S-4
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As filed with the Securities and Exchange Commission on December 4, 2019

Registration No. 333-            

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Menlo Therapeutics Inc.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   2834   45-3757789

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

200 Cardinal Way, 2nd Floor

Redwood City, California 94063

(650) 486-1416

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

 

 

Steven L. Basta

President and Chief Executive Officer

Menlo Therapeutics Inc.

200 Cardinal Way, 2nd Floor

Redwood City, California 94063

(650) 486-1416

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

 

 

Copies to:

 

Ronald A. Krasnow, Esq.

Menlo Therapeutics Inc.

200 Cardinal Way, 2nd Floor

Redwood City, California 94063 (650) 486-1416

 

Mark V. Roeder, Esq.

Josh Dubofsky, Esq.

Miles P. Jennings, Esq.

Latham & Watkins LLP

140 Scott Drive

Menlo Park, CA 94025

Tel: (650) 328-4600

 

Nir Dash, Adv.

Yuval Meidar, Adv.

Herzog Fox & Neeman

Asia House, 4 Weizmann Street

Tel Aviv 6423904, Israel

Tel: +972-3-692-2020

 

Mutya Fonte Harsch, Esq.

Foamix Pharmaceuticals Ltd.

520 U.S. Highway 22, Suite 204

Bridgewater, NJ 08807

Tel: (908) 458-9213

 

Marie L. Gibson, Esq.

Skadden Arps Slate Meagher & Flom LLP

4 Times Square

New York, NY 10036

Tel: (212) 735-3000

 

J. David Chertok, Adv.

David S. Glatt, Adv.

Jonathan M. Nathan, Adv.

Meitar Liquornik Geva

Leshem Tal

16 Abba Hillel Silver Rd.

Ramat Gan 5250608, Israel

Tel:  +972-3-610-3100

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective and upon completion of the merger described in the enclosed joint proxy statement/prospectus.

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

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


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

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

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☒

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

 

 

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

 

 

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

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Class of

Securities to be Registered(1)

 

Amount

to be

Registered(2)

 

Proposed

Maximum

Offering Price

per Unit

 

Proposed

Maximum

Aggregate

Offering Price(3)

 

Amount of

Registration Fee(4)

Common Stock, par value $0.0001 per share

  120,609,872 shares   N/A   $211,666,776.12   $27,474.35

 

 

 

(1)

This Registration Statement relates to the common stock, par value $0.0001 per share, of Menlo Therapeutics Inc., which we refer to as “Menlo common stock,” that is issuable to the holders of ordinary shares, New Israeli Shekels 0.16 nominal (par) value per share, of Foamix Pharmaceuticals Ltd., which we refer to as “Foamix ordinary shares,” who will receive shares of Menlo common stock as consideration for the deemed transfer of their Foamix ordinary shares to Menlo Therapeutics Inc. in the proposed merger of Giants Merger Subsidiary Ltd., a wholly-owned subsidiary of Menlo Therapeutics Inc., with and into Foamix Pharmaceuticals Ltd., with Foamix Pharmaceuticals Ltd. surviving as a wholly-owned subsidiary of Menlo Therapeutics Inc. Menlo common stock is listed on the Nasdaq Global Select Market under the symbol “MNLO.” Foamix ordinary shares are listed on the Nasdaq Global Select Market under the symbol “FOMX.”

(2)

Menlo Therapeutics Inc.’s estimate of the maximum number of shares of Menlo common stock to be issued upon completion of the merger is equal to the product of (x) the sum of (A) 61,484,790 Foamix ordinary shares outstanding as of December 2, 2019, (B) 3,542,172 Foamix ordinary shares underlying the Foamix restricted share unit awards (RSUs) and Foamix options outstanding that may be exercised prior to the effectiveness of the merger, (C) 727,897 Foamix ordinary shares underlying the Foamix restricted share units (RSUs) and Foamix options outstanding that are held by former Foamix employees and that will be assumed by Menlo Therapeutics Inc. upon completion of the merger, (D) 1,100,000 Foamix ordinary shares issuable upon exercise of warrants that will be converted into warrants to purchase shares of Menlo common stock and (E) 128,298 Foamix shares available for future issuance under Foamix’s employee stock purchase plan that will be assumed by Menlo Therapeutics Inc. upon completion of the merger (such sum of clauses (A)-(E), the “Estimated Maximum Number of Foamix Ordinary Shares”); multiplied by (y) 1.8006, representing the exchange ratio assuming the maximum number of shares of Menlo common stock will be issued or issuable pursuant to the terms of the merger agreement and form of contingent stock rights agreement for each such Foamix ordinary share.

(3)

Estimated solely for purposes of calculating the registration fee required by Section 6(b) of the Securities Act, and calculated pursuant to Rules 457(f)(1) and 457(c) under the Securities Act. The proposed maximum aggregate offering price of the registrant’s common stock was calculated based upon the market value of Foamix ordinary shares (the securities to be exchanged in the merger) as follows: the product of (1) $3.16, the average of the high and low prices per Foamix ordinary share on December 2, 2019, as quoted on the Nasdaq Global Select Market, and (2) 66,983,157, the Estimated Maximum Number of Foamix Ordinary Shares, to be converted into the right to receive shares of Menlo common stock upon completion of the merger, as described in footnote (2) above.

(4)

The amount of the filing fee, calculated in accordance with Rule 457(c) and Rule 457(f) under the Securities Act, equals 0.0001298 multiplied by the proposed maximum aggregate offering price.

 

 

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

 

 

 


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Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This joint proxy statement/prospectus shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of such securities, in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to appropriate registration or qualification under the securities laws of such jurisdiction.

PRELIMINARY—SUBJECT TO COMPLETION—DATED DECEMBER 4, 2019

JOINT PROXY STATEMENT/PROSPECTUS

 

LOGO    LOGO

MERGER PROPOSAL—YOUR VOTE IS VERY IMPORTANT

Dear Foamix Pharmaceuticals Ltd. shareholders and Menlo Therapeutics Inc. stockholders:

Each of Foamix Pharmaceuticals Ltd. (“Foamix”) and Menlo Therapeutics Inc. (“Menlo”) cordially invites its respective shareholders or stockholders (as applicable) to attend an extraordinary general meeting of shareholders of Foamix or a special meeting of stockholders of Menlo.

The Foamix extraordinary general shareholder meeting will be held at                 , Eastern Standard Time, on         , 2020, at Foamix’s U.S. offices located at 520 U.S. Highway 22, Suite 204, Bridgewater, NJ 08807.

The Menlo special stockholder meeting will be held at                 , Pacific Standard Time, on         , 2020, at Menlo’s offices located at 200 Cardinal Way, 2nd Floor, Redwood City, California 94063.

Foamix Shares

As previously announced, on November 10, 2019, Foamix, Menlo and Giants Merger Subsidiary Ltd., a wholly-owned subsidiary of Menlo (“Merger Sub”), entered into an Agreement and Plan of Merger (as amended by Amendment No. 1 to the Agreement and Plan of Merger, dated as of December 4, 2019, as may be further amended from time to time, the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, Merger Sub will merge with and into Foamix, with Foamix surviving as a wholly-owned subsidiary of Menlo (the “Merger”). Each ordinary share of Foamix that is issued and outstanding (other than certain excluded shares) will be deemed transferred to Menlo in consideration for the right to receive 0.5924 of a share of Menlo common stock subject to upwards adjustment to 1.2739 or 1.8006 shares of Menlo common stock if one or both of Menlo’s Phase III double-blinded, placebo-controlled trials of serlopitant for the treatment of pruritus associated with prurigo nodularis, referenced by Protocol Numbers MTI-105 (United States) and MTI-106 (Europe) (each, a “Phase III PN Trial”), respectively, fail to demonstrate Serlopitant Significance (as defined in the Merger Agreement), as further described in this joint proxy statement/prospectus (the top-line primary endpoint results of one or both of Menlo’s Phase III PN Trials in the form set forth in Exhibit 2.4(g)(ii) to the Merger Agreement, the “Efficacy Determination”).

There will be no adjustment to the total number of shares of Menlo common stock that Foamix shareholders will be entitled to receive in the Merger for changes in the market price of Menlo common stock. Accordingly, the market value of the shares of Menlo common stock issued pursuant to the Merger (or the market value of the shares of the combined company), will depend on the market value of the shares of Menlo common stock at the time the Merger closes and could vary significantly from the market value on the date of this joint proxy statement/prospectus.


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Menlo Shares and Contingent Stock Rights

Each share of Menlo common stock, option to purchase Menlo common stock and share of Menlo common stock subject to a restricted stock award that is issued and outstanding at the effective time of the Merger will remain issued and outstanding and such shares will be unaffected by the Merger. The percent of the fully-diluted common stock of Menlo, as the surviving parent company, owned by each of the current Menlo stockholders and the current shareholders of Foamix will depend on timing and the results of the Efficacy Determination:

 

   

If the Efficacy Determination reports that Serlopitant Significance was achieved in both of the Phase III PN Trials on or before May 31, 2020, then current Menlo stockholders will own approximately 41%, and current Foamix shareholders will own approximately 59%, of the combined company;

 

   

If the Efficacy Determination reports that Serlopitant Significance was achieved in only one Phase III PN Trial on or before May 31, 2020, then current Menlo stockholders will own approximately 24%, and current Foamix shareholders will own approximately 76%, of the combined company; and

 

   

If the Efficacy Determination reports that Serlopitant Significance was not achieved in both Phase III PN Trials or the Efficacy Determination has not been delivered on or before May 31, 2020, then current Menlo stockholders will own approximately 18%, and current Foamix shareholders will own approximately 82%, of the combined company.

If the closing of the Merger occurs on or before May 31, 2020 and prior to receipt of the Efficacy Determination, then:

 

   

at closing, Foamix shareholders will be issued shares of Menlo common stock representing approximately 59% of the combined company as well as a contingent stock right (as further described in this joint proxy statement/prospectus, a “CSR”) for each ordinary share of Foamix pursuant to the contingent stock rights agreement (as further described in this joint proxy statement/prospectus, the “CSR Agreement”); and

 

   

the percentages noted above will reflect the cumulative ownership after taking into account any additional shares of Menlo common stock that may be issued pursuant to the CSR Agreement, based on the Efficacy Determination described above.

Each of the percentages above is calculated based on the fully-diluted number of Foamix shares and Menlo shares (including all dilutive stock options, units and warrants) using the treasury stock method, calculated as of November 4, 2019 and assuming no subsequent issuances from that date until the signing of the Merger Agreement.

The shares of Menlo common stock, as the surviving parent company, will continue to be traded on the Nasdaq Global Select Market (“Nasdaq”). Following the Merger, Foamix shares will be delisted and will cease to trade on Nasdaq.

Foamix Proposals

Foamix’s shareholders will be asked at the Foamix shareholder meeting to consider and vote on the approval and adoption of the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, in accordance with the requirements of Israeli law (as further described in this joint proxy statement/prospectus, the “Foamix Merger Proposal”). Foamix’s shareholders will also be requested to approve, on a non-binding, advisory basis, pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), certain compensation that may be paid or become payable to the named executive officers of Foamix in connection with the Merger and contemplated by the Merger Agreement (the “Foamix Executive Compensation Proposal”). The Foamix Executive Compensation Proposal has been included herein in accordance with the requirements of the Exchange Act, as amended, and it is not anticipated that the payments and benefits disclosed will in fact be paid to Foamix’s named executive officers in connection with the Merger.

 

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Menlo Proposals

Menlo’s stockholders will be asked at the Menlo stockholder meeting to consider and vote on the approval of the issuance of shares of Menlo common stock to Foamix’s shareholders (including potential Foamix shareholders under Foamix’s equity incentive plans, stock purchase plan and warrants being assumed by Menlo) pursuant to the Merger Agreement and upon conversion, if applicable, of the CSRs pursuant to the CSR Agreement, in each case, in connection with the Merger and the change of control of Menlo resulting from the Merger (as further described in this joint proxy statement/prospectus, the “Menlo Merger Proposal”). The Menlo stockholder meeting will furthermore consider a proposal to adjourn that meeting, if necessary, to permit the solicitation of additional proxies in the event that there are insufficient votes on the Menlo Merger Proposal (as further described in this joint proxy statement/prospectus, the “Menlo Adjournment Proposal”).

