual results to differ materially from those expressed in, or implied by, the forward-looking statement. These risks and uncertainties include, but are not limited to:

the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement;

our stockholders failing to approve the Merger Proposal;

the failure of one or more conditions to the closing of the Merger to be satisfied or waived by the applicable party;

an increase in the amount of costs, fees, expenses and other charges related to the Merger Agreement or related transactions;

risks arising from the diversion of management’s attention from our ongoing business operations;

risks associated with our ability to identify and realize business opportunities following the Merger;

the progress, timing, costs and results of Adynxx’s clinical trials;

the potential advantages and differentiated profile of Adynxx’s product candidates compared to existing therapies;

our ability to continue as a going concern;

inadequate capital;

the uncertainty regarding the adequacy of our liquidity to pursue or complete business objectives, including a return of capital to shareholders and execution of a definitive business restructure;

our ability to comply with cGMPs;

loss or retirement of key executives;

our plans to make significant additional outlays of working capital before we expect to generate significant revenues and the uncertainty regarding when we will begin to generate significant revenues, if we are able to do so;

adverse economic conditions and/or intense competition;

loss of a key customer or supplier;

entry of new competitors;

adverse federal, state and local government regulation;

technological obsolescence of our manufacturing process and equipment;

technical problems with our research and products;

risks of mergers and acquisitions including the time and cost of implementing transactions and the potential failure to achieve expected gains, revenue growth or expense savings;

price increases for supplies and components;
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the inability to carry out our business plans; and

the other factors discussed under the heading “Risk Factors” in this proxy statement.
Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make.
Readers are cautioned not to place undue reliance on forward-looking statements. Any forward-looking statement speaks only as of the date that it was made and we undertake no obligation to update any forward-looking statement, whether as a result of new information or otherwise, except as required under applicable law.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this proxy statement, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements as predictions of future events.
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THE SPECIAL MEETING
Time, Date and Place
The Special Meeting is scheduled to be held on                          at 9:00 A.M. Eastern Time, at 2150 Cabot Blvd., West, Suite B, Langhorne, PA 19047.
Purpose of the Special Meeting
At our Special Meeting, stockholders will act upon the matters outlined in the notice, including the following:

the Merger Proposal;

the Reverse Stock Split Proposal; and

the Adjournment Proposal.
Other than the proposals noted above, we do not expect a vote to be taken on any other matters at the Special Meeting or any adjournment or postponement thereof. However, if any other matters are properly presented at the Special Meeting or any adjournment or postponement thereof for consideration, the holders of the proxies solicited by this proxy statement will have discretion to vote on such matters in accordance with applicable law and their judgment.
Recommendation of Our Board
Our Board unanimously recommends that stockholders vote “FOR” the Merger Proposal, “FOR” the Reverse Stock Split Proposal and “FOR” the Adjournment Proposal. In reaching its decision to approve the Merger, the Merger Agreement, the issuance of Alliqua’s common stock pursuant to the Merger Agreement and the transactions contemplated by the Merger and to recommend that you vote in the manner noted above, our Board considered a wide range of material factors relating to the Merger and consulted with management and outside financial and legal advisors. For more information on these factors see “The Merger — Alliqua’s Reasons for the Merger; Recommendations of the Alliqua Board of Directors” beginning on page 65.
Record Date and Voting Power
Holders of our common stock as of the close of business on the record date, November 7, 2018, (the “Record Date”) are entitled to notice of, and to vote at, the Special Meeting and any postponements or adjournments of the Special Meeting. At the close of business on the Record Date, we expect there will be 5,005,210 shares of our common stock outstanding and entitled to vote at the Special Meeting. No other shares of capital stock were outstanding on the Record Date.
Each share of our common stock issued and outstanding as of the close of business on the Record Date is entitled to one vote.
Quorum
The presence, in person or by proxy, of the holders of a majority of the shares of the stock entitled to vote at the Special Meeting is necessary to constitute a quorum to transact business. There must be a quorum for business to be conducted at the Special Meeting. However, even if a quorum does not exist, the chair of the Special Meeting may adjourn the Special Meeting to another place, date and time.
Once a share is represented in person or by proxy at the Special Meeting, it will be counted for purposes of determining whether a quorum exists at the Special Meeting and any adjournment or postponement of the Special Meeting. However, if a new record date is set for the adjourned or postponed Special Meeting, a new quorum will have to be established. For purposes of determining the presence of a quorum, abstentions will be counted as present at the Special Meeting.
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Required Vote
Proposal 1: Merger Proposal
The approval of the Merger Proposal requires the affirmative vote of the majority of the votes cast affirmatively or negatively on the Merger Proposal.
Holders of our common stock may vote “FOR,” “AGAINST” or “ABSTAIN” with respect to the Merger Proposal.
Proposal 2: Reverse Stock Split Proposal
The approval of the Reverse Stock Split Proposal requires the affirmative vote of the outstanding shares of Alliqua’s common stock entitled to vote at the Special Meeting.
Holders of our common stock may vote “FOR,” “AGAINST” or “ABSTAIN” with respect to the Reverse Stock Split Proposal.
Proposal 3: Adjournment Proposal
The approval of the Adjournment Proposal requires the affirmative vote of a majority of the votes cast affirmatively or negatively on the Adjournment Proposal.
Holders of our common stock may vote “FOR,” “AGAINST” or “ABSTAIN” with respect to the Adjournment Proposal.
Voting by Stockholders
Your vote is very important to us and we hope that you will attend the Special Meeting. However, whether or not you plan to attend the Special Meeting, please vote by proxy in accordance with the instructions on your proxy card or voting instruction card (from your broker, bank or other nominee). There are three convenient ways of submitting your vote:

By Telephone or Internet — All record holders can vote by touchtone telephone from the United States using the toll free telephone number on the proxy card, or over the Internet, using the procedures and instructions described on the proxy card. “Street name” holders may vote by telephone or Internet if their bank, broker or other nominee makes those methods available, in which case the bank, broker or other nominee will enclose the instructions with the proxy materials. The telephone and Internet voting procedures are designed to authenticate stockholders’ identities, to allow stockholders to vote their shares, and to confirm that their instructions have been recorded properly.

In Person — All record holders may vote in person at the Special Meeting. “Street name” holders may vote in person at the Special Meeting if their bank, broker or other nominee has furnished a legal proxy. If you are a “street name” holder and would like to vote your shares by proxy, you will need to ask your bank, broker or other nominee to furnish you with a nominee issued proxy. You will need to bring the nominee issued proxy with you to the Special Meeting and hand it in with a signed ballot that will be provided to you at the Special Meeting. You will not be able to vote your shares without a nominee issued proxy. Note that a broker letter that identifies you as a stockholder is not the same as a nominee issued proxy.

By Written Proxy — All record holders can vote by written proxy card, if they have requested to receive printed proxy materials. If you are a “street name” holder and you request to receive printed proxy materials, you will receive a written proxy card and a voting instruction card from your bank, broker or other nominee.
The Board has appointed David Johnson, President and Chief Executive Officer to serve as the proxy for the Special Meeting.
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Even if you currently plan to attend the Special Meeting, we recommend that you vote by telephone or Internet or return your proxy card or voting instructions as described above so that your votes will be counted if you later decide not to attend the Special Meeting or are unable to attend.
Voting by Stockholders Holding Shares in “Street Name”
If you hold your shares in “street name,” you will need to return the provided form instructing your broker, bank or other nominee as to how to vote your shares. If you hold your shares in “street name” and would like to vote in person at the Special Meeting, you must bring to the Special Meeting a proxy from the broker, bank or other nominee that holds your shares authorizing you to vote those shares at the Special Meeting.
Abstentions
Assuming a quorum is present, abstentions will have no effect on the outcome of the Merger Proposal.
Abstentions will have the same effect as a vote “AGAINST” the Reverse Stock Split Proposal.
Assuming a quorum is present, abstentions will have no effect on the outcome of the Adjournment Proposal.
For purposes of determining the presence of a quorum, abstentions will be counted as present at the Special Meeting.
Broker Non-Votes
Brokers, banks or other nominees who hold shares in “street name” for their customers have authority to vote those shares on “routine” proposals when they have not received instructions from the beneficial owners of such shares. However, brokers, banks or other nominees do not have the authority to vote shares they hold for their customers on “non-routine” proposals when they have not received instructions from the beneficial owners of such shares.
Broker non-votes occur when shares are held in “street name” through a broker, bank or other intermediary on behalf of a beneficial owner, and the broker submits a proxy but does not vote for a matter because the broker has not received voting instructions from the beneficial owner and the broker does not have discretionary voting authority on the matter. Under applicable stock exchange rules, brokers are permitted to exercise discretionary voting authority only on “routine” matters when voting instructions have not been timely received from a beneficial owner. The Adjournment Proposal is considered a “routine” matter. Therefore, if you do not provide voting instructions to your broker regarding the Adjournment Proposal, your broker will be permitted to exercise discretionary voting authority to vote your shares on such proposal. The Merger Proposal and Reverse Stock Split Proposal are considered “non-routine” matters. Therefore, if you do not provide voting instructions to your broker regarding the Merger Proposal and/or Reverse Stock Split Proposal, your broker will not be permitted to exercise voting authority to vote your shares on such proposals and will result in a broker non-vote. Broker non-votes will have no effect on the outcome of the Merger Proposal and Reverse Stock Split proposal.
Failure to Vote
If you are a stockholder of record and you do not vote at the Special Meeting in person or properly return your proxy card or vote over the Internet or by phone, your shares will not be voted at the Special Meeting, will not be counted as present in person or by proxy at the Special Meeting and will not be counted for purposes of determining whether a quorum exists.
As discussed above, brokers, banks and other nominees do not have discretionary voting authority with respect the Merger Proposal or the Reverse Stock Split Proposal. Accordingly, if you are the beneficial owner of shares held in “street name” and you do not issue voting instructions to your broker, bank or other nominee with respect to the Merger Proposal or the Reverse Stock Split Proposal, your shares will not be voted with respect to the Merger Proposal or the Reverse Stock Split Proposal. If you are the beneficial owner of shares held in “street name” and you do not issue voting instructions to your broker, bank or other nominee with respect to the Adjournment Proposal, your broker will have discretionary authority to vote your shares with respect to such proposal.
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A failure to vote will have the same effect as a vote “AGAINST” the approval of the Reverse Stock Split Proposal but, assuming a quorum is present, will have no effect on the outcome of the Merger Proposal or the Adjournment Proposal.
Proxies; Revocation of Proxies
Proxies that are signed and returned by a stockholder of record without voting instructions will be voted “FOR” the Merger Proposal, the Reverse Stock Split Proposal and the Adjournment Proposal in accordance with the recommendation of our Board.
If you are a record holder, you may revoke your proxy at any time by any of the following means:

Attending the Special Meeting and voting in person. Your attendance at the Special Meeting will not by itself revoke a proxy. You must vote your shares by ballot at the Special Meeting to revoke your proxy.

Voting again by telephone or over the Internet (only your latest telephone or Internet vote submitted prior to the Special Meeting will be counted).

If you requested and received written proxy materials, completing and submitting a new valid proxy bearing a later date.