We encourage shareholders/stockholders of both companies to read the Merger Agreement. In addition, we encourage shareholders/stockholders of both companies to read the form of CSR Agreement, which the Merger Agreement provides will be executed upon the consummation of the Merger in the event that such consummation occurs on or before May 31, 2020 and in the event an Efficacy Determination has yet to be made with respect to both Phase III PN Trials. The CSR Agreement will provide for the issuance of CSRs to Foamix shareholders (including potential Foamix shareholders under Foamix’s equity incentive plans, stock purchase plan and warrants being assumed by Menlo), which, depending on the timing of the completion of the Merger and the Efficacy Determination, as described above, may entitle Foamix shareholders to receive additional shares of Menlo common stock. Copies of the Agreement and Plan of Merger, Amendment No. 1 to the Agreement and Plan of Merger and the form of CSR Agreement are attached to the accompanying joint proxy statement/prospectus as Annex A, Annex B and Annex G, respectively, in their entirety.

Foamix Board Recommendation

The board of directors of Foamix has (i) determined that the Merger Agreement, the Merger, the consideration payable to Foamix shareholders pursuant to the Merger Agreement and all transactions contemplated by the Merger Agreement are advisable, fair to and in the best interests of Foamix and its shareholders and that, considering the financial position of the merging companies, and assuming, among other things, the accuracy of the representations and warranties of the other parties in the Merger Agreement, no reasonable concern exists that the surviving company, as a result of the Merger, will be unable to fulfill the obligations of Foamix to its creditors; (ii) approved the Merger Agreement, the Merger, the consideration payable to Foamix shareholders pursuant to the Merger Agreement and all other transactions contemplated by the Merger Agreement; (iii) resolved to direct that the Merger Agreement, the Merger, the consideration payable to Foamix shareholders pursuant to the Merger Agreement and all other transactions contemplated by the Merger Agreement be submitted to the shareholders of Foamix for approval and adoption; and (iv) recommended that the shareholders of Foamix vote in favor of the approval and adoption of the Merger Agreement, the Merger, the consideration payable to Foamix shareholders pursuant to the Merger Agreement and the other transactions contemplated by the Merger Agreement, all upon the terms and subject to the conditions set forth in the Merger Agreement, and in favor of the Foamix Executive Compensation Proposal. Accordingly, the board of directors of Foamix unanimously recommends that you vote “FOR” the Foamix Merger Proposal and “FOR” the Foamix Executive Compensation Proposal.

Menlo Board Recommendation

The board of directors of Menlo has determined that the issuance of shares of Menlo common stock to Foamix’s shareholders (including potential Foamix shareholders under Foamix’s equity incentive plans, stock purchase plan and warrants being assumed by Menlo) pursuant to the Merger Agreement and upon conversion, if applicable, of the CSRs pursuant to the CSR agreement, in each case, in connection with the Merger and the change of control of Menlo resulting from the Merger is advisable, fair to and in the best interests of Menlo and its stockholders, and has resolved to direct that the share issuance be submitted to Menlo’s stockholders for approval, with the recommendation of the board of directors of Menlo that Menlo’s stockholders vote in favor

 

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thereof. The board of directors of Menlo has furthermore determined that it would be beneficial to adjourn the Menlo stockholder meeting, if necessary, to permit the solicitation of additional proxies in the event that there are insufficient votes on the Menlo Merger Proposal. Accordingly, the Menlo board of directors unanimously recommends that you vote “FOR” the Menlo Merger Proposal and “FOR” the Menlo Adjournment Proposal.

We urge you to read the accompanying joint proxy statement/prospectus, including the Annexes and the documents incorporated by reference, carefully and in its entirety. In particular, we urge you to read carefully the section entitled “Risk Factors” beginning on page 41.

We look forward to greeting personally at the respective extraordinary/special meetings those Foamix shareholders and Menlo stockholders who are able to be present at the meetings. If you do plan to attend, to gain access to the applicable meeting, we ask that you bring with you photo identification and appropriate verification of your status—either as a Foamix shareholder as of the close of trading on                 , 20    , the record date for the Foamix meeting, or as a stockholder of Menlo as of the close of trading on                  20    , the record date for the Menlo meeting. However, whether or not you will be present at the applicable meeting, it is important that your shares be represented. Accordingly, you are requested to complete, date, sign and mail the enclosed proxy or voting instruction form in the envelope provided at your earliest convenience and in any event so as to be received in a timely manner as discussed in the enclosed joint proxy statement/prospectus. Your shares can be voted at the applicable meeting only if you are present or represented by a valid proxy.

Thank you for your cooperation.

Very truly yours,

 

/s/ Dr. Stanley Hirsch

     

/s/ Steven L. Basta

Chairman of the Board of Directors       President and Chief Executive Officer
Foamix Pharmaceuticals Ltd.       Menlo Therapeutics Inc.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this joint proxy statement/prospectus or determined if this joint proxy statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

This joint proxy statement/prospectus is dated                 , 2019 and is first being made available to Foamix shareholders and Menlo stockholders on or about                 , 2019.

 

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LOGO    LOGO

 

FOAMIX PHARMACEUTICALS LTD.

2 Holzman Street, Weizmann Science Park

Rehovot 7670402, Israel

 

MENLO THERAPEUTICS INC.

200 Cardinal Way, 2nd Floor

Redwood City, California 94063

JOINT NOTICE AND JOINT PROXY STATEMENT/PROSPECTUS

EXTRAORDINARY GENERAL/SPECIAL MEETINGS OF

SHAREHOLDERS/STOCKHOLDERS

This joint notice and the accompanying joint proxy statement/prospectus are being furnished to:

 

   

Holders of ordinary shares, New Israeli Shekels (“NIS”) 0.16 nominal (par) value per share (“Foamix shares”, each of them a “Foamix share”), of Foamix Pharmaceuticals Ltd., an Israeli company (“Foamix”), in connection with the solicitation by the board of directors of Foamix (the “Foamix Board”) of proxies for use at Foamix’s extraordinary general meeting of shareholders (the “Foamix meeting”) or at any adjournment thereof.

 

   

Holders of shares of common stock, $0.0001 par value per share (“Menlo shares” or “Menlo common stock”), of Menlo Therapeutics Inc., a Delaware corporation (“Menlo”), in connection with the solicitation by the board of directors of Menlo (the “Menlo Board”) of proxies for use at Menlo’s special meeting of stockholders (the “Menlo meeting”, and together with the Foamix meeting, the “meetings”) or at any adjournment thereof.

The Foamix meeting will be held on             , 2020 at             , Eastern Standard Time, at Foamix’s U.S. offices located at 520 U.S. Highway 22, Suite 204, Bridgewater, NJ 08807.

The Menlo meeting will be held on             , 2020 at             , Pacific Standard Time, at Menlo’s principal executive offices at 200 Cardinal Way, 2nd floor, Redwood City, California 94063.

The meetings are being held in order to consider and vote on the following proposals required to be approved in connection with a business combination transaction between Foamix and Menlo:

Proposals for the Foamix Meeting:

 

   

Approval and adoption of (i) the Agreement and Plan of Merger dated November 10, 2019 (as amended by Amendment No. 1 to the Agreement and Plan of Merger, dated as of December 4, 2019, as may be further amended from time to time, the “Merger Agreement”), by and among Menlo, Giants Merger Subsidiary Ltd., a company organized under the laws of the State of Israel and a wholly-owned subsidiary of Menlo (“Merger Sub”), and Foamix, a copy of which is attached to the accompanying joint proxy statement/prospectus as Annex A, in its entirety; (ii) the Merger of Merger Sub with and into Foamix (the “Merger”) on the terms and subject to the conditions set forth in the Merger Agreement and in accordance with the provisions of Sections 314-327 of the Companies Law 5759-1999 of the State of Israel (together with the rules and regulations promulgated thereunder, the “Companies Law”), following which Merger Sub will cease to exist, and Foamix will become a wholly-owned subsidiary of Menlo; (iii) (a) the merger consideration for Foamix’s shareholders, consisting of 0.5924 of a share of Menlo common stock (subject to upwards adjustment to 1.2739 or 1.8006 shares of Menlo common stock if one or both of Menlo’s Phase III

 

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double-blinded, placebo-controlled trials of serlopitant for the treatment of pruritus associated with prurigo nodularis, referenced by Protocol Numbers MTI-105 (United States) and MTI-106 (Europe) (each, a “Phase III PN Trial”), respectively, fail to demonstrate proof of statistically significant superiority of serlopitant treatment over placebo treatment on the primary endpoint (meaning that (A) the Serlopitant 5 mg percent success rate is numerically greater than the placebo percent success rate and (B) the P-value is less than 0.05) determined when comparing Worst Itch-Numerical Rating Scale (WI-NRS) 4-point responder rates between treatments at Week 10, which analysis shall be based upon the “Intent-to-Treat” population where missing data is imputed using a Markov Chain Monte Carlo (MCMC) multiple imputation method and where the primary analytical method is a Cochran-Mantel-Haenszel test (“Serlopitant Significance”) for each Foamix share that is issued and outstanding (other than any dormant share under the Companies Law and any Foamix share that, immediately prior to the Effective Time (as defined below), is owned by Foamix, Menlo or Merger Sub, or by any direct or indirect wholly-owned subsidiary of Foamix, Menlo or Merger Sub (we refer to such shares as an “Excluded Shares”)) and that will be deemed transferred to Menlo upon the Merger and (b) if the closing of the Merger (the “Closing”) occurs on or before May 31, 2020 and the top-line primary endpoint results of one or both of Menlo’s Phase III PN Trials in the form set forth in Exhibit 2.4(g)(ii) to the Merger Agreement (the “Efficacy Determination”) has not yet been received, one contingent stock right (as further described in this joint proxy statement/prospectus, a “CSR”), subject to the terms and conditions of the contingent stock rights agreement (the “CSR Agreement”), a copy of which is attached as Annex F to this joint proxy statement/prospectus; and (iv) all other transactions contemplated by the Merger Agreement, all upon the terms and subject to the conditions set forth in the Merger Agreement (the “Foamix Merger Proposal”).

 

   

Approval, on a non-binding, advisory basis, in accordance with the rules under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of certain compensation that may be paid or become payable to the named executive officers of Foamix in connection with the Merger and contemplated by the Merger Agreement (the “Foamix Executive Compensation Proposal”). The Foamix Executive Compensation Proposal has been included herein in accordance with the Exchange Act, and it is not anticipated that the payments and benefits disclosed will in fact be paid to Foamix’s named executive officers in connection with the Merger.

Proposals for the Menlo Meeting:

 

   

Approval of the issuance of shares of Menlo common stock to Foamix’s shareholders (including potential Foamix shareholders under Foamix’s equity incentive plans, stock purchase plan and warrants being assumed by Menlo) pursuant to the Merger Agreement and upon conversion, if applicable, of the CSRs pursuant to the CSR Agreement, in each case, in connection with the Merger and the change of control of Menlo resulting from the Merger under Nasdaq Global Select Market (“Nasdaq”) rules (the “Menlo Merger Proposal”).

 

   

Approval of the adjournment of the Menlo meeting to a later date or dates, if necessary, to permit the solicitation of additional proxies if, based upon the tabulated vote at the time of the Menlo meeting, there are not sufficient votes to approve the Menlo Merger Proposal (the “Menlo Adjournment Proposal”).

Record date:

Foamix Record Date: Only holders of Foamix shares at the close of trading on                 , 20        , the record date for the Foamix meeting (“Foamix shareholders of record” and the “Foamix record date,” respectively), will be entitled to vote at the Foamix meeting or at any adjournment thereof.

Menlo Record Date: Only holders of Menlo common stock at the close of trading on                 , 20        , the record date for the Menlo meeting (“Menlo stockholders of record” and the “Menlo record date,” respectively), will be entitled to vote at the Menlo meeting or at any adjournment thereof.

 

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Required vote:

Foamix Merger Proposal: The affirmative vote of a majority of the voting rights of Foamix shares represented and voting thereon at the Foamix meeting is necessary for the approval of the Foamix Merger Proposal, provided that such majority includes at least a majority of the votes cast by Foamix shareholders that are not Menlo, Merger Sub or a Menlo Related Person (as defined below), who are present, in person or represented by proxy, and voting (abstentions and broker non-votes are disregarded). We refer to this special majority as the “Foamix Merger Majority”.

Pursuant to the Companies Law, each Foamix shareholder voting on the Foamix Merger Proposal is required to inform Foamix as detailed below prior to voting at the Foamix meeting if the shareholder is any of Menlo, Merger Sub, or a Menlo Related Person and to indicate such matter in the appropriate place in the enclosed proxy or voting instruction form, as further detailed below. A “Menlo Related Person” is (a) a person holding, directly or indirectly, either (i) 25% or more of the voting rights of Menlo or Merger Sub or (ii) the right to appoint 25% or more of the directors of Menlo or Merger Sub, (b) a person or entity acting on behalf of Menlo, Merger Sub or a person described in subsection (a) above or (c) one of such person’s spouse, siblings, parents, grandparents, descendants, spouse’s descendants, siblings or parents or the spouse of any such person, or a corporation controlled by any one or more of such persons or entities by Menlo or Merger Sub.

Foamix Executive Compensation Proposal: The affirmative vote of a majority of the voting rights of Foamix shares represented and voting thereon at the Foamix meeting is necessary for the approval, on a non-binding, advisory basis, of the Foamix Executive Compensation Proposal.

Menlo Merger Proposal: The affirmative vote of the majority of votes cast (excluding abstentions and broker non-votes) is required for approval of the Menlo Merger Proposal.

Menlo Adjournment Proposal: The affirmative vote of the majority of votes cast (excluding abstentions and broker non-votes) is required for approval of the Menlo Adjournment Proposal.

Abstentions and broker non-votes will not be treated as having been voted in respect of any of the proposals to be presented at either meeting. Consequently, assuming a quorum is present at each meeting, broker non-votes and abstentions will have no effect on the voting with respect to any proposal (including the Foamix Merger Proposal and the Menlo Merger Proposal).

Special voting instructions under the Companies Law for the Foamix Merger Proposal. In order to provide for proper tallying of the Foamix shareholder vote on the Foamix Merger Proposal, each Foamix shareholder is required to indicate in Item 1A in the enclosed Foamix proxy or voting instruction form whether or not he, she or it is Menlo, Merger Sub, or a Menlo Related Person with respect to the Foamix Merger Proposal. Please indicate “FOR” in Item 1A in order to confirm that you are not any of the foregoing persons. If you mark “AGAINST” in Item 1A or if you do not mark anything in Item 1A in the proxy or voting instruction form (including if you submit your voting instructions electronically), your vote will not be counted for purposes of the Foamix Merger Majority with respect to the Foamix Merger Proposal, and your signature on the enclosed proxy or voting instruction form (including if submitted electronically) will constitute a certification that you are either Menlo, Merger Sub or a Menlo Related Person.

Based on information provided by Menlo and Merger Sub to Foamix, as of the date of this joint proxy statement/prospectus, Foamix is not aware of any holdings of Foamix shares by Menlo, Merger Sub or any Menlo Related Persons (other than Menlo’s Chief Executive Officer, Steven Basta, and holders related to him), and therefore believes that all of its shareholders (other than Menlo’s Chief Executive Officer, Steven Basta, and holders related to him) should mark “FOR” in Item 1A on the enclosed proxy or voting instruction form (including if submitted electronically).

 

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Other matters: Each of Foamix and Menlo is unaware at this time of any other matters that will come before its meeting. If any other matters properly come before either such meeting, it is the intention of the persons designated as proxies to vote in accordance with their judgment on such matters. Foamix shares or Menlo shares represented by executed and unrevoked proxies will be voted in accordance with such judgment.

The Foamix Board unanimously recommends that you vote “FOR” the proposal to approve and adopt the Merger Agreement, the Merger, the merger consideration and the transactions contemplated by the Merger Agreement and “FOR” the proposal to approve, on a non-binding, advisory basis, compensation that will or may become payable by Foamix to its named executive officers in connection with the Merger.

The Menlo Board unanimously recommends that you vote “FOR” the issuance of shares of Menlo common stock to Foamix’s shareholders (including, potential Foamix shareholders under Foamix’s equity incentive plans, employee stock purchase plan and warrants being assumed by Menlo) pursuant to the Merger Agreement and upon conversion, if applicable, of the CSRs pursuant to the CSR Agreement, in each case, in connection with the Merger and the change of control of Menlo resulting from the Merger and “FOR” the proposal to approve one or more adjournments of the special meeting to a later date or dates, if necessary or appropriate to solicit additional proxies in the event that there are insufficient votes on the Menlo Merger Proposal.

 

By Order of the Foamix Board of Directors,    By Order of the Menlo Board of Directors,

 

  

 

David Domzalski

Chief Executive Officer

Bridgewater, NJ

                , 2020

  

Steven Basta

President and Chief Executive Officer

Redwood City, CA

                , 2020

 

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YOUR VOTE IS IMPORTANT

WHETHER OR NOT YOU EXPECT TO ATTEND THE FOAMIX MEETING (IN THE CASE OF FOAMIX SHAREHOLDERS) OR THE MENLO MEETING (IN THE CASE OF MENLO STOCKHOLDERS) IN PERSON, WE ENCOURAGE YOU TO SUBMIT YOUR PROXY AS PROMPTLY AS POSSIBLE BY MARKING, SIGNING AND DATING YOUR ENCLOSED PROXY CARD AND RETURNING IT IN THE POSTAGE-PAID ENVELOPE PROVIDED, OR IF YOU ARE A MENLO STOCKHOLDER, ALSO BY TELEPHONE OR THROUGH THE INTERNET. IF YOU ATTEND THE FOAMIX MEETING (IN THE CASE OF FOAMIX SHAREHOLDERS) OR THE MENLO MEETING (IN THE CASE OF MENLO STOCKHOLDERS) IN PERSON AND WISH TO VOTE YOUR SHARES AT THE FOAMIX MEETING OR MENLO MEETING, AS APPLICABLE, YOU MAY DO SO AT ANY TIME PRIOR TO THE CLOSING OF THE POLLS AT THE FOAMIX OR THE MENLO MEETING, AS APPLICABLE. You may revoke your proxy or change your vote at any time before the Foamix meeting or Menlo meeting, as applicable. If your shares are held in the name of a broker, bank or other nominee, please follow the instructions on the voting instruction form furnished to you by such broker, bank or other nominee, which is considered the stockholder of record, in order to vote. As a beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote the shares in your account. Your broker, bank or other nominee cannot vote on any of the proposals without your instructions.

If you fail to return your proxy card, or to vote by ballot in person at the Foamix meeting (in the case of Foamix shareholders) or if you fail to return your proxy card or to vote by ballot in person at the Menlo meeting or to grant your proxy electronically over the Internet or by telephone (in the case of Menlo stockholders), your shares will not be counted for purposes of determining whether a quorum is present at the Foamix meeting or Menlo meeting, as applicable. If you are a shareholder or stockholder of record, voting in person by ballot at the Foamix meeting (in the case of Foamix shareholders) or at the Menlo meeting (in the case of Menlo stockholders) will revoke any proxy that you previously submitted. If you hold your shares through a broker, bank or other nominee, you must obtain from the record holder a valid legal proxy issued in your name in order to vote in person at the Foamix meeting or Menlo meeting, as applicable.

We encourage you to read the accompanying joint proxy statement/prospectus, including all documents incorporated by reference into, and annexes to, the accompanying joint proxy statement/prospectus, carefully and in their entirety. If you have any questions concerning the Merger, the Foamix meeting, the Menlo meeting or the accompanying joint proxy statement/prospectus, or would like additional copies of the accompanying joint proxy statement/prospectus or need help voting your Foamix shares or shares of Menlo common stock, as applicable, please contact Foamix’s or Menlo’s proxy solicitor, as applicable:

Foamix’s proxy solicitor:

Morrow Sodali, LLC

509 Madison Avenue

Suite 1608

New York, NY 10022

Call Collect: (203) 658-9400

Call Toll Free: (800) 662-5200

E-mail: FOMX@investor.morrowsodali.com

Menlo’s proxy solicitor:

MacKenzie Partners, Inc.

1407 Broadway, 27th Floor

New York, New York 10018

Call Collect: (212) 929-5500

Call Toll Free: (800) 322-2885

E-mail: proxy@mackenziepartners.com

 

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THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES

ADDITIONAL INFORMATION

This joint proxy statement/prospectus incorporates important business and financial information about Foamix and Menlo from other documents that are not included in or delivered with this joint proxy statement/prospectus. This information is available to you without charge upon your request. You can obtain the documents incorporated by reference into this joint proxy statement/prospectus free of charge by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers:

 

Foamix Pharmaceuticals Ltd.

2 Holzman Street (Entrance 2B)

Weizmann Science Park

Rehovot, 7670402 Israel

+972-8-9316233

Attention: Ilan Hadar, CFO

  

Menlo Therapeutics Inc.

200 Cardinal Way, 2nd Floor

Redwood City, California 94063

(650) 486-1416

Attention: Investor Relations

Investors may also consult Foamix’s or Menlo’s website for more information concerning the Merger described in this joint proxy statement/prospectus. Foamix’s website is https://www.foamix.com. Menlo’s website is https://www.menlotherapeutics.com. Information included on those websites is not incorporated by reference into this joint proxy statement/prospectus.

In addition, if you have questions about the Merger or the accompanying joint proxy statement/prospectus, would like additional copies of the accompanying joint proxy statement/prospectus or need to obtain proxy cards or other information related to the proxy solicitation, please contact Morrow Sodali, LLC, the proxy solicitor for Foamix, toll-free at (800) 662-5200 or collect at (203) 658-9400, or MacKenzie Partners, Inc., the proxy solicitor for Menlo, toll-free at (800) 322-2885 or collect at (212) 929-5500. You will not be charged for any of these documents that you request. If you have any questions about the Merger Consideration (as further described in this joint proxy statement/prospectus) or related matters, please contact Morrow Sodali, LLC, the information agent for the Merger, at (800) 662-5200 or FOMX@investor.morrowsodali.com.

If you would like to request any documents, please do so by                 , 2020 in order to receive them before the extraordinary general meeting of Foamix shareholders or special meeting of Menlo stockholders.

For a more detailed description of the information incorporated by reference into this joint proxy statement/prospectus and how you may obtain it, see the section entitled “Where You Can Find More Information”.

 

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ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS

This joint proxy statement/prospectus, which forms part of a registration statement on Form S-4 filed with the SEC by Menlo (the “Registration Statement”), constitutes a prospectus of Menlo under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of Menlo common stock to be issued to Foamix shareholders (including shares potentially issuable under Foamix’s equity incentive plans, stock purchase plan and warrants being assumed by Menlo) pursuant to the Merger Agreement and upon conversion, if applicable, of the CSRs pursuant to the CSR Agreement, in each case, in connection with the Merger. This joint proxy statement/prospectus also constitutes a notification with respect to the extraordinary general meeting of Foamix shareholders and the special meeting of Menlo stockholders.

You should rely only on the information contained in or incorporated by reference into this joint proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this joint proxy statement/prospectus. This joint proxy statement/prospectus is dated                 , 20    . You should not assume that the information contained in this joint proxy statement/prospectus is accurate as of any other date. You should not assume that the information incorporated by reference into this joint proxy statement/prospectus is accurate as of any date other than the date of the incorporated document. Neither our making available this joint proxy statement/prospectus to Foamix shareholders and Menlo stockholders, nor the issuance by Menlo of shares of common stock to Foamix’s shareholders in connection with the Merger, will create any implication to the contrary.

This joint proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation. Information contained in this joint proxy statement/prospectus regarding Menlo has been provided by Menlo and information contained in this joint proxy statement/prospectus regarding Foamix has been provided by Foamix.

All references in this joint proxy statement/prospectus to “Menlo” refer to Menlo Therapeutics Inc., a Delaware corporation; all references in this joint proxy statement/prospectus to “Foamix” refer to Foamix Pharmaceuticals Ltd., a company organized under the laws of the State of Israel; all references to “Merger Sub” refer to Giants Merger Subsidiary Ltd., a company organized under the laws of the State of Israel and a wholly-owned subsidiary of Menlo formed for the sole purpose of effecting the Merger, or its permitted assignees; unless otherwise indicated or as the context requires, all references in this joint proxy statement/prospectus to “we,” “our” and “us” refer to Menlo and Foamix collectively; all references in this joint proxy statement/prospectus to the “Combined Company” refer to Menlo, Foamix and their subsidiaries, collectively, following the consummation of the Merger; all references in this joint proxy statement/prospectus to the “Merger Agreement” refer to the Agreement and Plan of Merger, dated as of November 10, 2019, by and among Menlo, Merger Sub and Foamix, a copy of which is attached to this joint proxy statement/prospectus as Annex A, as amended by Amendment No. 1 to the Agreement and Plan of Merger, dated as of December 4, 2019, a copy of which is attached to this joint proxy statement/prospectus as Annex B; all references in this joint proxy statement/prospectus to the “Merger” refer to the merger of Merger Sub with and into Foamix, with Foamix as the surviving company (the “Surviving Company”); all references in this joint proxy statement/prospectus to the “CSR Agreement” refer to the contingent stock rights agreement governing the terms of the CSRs to be received by Foamix’s shareholders, which may be entered into by Menlo and a rights agent mutually acceptable to Foamix and Menlo, subject to the terms of the Merger Agreement, the form of which is attached to this joint proxy statement/prospectus as Annex G; and all references in this joint proxy statement/prospectus to “CSRs” refer to the contingent stock rights issued pursuant to the CSR Agreement.