Giving written notice of revocation to Alliqua addressed to our Chief Financial Officer, Treasurer and Secretary, Joe Warusz, at Alliqua’s address above, which notice must be received before noon, Eastern Time, on                  .
If you are a street name holder, your bank, broker or other nominee should provide instructions explaining how you may change or revoke your voting instructions.
Adjournments
The Special Meeting may be adjourned for any purpose, including for the purpose of obtaining a quorum or soliciting additional votes if there are insufficient votes to authorize the Merger Proposal or the Reverse Stock Split Proposal. Any adjournment may be made without notice (if the adjournment is not for more than 30 days and a new record date is not fixed for the adjourned meeting), by an announcement made at the Special Meeting of the time, date and place of the adjourned meeting. Any adjournment will allow stockholders of record who have already sent in proxies to revoke them at any time prior to their use at the Special Meeting, as adjourned. See “Proposal 3: Approval of Possible Adjournment of the Special Meeting” on page 97 for more information concerning the adjournment of the Special Meeting.
Solicitation of Proxies
This proxy solicitation is being made by us on behalf of our Board. We will bear the costs of soliciting proxies. We have engaged D.F. King to assist with the solicitation of proxies and will pay D.F. King approximately $10,000 and reimburse it for reasonable out-of-pocket expenses for these and other advisory services to be provided in connection with the Special Meeting. In addition, we have agreed to indemnify D.F. King against any losses arising out of that firm’s solicitation of proxies on our behalf.
The solicitation of proxies will initially be made by mail. Forms of proxies and proxy materials may also be distributed through brokers, banks and other nominees to the beneficial owners of our common stock, in which case such parties will be reimbursed for their reasonable out-of-pocket expenses. Proxies may also be solicited in person or by telephone, facsimile, electronic mail or other electronic medium by D.F. King or by certain of our directors, officers or employees. Any of our directors, officers or employees participating in the solicitation will not receive additional compensation for their efforts but will be reimbursed for out-of-pocket expenses.
Questions and Additional Information
If you have any questions, need additional material, or require assistance in voting your shares, please feel free to contact D.F. King, the firm assisting us in the solicitation of proxies. Banks and brokers may call D.F. King at (212) 269-5550. Stockholders may call D.F. King toll-free at (800) 884-5101.
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THE MERGER
This section and the section entitled “The Merger Agreement” beginning on page 77 of this proxy statement describe the material aspects of the Merger, including the Merger Agreement. While Alliqua believes 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, including the Merger Agreement, which is attached as Annex A and Annex B to this proxy statement, and the other documents to which Alliqua has referred to or incorporated by reference herein. For a more detailed description of where you can find those other documents, please see the section entitled “Where You Can Find More Information” beginning on page 168 of this proxy statement.
Background of the Merger
Prior to the Asset Sale Transaction with Celularity, which was consummated on May 7, 2018, Alliqua was a regenerative technologies company that commercialized differentiated regenerative medical products which assist the body in the repair or replacement of soft tissue. Following the Asset Sale Transaction, Alliqua’s sole remaining line of business is its hydrogel contract manufacturing business.
As a consequence of this curtailment in Alliqua’s business activities, Alliqua’s board of directors began evaluating its strategic opportunities to maximize stockholder value. Alliqua’s Chief Executive Officer, Mr. David I. Johnson, provided Alliqua’s board of directors a preliminary assessment of a variety of strategic alternatives that Alliqua could pursue to maximize stockholder value, including engaging in a reverse merger process, a sale of some or all of Alliqua’s assets, or a liquidation of Alliqua.
On April 14, 2018, Alliqua’s board of directors, acting by unanimous written consent, approved the engagement of Wainwright to act as Alliqua’s financial advisor to assist Alliqua in identifying and evaluating potential targets for a reverse merger transaction. Alliqua executed an engagement letter with Wainwright promptly following such approval.
Following Wainwright’s engagement, and during the month of April 2018, bid request letters were sent to 20 reverse merger candidates. In identifying the reverse merger candidates that received bid request letters, Alliqua focused primarily on biotechnology companies possessing (i) product development candidates with the potential for significant value appreciation, (ii) resources sufficient to achieve potentially meaningful development milestones, including resources that might be obtained through financing activities consummated prior to the effectiveness of a combination with Alliqua, (iii) an ability to enter into an agreement in the near-term for a combination with a public company and thereafter proceed in an orderly manner toward implementing the combination, and (iv) a management team with the breadth and skills to accomplish the foregoing.
Alliqua received 11 indications of interests in response. Alliqua, together with Wainwright, conducted additional due diligence on each of the 11 candidates that submitted an indication of interest. Ten of the 11 candidates made a presentation to certain members of Alliqua’s board of directors and management. Another three candidates identified subsequent to the initial distribution of bid request letters also submitted indications of interest and made presentations to Alliqua. These activities resulted in Alliqua selecting three finalists (Party A, Party B and Party C), which appeared to possess each of the criteria described in the preceding paragraph, for further due diligence and further discussions.
On June 29, 2018, Mr. Johnson met with representatives of Party A. Following such discussion, the representative of Party A and Alliqua determined that pursuing a combination was not in the best interest of either party at such time.
On March 25, 2018, Mr. Johnson met with representatives of Party B. Following such discussion, Mr. Johnson indicated that Alliqua was not interested in pursuing a combination with Party B at such time.
On January 23, 2018, Mr. Johnson met informally with a representative of Party C. The representative of Party C expressed an interest in pursuing a business combination and suggested formal meetings.
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On February 27, 2018, Mr. Johnson met with representatives of Party C at the offices of Alliqua’s legal counsel, Haynes and Boone, LLP (“Haynes and Boone”). The parties discussed their respective businesses, strategic plans for Party C’s clinical studies and a potential business combination. Following the meeting, the parties exchanged messages and calls continuing to discuss matters relating to their respective businesses and a potential business combination.
During the first week of July, 2018, Mr. Johnson asked Haynes and Boone to prepare a term sheet for a proposed transaction with Party C. Mr. Johnson sent a draft of the term sheet to the chief executive officer of Party C during the second week of July 2018. Following Party C’s receipt of the draft term sheet, the parties exchanged messages and calls continuing to negotiate the term sheet.
On July 12, 2018, Alliqua’s board of directors held a telephonic meeting with representatives of Haynes and Boone and Wainwright present. Mr. Johnson provided an update regarding the nature and status of various companies being explored as possible counterparties for a potential combination with Alliqua, including Party A, Party B, and Party C. Alliqua’s board of directors also discussed the proposed term sheet with Party C. Alliqua’s board of directors unanimously approved the proposed term sheet with Party C.
On July 23, 2018, Alliqua and Party C entered into a non-binding term sheet for a reverse merger between Alliqua and Party C. Alliqua and Party C continued to conduct due diligence on each other following the execution of the non-binding and instructed their respective counsels to prepare definitive documentation for the transactions contemplated by the term sheet.
On July 30, 2018, Haynes and Boone delivered an initial draft of a proposed merger agreement to Party C’s legal counsel.
On August 3, 2018, Party C’s legal counsel sent a revised draft of the proposed merger agreement to Haynes and Boone. Between August 3, 2018 and August 17, 2018, Alliqua and Party C together with their legal counsel continued to negotiate and exchange drafts of the merger agreement. Haynes and Boone and legal counsel for Party C also held numerous due diligence conference calls during this time.
On August 20, 2018, Mr. Johnson had a telephonic discussion with the chief executive officer of Party C. On this call, Mr. Johnson and the chief executive officer of Party C determined that they would not be able to come to agreement on various remaining open issues in the merger agreement and that the proposed transaction with Alliqua and Party C would be abandoned.
On August 22, 2018, an investment banker met with Mr. Johnson in New York City to discuss a potential transaction with Adynxx. This meeting was then followed up by an in-person management presentation in New York City on August 27, 2018 with Rick Orr, Adynxx’s Chief Executive Officer, Donald Manning, Adynxx’s Chief Medical Officer, representatives from Wainwright, and the banker who had introduced the companies on August 22, 2018. Following this in-person management presentation, Messrs. Johnson and Orr spoke by telephone on August 30, 2018, whereby Mr. Orr expressed a commitment to complete the proposed transaction. It was also on this call that Mr. Orr first confirmed that Adynxx would be willing to provide 10% of the combined company to Alliqua stockholders if the combined company raised $20 million.
On September 1, 2018, Mr. Orr delivered a presentation to Mr. Johnson which included an overview of Adynxx and the proposed terms of a transaction. Both Alliqua and Adynxx began to exchange due diligence materials and opened virtual data rooms to each other and their respective counsels.
Mr. Johnson instructed Haynes and Boone to prepare an initial draft of a merger agreement for a reverse merger between Alliqua and Adynxx, and Mr. Johnson forwarded this draft to Mr. Orr on September 5, 2018. On September 6, and September 10, 2018, Alliqua and Adynxx together with their respective legal counsels held multiple due diligence calls.
On September 7, 2018, Alliqua’s board of directors held a telephonic meeting to discuss the new opportunity with Adynxx. At this meeting, Alliqua’s board of directors determined that Alliqua should pursue a transaction with Adynxx as Adynxx appeared to meet all of the criteria previously identified for a reverse merger target. Alliqua’s board of directors approved Alliqua’s entry into a thirty-day exclusivity agreement with Adynxx.
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On September 9, 2018, Alliqua and Adynxx entered into a mutual thirty-day exclusivity agreement.
On September 14, Adynxx legal counsel, Cooley LLP (“Cooley”), sent a revised draft of the proposed merger agreement to Haynes and Boone.
On September 21, 2018, Mr. Orr, Mr. Johnson and representatives of Cooley and Haynes and Boone held an all hands conference call to discuss various open issues on the merger agreement. Between September 24, 2018, and September 26, 2018, Cooley and Haynes and Boone continued to negotiate and exchange drafts of the merger agreement.
On September 26, and October 1, 2018, Mr. Orr and Mr. Johnson had several discussions regarding the remaining open issue on the merger agreement, the setting of the exchange ratio. On October 1, 2018, Mr. Orr and Mr. Johnson reached an understanding regarding the exchange ratio.
Between October 1, and October 11, 2018, representatives of Haynes and Boone and representatives of Cooley continued to work together to finalize the merger agreement, disclosure schedules and other ancillary documents.
On October 5, 2018, Alliqua’s board of directors held a telephonic meeting, with representatives from Wainwright and Haynes and Boone present. Prior to the meeting, the Committee received the current draft merger agreement, drafts of the lock-up and voting agreements, and written summaries of these documents. The board also received a copy of Wainwright’s fairness presentation. The board discussed and asked questions regarding the merger agreement and the terms of the proposed transaction. A representative of Wainwright walked the board through its fairness presentation and gave the board the opportunity to ask questions. At the request of the Board, Wainwright rendered its oral opinion, subsequently confirmed in writing by delivery of Wainwright’s written opinion dated the same date, to the effect that, based upon and subject to the assumptions, factors, qualifications and limitations contained therein, as of October 5, 2018, the Exchange Ratio was fair, from a financial point of view, to Alliqua. For a detailed discussion of Wainwright’s opinion, please refer to the section entitled “The Merger — Opinion of Alliqua’s Financial Advisor” beginning on page 67.
On October 8, 2018, Alliqua’s board of directors held a further telephonic meeting to further discuss the results of Wainwright’s fairness presentation and its written opinion and the terms of the proposed transaction. Representatives of Haynes and Boone updated the board on the remaining legal matters to be completed for the execution of the merger agreement. The board also considered the factors described under “The Merger — Alliqua’s Reasons for the Merger; Recommendations of the Alliqua Board of Directors” beginning on page 65, as well as the process of SEC review and the various risks, such as non-consummation of the merger, arising in connection with the proposed transaction. Following extensive discussion of all of the foregoing by the board, the board unanimously (i) approved the merger agreement and consummation of the merger upon the terms and subject to the conditions set forth in the merger agreement, (ii) determined that the terms of the merger agreement and the transactions contemplated by the merger agreement, including the merger, are fair to, advisable and in the best interests of Alliqua and its stockholders, (iii) directed that the merger agreement be submitted to Alliqua’s stockholders for adoption at the special meeting, and (iv) recommend that Alliqua’s stockholders adopt the merger agreement and approve the transactions contemplated by the merger agreement, including the merger.
On October 11, 2018, each of Adynxx, Alliqua, and Merger Sub executed and delivered the merger agreement, effective as of October 11, 2018.
On October 12, 2018, Alliqua and Adynxx issued a joint press release announcing the execution of the merger agreement and the proposed transaction.
On November 7, 2018, Alliqua, Adynxx and Merger Sub entered into Amendment No. 1 to the merger agreement, which amends the Exchange Ratio formula by correcting a typographical error in the definition of  “Total Outstanding Shares.” The amendment does not affect the percentages of the combined company that Alliqua’s stockholders and Adynxx’s stockholders will own immediately following the effective time of the merger.
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Alliqua’s Reasons for the Merger; Recommendations of the Alliqua Board of Directors
Alliqua’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 to recommend that the Alliqua stockholders approve the merger, adopt the Merger Agreement and approve the other transactions contemplated by the Merger Agreement, including the issuance of shares of Alliqua common stock in the Merger, all of which Alliqua’s board of directors viewed as supporting its decision to approve the business combination with Adynxx:

Alliqua’s board of directors believes, based in part on the judgment, advice and analysis of Alliqua’s 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 Adynxx), that:

Adynxx has two novel product candidates brivoligide and AYX2 both of which are non-opioid therapeutics to treat pain;

with the ongoing opioid crisis in the United States, there is a critical need for novel and effective non-opioid therapeutics to treat pain and reduce opioid usage;

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

Adynxx has delivered voting agreements from its officers, directors and certain of its stockholders, representing approximately 35% of Adynxx’s outstanding capital stock, in which each such individual or entity has agreed to vote in favor of the Merger Agreement and the related transactions; and

the combined company will have the ability to maintain Alliqua’s listing on Nasdaq.