 

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TABLE OF CONTENTS

 

YOUR VOTE IS IMPORTANT

     5  

ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS

     7  

QUESTIONS AND ANSWERS

     11  

SUMMARY

     27  

The Companies

     27  

The Merger

     28  

RISK FACTORS

     41  

Risk Factors Relating to the Merger

     41  

Risk Factors Relating to the Combined Company Following the Merger

     46  

Risk Factors Relating to Menlo and Foamix

     54  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     55  

SELECTED HISTORICAL FINANCIAL DATA

     56  

Selected Historical Financial Data of Menlo

     56  

Selected Historical Financial Data of Foamix

     57  

Selected Unaudited Pro Forma Condensed Combined Financial Information

     59  

Comparative Historical and Unaudited Pro Forma Per Share Financial Data

     60  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     61  

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     67  

UNAUDITED COMPARATIVE MARKET VALUE AND DIVIDEND INFORMATION

     72  

Historical Market Price Information

     72  

Recent Closing Prices

     72  

Dividend Information

     72  

THE FOAMIX EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS

     73  

Date, Time and Place

     73  

Purpose of the Meeting

     73  

Recommendation of the Foamix Board

     74  

Foamix Record Date and Quorum

     74  

Vote Required at the Foamix Meeting

     75  

Voting Procedures

     75  

Treatment of Abstentions; Failure to Vote

     76  

Voting Proxies; Incomplete Proxies

     77  

Revocation of Proxies and Changes to a Foamix Shareholder’s Vote

     77  

Solicitation of Proxies

     77  

Adjournments and Postponements

     78  

Voting in Person

     78  

Appraisal Rights

     78  

Foamix Shares Held by Foamix Directors and Executive Officers

     78  

Assistance

     78  

Other Matters

     78  

THE MENLO SPECIAL MEETING OF STOCKHOLDERS

     79  

Date, Time and Place

     79  

Purpose of the Meeting

     79  

Recommendation of the Menlo Board

     80  

Menlo Record Date and Quorum

     80  

Vote Required at the Menlo Meeting

     80  

Voting Procedures

     80  

Treatment of Abstentions; Failure to Vote

     81  

Voting Proxies; Incomplete Proxies

     81  

Revocation of Proxies and Changes to a Menlo Stockholder’s Vote

     81  

 

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Solicitation of Proxies

     82  

Voting in Person

     82  

Appraisal Rights

     82  

Menlo Shares Held by Menlo Directors and Executive Officers

     83  

Assistance

     83  

Other Matters

     83  

MATTERS BEING SUBMITTED TO A VOTE OF FOAMIX SHAREHOLDERS

     84  

Foamix Merger Proposal

     84  

Foamix Executive Compensation Proposal

     84  

Other Matters to Come Before the Foamix Extraordinary General Meeting

     85  

MATTERS BEING SUBMITTED TO A VOTE OF MENLO STOCKHOLDERS

     86  

The Menlo Merger Proposal: Approval of the Issuance of Common Stock in the Merger and the Change of Control of Menlo Resulting from the Merger

     86  

The Menlo Adjournment Proposal: Approval of Possible Adjournment of The Special Meeting

     88  

Other Matters to Come Before the Menlo Special Meeting

     88  

THE MERGER

     89  

Timing of the Merger

     89  

Effects of the Merger

     89  

Consideration to Foamix Shareholders

     89  

Background of the Merger

     90  

Recommendation of the Foamix Board and Foamix’s Reasons for the Merger

     102  

Recommendation of the Menlo Board and Menlo’s Reasons for the Merger/Share Issuance

     106  

Opinion of Barclays as Foamix’s Financial Advisor

     112  

Summary of Certain Foamix Unaudited Prospective Financial Information

     119  

Opinion of Guggenheim Securities as Menlo’s Financial Advisor

     124  

Summary of Certain Menlo Unaudited Prospective Financial Information

     135  

Board of Directors and Management After the Merger

     141  

Interests of Foamix’s Directors and Executive Officers in the Merger

     142  

Interests of Menlo’s Directors and Executive Officers in the Merger

     148  

Regulatory Approvals Required for the Merger

     151  

Procedures for Exchanging Foamix Shares in the Merger

     152  

Listing of Additional Shares of Menlo Common Stock

     152  

De-Listing and Deregistration of Foamix Shares

     152  

Appraisal Rights

     153  

Transaction-Related Costs

     153  

Accounting Treatment of the Merger

     153  

Resale of Shares of Menlo Common Stock

     154  

THE MERGER AGREEMENT

     155  

Merger Agreement

     155  

Closing and Effective Time

     155  

Consideration to Foamix Shareholders

     156  

Contingent Stock Rights

     156  

Treatment of Foamix Equity Awards

     157  

Treatment of the Foamix ESPP and the Menlo ESPP

     157  

Exchange Agent; Letter of Transmittal

     158  

Withholding

     158  

No Fractional Shares

     158  

Representations and Warranties

     159  

Material Adverse Effect

     160  

Covenants and Agreements

     161  

No Solicitation

     163  

Board Recommendations

     164  

 

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Registration Statement; Shareholder/Stockholder Meetings

     164  

Israeli Law Matters

     165  

Access

     165  

Notification

     166  

Confidentiality

     166  

Public Disclosure

     166  

Section 16 Matters

     167  

Employee Matters

     167  

Directors and Officers of Menlo Following the Merger

     167  

Obligations of Menlo and Foamix

     168  

Israeli Tax Rulings

     169  

Stock Exchange Listing

     169  

Conditions to Consummation of the Merger

     169  

Termination of the Merger Agreement

     170  

Termination Fees

     171  

Fees and Expenses

     171  

Indemnification; Directors’ and Officers’ Insurance

     171  

Amendments and Waivers

     172  

No Third Party Beneficiaries

     172  

Specific Performance

     172  

Governing Law

     173  

AGREEMENTS RELATING TO THE MERGER

     174  

Voting Agreements

     174  

Contingent Stock Rights Agreement

     175  

CERTAIN TAX CONSEQUENCES OF THE MERGER AND THE OWNERSHIP AND DISPOSITION OF MENLO SHARES

     178  

U.S. Federal Income Tax Consequences

     178  

Israeli Tax Considerations

     183  

COMPARISON OF RIGHTS OF FOAMIX SHAREHOLDERS AND MENLO STOCKHOLDERS

     187  

SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT/DIRECTORS OF FOAMIX

     201  

SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT/DIRECTORS OF MENLO

     203  

EXPERTS

     204  

VALIDITY OF COMMON STOCK

     205  

ENFORCEABILITY OF CIVIL LIABILITIES

     206  

FUTURE STOCKHOLDER PROPOSALS

     207  

APPRAISAL RIGHTS

     209  

HOUSEHOLDING OF PROXY MATERIAL

     210  

WHERE YOU CAN FIND MORE INFORMATION

     211  

PART II INFORMATION NOT REQUIRED IN PROSPECTUS; UNDERTAKINGS

     213  

Item 20. Indemnification of Directors and Officers

     213  

Item 21. Exhibits and Financial Statement Schedules

     214  

Item 22. Undertakings

     215  

SIGNATURES

     218  

SIGNATURES AND POWER OF ATTORNEY

     219  

 

Annex A   

Agreement and Plan of Merger

Annex B    Amendment No. 1 to the Agreement and Plan of Merger
Annex C    Opinion of Barclays
Annex D    Opinion of Guggenheim Securities
Annex E    Form of Menlo Voting Agreement
Annex F    Form of Foamix Voting Agreement
Annex G    Form of Contingent Stock Rights Agreement

 

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QUESTIONS AND ANSWERS

The following are some questions that you, as a shareholder of Foamix or stockholder of Menlo, may have regarding the Foamix meeting or the Menlo meeting, as applicable, the proposals being considered at such meetings, including the Foamix Merger Proposal, the Menlo Merger Proposal, the Merger and the Merger Agreement (each, as described below), and the answers to those questions. Menlo and Foamix urge you to carefully read the remainder of this joint proxy statement/prospectus because the information in this section does not provide all the information that might be important to you with respect to the Foamix Merger Proposal, the Menlo Merger Proposal and the Merger being considered at the applicable meeting. Additional important information is also contained in the Annexes to, and the documents incorporated by reference into, this joint proxy statement/prospectus. For more information, see the section entitled “Where You Can Find More Information”.

Questions and Answers about the Foamix Meeting

 

Q:

Why am I receiving this joint proxy statement/prospectus?

 

A:

You are receiving this joint proxy statement/prospectus because you have been identified as a shareholder of Foamix as of the Foamix record date, and you are entitled to vote at the Foamix meeting to approve the matters set forth herein. This document serves as:

 

   

a proxy statement of Foamix used to solicit proxies for the Foamix meeting to vote on the matters set forth herein; and

 

   

a prospectus of Menlo used to offer shares of Menlo common stock to Foamix shareholders in exchange for Foamix shares in the Merger and upon conversion, if applicable, of the CSRs pursuant to the CSR Agreement.

 

Q:

What proposals will be voted on at the Foamix meeting in connection with the Merger?

 

A:

There are two proposals that will be presented at the Foamix meeting. The Foamix Merger Proposal must be approved under the Companies Law in order for the Merger to be completed. The Foamix Executive Compensation Proposal is an advisory/non-binding proposal that is required under the rules of the SEC in connection with the Merger. The two proposals read as follows:

 

   

The Foamix Merger Proposal: Approval and adoption of (i) the Merger Agreement, by and among Menlo, Merger Sub and Foamix; (ii) the Merger, following which Merger Sub will cease to exist, and Foamix will become a wholly-owned subsidiary of Menlo; (iii) the Merger Consideration (as further described in this joint proxy statement/prospectus) for Foamix’s shareholders, consisting of (a) 0.5924 of a share of common stock of Menlo (subject to upwards adjustment to 1.2739 or 1.8006 shares of Menlo common stock if one or both of Menlo’s Phase III PN Trials, respectively, fail to demonstrate Serlopitant Significance) for each Foamix share that is issued and outstanding (other than Excluded Shares) and that will be deemed transferred to Menlo upon the Merger and (b) if the Closing of the Merger occurs on or before May 31, 2020 and the Efficacy Determination has not yet been received, one CSR, subject to the terms and conditions of the CSR Agreement; and (iv) all other transactions contemplated by the Merger Agreement, all upon the terms and subject to the conditions set forth in the Merger Agreement; and

 

   

The Foamix Executive Compensation Proposal: Approval, on a non-binding, advisory basis, of certain compensation that may be paid or become payable to the named executive officers of Foamix in connection with the Merger and contemplated by the Merger Agreement. The Foamix Executive Compensation Proposal has been included herein in accordance with the requirements of the Exchange Act, and it is not anticipated that the payments and benefits disclosed will in fact be paid to Foamix’s named executive officers in connection with the Merger.

 

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The approval of the Foamix Merger Proposal, in addition to being required under the Companies Law, is a condition to the completion of the Merger under the terms of the Merger Agreement. Therefore, the Merger cannot be consummated without the approval of the Foamix Merger Proposal. None of the steps contemplated in connection with the Merger — including the issuance of Menlo common stock to the Foamix shareholders in exchange for their Foamix shares and the delisting of Foamix shares — will take place unless the Foamix Merger Proposal is approved by Foamix’s shareholders. The Merger and all related steps can, however, be consummated even if the Foamix Executive Compensation Proposal is not approved by Foamix’s shareholders at the Foamix meeting.

In addition to the requirement of obtaining Foamix shareholder approval for the Foamix Merger Proposal, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived for the Merger to be completed. For a more complete description of the closing conditions under the Merger Agreement, please see the section titled “The Merger Agreement—Conditions to Consummation of the Merger” beginning on page 169 of this joint proxy statement/prospectus.

 

Q:

What constitutes a quorum of Foamix shareholders that is needed to hold the Foamix meeting?

 

A:

As required under the Nasdaq Listing Rules, which supersede Foamix’s articles of association with respect to this issue, the presence, in person or by proxy, at the Foamix meeting of one or more Foamix shareholders who hold, in the aggregate, at least 3313% of the voting rights in Foamix, is necessary to constitute a quorum at the Foamix meeting. Abstentions and broker non-votes will also be treated as shares present for the purpose of determining the presence of a quorum for the transaction of business at the Foamix meeting.

If within half an hour from the time appointed for the Foamix meeting, a quorum is not present, the meeting shall be adjourned to                 , 2020, at the same time and place. At that adjourned meeting, the same 3313% quorum requirement will apply.