Alliqua’s board of directors also reviewed with the management of Alliqua Adynxx's current plans for development of its product candidates to confirm the likelihood that the combined organization would possess sufficient financial resources to allow the management team to focus on the continued development of its product candidates.

Alliqua’s board of directors considered the opportunity as a result of the merger for Alliqua’s stockholders to participate in the potential value that may result from development of the Adynxx product candidate portfolio and the potential increase in value of the combined organization following the merger.

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

Alliqua’s board of directors considered Wainwright’s opinion to Alliqua’s board of directors that the Exchange Ratio was fair, from a financial point of view, to Alliqua, as more fully described below under the caption “The Merger — Opinion of Alliqua’s Financial Advisor.”

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

the curtailment of Alliqua’s operations following the Asset Sale Transaction with Celularity;

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

the risks associated with, and the uncertain value, timing and costs to stockholders of, liquidating Alliqua or effecting a sale of all or some of its assets and thereafter distributing the proceeds;
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the risks of continuing to operate Alliqua on a stand-alone basis, including Alliqua’s current financial situation and the need to rebuild Alliqua’s infrastructure and management to continue its operations; and

the risks associated with Alliqua’s continued ability to maintain its Nasdaq listing as a stand-alone company.

Alliqua’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:

the fact that immediately following the consummation of the merger, Adynxx stockholders, warrantholders and optionholders will own approximately 86% of the fully-diluted common stock of Alliqua, with Alliqua stockholders, optionholders and warrantholders, whose shares of Alliqua stock will remain outstanding after the merger, holding approximately 14% of the fully-diluted common stock of Alliqua, subject to adjustment as described elsewhere in this proxy statement;

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

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

the reasonableness of the potential termination fee payable by Alliqua under certain circumstances of  $249,000 or the reasonableness of the potential termination fee payable by Adynxx under certain circumstances of  $249,000;

the voting agreements, pursuant to which certain directors, officers and affiliated stockholders of Adynxx agreed, solely in their capacity as stockholders, to vote their shares of Adynxx capital stock in favor of adoption of the Merger Agreement; 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, the Alliqua’s board of directors also considered a variety of risks and other countervailing factors related to entering into the Merger, including:

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 Alliqua 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 Alliqua;

the risk to Alliqua’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, a majority of which will initially designated entirely by Adynxx;

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

various other risks associated with the combined organization and the merger, including those described in the section entitled “Risk Factors” in this proxy statement.
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The foregoing information and factors considered by Alliqua’s board of directors are not intended to be exhaustive but are believed to include all of the material factors considered by Alliqua’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, Alliqua’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 Alliqua’s board of directors may have given different weight to different factors. Alliqua’s board of directors conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, Alliqua’s management team and the legal and financial advisors of Alliqua, and considered the factors overall to be favorable to, and to support, its determination.
Recommendation of the Alliqua Board of Directors
Alliqua’s board of directors has determined and believes that the Merger and the issuance of shares of Alliqua common stock pursuant to the Merger is in the best interests of, Alliqua and its stockholders and has approved such items. Alliqua’s board of directors recommends that Alliqua stockholders vote “FOR” Proposal 1 to approve the Merger and the issuance of shares of Alliqua common stock in the Merger.
Alliqua’s board of directors has determined and believes that it is advisable to, and in the best interests of, Alliqua and its stockholders to approve the amendment of the amended and restated certificate of incorporation of Alliqua effecting the proposed reverse stock split, as described in this proxy statement. Alliqua’s board of directors recommends that Alliqua stockholders vote “FOR” Proposal 2 to approve the amendment of the amended and restated certificate of incorporation of Alliqua effecting the proposed reverse stock split, as described in this proxy statement.
Alliqua’s board of directors has determined and believes that adjourning the Alliqua Special Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposals 1 and 2 is advisable to, and in the best interests of, Alliqua and its stockholders and has approved and adopted the proposal. Alliqua’s board of directors recommends that Alliqua stockholders vote “FOR” Proposal 3 to adjourn the Alliqua Special Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposals 1 and 2.
Opinion of Alliqua’s Financial Advisor
The Alliqua board of directors retained Wainwright on October 3, 2018 to act as the exclusive financial advisor to Alliqua regarding a strategic review of one or more potential transactions and, if requested by the board of directors of Alliqua, to render an opinion as to the fairness of the consideration to be received by Alliqua or its stockholders in a transaction from a financial point of view.
On October 5, 2018, Wainwright rendered its oral opinion to the board of directors of Alliqua (which was subsequently confirmed in writing by delivery of Wainwright’s written opinion dated the same date) to the effect that, based upon and subject to the assumptions, factors, qualifications and limitations set forth in the written opinion described herein, as of October 5, 2018, the Exchange Ratio was fair, from a financial point of view, to Alliqua.
Wainwright’s opinion was prepared solely for the information of the board of directors of Alliqua and only addressed the fairness, from a financial point of view, to Alliqua of the Exchange Ratio in the Merger Agreement. Wainwright was not requested to opine as to, and Wainwright’s opinion does not address, the relative merits of the Merger or any alternatives to the Merger, Alliqua’s underlying decision to proceed with or effect the Merger, or any other aspect of the Merger. Wainwright’s opinion does not address the fairness of the Merger to the holders of any class of securities, creditors or other constituencies of Alliqua and is not a valuation of Alliqua or Adynxx or their respective assets or any class of their securities. Wainwright did not express an opinion about the fairness of the amount or nature of any compensation payable or to be paid to any of the officers, directors or employees, of Adynxx, whether or not relative to the Merger.
The summary of Wainwright’s opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is included as Annex H to this proxy statement and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other
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matters considered by Wainwright in preparing its opinion. Wainwright’s opinion was prepared solely for the information of the board of directors of Alliqua for its use in connection with its consideration of the Merger. Neither Wainwright’s written opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and they do not constitute, advice or a recommendation to any stockholder as to how such stockholder should act or vote with respect to any matter relating to the Merger or any other matter.
The terms of the Merger, the consideration to be paid in the Merger, and the related transactions were determined through arm’s length negotiations between Alliqua and Adynxx and were approved unanimously by Alliqua’s board of directors. Wainwright did not determine the consideration to be paid by Alliqua in connection with the Merger. Per the Merger Agreement, the former holders of Adynxx equity capital would own approximately 86% of the outstanding equity of Alliqua immediately following the Effective Time and the holders of the outstanding equity of Alliqua immediately prior to the Merger would own approximately 14% of the outstanding equity of Alliqua immediately following the Effective Time.
In connection with rendering the opinion described above and performing its related financial analyses, Wainwright, among other things:

Reviewed a draft of the Merger Agreement dated October 3, 2018;

Reviewed certain information, including financial forecasts, relating to the business, earnings, cash flow, assets, liabilities and prospects of Alliqua and Adynxx that were furnished to Wainwright by management of Alliqua and Adynxx, respectively;

Conducted discussions with members of senior management and representatives of Alliqua and Adynxx concerning the matters described above;

Reviewed publicly available information relating to the respective businesses of Alliqua and Adynxx;

Reviewed the pro forma ownership structure of the combined entity resulting from the Merger;

Discussed the past and current operations and financial condition and the prospects of Alliqua with members of senior management of Alliqua and of Adynxx, respectively;

Reviewed the financial terms, to the extent publicly available, of certain acquisition and financing transactions that Wainwright determined relevant;

Performed such other analyses and considered such other factors as we deemed appropriate for the purpose of rendering our opinion.
For purposes of its opinion, Wainwright assumed, with the approval of the board of directors of Alliqua, that (i) the Spin-off would not occur prior to the Effective Time, and (ii) the amount of the Cash Dividend payable to holders of Alliqua Common Stock will be $1.40 per share. However, the Cash Dividend, when declared by Alliqua’s board of directors, may be less than $1.40 per share.
In arriving at its opinion, Wainwright assumed and relied upon, without verifying independently, the accuracy and completeness of all information that was publicly available or was furnished, or otherwise made available to Wainwright, or discussed with or reviewed by or for Wainwright, and further assumed that the financial information provided to Wainwright had been prepared by the respective managements of Alliqua and Adynxx on a reasonable basis in accordance with industry practice, and that the managements of Alliqua and Adynxx were not aware of any information or facts that would make any information provided to Wainwright incomplete or misleading.
With respect to the financial forecasts, estimates and other forward-looking information reviewed by Wainwright, Wainwright assumed that such information had been reasonably prepared by the respective managements of Alliqua and Adynxx based on assumptions reflecting their best currently available estimates and judgments as to the expected future results of operations and financial condition of Alliqua and Adynxx, respectively. Wainwright was not engaged to assess the achievability of any such financial forecasts, estimates or forward-looking information or the assumptions on which they were based, and Wainwright expressed no opinion as to such information or assumptions. In addition, Wainwright did not
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assume any responsibility for, and did not perform, any appraisals or valuation of any specific assets or liabilities (fixed, contingent or other) of Alliqua or Adynxx, nor was Wainwright furnished or provided with any such appraisals or valuations. Without limiting the generality of the foregoing, Wainwright was not engaged to, and did not undertake, any independent analysis of any pending or threatened litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which Alliqua, Adynxx or any of their respective affiliates is a party or may be subject, and at the direction of Alliqua and with its consent, Wainwright’s opinion made no assumption concerning, and did not consider, the possible assertion of claims, outcomes or damages arising out of any such matters.
Wainwright relied upon and assumed, without independent verification, that the representations and warranties of all parties set forth in the Merger Agreement and all related documents and instruments that are referred to therein are true and correct, that each party will fully and timely perform all of the covenants and agreements required to be performed by such party, that the Merger will be consummated pursuant to the terms of the Merger Agreement, without amendment thereto, and that all conditions to the consummation of the Merger will be satisfied without waiver by any party of any conditions or obligations thereunder. Wainwright further assumed that the Merger Agreement was in all material respects identical to the draft of the Merger Agreement provided to Wainwright. Finally, Wainwright also assumed that all the necessary regulatory approvals and consents required for the Merger, including the approval of the stockholders of Alliqua, will be obtained in a manner that will not adversely affect Alliqua or the contemplated benefits of the Merger.
In connection with its opinion, Wainwright assumed and relied upon, without independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by it. Wainwright’s opinion does not address any legal, regulatory, tax or accounting issues. Wainwright’s fairness opinion was approved by its fairness opinion committee prior to delivering it to Alliqua.
Wainwright’s opinion is necessarily based upon the information available to Wainwright and facts and circumstances as they existed and were subject to evaluation as of October 5, 2018, which is the date of the Wainwright opinion. Although events occurring after the date of the Wainwright opinion could materially affect the assumptions used in preparing the opinion, Wainwright does not have any obligation to update, revise or reaffirm its opinion and Wainwright expressly disclaims any responsibility to do so. Wainwright did not express any opinion as to the value of the Merger consideration or the prices at which shares of Alliqua’s common stock may trade following announcement of the Merger or at any future time.
The terms of the Merger, the consideration to be paid in the Merger, and the related transactions were determined through arm’s length negotiations between Alliqua and Adynxx and were approved unanimously by Alliqua’s board of directors. Wainwright did not determine the consideration to be paid by Alliqua in connection with the Merger. Wainwright’s opinion and its presentation to Alliqua’s board of directors was one of many factors taken into consideration by the board of directors of Alliqua in deciding to approve, adopt and authorize the Merger Agreement. Consequently, the analyses as described herein should not be viewed as determinative of the opinion of Alliqua’s board of directors with respect to the consideration to be paid by Alliqua in the Merger or of whether Alliqua’s board of directors would have been willing to agree to different consideration.
The following is a summary of the material financial analyses performed by Wainwright in connection with the preparation of its fairness opinion, which opinion was rendered orally to the board of directors of Alliqua (and subsequently confirmed in writing by delivery of Wainwright’s written opinion dated the same date) on October 5, 2018. The preparation of analyses and a fairness opinion is a complex analytic process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to summary description and this summary does not purport to be a complete description of the analyses performed by Wainwright or the delivery of Wainwright’s opinion to the board of directors of Alliqua.
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This summary includes information presented in tabular format. In order to fully understand the financial analyses presented by Wainwright, the tables must be read together with the text of each analysis summary and considered as a whole. The tables alone do not constitute a complete summary of the financial analyses. Considering any portion of such analyses and of the factors considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying Wainwright’s opinion.
In furnishing its opinion, Wainwright did not attempt to combine the analyses described herein into one composite valuation range, nor did Wainwright assign any quantitative weight to any of the analyses or the other factors considered. Furthermore, in arriving at its opinion, Wainwright did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor in light of one another. Accordingly, Wainwright has stated that it believes that its analyses must be considered as a whole and that considering any portion of its analyses, without considering all of the analyses, could create a misleading or incomplete view of the process underlying its opinion or the conclusions to be drawn therefrom.
In conducting the analysis as to the fairness to Alliqua, from a financial point of view, of the Merger consideration to be paid by Adynxx pursuant to the terms of the Merger Agreement, Wainwright evaluated the stand-alone valuations of Alliqua and Adynxx. Wainwright then evaluated the potential valuation of New Adynxx and compared it to Alliqua’s pro forma ownership of New Adynxx based on the Merger Agreement.
The results of the application by Wainwright of each of the valuation methodologies utilized in connection with its fairness opinion are summarized below.
Consideration to be paid in the Merger
As specified in the Merger Agreement, the former holders of Adynxx Capital Stock will own approximately 86% of the outstanding equity of Alliqua immediately following the Effective Time and the holders of the of the outstanding equity of Alliqua immediately prior to the Merger will own approximately 14% of the outstanding equity of Alliqua immediately following the Effective Time, subject to adjustment as described elsewhere in this proxy statement.
In analyzing the fairness, from a financial point of view, to Alliqua of the Merger consideration to be paid by Adynxx in the Merger, Wainwright evaluated the trading price of Alliqua stock on October 2, 2018 as $2.33. Wainwright then determined that after the payment of the Cash Dividend to holders of Alliqua capital stock prior to the Effective Time, Alliqua’s share price would be $0.93 per share. Wainwright concluded that Alliqua’s current implied value is $4.7 million.
Potential Valuation of New Adynxx
Wainwright evaluated the potential value of New Adynxx using the following valuation methodologies:

Precedent Public M&A Transactions

Precedent Private M&A Transactions

Comparable Licensing Transactions

Comparable IPOs

Comparable Public Market Companies

Valuation of Adynxx — Implied Valuation of New Adynxx

Precedent Reverse Merger Transactions
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Precedent Public M&A Transactions
The precedent public M&A analysis uses data based on the values acquirors have previously placed on comparable companies in a merger or acquisition to develop a measure of current value for New Adynxx. Wainwright examined precedent transactions, from February 11, 2014 through October 14, 2015, involving pain management companies. Wainwright examined the data points set out in the table below for the selected precedent transactions. Selected pain management public M&A transactions indicated a median value of  $170 million and a mean value of  $422.9 million.
Precedent Public M&A Transactions
Date
Acquirer
Target
Deal Value
($M)
10/14/2015 Taro Pharmaceutical Industries Ltd Zalicus Pharmaceuticals Ltd. $ 45.2
3/10/2015 Pernix Therapeutics Zogenix (Zohydro ER Business) $ 383.5
3/9/2015 Recro Pharma
Alkermes Pharma (IV/IM Meloxicam Product & cGMP Facility)
$ 170.0
1/15/2015 DepoMed Janssen (NUCYNTA Franchise) $ 1,050.0
4/24/2014 Endo International Zogenix (Sumavel DosePro) $ 105.0
2/12/2014 Mayne Pharma Group Forest Laboratories (4 Brands) $ 12.0
2/11/2014 Mallinckrodt Cadence Pharmaceuticals $ 1,194.4
Median $ 170.0
Mean $ 422.9
Excluded Transactions (Due to undisclosed transaction value)
Date
Acquirer
Target
Deal Value
5/14/2014 Pernix Therapeutics Holdings GSK (TREXIMET U.S. Rights) n/a
4/16/2014 EPIRUS Biopharmaceuticals Zalicus n/a
Precedent Private M&A Transactions
The precedent private M&A analysis uses data based on the values acquirors have previously placed on comparable companies in a merger or acquisition to develop a measure of current value for New Adynxx. Wainwright examined precedent transactions, from July 11, 2014 through August 8, 2016, involving pain management companies. Wainwright examined the data points set out in the table below for the selected precedent transactions. Selected pain management private M&A transactions indicated a median value of $200.0 million and a mean value of  $228.9 million.
Precedent Private M&A Transactions
Date
Acquirer
Target
Deal Value
($M)
8/8/2016 Scintilla Pharmaceuticals, Inc. SCILEX Pharmaceuticals, Inc. $ 70.0
11/18/2015 Depomed Grunenthal (US and Canadian
Rights to Cebranopadol)
$ 25.0
9/8/2015 Purdue Pharma; Mundipharma VM Pharma (VM-902A) $ 213.0
6/29/2015 Novartis Spinifex Pharmaceuticals $ 200.0
6/16/2015 Tribute Pharmaceuticals Canada Medical Futures $ 25.0
1/11/2015 Biogen Idec Convergence Pharmaceuticals $ 675.0
7/11/2014 ProStrakan Group Archimedes Pharma $ 394.1
Median $ 200.0
Mean $ 228.9
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Excluded Transactions (Due to undisclosed transaction value)
Date
Acquirer
Target
Deal Value
($M)
3/21/2016 Ember therapeutics, Inc. Migralex n/a
12/31/2015 Signature Therapeutics Ensysce Biosciences n/a
10/2/2015 Ethypharm DB Ashbourne n/a
2/4/2014 Bioventus Galderma (DUROLANE) n/a
Comparable Licensing Transactions
Wainwright reviewed financial terms, to the extent publicly available, of licensing transactions since 2016 for pain management assets from May 11, 2016 to May 8, 2017. Selected comparable licensing deals indicated a median value of  $23.5 million and a mean value of  $107.0 million.
Comparable Licensing Transactions
Deal Date
Licensor
Licensee
Asset
Deal Value
($M)
5/8/2017 Novartis Durect Posimir $ 293.0
7/12/2017 Purdue Pharma BioDelivery Sciences International Belbuca $ 4.5
5/11/2016 Collegium Pharmaceutical BioDelivery Sciences International Breakyl $ 23.5
Median $ 23.5
Mean $ 107.0
Comparable IPOs
Wainwright reviewed initial public offerings of pain management companies from February 5, 2014 to May 6, 2015. Selected comparable initial public offerings indicated a mean enterprise value of $113 .0 million and a median enterprise value of  $121.5 million.
IPO Comparables
Offer Date
Company Name
Offer Price
Amount Raised
in IPO ($M)
Pre-Money Equity
Value ($M)
IPO Step-up
Multiple
Post IPO
Market Value
Enterprise
Value ($M)
05/06/2015
Collegium Pharmaceutical, Inc.
$ 12.00 $ 80.0 $ 156.5 1.5x $ 236.5 $ 140.7
04/15/2015 KemPharm, Inc. $ 11.00 $ 64.4 $ 83.7 1.8x $ 148.1 $ 102.7
01/30/2014 Cara Therapeutics Inc $ 11.00 $ 63.3 $ 177.0 1.6x $ 240.3 $ 175.1
03/06/2014 Recro Pharma, Inc. $ 8.00 $ 34.5 $ 22.7 0.8x $ 57.2 $ 24.8
02/05/2014 Egalet Corporation $ 12.00 $ 58.0 $ 117.9 2.6x $ 175.9 $ 121.5
Median $ 63.3 $ 117.9 1.6x $ 175.9 $ 121.5
Mean $ 60.0 $ 111.6 1.7x $ 171.6 $ 113.0
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Comparable Public Market Companies
Wainwright reviewed the total enterprise values of publicly traded pain management companies with no sales or less than $50.0 million per year in sales. Selected comparable public companies had a mean enterprise value of  $96 .0 million and a median enterprise value of  $104.3 million.
Public Market Pain Comparables
Company Name
Ticker
Price
52 Week
High
52 Week
Low
Market Cap.
($M)
Enterprise
Value ($M)
KemPharm Inc KMPH $ 4.25 $ 8.40 $ 3.44 $ 77.0 $ 109.5
Recro Pharma Inc. REPH $ 7.11 $ 13.05 $ 4.78 $ 147.3 $ 165.5
Egalet Corporation EGLT $ 0.12 $ 1.57 $ 0.08 $ 7.0 $ 42.7
AcelRx Pharmaceuticals Inc ACRX $ 3.85 $ 5.75 $ 1.55 $ 233.3 $ 137.2
Trevena Inc TRVN $ 2.12 $ 2.64 $ 1.34 $ 161.3 $ 57.2
BioDelivery Systems BDSI $ 2.70 $ 3.20 $ 1.70 $ 160.8 $ 154.5
Zynerba Pharmaceuticals Inc ZYNE $ 8.16 $ 15.13 $ 5.59 $ 143.8 $ 99.2
Avenue Therapeutics Inc ATXI $ 2.82 $ 5.90 $ 2.38 $ 29.8 $ 2.2
Median $ 145.6 $ 104.3
Mean $ 120.0 $ 96.0
Valuation of Adynxx — Implied Valuation of New Adynxx
Wainwright calculated the implied enterprise valuation of New Adynxx to be within a range of $84.5 million to $88.8 million. Wainwright calculated the new company’s valuation by determining that the implied enterprise value of Adynxx was $53.0 million. Wainwright then applied the step-up multiple from comparable IPO transactions of 1.7 to the implied enterprise value of  $53.0 million, and added Alliqua’s equity value of  $4.7 million. After accounting for the net cash and debt position of the new company, Wainwright determined an enterprise valuation range of  $84.5 million to $88.8 million.
Adynxx Implied Valuation
Series B Post Money Valuation
$ 46.0
Convertible Notes
$ 10.0
Convertible Notes Remaining
$ 7.0
Implied Enterprise Value
$ 53.0
Implied Equity Value
$ 46.0
IPO Step-up Multiple of Pain Companies
Mean
1.7x
Median
1.6x
Adynxx Implied Step-up Equity Valuation
Mean
$
77.1
Median
$
75.0
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Precedent Reverse Merger Transactions
Wainwright reviewed reverse merger transactions in the healthcare industry including targets with a market cap of under $30.0 million before the announcement of the reverse merger. The surviving entity of the selected transactions had a median enterprise value of  $52.5 million and a mean enterprise value of $113.6 million.
Precedent Healthcare Reverse Mergers
Announcement Date
Public Company
Private Company
Market Cap
Target
Post Deal
Ownership
Target Value
Enterprise
Value ($M)
10/17/2017 Neothetics Evofem Biosciences $ 7.3
13% / 87%
$ 7.3 $ 215.2
09/27/2017 Alcobra Arcturus Therapeutics $ 29.8
40% / 60%
$ 29.8 $ 105.8
09/12/2017 Inotek Pharmaceuticals Rocket Pharmaceuticals $ 27.6
21% / 79%
$ 27.6 $ 413.5
08/14/2017 Galena Biopharma Sellas Life Sciences $ 20.9
33% / 68%
$ 20.9 $ 12.0
07/24/2017 Advanced Enviromental
Petroleum
Oncolix $ 14.9
31% / 69%
$ 14.9 $ 6.0
07/03/2017 Opexa Therapeutics Acer Therapeutics $ 4.5
11% / 89%
$ 4.5 $ 7.4
07/03/2017 Monster Digital
Innovate Biopharmaceuticals
$ 4.1
9% / 91%
$ 4.1 $ 5.7
01/07/2017 Mast Therapeutics Savara $ 20.7
23% / 77%
$ 20.7 $ 132.0
12/22/2016 Tokai Pharmaceuticals Otic Pharma $ 22.6
40% / 60%
$ 22.6 $ 41.7
12/22/2016 PLx Pharma
Dipexium Pharmaceuticals
$ 13.0
77% / 23%
$ 13.0 $ 52.5
10/31/2016 Signal Genetics Miragen Therapeutics $ 4.5
5% / 95%
$ 4.5 $ 257.7
Mean $ 15.5 $ 113.6
Median $ 14.9 $ 52.5
General
Wainwright is a nationally recognized investment banking firm that provides financial advisory services and is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. The Alliqua board of directors retained Wainwright to render an opinion as to the fairness to Alliqua, from a financial point of view, of the Exchange Ratio in the Merger Agreement based upon the foregoing qualifications, experience and expertise.
Alliqua paid Wainwright a fee of  $50,000 at the time of its engagement and a fee of  $250,000 for rendering its fairness opinion delivered in connection with the Merger. Additional fees of  $350,000 in cash, stock valued at $300,000 and warrants valued at $50,000 are contingent on the consummation of the Merger. The $250,000 opinion fee was not contingent in whole or in part on the success of the Merger, or on the results of Wainwright’s evaluation and analysis or upon the conclusions reached in Wainwright’s opinion. In addition, Alliqua agreed to reimburse Wainwright up to $50,000 for its reasonable, documented, out-of-pocket expenses, including reasonable fees and disbursements of its counsel. Alliqua has also agreed to indemnify Wainwright against certain liabilities and other items that may arise out of the Alliqua’s engagement of Wainwright. Alliqua’s board of directors did not limit Wainwright in any way in the investigations it made or the procedures it followed in rendering its opinion.
Wainwright in the past has provided and may in the future provide investment banking and other financial services to Alliqua and its affiliates for which Wainwright and its affiliates have received or may receive compensation. In February 2017, Wainwright acted as a financial advisor to Alliqua in connection with a private placement of Alliqua Common Stock for which Wainwright received a financial advisory fee of approximately $160,000. In April 2017, Wainwright acted as the sole book-running manager of a public offering by Alliqua of Alliqua Common Stock for which Wainwright received fees of approximately $210,000. In March 2018, Wainwright was engaged by Alliqua in connection with a proposed offering that
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was never consummated and received reimbursement of  $50,000 of legal fees. Except as described above, Wainwright had not had a material relationship with, nor otherwise received fees from, Alliqua, Adynxx or any other parties to the Merger during the two years preceding the date of Wainwright’s opinion. In the future, Wainwright may provide financial advisory and investment banking services to Alliqua, Adynxx or their respective affiliates for which Wainwright would expect to receive compensation.
Consistent with applicable legal and regulatory requirements, Wainwright has adopted policies and procedures to establish and maintain the independence of its research departments and personnel. As a result, Wainwright’s research analysts may hold views, make statements or investment recommendations and/or publish research reports with respect to Alliqua, Adynxx and/or the Merger that differ from the views of its investment banking personnel.
Interests of Alliqua’s Directors and Executive Officers in the Merger
In considering the recommendation of Alliqua’s board of directors that you vote to approve the proposal to adopt the Merger Agreement, you should be aware that Alliqua’s directors and executive officers may have interests in the Merger that are different from, or in addition to, those of Alliqua’s stockholders generally. Alliqua’s board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement and the Merger, and in recommending that the Merger Agreement be adopted by Alliqua’s stockholders.
Severance and Change in Control Provisions of Employment Arrangements
In connection with the appointment of David Johnson as Chief Executive Officer, on February 4, 2013, Alliqua entered into an Executive Employment Agreement with Mr. Johnson, as amended on December 20, 2013. As Mr. Johnson’s service as Chief Executive Officer will be terminated without cause immediately prior to the Effective Time, pursuant to the terms of his employment agreement, and subject to compliance with the confidentiality, non-solicitation and non-disparagement requirements of the employment agreement and the execution of a release of claims, (i) Alliqua will pay Mr. Johnson $    , which is equal to 24 months of Mr. Johnson’s base salary; (ii) $    , which is equal to two years of annual bonus to which Mr. Johnson would be entitled under his employment agreement; and (iii) $     , which is equal to the aggregate monthly premiums for Mr. Johnson’s “COBRA” healthcare coverage for a period of 18 months following the Effective Time.
Stockholders’ Rights
Both Alliqua and Adynxx are incorporated under the laws of the State of Delaware and, accordingly, the rights of the stockholders of Alliqua and Adynxx are currently, and will continue to be, governed by the DGCL. If the merger is completed, Adynxx stockholders will become stockholders of Alliqua, and their rights will be governed by the DGCL, the certificate of incorporation of Alliqua and the bylaws of Alliqua. The rights of Alliqua stockholders contained in the certificate of incorporation and bylaws of Alliqua will not materially change as a result of the Merger.
Federal Securities Law Consequences; Resale Restrictions
The issuance of Alliqua’s common stock in the Merger to Adynxx stockholders will be effected by means of a private placement, which is exempt from registration under the Securities Act, in reliance on Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D or Regulation S promulgated thereunder and such shares will be “restricted securities.” The shares issued in connection with the Merger will not be registered under the Securities Act upon issuance and will not be freely transferable. Holders of such shares may not sell their respective shares unless the shares are registered under the Securities Act or an exemption is available under the Securities Act. The Merger Agreement provides that Alliqua will cooperate in a timely manner with the holders of such shares to remove any restrictive legends or similar transfer instructions from such shares upon the registration of such shares or in the event that such shares are otherwise transferable to an exemption from registration under the Securities Act.
Material U.S. Federal Income Tax Consequences of the Reverse Stock Split and the Merger
The following discussion summarizes the material U.S. federal income tax consequences of the reverse stock split and the merger that are expected to apply to each Alliqua stockholder. This summary is based
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upon current provisions of the Code, existing treasury regulations and current administrative rulings and court decisions, all in effect as of the date hereof and all of which are subject to change. Any change, which may be retroactive, could alter the tax consequences to Alliqua stockholders as described in this summary. No attempt has been made to comment on all of the U.S. federal income tax consequences of the reverse stock split and the merger that may be relevant to particular holders, including holders who do not hold their shares as capital assets; holders subject to special treatment under the Code such as dealers in securities; banks; insurance companies; other financial institutions; mutual funds; real estate investment trusts; tax-exempt organizations; investors in pass-through entities; stockholders who are subject to the alternative minimum tax provisions of the Code; stockholders who hold their shares as part of a hedge, wash sale, synthetic security, conversion transaction, or other integrated transaction; U.S. holders, as defined below, that have a functional currency other than the U.S. dollar; traders in securities who elect to apply a mark-to-market method of accounting; stockholders who acquired their shares of stock pursuant to the exercise of options or otherwise as compensation or through a tax-qualified retirement plan or through the exercise of a warrant; and certain expatriates or former long-term residents of the United States. Stockholders described in this paragraph are urged to consult their own tax advisors regarding the consequences to them of the reverse stock split and the merger.
In the case of a stockholder that is a partnership, the U.S. federal income tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships that are holders of Alliqua capital stock and partners in such partnerships are urged to consult their own tax advisors regarding the consequences to them of the reverse stock split and the merger.
In addition, the following discussion does not address the tax consequences of the reverse stock split and the merger under state, local or non-U.S. tax laws or federal tax laws other than the income tax.
Reverse Stock Split
Alliqua stockholders generally will not recognize gain or loss as a result of the reverse stock split. The aggregate adjusted tax basis in the shares of Alliqua common stock received pursuant to the reverse stock split will equal the aggregate adjusted tax basis of the shares of Alliqua common stock exchanged therefor. In general, each Alliqua stockholder’s holding period for the shares of Alliqua common stock received pursuant to the reverse stock split will include the holding period in the shares of Alliqua common stock exchanged therefor. Alliqua’s stockholders that acquired Alliqua common stock 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.
Merger
Adynxx and Alliqua intend the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Code. Each of Adynxx and Alliqua 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 Adynxx or Alliqua to take any action or cause any action to be taken which would reasonably be expected to cause the Merger to fail to qualify as a reorganization under Section 368(a) of the Code. Alliqua stockholders will not sell, exchange or dispose of any shares of Alliqua common stock as a result of the Merger. Thus, there should be no material U.S. federal income tax consequences to Alliqua stockholders as a result of the Merger.
Anticipated Accounting Treatment
The merger will be treated by Alliqua as a reverse merger and recapitalization effected by a share exchange for financial accounting and reporting purposes since substantially all of Alliqua’s operations will be disposed of immediately prior to the consummation of the merger. Since Alliqua had no operations upon the merger taking place, Alliqua is not considered to be a business for accounting purposes. Accordingly, no goodwill or intangible assets will be recorded as a result of the merger.
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THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement. A copy of the Merger Agreement is attached as Annex A and Annex B to this proxy statement and is incorporated by reference into this proxy statement. The Merger Agreement has been attached to this proxy to provide you with information regarding its terms. It is not intended to provide any other factual information about Alliqua, Adynxx, or Merger Sub. The following description does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement. You should refer to the full text of the Merger Agreement for details of the Merger and the terms and conditions of the Merger Agreement.
The Merger Agreement contains representations and warranties that Alliqua and Merger Sub, on the one hand, and Adynxx, on the other hand, have made to one another as of specific dates. These representations and warranties have been made for the benefit of the other parties to the Merger Agreement and may be intended not as statements of fact but rather as a way of allocating the risk to one of the parties if those statements prove to be incorrect. In addition, the assertions embodied in the representations and warranties are qualified by information in confidential disclosure schedules exchanged by the parties in connection with signing the Merger Agreement. While Alliqua and Adynxx do not believe that these disclosure schedules contain information required to be publicly disclosed under the applicable securities laws, other than information that has already been so disclosed, the disclosure schedules do contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the attached Merger Agreement. Accordingly, you should not rely on the representations and warranties as current characterizations of factual information about Alliqua or Adynxx.
General
Under the Merger Agreement, Merger Sub, a wholly owned subsidiary of Alliqua, will merge with and into Adynxx, with Adynxx surviving as a wholly owned subsidiary of the combined company.
Merger Consideration
At the Effective Time of the Merger:

each outstanding share of Adynxx common stock, on an as-converted basis taking into consideration all outstanding common stock, preferred stock, restricted stock and all other securities convertible or exercisable for Adynxx common stock, will be converted into the right to receive shares of Alliqua common stock at the Exchange Ratio as described below; and