 

Q:

What shareholder vote is required to approve the proposals at the Foamix meeting?

 

A:

Foamix Merger Proposal: The affirmative vote of a majority of the voting rights of Foamix shares represented, in person or by proxy, and voting thereon at the Foamix meeting, provided that such majority includes at least a majority of the votes cast by Foamix shareholders that are not Menlo, Merger Sub or a Menlo Related Person, who are present, in person or represented by proxy, and voting (abstentions and broker non-votes are disregarded), is necessary for the approval of the Foamix Merger Proposal.

Pursuant to the Companies Law, each Foamix shareholder voting on the Foamix Merger Proposal is required to inform Foamix prior to voting at the Foamix meeting whether the shareholder is any of Menlo, Merger Sub, or a Menlo Related Person and to indicate such matter in the appropriate place in the enclosed proxy or voting instruction form, as further detailed below under “What do I need to do now?”.

Foamix Executive Compensation Proposal: The affirmative vote of a majority of the voting rights of Foamix shares represented, in person or by proxy, and voting thereon at the Foamix meeting is necessary for the approval, on a non-binding, advisory basis, pursuant to the rules under the Exchange Act, of the Foamix Executive Compensation Proposal.

Votes will be counted at the meeting by an individual appointed for such purpose by Foamix. That appointed person will separately count “FOR” and “AGAINST” votes, as well as abstentions and broker non-votes. Abstentions and broker non-votes will not be considered votes cast at the Foamix meeting for purposes of determining whether the requisite majority has been achieved for either proposal and will therefore not have any effect with respect to the voting on the proposals.

Foamix’s Chief Executive Officer and a significant stockholder, collectively owning approximately 19% of the outstanding Foamix shares, have entered into voting agreements pursuant to which they have agreed to vote all Foamix shares owned by them in favor of the Foamix Merger Proposal and against any action or agreement that would reasonably be expected, to impede, interfere with, delay, or postpone the transactions

 

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contemplated by the Merger Agreement. See “Agreements Relating to the Merger—Voting Agreements” on page 174 of this joint proxy statement/prospectus.

 

Q:

As a Foamix shareholder, how does the Foamix Board recommend that I vote?

 

A:

After careful consideration, the Foamix Board unanimously recommends that Foamix shareholders vote “FOR” both of the proposals.

 

Q:

What do I need to do now?

 

A:

Foamix urges you to read this joint proxy statement/prospectus carefully, including the Annexes and the documents incorporated by reference herein, and to consider how the Merger affects you.

If you are a Foamix shareholder of record, you may provide your proxy instructions in one of two ways:

 

   

You can mail the enclosed proxy card, completed and signed by you, in the enclosed return envelope.

 

   

You can print the form of proxy card from the “Investor Relations” portion of Foamix’s website, or request a copy from Foamix’s proxy solicitor, whose contact information is provided below under “The Foamix Extraordinary General Meeting of Shareholders—Assistance”. You can then mail your completed, signed proxy card directly to Continental Stock Transfer & Trust Company (“Continental”), Foamix’s independent agent engaged to tabulate shareholder votes, to the following address: Continental Stock, 1 State Street, 30th Floor, New York, NY 10004.

If you hold your shares in “street name” (as described below), you may provide your voting instructions via the internet (at www.proxyvote.com) by following the instructions on your voting instruction form. Please provide your voting instructions only once (unless you are revoking a previously delivered voting instruction) and as soon as possible, so that your shares can be voted at the Foamix meeting.

In order to provide for proper tallying of the Foamix shareholder vote on the Foamix Merger Proposal, each Foamix shareholder is required to indicate in Item 1A in the enclosed Foamix proxy or voting instruction form whether or not he, she or it is Menlo, Merger Sub, or a Menlo Related Person with respect to the Foamix Merger Proposal. Please indicate “FOR” in Item 1A in order to confirm that you are not any of the foregoing persons. If you mark “AGAINST” in Item 1A or if you do not mark anything in Item 1A in the proxy or voting instruction form (including if you submit your voting instructions electronically), your vote will not be counted for purposes of the Foamix Merger Majority with respect to the Foamix Merger Proposal, and your signature on the enclosed proxy or voting instruction form (including if submitted electronically) will constitute a certification that you are either Menlo, Merger Sub or a Menlo Related Person.

 

Q:

What should I do if I receive more than one set of voting materials?

 

A:

Please vote each proxy card and voting instruction card that you receive. You may receive more than one set of voting materials, including multiple copies of this joint proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, shareholders who hold shares in more than one brokerage account will receive a separate voting instruction card for each brokerage account in which shares are held. If shares are held in more than one name, shareholders will receive more than one proxy or voting instruction card. In addition, if you are a stockholder/shareholder of both Menlo and Foamix, you may receive one or more proxy cards or voting instruction cards for Menlo and one or more proxy cards or voting instruction cards for Foamix. If you are a stockholder/shareholder of both Menlo and Foamix, please note that a vote for the Menlo Merger Proposal will not constitute a vote for the Foamix Merger Proposal, and vice versa. Therefore, please vote each proxy and voting instruction card you receive, whether from Menlo or Foamix.

 

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Q:

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

 

A:

If you do not return a proxy or provide voting instructions and do not attend the Foamix meeting, your shares will not be counted for purposes of determining whether a quorum is present at the meeting. Provided that there is a quorum at the meeting, the failure to return your proxy card or otherwise provide voting instructions will also have no impact on the voting on the proposals. It will equally reduce the aggregate number of votes required both to approve or reject the Foamix Merger Proposal and the Foamix Executive Compensation Proposal.

 

Q:

May I attend the Foamix meeting and vote in person?

 

A:

Yes. If you are a shareholder of record, you may attend the Foamix meeting and vote your Foamix shares at the meeting. Please bring photo identification. If you represent an entity that is a shareholder of record, please also bring documentation that proves that you are authorized to represent that entity and vote on its behalf at the meeting.

If you hold your Foamix shares in “street name”, you are deemed a beneficial owner of Foamix shares. Because a beneficial owner is not a shareholder of record, you may not vote your shares directly at the Foamix meeting unless you obtain a legal proxy from the bank, broker or nominee that holds your shares, giving you the right to vote the shares at the Foamix meeting. You will also need an account statement dated on or about the record date for the Foamix meeting that shows that you hold Foamix shares in your bank, brokerage or other account in order to vote in person at the Foamix meeting.

 

Q:

Who counts the votes?

 

A:

Continental has been engaged as Foamix’s independent agent to tabulate shareholder votes. If you are a Foamix shareholder of record, your completed, executed proxy card should be returned directly to Continental for tabulation (to the physical address provided below under “The Foamix Extraordinary General Meeting of Shareholders—Assistance”). As noted above, if you hold your shares through a broker, once you submit your voting instructions (whether online, by telephone or in hard-copy form, as directed by your broker), your bank, broker or other nominee returns one proxy card to Continental on behalf of all its clients.

 

Q:

If my Foamix shares are held in “street name” and I do not provide voting instructions, will my broker vote my shares for me?

 

A:

If you do not give instructions to your broker, your broker can vote your Foamix shares with respect to “discretionary” items but not with respect to “non-discretionary” items. All of the matters to come before the shareholders at the Foamix meeting are “non-discretionary.” Therefore, your broker will not be able to vote your Foamix shares without instructions from you. To make sure that your vote is counted, you should instruct your broker to vote your shares, following the procedures provided by your broker.

Your vote must be received by 11:59 p.m. Eastern Standard Time, on                 , 2020 to be counted.

 

Q:

What are broker non-votes and do they count for determining a quorum?

 

A:

Generally, broker non-votes occur when shares held by a broker in “street name” for a beneficial owner are not voted with respect to a particular proposal because the broker (1) has not received voting instructions from the beneficial owner and (2) lacks discretionary voting power to vote those shares. Please see the response to the previous question above (“If my Foamix shares are held in “street name” and I do not provide voting instructions, will my broker vote my shares for me?”).

Broker non-votes will be treated as shares present for the purpose of determining the presence of a quorum for the transaction of business at the Foamix meeting. Broker non-votes will not, however, be considered

 

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votes cast at the Foamix meeting and will therefore not have any effect with respect to the Foamix Merger Proposal and the Foamix Executive Compensation Proposal.

 

Q:

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

 

A:

Foamix shareholders of record, unless such shareholder’s vote is subject to a voting agreement, may change their vote at any time before their proxy is voted at the Foamix meeting in one of three ways:

 

   

You may submit another properly completed proxy with a later date.

 

   

You may send a written notice that you are revoking your proxy to Foamix’s Chief Financial Officer at 2 Holzman Street (Entrance 2B), Weizmann Science Park, Rehovot, Israel 7670402.

 

   

You may attend the Foamix meeting in person and vote there. Simply attending the Foamix meeting will not, by itself, revoke your proxy.

If a Foamix shareholder who owns Foamix shares in “street name” has instructed a broker to vote its Foamix shares, the shareholder must follow directions received from its broker to change those instructions.

 

Q:

Who is paying for this proxy solicitation?

 

A:

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

 

Q:

Who can help answer my questions?

 

A:

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

Morrow Sodali, LLC

509 Madison Avenue

Suite 1608

New York, NY 10022

Call Collect: (203) 658-9400

Call Toll Free: (800) 662-5200

E-mail: FOMX@investor.morrowsodali.com.

or

Foamix Pharmaceuticals Ltd.

2 Holzman Street, Weizmann Science Park

Rehovot, Israel

+972-8-9316233

 

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Questions and Answers about the Menlo Meeting

 

Q:

Why am I receiving this joint proxy statement/prospectus?

 

A:

You are receiving this joint proxy statement/prospectus because you have been identified as a stockholder of Menlo as of the Menlo record date, and you are entitled to vote at the Menlo meeting to approve the matters set forth herein. This document serves as:

 

   

a proxy statement of Menlo used to solicit proxies for the Menlo meeting to vote on the matters set forth herein; and

 

   

a prospectus of Menlo used to offer shares of Menlo common stock in exchange for Foamix shares in the Merger and upon conversion, if applicable, of the CSRs pursuant to the CSR Agreement.

 

Q:

What proposals will be voted on at the Menlo meeting in connection with the Merger?

 

A:

Pursuant to the terms of the Merger Agreement, the following proposals must be approved by the requisite stockholder vote at the Menlo meeting in order for the Merger to close:

 

   

The Menlo Merger Proposal: Approval of the issuance of shares of Menlo common stock to Foamix shareholders (including potential Foamix shareholders under Foamix’s equity incentive plans, stock purchase plan and warrants being assumed by Menlo) pursuant to the Merger Agreement and upon conversion, if applicable, of the CSRs pursuant to the CSR Agreement, in each case, in connection with the Merger and the change of control of Menlo resulting from the Merger under Nasdaq rules; and

 

   

The Menlo Adjournment Proposal: Approval of an adjournment of the Menlo meeting to a later date or dates, if necessary, to permit the solicitation of additional proxies if, based upon the tabulated vote at the time of the Menlo meeting, there are not sufficient votes to approve the Menlo Merger Proposal.

The approval of the Menlo Merger Proposal is a condition to the completion of the Merger. Therefore, the Merger cannot be consummated without the approval of the Menlo Merger Proposal. The issuance of Menlo common stock in connection with the Merger will not take place unless the Menlo Merger Proposal is approved by Menlo stockholders and the Merger is consummated.

In addition to the requirement of obtaining Menlo stockholder approval, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived. For a more complete description of the closing conditions under the Merger Agreement, please see the section titled “The Merger Agreement—Conditions to the Consummation of the Merger” beginning on page 169 of this joint proxy statement/prospectus.

The presence, in person or by proxy, at the Menlo meeting of the holders of a majority of the shares of Menlo common stock outstanding and entitled to vote at the Menlo meeting is necessary to constitute a quorum at the meeting for the purpose of approving the Menlo Merger Proposal.

 

Q:

What stockholder votes are required to approve the proposals at the Menlo meeting?

 

A:

The affirmative vote of a majority of the votes cast in person or by proxy at the Menlo meeting, assuming a quorum is present, is required for approval of the Menlo Merger Proposal and the Menlo Adjournment Proposal.

Votes will be counted by American Stock Transfer Trust Company (“AST”), who will separately count “FOR,” “AGAINST” and “ABSTAIN” votes and broker non-votes. Abstentions and broker non-votes will also be treated as shares present for the purpose of determining the presence of a quorum for the transaction of business at the Menlo meeting. Abstentions and broker non-votes will not, however, be considered votes cast at the Menlo meeting and will therefore not have any effect with respect to the Menlo Merger Proposal and the Menlo Adjournment Proposal.

 

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Menlo’s Chief Executive Officer and two significant stockholders, collectively owning approximately 30% of the outstanding Menlo shares, have entered into voting agreements pursuant to which they have agreed to vote all shares of Menlo common stock owned by them as of the record date in favor of the Menlo Merger Proposal and the Menlo Adjournment Proposal and against any action or agreement that would reasonably be expected, to impede, interfere with, delay, or postpone the transactions contemplated by the Merger Agreement. See “Agreements Relating to the Merger—Voting Agreements” on page 174 of this joint proxy statement/prospectus.

 

Q:

As a Menlo stockholder, how does the Menlo Board recommend that I vote?

 

A:

After careful consideration, the Menlo Board recommends that Menlo stockholders vote “FOR” all of the proposals.

 

Q:

What do I need to do now?

 

A:

Menlo urges you to read this joint proxy statement/prospectus carefully, including the Annexes and the documents incorporated by reference herein, and to consider how the Merger affects you.

If you are a Menlo stockholder of record, you may vote or provide your proxy instructions in one of four different ways:

 

   

You can attend the Menlo meeting in person, and we will give you a ballot when you arrive.

 

   

You can mail your signed proxy card in the enclosed return envelope.

 

   

You can provide your proxy instructions via telephone by following the instructions on your proxy card.

 

   

You can provide your proxy instructions via the Internet by following the instructions on your proxy card.

To ensure that your Menlo shares are voted at the meeting, we recommend that you provide voting instructions promptly by proxy, even if you plan to attend the meeting in person, by marking, dating and signing the proxy and returning it by mail in the enclosed postage-paid envelope. Your vote must be received by                 , 2020, 11:59 p.m. Eastern Standard Time to be counted.

If you hold your shares in “street name” (as described below), you may provide your proxy instructions via telephone or the internet by following the instructions on your vote instruction form. Please provide your proxy instructions only once, unless you are revoking a previously delivered proxy instruction, and as soon as possible so that your shares can be voted at the Menlo meeting.

 

Q:

What should I do if I receive more than one set of voting materials?

 

A:

Please vote each proxy card and voting instruction card that you receive. You may receive more than one set of voting materials, including multiple copies of this joint proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, stockholders who hold shares in more than one brokerage account will receive a separate voting instruction card for each brokerage account in which shares are held. If shares are held in more than one name, stockholders will receive more than one proxy or voting instruction card. In addition, if you are a stockholder/shareholder of both Menlo and Foamix, you may receive one or more proxy cards or voting instruction cards for Menlo and one or more proxy cards or voting instruction cards for Foamix. If you are a stockholder/shareholder of both Menlo and Foamix, please note that a vote for the Menlo Merger Proposal will not constitute a vote for the Foamix Merger Proposal, and vice versa. Therefore, please vote each proxy and voting instruction card you receive, whether from Menlo or Foamix.

 

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Q:

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

 

A:

If you are a Menlo stockholder, the failure to return your proxy card or otherwise provide proxy instructions will reduce the aggregate number of votes required to approve the Menlo Merger Proposal and the Menlo Adjournment Proposal. Also, your shares will not be counted for purposes of determining whether a quorum is present at the Menlo meeting. If you properly execute and return the form of proxy to Menlo prior to the meeting without indicating how you intend to vote with respect to the Menlo Merger Proposal and/or Menlo Adjournment Proposal, the Menlo shares represented by the proxy will be counted as being present for quorum purposes and will be voted in favor of the Menlo Merger Proposal and the Menlo Adjournment Proposal, in accordance with the recommendation of the Menlo Board.

 

Q:

Who counts the votes?

 

A:

AST has been engaged as Menlo’s independent agent to tabulate stockholder votes. If you are a Menlo stockholder of record, your executed proxy card is returned directly to AST for tabulation. As noted above, if you hold your shares through a broker, your broker returns one proxy card to AST on behalf of all its clients.

 

Q:

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

 

A:

If you do not give instructions to your broker, your broker can vote your Menlo shares with respect to “discretionary” items but not with respect to “non-discretionary” items. All of the proposals to come before the stockholders at the Menlo meeting are “non-discretionary.” Therefore, your broker will not be able to vote your shares without instructions from you. To make sure that your vote is counted, you should instruct your broker to vote your shares, following the procedures provided by your broker.

 

Q:

What are broker non-votes and do they count for determining a quorum?

 

A:

Generally, broker non-votes occur when shares held by a broker in “street name” for a beneficial owner are not voted with respect to a particular proposal because the broker (1) has not received voting instructions from the beneficial owner and (2) lacks discretionary voting power to vote those shares. Please see the response to the previous question above (“If my Menlo shares are held in “street name” by my broker, will my broker vote my shares for me?”).

Broker non-votes will be treated as shares present for the purpose of determining the presence of a quorum for the transaction of business at the Menlo meeting. Broker non-votes will not, however, be considered votes cast at the Menlo meeting and will therefore not have any effect with respect to the Menlo Merger Proposal and the Menlo Adjournment Proposal.

 

Q:

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

 

A:

Menlo stockholders of record, unless such stockholders’ vote is subject to a voting agreement, may change their vote at any time before their proxy is voted at the Menlo meeting in one of three ways:

 

   

You may submit another properly completed proxy with a later date.

 

   

You may send a written notice that you are revoking your proxy to Menlo’s Chief Financial Officer and Corporate Secretary at 200 Cardinal Way, 2nd Floor, Redwood City, California 94063.

 

   

You may attend the Menlo meeting and vote in person. Simply attending the Menlo meeting will not, by itself, revoke your proxy.

If a Menlo stockholder who owns Menlo shares in “street name” has instructed a broker to vote its shares of Menlo common stock, the stockholder must follow directions received from its broker to change those instructions.

 

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Q:

Who is paying for this proxy solicitation?

 

A:

Menlo and Foamix will share equally the cost of printing and filing of this joint proxy statement/prospectus and the proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of Menlo common stock for the forwarding of solicitation materials to the beneficial owners of Menlo common stock. Menlo will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials. Menlo has retained MacKenzie Partners, Inc. to assist it in soliciting proxies using the means referred to above. Menlo and Foamix will share equally the fees of MacKenzie Partners, Inc., which Menlo expects to be approximately $15,000, plus reimbursement of out-of-pocket expenses.

 

Q:

Who can help answer my questions?

 

A:

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

MacKenzie Partners, Inc.

1407 Broadway, 27th Floor

New York, New York 10018

Call Collect: (212) 929-5500

Call Toll Free: (800) 322-2885

E-mail: proxy@mackenziepartners.com

Or

Menlo Therapeutics Inc.

200 Cardinal Way, 2nd Floor

Redwood City, California 94063

(650) 486-1416

Questions and Answers about the Merger

 

Q:

What is the proposed transaction on which I am being asked to vote?

 

A:

On November 10, 2019, Foamix, Menlo and Merger Sub entered into an Agreement and Plan of Merger (which was subsequently amended on December 4, 2019, pursuant to Amendment No. 1 to the Agreement and Plan of Merger), pursuant to which Merger Sub will merge with and into Foamix, with Foamix surviving as a wholly-owned subsidiary of Menlo. In connection with the Merger, Menlo will issue shares of Menlo common stock to Foamix shareholders in exchange for their Foamix shares. Following the Merger, Foamix will no longer be a publicly traded company. Foamix shareholders are being asked to adopt the Merger Agreement and approve the Merger, as well as approve, on a non-binding, advisory basis, the Foamix Executive Compensation Proposal. Menlo stockholders are being asked to approve the issuance of Menlo common stock to Foamix shareholders as consideration in the Merger and the change of control of Menlo resulting from the Merger.

 

Q:

Why am I receiving this joint proxy statement/prospectus?

 

A:

In order to complete the Merger, among other things, Menlo stockholders must approve the issuance of shares of Menlo common stock to Foamix shareholders pursuant to the Merger Agreement and upon conversion, if applicable, of the CSRs pursuant to the CSR Agreement, in each case, in connection with the Merger and the change of control of Menlo resulting from the Merger, and Foamix shareholders must

 

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  approve and adopt the Merger Agreement and approve the transactions contemplated by the Merger Agreement. Menlo will hold a special meeting of its stockholders and Foamix will hold an extraordinary general meeting of its shareholders to obtain these approvals. This joint proxy statement/prospectus contains important information about the Merger and the stockholder/shareholder meetings of each of Menlo and Foamix, and you should read it carefully. For Menlo stockholders, the enclosed voting materials for the Menlo meeting allow Menlo stockholders to vote shares of Menlo common stock without attending the Menlo meeting. For Foamix shareholders, the enclosed voting materials for the Foamix meeting allow Foamix shareholders to vote Foamix shares without attending the Foamix meeting.

 

Q:

Why are the two companies proposing to merge?

 

A:

Foamix and Menlo believe that the Merger will result in a biopharmaceutical company focused on the commercialization and development of therapeutics to serve patients in the dermatology space. Menlo, Foamix and their subsidiaries, collectively, following the consummation of the Merger (the “Combined Company”) will have a diversified portfolio including an approved product and three late-stage product candidates focused on dermatologic indications. For a discussion of Foamix’s and Menlo’s reasons for the Merger, please see the section entitled ”The Merger—Recommendation of the Menlo Board and Menlo’s Reasons for the Merger/Share Issuance” and ”The Merger—Recommendation of the Foamix Board and Foamix’s Reasons for the Merger” in this joint proxy statement/prospectus.

 

Q:

What is required to consummate the Merger?

 

A:

Each of Menlo’s and Foamix’s obligation to consummate the Merger is subject to a number of conditions specified in the Merger Agreement, as more fully described in the section entitled “The Merger Agreement—Conditions to Consummation of the Merger”, including:

 

   

the approval of the Merger Agreement by the affirmative vote (or action by written consent) of the Foamix Merger Majority, and at least fifty days having elapsed after the filing of the merger proposal with the Israeli Registrar of Companies (the “Registrar”) and expiration of the thirty-day waiting period following such approval;

 

   

the approval of the issuance of Menlo common stock to Foamix’s shareholders (including potential Foamix shareholders under Foamix’s equity incentive plans, stock purchase plan and warrants being assumed by Menlo) pursuant to the Merger Agreement and upon conversion, if applicable, of the CSRs pursuant to the CSR Agreement, in each case, in connection with the Merger by the affirmative vote of the holders of a majority of the votes cast in person or by proxy at the Menlo meeting, assuming a quorum is present;

 

   

the absence of any adverse law or order promulgated, entered, enforced, enacted or issued by any governmental entity that prohibits, the consummation of the Merger or the transactions contemplated by the Merger Agreement;

 

   

the shares of Menlo common stock to be issued pursuant to the Merger Agreement and the CSR Agreement being approved for listing on the Nasdaq;

 

   

the expiration or termination of the waiting period under any applicable foreign antitrust, competition or similar law;

 

   

the SEC having declared effective this Registration Statement in connection with the Merger;

 

   

subject to certain materiality exceptions, the accuracy of certain representations and warranties of each of Menlo and Foamix contained in the Merger Agreement and the compliance by each party with the covenants contained in the Merger Agreement;

 

   

the absence of a material adverse effect with respect to each of Menlo and Foamix; and

 

   

any of the following will have occurred: (i) a letter from the Israel Securities Authority (“ISA”) will have been received exempting Menlo from publishing a prospectus under Israeli law in

 

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respect of the Merger Consideration (as defined below); (ii) Menlo will have received a permit from the ISA for a registration statement with respect to the dual listing of the shares of Menlo common stock at the Tel Aviv Stock Exchange and an exemption from the requirement to publish a prospectus under Israeli law in respect of the Merger Consideration; or (iii) Menlo will have published a prospectus under Israeli law in respect of the Merger Consideration. Menlo has prepared and filed with the ISA an application for the letter described in clause (i) above.

 

Q:

What will Foamix shareholders receive in the Merger?

 

A:

Upon the issuance by the Registrar of a certificate of merger (the “Effective Time”), by virtue of the Merger, each issued and outstanding Foamix share immediately prior to the Effective Time, other than any Excluded Shares, shall be deemed transferred to Menlo in exchange for the right to receive (a) 0.5924 of a share (as adjusted pursuant to the Merger Agreement, the “Exchange Ratio”) of Menlo common stock (the “Share Consideration”) and, potentially, (b) if the Closing of the Merger occurs on or before May 31, 2020 and the Efficacy Determination has not yet been received, one CSR representing the right to receive contingent issuances of additional Menlo common stock if specified events occur within agreed time periods, subject to and in accordance with the terms and conditions of the CSR Agreement, in substantially the form included as Annex G to this joint proxy statement/prospectus, to be entered into at or prior to the Effective Time by and among the rights agent and Menlo (together with the Share Consideration, the “Merger Consideration”). See “What are the Contingent Stock Rights?” below.