each outstanding Adynxx stock option, whether vested or unvested, and warrant that has not previously been exercised will be assumed by Alliqua and converted into a stock option or warrant, as the case may be, to purchase shares of Alliqua common stock.
Exchange Ratio
The Exchange Ratio is equal to (i) the product of  (1) 0.8625, as adjusted for any Permitted Financings as described below (the “Applicable Amount”), multiplied by (2) the total number of shares of Alliqua common stock outstanding immediately prior to the Effective Time on an as-converted basis divided by as the difference between one and the Applicable Amount, divided by (ii) the total number of shares of Adynxx common stock outstanding immediately prior to the Effective Time on an as-converted basis. Under the Exchange Ratio formula in the Merger Agreement, as of immediately after the Merger, but excluding the effect of certain financings (as further described in the Merger Agreement), Adynxx securityholders are expected to own approximately 86% of the aggregate number of shares of the combined company issued and outstanding following the consummation of the Merger and the stockholders of Alliqua as of immediately prior to the Merger are expected to own approximately 14% of the aggregate number of shares of the combined company issued and outstanding following the consummation of the Merger. The Exchange Ratio will be fixed immediately prior to the Effective Time to reflect Alliqua’s and Adynxx’s equity capitalization as of immediately prior to such time. In addition, to the extent Adynxx consummates a Permitted Financing, as specifically defined in the Merger Agreement and described below, in excess of  $10.0 million dollars prior to the Effective Time, the Applicable Amount will be ratably adjusted upward on a sliding scale from 0.8625 to account for the excess amount raised in the Permitted
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Financing. For example, if Adynxx raises $20.0 million in the Permitted Financing, the Applicable Amount shall be 0.9, reducing the percentage of the aggregate number of shares of the combined company held by stockholders of Alliqua as of immediately prior to the Merger.
This Exchange Ratio is an estimate only, and the final Exchange Ratio will be determined pursuant to a formula described in more detail in the Merger Agreement and in this proxy statement.
The Merger Agreement does not include a price-based termination right, so there will be no adjustment to the total number of shares of Alliqua common stock that Adynxx stockholders will be entitled to receive for changes in the market price of Alliqua common stock. Accordingly, the market value of the shares of Alliqua common stock issued pursuant to the Merger will depend on the market value of the shares of Alliqua common stock at the time the Merger closes, and could vary significantly from the market value on the date of this proxy statement.
No fractional shares of Alliqua common stock will be issuable pursuant to the Merger to Adynxx stockholders, and any fractional shares will be rounded down to the nearest whole share. Adynxx stockholders will not be entitled to any voting rights, rights to receive any dividends or distributions or other rights as a stockholder of Alliqua with respect to any such fraction of a share that would have otherwise been issued to such Adynxx stockholder.
The Merger Agreement provides that, at the Effective Time, Alliqua will cause to be deposited with an exchange agent acceptable to Alliqua and Adynxx registered book-entry interests in the shares of Alliqua common stock issuable to Adynxx stockholders.
The Merger Agreement provides that, as soon as reasonably practicable after the Effective Time, the exchange agent will mail to each record holder of Adynxx common stock a letter of transmittal and instructions for surrendering and exchanging the record holder’s Adynxx stock certificates for shares of Alliqua common stock. Upon surrender of a Adynxx stock certificate for exchange to the exchange agent, together with a duly signed letter of transmittal and such other documents as the exchange agent or Alliqua may reasonably require, the Adynxx stock certificate surrendered will be cancelled and the holder of the Adynxx stock certificate will be entitled to receive non-certificated shares of Alliqua common stock represented by book-entry (via DRS) equal to the number of whole shares of Alliqua common stock that such holder has the right to receive pursuant to the provisions of the Merger Agreement.
At the Effective Time, all holders of certificates representing shares of Adynxx common stock that were outstanding immediately prior to the Effective Time will cease to have any rights as stockholders of Adynxx. In addition, no transfer of Adynxx common stock after the Effective Time will be registered on the stock transfer books of Adynxx.
If any Adynxx stock certificate has been lost, stolen or destroyed, Alliqua may, in its discretion, and as a condition precedent to the delivery of any shares of Alliqua common stock, require the owner of such lost, stolen or destroyed certificate to deliver an affidavit claiming such certificate has been lost, stolen or destroyed and post a bond indemnifying Alliqua against any claim suffered by Alliqua related to the lost, stolen or destroyed certificate or any Alliqua common stock issued in exchange for such certificate as Alliqua may reasonably request.
From and after the Effective Time, until it is surrendered, each certificate that previously evidenced Adynxx common stock will be deemed to represent only the right to receive shares of Alliqua common stock. Alliqua will not pay dividends or other distributions on any shares of Alliqua common stock to be issued in exchange for any unsurrendered Adynxx stock certificate until the Adynxx stock certificate is surrendered as provided in the Merger Agreement.
Treatment of Adynxx Stock Options
At the Effective Time, each stock option to acquire shares of Adynxx stock, whether vested or unvested, that has not previously been exercised will be assumed by Alliqua and converted into an option to purchase, on the same terms and conditions, a number of shares of Alliqua common stock equal to the product of  (a) the number of shares of Adynxx common stock subject to such option, multiplied by (b) the Exchange Ratio, at an exercise price per share of Alliqua common stock equal to the quotient of  (i) the exercise price per share of Adynxx common stock subject to such option divided by (ii) the Exchange Ratio.
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Treatment of Adynxx Warrants
At the Effective Time, each Adynxx warrant that is outstanding and unexercised immediately prior to the Effective Time, will be converted into and become a warrant to purchase Alliqua’s common stock. All rights with respect to Adynxx common stock under Adynxx warrants assumed by Alliqua will thereupon be converted into rights with respect to Alliqua common stock. The replacement warrant shall be exercisable for a number of shares of common stock of the combined company equal to (a) the number of shares of Series A Preferred Stock of Adynxx that the existing warrant is exercisable for multiplied by (b) the Exchange Ratio, at a per share price equal to (i) the exercise price per share of Series A Preferred Stock of Adynxx under the existing warrant divided by (ii) the Exchange Ratio.
Directors and Executive Officers of the Combined Company Following the Merger
Pursuant to the Merger Agreement, the directors of Alliqua who will not serve as directors following the closing of the Merger will resign at or prior to the closing of the Merger. Effective as of the closing of the Merger, the combined company’s board of directors will be fixed at      members,      of whom will be directors designated by Adynxx and one of whom will be directors designated by Alliqua. Designees to the board of directors are expected to satisfy the requisite independence requirements for Alliqua’s board of directors, as well as the sophistication and independence requirements for committee members pursuant to Nasdaq listing requirements. It is anticipated that the Alliqua designee will be David I. Johnson and the Adynxx designees will be     , and     . Upon the closing of the Merger, the combined company’s board of directors will appoint each of the following as officers of the combined company:
Name
Title
Rick Orr Chief Executive Officer
Donald Manning, M.D., Ph.D. Chief Medical Officer
Julien Mamet, Ph.D. Chief Scientific Officer
Conditions to the Closing of the Merger
Each party’s obligation to complete the Merger is subject to the satisfaction or waiver by each of the parties, at or prior to the closing of the Merger, of various conditions, which include, in addition to other customary closing conditions, the following:

there shall not have been issued any temporary restraining order, preliminary or permanent injunction or other order preventing the closing of the Merger by any court of competent jurisdiction or other governmental entity of competent jurisdiction, and no law, statute, resolution, ordinance, code, rule, regulation, requirement, ruling or decree shall be in effect which has the effect of making the closing of the Merger illegal;

(a) the holders of a majority of the shares of outstanding Adynxx common stock and outstanding Adynxx preferred stock, voting as a single class on an as converted to Adynxx common stock basis and (b) the holders of a majority of the shares of outstanding Adynxx preferred stock, voting as a separate class on an as converted to Adynxx common stock basis, shall have adopted and approved the Merger Agreement, the Merger and the transactions contemplated by the Merger Agreement, and the holders of a majority of the outstanding shares of Alliqua common stock entitled to vote at the Special Meeting shall have approved the reverse stock split and the affirmative vote of the majority of votes cast affirmatively or negatively at the Special Meeting shall have approved the issuance of shares of Alliqua common stock in the Merger;

all waiting periods applicable to any filing under the Hart-Scott-Rodino Antitrust Improvements Act by Alliqua, Adynxx or any Adynxx st shall have expired or been terminated; and

the shares of Alliqua’s common stock to be issued in the Merger shall have been approved for listing on Nasdaq, subject to official notice of issuance.
In addition, the obligation of Alliqua to complete the Merger is further subject to the satisfaction or waiver of the following conditions:
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certain fundamental representations and warranties of Adynxx shall have been true and correct in all respects on the date of the Merger Agreement and shall be true and correct on the closing date of the Merger with the same force and effect as if made on and as of the date on which the Merger is to be completed or, if such representations and warranties address matters as of a particular date, then such fundamental representations and warranties shall be true and correct as of that particular date;

all other representations and warranties of Adynxx in the Merger Agreement shall have been true and correct as of the date of the Merger Agreement and shall be true and correct on the closing date of the Merger with the same force and effect as if made on the date on which the Merger is to be completed or, if such representations and warranties address matters as of a particular date, then such representations and warranties shall be true and correct as of that particular date, except where the failure of these representations and warranties to be true and correct, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the other party;

Adynxx shall have performed or complied with in all material respects all of its covenants and agreements in the Merger Agreement required to be performed or complied with by it on or before the closing of the Merger;

Adynxx shall have delivered certain certificates and other documents required under the Merger Agreement for the closing of the Merger;

Alliqua shall have received a copy of the lock-up agreement from certain stockholders of Adynxx set forth on a schedule to the Merger Agreement and each executive officer and director of Adynxx who is elected or appointed as an executive officer and director of Alliqua as of immediately following the closing of the Merger;

Adynxx shall have delivered to Alliqua written resignations of certain directors of Adynxx as listed in the Merger Agreement and in a form reasonably satisfactory to Alliqua;

since the date of the Merger Agreement, there shall have been no effect, change, event, circumstance, or development that has had or would reasonably be expected to have had a material adverse effect on the business, condition (financial or otherwise), assets, liabilities, or results of operations of Adynxx and its subsidiaries, taken as a whole. The Merger Agreement provides that certain effects, changes, events, circumstances, or developments arising or resulting from the following shall not be considered a material adverse effect on Adynxx:

general conditions affecting the industry in which Adynxx operates;

changes generally affecting the United States or global economy or capital markets as a whole s;

any changes (after the date of the Merger Agreement) in GAAP or applicable law; or

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

No holders of the shares of Adynxx capital stock (on an as-converted to Adynxx common stock basis) will have demanded appraisal rights.
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In addition, the obligation of Adynxx to complete the Merger is further subject to the satisfaction or waiver of the following conditions:

certain fundamental representations and warranties of Alliqua shall have been true and correct in all respects on the date of the Merger Agreement and shall be true and correct on the closing date of the Merger with the same force and effect as if made on and as of the date on which the Merger is to be completed or, if such representations and warranties address matters as of a particular date, then such fundamental representations and warranties shall be true and correct as of that particular date;

all other representations and warranties of Alliqua in the Merger Agreement shall have been true and correct as of the date of the Merger Agreement and shall be true and correct on the closing date of the Merger with the same force and effect as if made on the date on which the Merger is to be completed or, if such representations and warranties address matters as of a particular date, then such representations and warranties shall be true and correct as of that particular date, except where the failure of these representations and warranties to be true and correct, individually or in the aggregate, would not reasonably be expected to have a material adverse effect on the other party;

Alliqua and Merger Sub shall have performed or complied with in all material respects all of its covenants and agreements in the Merger Agreement required to be performed or complied with by it on or before the closing of the Merger;

Alliqua shall have delivered certain certificates and other documents required under the Merger Agreement for the closing of the Merger;

Alliqua shall have delivered to Adynxx written resignations of the officers and directors of Alliqua who are not to continue as officers or directors of Alliqua pursuant to the terms of the Merger Agreement, in a form reasonably satisfactory to Alliqua;

Adynxx shall have received a copy of the lock-up agreement from certain stockholders of Alliqua set forth on a schedule to the Merger Agreement and each executive officer and director of Alliqua who is elected or appointed as an executive officer and director of Alliqua as of immediately following the closing of the Merger;

since the date of the Merger Agreement, there shall have been no effect, change, event, circumstance, or development that that has had or would reasonably be expected to have had a material adverse effect on the business, condition (financial or otherwise), assets, liabilities, or results of operations of Alliqua. The Merger Agreement provides that certain effects, changes, events, circumstances, or developments arising or resulting from the following shall not be considered a material adverse effect on Alliqua, including without limitation:

general conditions generally affecting the industry in which Alliqua operates;

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

changes generally affecting the United States or global economy or capital markets as a whole;

any changes (after the date of the Merger Agreement) in GAAP or applicable law; or

any change in the stock price or trading volume of Alliqua stock (but not the underlying causes of such changes or failures);

Adynxx will have received written acknowledgments pursuant to which Alliqua’s outside legal counsel and any financial advisor, accountant or other person who performed services for or on behalf of Alliqua, or who is otherwise entitled to any compensation from Alliqua that in each case is owed transaction costs from Alliqua: (i) the total amount of transaction costs that are payable to such person; and (ii) that, upon receipt of the amount referred to in clause “(i)” above, such party will have been paid in full and is not (and will not be) owed any other transaction costs; and
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Adynxx will have received evidence reasonably satisfactory to it as to compliance by Alliqua of its termination of employment of any employee of Alliqua as requested by Adynxx and any related provisions in the Merger Agreement.
Representations and Warranties
The Merger Agreement contains customary representations and warranties of Alliqua, Merger Sub, and Adynxx for a transaction of this type relating to, among other things:

corporate organization, organizational and governing documents, and power, and similar corporate matters;

subsidiaries;

capitalization;

financial statements and with respect to Alliqua, documents filed with the SEC and the accuracy of information contained in those documents;

books and records with respect to Adynxx and the accuracy of information contained in those documents;

absence of certain changes or events, with respect to Alliqua, between June 30, 2018 and the date of the Merger Agreement and with respect to Adynxx, between June 30, 2018 and the date of the Merger Agreement;

title to assets;

real property and leaseholds;

intellectual property;

the validity of material contracts to which the parties or their subsidiaries are a party and any violation, default or breach under such contracts;

non-contravention and required consents;

absence of undisclosed liabilities;

regulatory compliance, permits and restrictions;

tax matters;

employee and labor matters and benefit plans;

environmental matters;

insurance;

legal proceedings and orders;

authority to enter into the Merger Agreement and the related agreements;

compliance with anti-bribery laws;

full disclosure;

governmental authorization;

transactions with affiliates;

votes required for the closing of the Merger and approval of the proposals that will come before the Alliqua special meeting and that will be the subject of Adynxx stockholder approval;

any brokerage or finder’s fee or other fee or commission in connection with the Merger;

with respect to Adynxx, labor matters;

with respect to Alliqua, opinion of its financial advisor;
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with respect to Alliqua, the valid issuance in the Merger of Alliqua common stock; and

accuracy of the information supplied by Alliqua and Adynxx for inclusion in this proxy statement.
The representations and warranties are, in many respects, qualified by materiality and knowledge, and will not survive the Merger, but their accuracy forms the basis of some of the conditions to the obligations of Alliqua and Adynxx to complete the Merger.
Non-Solicitation
Each of Alliqua and Adynxx agreed that, subject to certain exceptions, Alliqua and Adynxx and any of their respective subsidiaries will not, and each party will use its reasonable best efforts to cause each of its officers, directors, employees, investment bankers, attorneys, accountants, representatives, consultants or other agents retained by it or any of its subsidiaries not to, directly or indirectly:

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

furnish any non-public information with respect to it to any person in connection with or in response to an acquisition proposal or an acquisition inquiry;

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

subject to certain exceptions for Alliqua, approve, endorse or recommend an acquisition proposal;

execute or enter into any letter of intent or similar document or any contract contemplating or otherwise relating to an “acquisition transaction,” as defined below; or

publicly propose to do any of the foregoing.
An “acquisition proposal” means any offer, proposal or indication of interest contemplating or which would reasonably be interpreted to be lead to the contemplation of an “acquisition transaction.”
An “acquisition transaction” means the following:

any merger, consolidation, amalgamation, share exchange, business combination, issuance or acquisition of securities, reorganization, recapitalization, tender offer, exchange offer or similar transaction in which Alliqua or Adynxx is a constituent corporation, in which any individual, entity, governmental entity or “group,” as defined under applicable securities laws, directly or indirectly acquires beneficial or record ownership of securities representing more than 20% of the outstanding securities of any class of voting securities of Alliqua or Adynxx or any of their subsidiaries or in which Alliqua or Adynxx or any of their subsidiaries issues securities representing more than 20% of the outstanding securities of any class of voting securities of such party or any of its subsidiaries;

any sale, lease, exchange, transfer, license, acquisition or disposition of any business or assets that constitute 20% or more of the consolidated book value or the fair market value of the assets of Alliqua or Adynxx and their subsidiaries, taken as a whole; and

any liquidation or dissolution of any of Alliqua or Adynxx and their subsidiaries, taken as a whole.
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However, before obtaining the applicable Alliqua or Adynxx stockholder approvals required to consummate the Merger, Alliqua or Adynxx may furnish nonpublic information regarding Alliqua or Adynxx and its subsidiaries to, and may enter into discussions or negotiations with, any third-party in response to a bona fide written acquisition proposal made or received after the date of the Merger Agreement, which the Alliqua or Adynxx board of directors determines in good faith, after consultation with Alliqua’s or Adynxx’s outside financial advisors and outside legal counsel, constitutes or is reasonably likely to result in a “superior offer,” as defined below, if:

neither Alliqua or Adynxx nor any of Alliqua’s or Adynxx’s representatives has breached the non-solicitation provisions of the Merger Agreement described above;

the Alliqua or Adynxx board of directors concludes in good faith, based on the advice of outside legal counsel, that the failure to take such action is reasonably likely to be inconsistent with the fiduciary duties of such board of directors under applicable law;

such party receives from the third-party an executed confidentiality agreement containing provisions at least as favorable to such party as those contained in the confidentiality agreement between Alliqua and Adynxx; and

substantially contemporaneously with furnishing of any such nonpublic information to a third-party, Alliqua or Adynxx furnishes the same information to the other party to the extent not previously furnished.
A “superior offer” means an unsolicited bona fide written acquisition proposal that: (a) was not obtained or made as a direct or indirect result of a breach of  (or in violation of) the Merger Agreement; and (b) is on terms and conditions that Adynxx’s board of directors determines in good faith, based on such matters that it deems relevant (including the likelihood of consummation thereof), as well as any written offer by the other party to the Merger Agreement to amend the terms of the Merger Agreement, and following consultation with its outside legal counsel and outside financial advisors, if any, are more favorable, from a financial point of view, to Alliqua stockholders or Adynxx stockholders, as applicable, than the terms of the transactions contemplated by the Merger Agreement.
Meetings of Stockholders
Alliqua is obligated under the Merger Agreement to use commercially reasonable efforts to take all action necessary to call, give notice of and hold a meeting of its stockholders for the purposes of voting on the issuance of shares of Alliqua common stock in the Merger and the reverse stock split.
Adynxx is obligated under the Merger Agreement to obtain written consents of its stockholders sufficient to adopt the Merger Agreement and approve the Merger and the others transactions contemplated thereby. The recommendation of the board of directors of Adynxx that Adynxx stockholders approve the Merger Agreement and the transactions contemplated thereby shall not be withdrawn or modified (and Adynxx’s board of directors shall not publicly propose to withdraw or modify such recommendation) in a manner adverse to Alliqua, and no resolution by Adynxx’s board of directors or any committee thereof to withdraw or Adynxx’s board of directors in a manner adverse to Alliqua or to adopt, approve or recommend (or publicly propose to adopt, approve or recommend) any alternative acquisition proposal shall be adopted or proposed.
Covenants; Conduct of Business Pending the Merger
Alliqua has agreed that, except as permitted by the Merger Agreement, as required by law, or unless Adynxx shall have provided written consent, during the period commencing on the date of the Merger Agreement and continuing until the earlier to occur of the closing of the Merger and the termination of the Merger Agreement, Alliqua will conduct its business and operations in the ordinary course consistent with past practices and in compliance with all applicable laws, regulations and certain contracts. Alliqua has also agreed that, subject to certain limited exceptions, without the consent of Adynxx, it will not, during the period commencing on the date of the Merger Agreement and continuing until the earlier to occur of the closing of the Merger and the termination of the Merger Agreement:
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except for the amendment to the certificate of incorporation in connection with the Merger, amend or otherwise change its certificate of incorporation or bylaws, or otherwise alter its corporate structure through merger, liquidation, reorganization or otherwise, or form any subsidiary;

issue, sell, pledge, dispose of or encumber, or authorize the issuance, sale, pledge, disposition or encumbrance of, any shares of capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of capital stock, or any other ownership interest (including, without limitation, any phantom interest), other than the issuance of shares of common stock issuable pursuant to employee stock options under currently existing employee stock option plans or pursuant to currently outstanding warrants, as the case may be, which options, warrants or rights, as the case may be, are outstanding on the date hereof) to the extent such issuances comply with all applicable law;

redeem, repurchase or otherwise acquire, directly or indirectly, any shares of Alliqua capital stock;

incur any indebtedness or sell, pledge, dispose of or create an encumbrance over any assets (except for sales of assets in the ordinary course of business and in a manner consistent with past practice, and dispositions of obsolete or worthless assets);

accelerate, amend or change the period (or permit any acceleration, amendment or change) of exercisability of options or warrants or authorize cash payments in exchange for any options, except as may be required under any Alliqua’s stock option plan, contract or the Merger Agreement or as may be required by applicable law;

except for the cash dividend as contemplated in the Merger Agreement, (i) declare, set aside, make or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of any of its capital stock; (ii) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) amend the terms of, repurchase, redeem or otherwise acquire, or permit any Subsidiary to repurchase, redeem or otherwise acquire, any of its securities or any securities of its Subsidiaries (except pursuant to any contract to which an Alliqua is a party as of the date of the Merger Agreement), or propose to do any of the foregoing;

sell, assign, transfer, license, sublicense or otherwise dispose of any of Alliqua’s intellectual property rights (other than non-exclusive licenses in the ordinary course of business consistent with past practice);

(i) acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof or any other material property or assets, or allow any material property or assets to become subject to any encumbrance; (ii) enter into or amend any material terms of any contract, subject to certain exceptions or grant any release or relinquishment of any material rights under any contract, with new obligations or losses of rights in excess of  $50,000 in the aggregate; (iii) authorize any capital expenditures or purchase of fixed assets which are, in the aggregate, in excess of  $50,000, taken as a whole; or (iv) subject to certain exceptions, enter into or amend any contract, agreement, commitment or arrangement to effect any of the matters prohibited by this section;

forgive any loans to any person, including its employees, officers, directors or affiliates;

(i) increase the wages, salary, commissions, fringe benefits or other compensation or remuneration payable or to become payable to its directors, officers, employees or consultants; (ii) grant any severance or termination pay to, or enter into or amend any employment or severance agreement with, any director, officer, employee or consultant; (iii) establish, adopt, enter into, or amend any employee benefit plan, except, in each of the subsections (i) through (iii) for bonus awards in the ordinary course of business consistent with past practice or bonus awards contingent upon the completion of the transactions or payments, including any severance, termination or change of
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control payments, in compliance with any such agreements or plans existing as of the date of the Merger Agreement and the plans, agreements or terms of which were made available to Adynxx prior to the date hereof, or except as required by law;

hire any directors, officers, employees or consultants or terminate any directors or officers, except in each case, in the ordinary course of business and in a manner consistent with past practice;

take any action, other than as required by applicable law or GAAP, to change accounting policies or procedures;

make or change any material tax election inconsistent with past practices, adopt or change any tax accounting method, or settle or compromise any material federal, state, local or foreign tax liability or agree to an extension of a statute of limitations for any assessment of any tax;

pay, discharge, satisfy, modify or renegotiate any claims or liabilities, other than the payment, discharge or satisfaction of liabilities reflected or reserved against in the financial statements of Adynxx, or payments, discharges or satisfactions made in the ordinary course of business and consistent with past practice.