Depending on when the Merger is completed, the Merger Consideration may be subject to adjustment prior to the Effective Time as described in paragraphs (A), (B) and (C) immediately below, and upon the occurrence of any such case, Foamix shareholders will not receive any CSRs at the Effective Time.

 

  (A)

If, prior to the completion of the Merger, the Efficacy Determination reports that Serlopitant Significance was achieved in both of Menlo’s Phase III PN Trials on or before May 31, 2020, then there will be no adjustment to the Exchange Ratio;

 

  (B)

If, prior to the completion of the Merger, the Efficacy Determination reports that (1) Serlopitant Significance was achieved in only one Phase III PN Trial on or before May 31, 2020 and (2) Serlopitant Significance was not achieved or has not been determined in each case on or before May 31, 2020 in the second Phase III PN Trial, then the Exchange Ratio will instead be 1.2739 shares of Menlo common stock per Foamix share; and

 

  (C)

If, prior to the completion of the Merger, the Efficacy Determination reports that Serlopitant Significance was not achieved in both Phase III PN Trials or the Efficacy Determination has not been delivered on or before May 31, 2020, then in each case the Exchange Ratio will instead be 1.8006 shares of Menlo common stock per Foamix share.

No fractional shares of Menlo common stock will be issued in the Merger, and Foamix shareholders will receive cash in lieu of fractional shares, as specified in the Merger Agreement.

For a more complete description of what Foamix shareholders will receive in the Merger, please see the sections entitled “The Merger — Consideration to Foamix Shareholders” and “The Merger Agreement— Consideration to Foamix Shareholders” in this joint proxy statement/prospectus.

 

Q:

What will Foamix equity award holders receive in the Merger?

 

A:

At the Effective Time, each Foamix option and Foamix restricted stock unit award (“Foamix RSU”) that is outstanding immediately prior to the Effective Time will be assumed by Menlo. Each Foamix RSU will be converted into a restricted stock unit award relating to Menlo common stock (an “Adjusted RSU Award”) and will have the same terms and conditions as applied to the Foamix RSU immediately prior to the Effective Time. The Adjusted RSU Award will settle in the number of shares of Menlo common stock equal to the product obtained by multiplying (i) the number of Foamix shares subject to the Foamix RSU immediately prior to the Effective Time by (ii) the Exchange Ratio. Additionally, at the Effective Time,

 

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  each Foamix option will be converted into an option to purchase Menlo common stock (an “Adjusted Option”) with the same terms and conditions as applied to the Foamix option; however, the Adjusted Option will cover a number of shares of Menlo common stock equal to the product of (i) the number of Foamix shares subject to the Foamix option immediately prior to the Effective Time and (ii) the Exchange Ratio, and will have an exercise price per share equal to the quotient of (i) the exercise price per Foamix share subject to such Foamix option immediately prior to the Effective Time divided by (ii) the Exchange Ratio. All Foamix warrants outstanding immediately prior to the Effective Time will be converted into warrants to purchase such number of shares of Menlo common stock as the warrant holder would have received had the Foamix warrants been exercised immediately prior to the Effective Time.

If the CSR converts into shares of Menlo common stock in accordance with the terms of the CSR Agreement, (i) holders of Adjusted RSU Awards will receive a number of additional restricted stock units based on the additional shares of Menlo common stock that each Foamix share receives upon conversion of a CSR and (ii) the Menlo Board shall make equitable adjustments to the exercise price per share of and the number of shares of Menlo common stock subject to the Adjusted Option to reflect the value of the Menlo common stock issuable in respect of the CSR.

For a more complete description of what Foamix equity award holders will receive in the Merger, please see the section entitled “The Merger Agreement—Treatment of Foamix Equity Awards” in this joint proxy statement/prospectus.

 

Q:

What will happen to purchase rights under the Foamix ESPP?

 

A:

The Merger Agreement provides that, prior to the Effective Time, Foamix will (i) cause any outstanding offering period under Foamix’s 2019 Employee Share Purchase Plan (the “Foamix ESPP”) to be terminated as of the last business day prior to the Effective Time (such last business day, the “Designated Date”), (ii) make any pro-rata adjustments that may be necessary to reflect the shortened offering period and (iii) cause the exercise as of the Designated Date of each outstanding purchase right under the Foamix ESPP, in each case, conditioned upon the consummation of the Merger. On the Designated Date, Foamix will apply the funds credited as of such date under the Foamix ESPP within each participant’s payroll withholding account to the purchase of whole Foamix shares in accordance with the terms of the Foamix ESPP.

At least five (5) days prior to the Closing, Foamix may terminate the Foamix ESPP, or may require that Menlo terminate Menlo’s 2018 Employee Stock Purchase Plan (the “Menlo ESPP”) effective as of immediately prior to the Effective Time (and subject to the Closing of the Merger). If the Foamix ESPP is not terminated prior to the Effective Time, then at the Effective Time, Menlo will assume the Foamix ESPP, which will continue in effect in accordance with its terms following the Effective Time, except that each purchase right under the Foamix ESPP following the Effective Time will relate to shares of Menlo common stock.

 

Q:

What are the Contingent Stock Rights?

 

A:

The CSRs represent the non-transferable contractual right to receive certain stock payments from Menlo if specified events occur within agreed time periods. In the event that the (i) the Efficacy Determination is not delivered to Menlo and Foamix on or before the Effective Time; and (ii) the Effective Time occurs on or before May 31, 2020, Menlo and a rights agent mutually acceptable to Foamix and Menlo will enter into a CSR Agreement governing the terms of the CSRs to be received by Foamix’s shareholders. Each Foamix share outstanding immediately prior to the Effective Time shall be converted into the right to receive one CSR, in addition to the Share Consideration. A copy of the form of CSR Agreement is included as Annex G to this joint proxy statement/prospectus.

Pursuant to the CSR Agreement, each CSR may become convertible upon the occurrence of the following triggering events, and, if so converted, will entitle its holder to receive from Menlo additional shares of Menlo common stock, thereby increasing the effective Exchange Ratio in the Merger. The CSR events relate to Menlo’s

 

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Phase III PN Trials. Additional shares of Menlo common stock may become payable to the rights agent, for subsequent distribution to the holders of the CSRs, upon the occurrence of the following events:

 

  (A)

If the Efficacy Determination reports that Serlopitant Significance was achieved in both Phase III PN Trials on or before May 31, 2020, then the CSRs will terminate and not convert at all, and accordingly there will be no adjustment to the effective Exchange Ratio;

 

  (B)

If the Efficacy Determination reports that (1) Serlopitant Significance was achieved in only one Phase III PN Trial on or before May 31, 2020 and (2) Serlopitant Significance was not achieved or has not been determined in each case on or before May 31, 2020 in the second Phase III PN Trial, then each CSR will convert into 0.6815 shares of Menlo common stock such that the effective Exchange Ratio (after including shares issued at the Effective Time) will instead be 1.2739 shares of Menlo common stock per Foamix share; and

 

  (C)

If the Efficacy Determination reports that Serlopitant Significance was not achieved in both Phase III PN Trials or the Efficacy Determination has not been delivered on or before May 31, 2020, then in each case each CSR will convert into 1.2082 shares of Menlo common stock such that the effective Exchange Ratio (after including shares issued at the Effective Time) will instead be 1.8006 shares of Menlo common stock per Foamix share.

No fractional shares of Menlo common stock will be issued upon the conversion of the CSRs, and Foamix shareholders will receive cash in lieu of fractional shares, as specified in the CSR Agreement.

If the CSRs become convertible post-Closing, each person holding a Foamix RSU immediately prior to Closing will receive additional Menlo restricted stock unit awards (each, a “Menlo RSU”) based on the additional shares that each ordinary Foamix share will receive upon conversion of a CSR. Similarly, if the CSRs become convertible post-Closing, then the Menlo Board will make equitable adjustments to the exercise price per share of and the number of shares of Menlo common stock that are subject to Adjusted Options. Each Foamix warrant that will be assumed by Menlo in connection with the Merger will become exercisable for, in addition to shares of Menlo common stock in accordance with the Exchange Ratio at the Effective Time, one CSR for each Foamix share that the holder of such Foamix warrant would have been entitled to receive had such Foamix warrants been exercised prior to the Effective Time.

The CSRs are not transferable except under certain limited circumstances, will not be evidenced by a certificate or other instruments and will not be registered or listed for trading. The CSRs will not have any voting or dividend rights and will not represent any equity or ownership interest in Menlo, Foamix or any of their affiliates.

 

Q:

After the Merger, how much of the Combined Company will Menlo stockholders and Foamix shareholders own?

 

A:

As of immediately following the Effective Time, current Menlo stockholders are expected to own approximately 41% of the outstanding equity interests in the Combined Company and current Foamix shareholders are expected to own approximately 59% of the outstanding equity interests in the Combined Company, without giving effect to any adjustments to the Exchange Ratio, which shall be subject to adjustment prior to the Effective Time, or, effectively, due to the conversion of CSRs, after the Effective Time, in the event (i) on or before May 31, 2020, Foamix and Menlo have received the Efficacy Determination and the Efficacy Determination reports that Serlopitant Significance was not achieved in one or both Phase III PN Trials or (ii) if the Efficacy Determination is not delivered to Foamix and Menlo on or before May 31, 2020. Each of the percentages above is calculated based on the fully-diluted number of Foamix shares and Menlo shares (including all dilutive stock options, units and warrants) using the treasury stock method, calculated as of November 4, 2019 and assuming no subsequent issuances from that date until the signing of the Merger Agreement. For a more complete description of such adjustment to the Exchange Ratio prior to the Effective Time or to the effective Exchange Ratio after the Effective Time, please see the

 

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  sections entitled “The Merger Agreement—Consideration to Foamix Shareholders” and “The Merger Agreement—Contingent Stock Rights”, respectively, in this joint proxy statement/prospectus.

 

Q:

Will the common stock of the Combined Company trade on an exchange?

 

A:

Shares of Menlo common stock are currently listed on the Nasdaq under the symbol “MNLO.” Menlo intends to file a supplemental listing application in the near term for the Combined Company with Nasdaq. On December 3, 2019, the last trading day before the date of this joint proxy statement/prospectus, the closing sale price of Menlo common stock was $4.36 per share.

 

Q:

Who will be on the board of directors of Menlo following the Merger?

 

A:

Following the consummation of the Merger, the size of the Menlo Board will be maintained to include a total of seven directors. Pursuant to the terms of the Merger Agreement, the Menlo Board will be reconstituted such that five directors will be designated by Foamix and two directors will be designated by Menlo. It is anticipated that, following the Closing, the Menlo Board will be constituted to include David Domzalski, Chief Executive Officer of Foamix, and Steven Basta, President and Chief Executive Officer of Menlo. The other board members have not yet been determined.

 

Q:

Who will be the executive officers of Menlo immediately following the Merger?

 

A:

Immediately following the consummation of the Merger, the executive management team of Menlo is expected to be composed solely of the members of Foamix’s executive management team prior to the Merger:

 

Name

  

Title

David Domzalski    Chief Executive Officer
Ilan Hadar    Chief Financial Officer and Country Manager
Matt Wiley    Chief Commercial Officer
Dr. Iain Stuart    Chief Scientific Officer
Mutya Harsch    General Counsel and Chief Legal Officer

 

Q:

Where will the Combined Company be domiciled following the Merger?

 

A:

Following the completion of the Merger, Foamix will be a wholly-owned subsidiary of Menlo. The Combined Company will be a publicly traded company domiciled in Delaware and subject to the provisions of Menlo’s certificate of incorporation, by-laws and the Delaware General Corporation Law (the “DGCL”), as well as the Nasdaq rules. The Combined Company will have its executive offices in Bridgewater, New Jersey and will continue to have certain functions in Rehovot, Israel. Accordingly, the Companies Law will not apply to the publicly traded company. In addition, Foamix will be governed by a new set of articles of association that are customary for a private, subsidiary company.

 

Q:

What are the U.S. federal income tax consequences of the Merger?

 

A:

It is intended that the Merger qualify as a reorganization within the meaning of Section 368(a) of the U.S. Internal Revenue Code of 1986, as amended (the “Code”). If the Merger does not qualify as such a reorganization, the receipt of Menlo shares or the CSRs (if any) in exchange for Foamix shares in the Merger would constitute a taxable exchange for U.S. federal income tax purposes and the corresponding tax consequences of the Merger could materially differ from those described here. Neither Foamix nor Menlo have sought, nor do they intend to seek, any ruling from the Internal Revenue Service (the “IRS”) or opinion of counsel with respect to the qualification of the Merger as a reorganization within the meaning of Section 368(a) of the Code, and no assurance can be given that the IRS will agree with the views expressed herein, or that a court will not sustain any challenge by the IRS in the event of litigation.