enter into any material partnership arrangements, joint development agreements or strategic alliances;

accelerate the collection of, or otherwise modify Alliqua’s customary accounting or treatment of, any receivables outside the ordinary course of business consistent with past practice;

initiate any litigation, action, suit, proceeding, claim or arbitration or settle or agree to settle any litigation, action, suit, proceeding, claim or arbitration, in each case where Alliqua is claiming, or would be reasonably likely to receive or become obligated for a liability, of more than $100,000 individually;

dispose of any assets or otherwise take any actions other than in the ordinary course of business consistent with past practice;

take any action that would cause Alliqua’s common stock issued in the Merger to not be validly issued, fully paid or nonassessable;

subject to certain exceptions, enter into or amend or modify any contract or any lease with respect to material real estate or any other contract or lease that, if in effect as of the date hereof would constitute a contract or lease with respect to material real estate hereunder;

except to the extent expressly permitted by the Merger Agreement, take any action that is intended or that would reasonably be expected to, individually or in the aggregate, prevent, materially delay, or materially impede the consummation of the Merger, or related transactions; or

agree, resolve or commit to do any of the foregoing.
Adynxx has agreed that, except as permitted by the Merger Agreement, as required by law, or unless Alliqua shall have provided written consent, during the period commencing on the date of the Merger Agreement and continuing until the earlier to occur of the closing of the Merger and the termination of the Merger Agreement, Adynxx will conduct its business and operations in the ordinary course consistent with past practices and in compliance with all applicable laws, regulations and certain contracts. Adynxx has also agreed that, subject to certain limited exceptions, without the consent of Alliqua, it will not, during the period commencing on the date of the Merger Agreement and continuing until the earlier to occur of the closing of the Merger and the termination of the Merger Agreement:

amend or otherwise change its certificate of incorporation or bylaws, or otherwise alter its corporate structure through merger, liquidation, reorganization or otherwise, except in connection with the Permitted Financing;

issue, sell, pledge, dispose of or encumber, or authorize the issuance, sale, pledge, disposition or encumbrance of, any shares of capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of capital stock, or any other
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ownership interest (including, without limitation, any phantom interest), except for (i) the issuance of shares of Adynxx capital stock issuable pursuant to employee stock options under currently existing employee stock option plans or pursuant to currently outstanding warrants or other rights to convert into or exercise for shares of Adynxx capital stock, as the case may be, which options, warrants or rights, as the case may be, are outstanding on the date hereof and (ii) in connection with the Permitted Financing;

redeem, repurchase or otherwise acquire, directly or indirectly, any shares of Adynxx capital stock (other than pursuant a repurchase right in favor of Adynxx with respect to unvested shares at no more than cost);

incur any Indebtedness or sell any debt securities or guarantee any debt securities or other obligations of others or sell, pledge, dispose of or create an encumbrance over any assets;

(i) declare, set aside, make or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of any of its capital stock, except that a wholly owned subsidiary may declare and pay a dividend to its parent; (ii) split, combine or reclassify any of its capital stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) amend the terms of, repurchase, redeem or otherwise acquire, or permit any Subsidiary to repurchase, redeem or otherwise acquire, any of its securities or any securities of its Subsidiaries (except pursuant to any contract to which an Alliqua is a party as of the date of the Merger Agreement), or propose to do any of the foregoing;

accelerate, amend or change the period (or permit any acceleration, amendment or change) of exercisability of options or warrants or authorize cash payments in exchange for any options, except as may be required under any Adynxx stock option plan, contract or the Merger Agreement or as may be required by applicable law;

sell, assign, transfer, license, sublicense or otherwise dispose of any intellectual property rights;

(i) acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof or any other material property or assets, in each case with an individual value in excess of  $50,000; (ii) enter into or amend any material terms of any contract or grant any release or relinquishment of any material rights under any contract, with new obligations or losses of rights in excess of  $50,000; (iii) authorize any capital expenditures or purchase of fixed assets which are, in the aggregate, in excess of  $50,000, taken as a whole or (iv) enter into or amend any contract, agreement, commitment or arrangement to effect any of the matters prohibited by this section;

forgive any loans to any person, including its employees, officers, directors or affiliates;

take any action, other than as required by applicable law or GAAP, to change accounting policies or procedures;

(i) increase the wages, salary, commissions, fringe benefits or other compensation or remuneration payable or to become payable to its directors, officers, employees or consultants; (ii) grant any severance or termination pay to, or enter into or amend any employment or severance agreement with, any director, officer, employee or consultant; (iii) establish, adopt, enter into, or amend any employee benefit plan, except, in each of the subsections (i) through (iii) for bonus awards in the ordinary course of business consistent with past practice or bonus awards contingent upon the completion of the transactions or payments, including any severance, termination or change of control payments, in compliance with any such agreements or plans existing as of the date of the Merger Agreement and the plans, agreements or terms of which were made available to Adynxx prior to the date hereof, or except as required by law;

hire any directors, officers, employees or consultants or terminate any directors or officers, except in each case, in the ordinary course of business and in a manner consistent with past practice;
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make or change any material tax election inconsistent with past practices, adopt or change any tax accounting method, or settle or compromise any material federal, state, local or foreign tax liability or agree to an extension of a statute of limitations for any assessment of any tax;

pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice;

otherwise take any actions other than in the ordinary course of business consistent with past practice;

enter into any material partnership arrangements, joint development agreements or strategic alliances;

initiate any litigation, action, suit, proceeding, claim or arbitration or settle or agree to settle any litigation, action, suit, proceeding, claim or arbitration, in each case where Adynxx and its subsidiaries are claiming, or would be reasonably likely to receive or become obligated for a liability, of more than $100,000 individually;

except to the extent expressly permitted by the Merger Agreement, take any action that is intended or that would reasonably be expected to, individually or in the aggregate, prevent, materially delay, or materially impede the consummation of the Merger, or related transactions; or

agree, resolve or commit to do any of the foregoing.
Other Agreements
Each of Alliqua and Adynxx has agreed to use its commercially reasonable efforts to:

file or otherwise submit all applications, notices, reports and other documents reasonably required to be filed with a governmental entity with respect to the Merger;

take all actions necessary to satisfy the conditions precedent to the consummation of the transactions contemplated by the Merger Agreement;

make all filings and other submissions and give all notices required to be made and given in connection with the Merger;

provide the other party with reasonable access during normal business hours to such party’s personnel and assets and to all existing books, records, tax returns, work papers and other documents and information relating to such party and its subsidiaries;

provide the other party with such copies of the existing books, records, tax returns, work papers, product data, and other documents and information relating to such party and its subsidiaries, and with such additional financial, operating and other data and information regarding such party and its subsidiaries as the other party may reasonably request;

permit the other party’s officers and other employees to meet, upon reasonable notice and during normal business hours, with the chief financial officer and other officers and managers of such party responsible for such party’s financial statements and the internal controls of such party to discuss such matter as the other party may deem appropriate;

obtain all consents, approvals or waivers reasonably required in connection with the transactions contemplated by the Merger Agreement;

cause this proxy statement to comply with the rules and regulations promulgated by the SEC, to respond promptly to any comments of the SEC or its staff;

cause this proxy statement to be mailed to Alliqua’s stockholders as promptly as practicable after this proxy statement is declared effective; and

lift any injunction prohibiting, or any other legal bar to, the Merger or other transactions contemplated by the Merger Agreement.
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Alliqua and Adynxx agreed that, among other things:

Alliqua and Adynxx will use reasonable best efforts to file or otherwise submit all documents reasonable required to be filed with respect to the transactions contemplated by the Merger Agreement;

Alliqua shall use commercially reasonable efforts to cause this proxy statement to comply with the rules and regulations promulgated by the SEC, to respond promptly to any comments of the SEC or its staff;

Alliqua and Adynxx will confer to determine whether notification under the HSR Act by Alliqua or any Adynxx stockholder is required or advisable and if it is determined in good faith that such notification is required, Alliqua shall use its reasonable best efforts to obtain expiration or termination of all waiting periods under the HSR Act with respect to the transactions contemplated by the merger agreement as promptly as reasonably practicable;

Alliqua and Adynxx will notify each other if either party becomes aware of any notice alleging that the consent of any person is required in connection with the Merger, of any legal proceeding against the other party, of any material inaccuracy in any representations or warranties made by such party, or the failure of such party to comply with any covenant or obligation under the Merger Agreement;

For purposes of employee benefits provided under any benefit plans or arrangements after the closing of the Merger, each employee who continues to be employed by Alliqua, Adynxx or their subsidiaries immediately following such closing shall be credited with his/her years of service with Alliqua, Adynxx or their subsidiaries. In addition, Alliqua shall cause all pre-existing condition exclusions and actively at work requirements of any benefit plans in effect after closing to be waived for any such employee;

Adynxx will use commercially reasonable efforts to deliver a letter from Adynxx’s independent accounting firm to Alliqua in a form customary in scope and substance for letters delivered by independent public accountants in connection with this proxy statement;

Alliqua will use reasonable best efforts to maintain the listing of its common stock on Nasdaq;

Alliqua shall use commercially reasonable efforts to prepare and submit to Nasdaq a notification form for the listing of the shares of Alliqua common stock to be issued pursuant to the Merger Agreement and to cause such shares to be approved for listing and shall, to the extent required by Nasdaq rules, to file an initial listing application for Alliqua common stock on Nasdaq and to cause such listing application to be conditionally approved prior to the Effective Time.

for a period of six years after the closing of the Merger, Alliqua and Adynxx as the surviving corporation in the Merger will indemnify each of the directors and officers of Alliqua and Adynxx to the fullest extent permitted under applicable law; and

Alliqua will maintain directors’ and officers’ liability insurance policies from and after the Effective Time and will also purchase a six-year prepaid “tail policy” for the non-cancellable extension of the directors’ and officers’ liability coverage of Alliqua’s existing directors’ and officers’ insurance policies for a period of at least six years from the Effective Time.
The Spin-off
Prior to the Effective Time, pursuant to the Merger Agreement, Alliqua will use commercially reasonable efforts to consummate the divestiture of SpinCo in the form of a pro rata distribution of the common equity of SpinCo to Alliqua’s stockholders. While all of the terms of the Spin-off have not yet been determined, following the Spin-off, Alliqua expects that it will no longer own any assets or be subject to any liabilities or obligations relating to the custom hydrogel manufacturing business. While Alliqua may remain subject to liabilities related to the operation of the custom hydrogel manufacturing business prior to the time of the Spin-off, AquaMed is expected to indemnify Alliqua for all such liabilities incurred prior to the Spin-off. Alliqua may divest the custom hydrogel manufacturing business as a standalone business or as a part of a business combination between the custom hydrogel manufacturing business and a third-party
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engaged in a synergistic business. So long as Alliqua exercises commercially reasonable efforts to cause the Spin-off to occur concurrently with the Effective Time, the occurrence of the Spin-off is not a condition of Adynxx’s obligations to the consummate the transactions contemplated by the Merger Agreement. The consummation of the Merger, however, is a condition to the closing of the Spin-off. In the event that Alliqua’s stockholders do not approve Proposal 1 and the Merger is not consummated, then Alliqua may, in its discretion, determine not to effect the Spin-off, in which case, SpinCo will remain a wholly-owned subsidiary of Alliqua.
For U.S. federal income tax purposes, the distribution by Alliqua of the shares of SpinCo common stock will not be eligible for treatment as a tax-free distribution. Accordingly, each holder of Alliqua common stock who receives shares of SpinCo common stock in the Spin-off generally will be treated as if such stockholder received a taxable distribution in an amount equal to the fair market value of SpinCo common stock received (including any fractional share deemed to be received by and sold on behalf of the stockholder), which will result in: (a) a dividend to the extent of such stockholder’s ratable share of Alliqua’s current and accumulated earnings and profits; then (b) a reduction in such stockholder’s basis in Alliqua’s common stock (but not below zero) to the extent the amount received exceeds the amount referenced in clause (a); and then (c) gain from the sale or exchange of Alliqua common stock to the extent the amount received exceeds the sum of the amounts referenced in clauses (a) and (b). Each stockholder’s basis in his, her or its SpinCo common stock will be equal to the fair market value of such stock at the time of the Spin-off. A stockholder’s holding period for such shares will begin the day after the Spin-off date.
Termination of the Merger Agreement