 

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Except as provided in the section titled “Certain Tax Consequences of the Merger and the Ownership and Disposition of Menlo Shares—U.S. Federal Income Tax Consequences—Passive Foreign Investment Company Rules”, assuming that the Merger qualifies as a reorganization within the meaning of Section 368(a) of the Code, except as with respect to the receipt of cash in lieu of fractional shares, Foamix shareholders will not recognize gain or loss for U.S. federal income tax purposes on their receipt of Menlo shares or the CSRs (if any) in exchange for their Foamix shares in the Merger.

Foamix shareholders should read the section of this joint proxy statement captioned “Certain Tax Consequences of the Merger and the Ownership and Disposition of Menlo Shares”.

 

Q:

What are the Israeli tax consequences of the Merger?

 

A:

As a consequence of the Merger, holders of Foamix shares will be treated under Israeli tax laws as having sold their Foamix shares in the Merger. Selling shareholders are generally subject to Israeli capital gains tax unless a specific exemption is available or a tax treaty between Israel and the shareholder’s country of residence provides otherwise. However, non-Israeli residents (individuals or corporations) are generally exempt from Israeli capital gains tax on the sale of shares of Israeli companies such as Foamix that are publicly traded on certain stock exchanges, such as Nasdaq, provided that, among other things: (i) the gain from the sale is not attributed to a permanent establishment of such shareholder maintained in Israel; (ii) the shares were purchased after being listed on the recognized stock exchange; and (iii) with respect to securities listed on a recognized stock exchange outside of Israel, neither the shareholder nor the particular capital gain is otherwise subject to the Israeli Income Tax Law (Inflationary Adjustments), 5745-1985). Non-Israeli corporations will not be entitled to the foregoing exemption if Israeli residents: (i) have a controlling interest of more than 25% in such non-Israeli corporation or (ii) are the beneficiaries of, or are entitled to, 25% or more of the revenues or profits of such non-Israeli corporation, whether directly or indirectly.

In addition, subject to the limitations and qualifications described in the section entitled “Certain Tax Consequences of the Merger and the Ownership and Disposition of Menlo Shares—Israeli Tax Considerations” in this joint proxy statement/prospectus, the sale of Foamix shares by a non-Israeli resident may be exempt from Israeli capital gain tax under the provisions of an applicable tax treaty between Israel and the seller’s country of residence, such as under the U.S.-Israel Tax Treaty (as defined in the section entitled “Certain Tax Consequences of the Merger and the Ownership and Disposition of Menlo Shares—Israeli Tax Considerations”) (subject to the receipt of a valid certificate from the Israeli Tax Authority (the “ITA”) allowing for an exemption or a reduced tax rate).

Foamix intends to prepare and file with the ITA an application for tax rulings with respect to withholding tax from capital gains as a result of the Merger, both for Israeli tax residents and non-Israeli tax residents. Foamix also intends to file with the ITA an application for a ruling deferring the tax liability for Foamix shareholders electing to be bound by such ruling, if obtained. Assuming Foamix receives the Israeli tax ruling from the ITA, the Israeli withholding tax consequences of the Merger and the ability to elect to defer the tax liability will be in accordance with such tax rulings (if applicable to a particular Foamix shareholder). If Foamix does not obtain the tax rulings and does not agree with the ITA to an alternative interim arrangement, Foamix shareholders may be subject to Israeli withholding taxes on the exchange of their Foamix shares in the Merger.

This joint proxy statement/prospectus contains a discussion of the material U.S. federal income tax consequences and Israeli tax consequences of the Merger and the ownership and disposition of Menlo shares. This discussion does not address any non-U.S. or non-Israeli tax consequences, nor does it pertain to state or local income or other tax consequences. Foamix shareholders should consult their tax advisors regarding the particular U.S. federal income tax consequences and Israeli tax consequences of the Merger and the ownership and disposition of Menlo shares to them in light of their particular circumstances, as well as the particular tax consequences to them of the Merger under any state, local or other non-U.S. income or other tax laws.

 

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Q:

What risks should I consider in deciding whether to vote in favor of the Merger?

 

A:

You should carefully review the section titled “Risk Factors” beginning on page 41 of this joint proxy statement/prospectus and the documents incorporated by reference herein, which set forth certain risks and uncertainties related to the Merger, risks and uncertainties to which the Combined Company’s business will be subject, and risks and uncertainties to which each of Menlo and Foamix, as independent companies, are subject.

 

Q:

When is the Merger expected to be completed?

 

A:

Menlo and Foamix expect to complete the Merger promptly after (a) Menlo receives, at the Menlo meeting, an affirmative vote in favor of the approval of the issuance of shares of Menlo common stock to Foamix’s shareholders (including potential Foamix shareholders under Foamix’s equity incentive plans, stock purchase plan and warrants being assumed by Menlo) pursuant to the Merger Agreement and upon conversion, if applicable, of the CSRs pursuant to the CSR Agreement, in each case, in connection with the Merger and the change of control of Menlo resulting from the Merger, and (b) 30 days have elapsed after Foamix receives, at the Foamix meeting, an affirmative vote in favor of the approval and adoption of the Merger Agreement by the Foamix Merger Majority. Menlo and Foamix currently expect the Merger to be completed late in the first quarter of 2020 or early in the second quarter of 2020. However, neither Menlo nor Foamix can predict the exact timing of the completion of the Merger because the Merger is subject to certain other conditions to Closing as set forth in the Merger Agreement. See the section entitled “The Merger Agreement—Conditions to Consummation of the Merger” elsewhere in this joint proxy statement/prospectus.

 

Q:

What happens if the Merger is not completed?

 

A:

If the Merger Agreement is not approved and adopted by Foamix shareholders, the issuance of shares of Menlo common stock to Foamix shareholders pursuant to the Merger Agreement and upon conversion, if applicable, of the CSRs pursuant to the CSR Agreement, in each case, in connection with the Merger and the change of control of Menlo resulting from the Merger is not approved by Menlo stockholders, or if the Merger is not completed for any other reason, Foamix shareholders will not receive the Merger Consideration in exchange for their Foamix shares. Instead, Foamix will remain an independent public company and Foamix shares will continue to be listed and traded on Nasdaq. Under specified circumstances, Menlo may be required to pay Foamix a termination fee, or Foamix may be required to pay Menlo a termination fee, as described in “The Merger Agreement—Termination Fees” located elsewhere in this joint proxy statement/prospectus.

 

Q:

Are the Menlo stockholders or Foamix shareholders entitled to appraisal rights?

 

A:

No. Under the DGCL, the Menlo stockholders are not entitled to exercise any appraisal rights in connection with the Merger or the transactions contemplated by the Merger. Under the Companies Law, the Foamix shareholders are not entitled to exercise any appraisal rights in connection with the Merger or the transactions contemplated by the Merger.

 

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SUMMARY

This summary highlights selected information contained elsewhere in this joint proxy statement/prospectus and may not contain all the information that is important to you with respect to the Merger. Menlo and Foamix urge you to read the remainder of this joint proxy statement/prospectus carefully, including the attached Annexes, and the other documents to which we have referred you. See also the section entitled “Where You Can Find More Information”. We have included references in this summary to direct you to more complete descriptions of the topics presented below.

The Companies

Menlo Therapeutics Inc.

Menlo Therapeutics Inc.

200 Cardinal Way, 2nd Floor

Redwood City, California 94063

(650) 486-1416

Menlo is a late-stage biopharmaceutical company focused on the development and commercialization of serlopitant for the treatment of pruritus, or itch, associated with various conditions such as prurigo nodularis (“PN”), psoriasis and chronic pruritus of unknown origin (“CPUO”). Menlo was incorporated in Delaware in October 2011 under the name Tigercat Pharma, Inc. In May 2016, it changed its name to Menlo Therapeutics Inc. Menlo’s shares have traded on the Nasdaq under the symbol “MNLO” since its initial public offering in January 2018.

Menlo’s clinical development program for serlopitant covers three indications and includes two ongoing Phase III clinical trials for the treatment of pruritus associated with PN, a Phase III-ready clinical program for the treatment of pruritus associated with psoriasis, and an ongoing Phase II clinical trial for the treatment of chronic pruritus of unknown origin. Serlopitant is an NK1 receptor antagonist given as a once-daily oral tablet.

Foamix Pharmaceuticals Ltd.

Foamix Pharmaceuticals Ltd.

2 Holzman Street, Weizmann Science Park

Rehovot, Israel

+972-8-9316233

Foamix is a specialty pharmaceutical company working to solve some of today’s most difficult therapeutic challenges in dermatology and beyond. Foamix was incorporated in 2003 in the State of Israel and Foamix’s shares have traded on Nasdaq under the symbol “FOMX” since its initial public offering in September 2014.

Foamix’s first product, AMZEEQTM (minocycline) topical foam, 4% (formerly FMX101) (“AMZEEQTM”), a once-daily topical antibiotic for the treatment of inflammatory lesions of non-nodular moderate to severe acne vulgaris in patients 9 years of age and older, was approved by the U.S. Food and Drug Administration (“FDA”) in October 2019. Foamix expects to launch AMZEEQTM in the U.S. in the first quarter of 2020. Foamix’s late-stage product candidate, FMX103 (minocycline) topical foam, 1.5% (“FMX103”), is being developed for the treatment of moderate-to-severe papulopustular rosacea in adults. Foamix submitted the FMX103 New Drug Application (“NDA”) in August 2019 and, in October 2019, the FDA set the Prescription Drug Free User Fee Act (“PDUFA”) action date for the completion of the FDA’s review of the FMX103 NDA for June 2, 2020.



 

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Foamix is currently developing a pipeline of other innovative product candidates and delivery platforms to enhance its longer-term commercial potential, including FCD105, a topical combination foam for the treatment of moderate-to-severe acne vulgaris, composed of minocycline 3% and adapalene 0.3%, its Molecule Stabilizing Technology (MSTTM) vehicle, used to develop AMZEEQTM and FMX103 and other topical delivery platforms.

Giants Merger Subsidiary Ltd.

Merger Sub is a newly formed Israeli company, a direct, wholly-owned subsidiary of Menlo that is also party to the Merger Agreement. Merger Sub was formed solely for the purpose of effecting the proposed Merger with Foamix and has not carried on any activities other than in connection with the proposed Merger. The address and telephone number for Merger Sub’s principal executive offices are the same as those for Menlo.

The Merger

Copies of the Agreement and Plan of Merger and Amendment No. 1 to the Agreement and Plan of Merger are attached as Annex A and Annex B, respectively, to this joint proxy statement/prospectus and is incorporated by reference herein. Menlo and Foamix encourage you to read the entire Merger Agreement carefully, because it is the principal document governing the Merger. For more information on the Merger Agreement, see the section entitled “The Merger Agreement” beginning on page 155.

Structure of the Merger

Each of the Menlo Board and the Foamix Board has approved the Merger Agreement, which provides for the Merger. Upon the Closing, Foamix will survive and Merger Sub will cease to exist. Foamix’s shareholders will be deemed to transfer all of their Foamix shares to Menlo, and Foamix will thereby become a wholly-owned subsidiary of Menlo. The former shareholders of Foamix will receive common stock of Menlo in exchange for their Foamix shares and will become stockholders of Menlo along with Menlo’s existing stockholders.

Effect of the Merger

After the completion of the Merger, Menlo will continue as a public company, with its common stock continuing to be listed and traded on Nasdaq, and will serve as the parent company of Foamix. Menlo’s headquarters will be moved to Bridgewater, New Jersey (the location of Foamix’s current U.S. headquarters). Menlo will continue as a Delaware corporation and will continue to be governed by its existing Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws and the DGCL. Foamix, as a wholly-owned, Israeli subsidiary of Menlo and the Surviving Company of the Merger, will be governed by a new set of articles of association that are customary for a private, subsidiary company.

Merger Consideration

Foamix shareholders will be entitled to receive, for each Foamix share that is issued and outstanding immediately prior to the Closing (other than any Excluded Shares) and that is deemed transferred to Menlo, 0.5924 of a share of Menlo common stock. The number of shares of Menlo common stock to be received will be subject to upwards adjustment prior to the Effective Time to 1.2739 or 1.8006 shares of Menlo common stock if (a) the Efficacy Determination reports that (1) Serlopitant Significance was achieved in only one Phase III PN Trial and (2) Serlopitant Significance was not achieved or has not been determined in each case on or before May 31, 2020 in the second Phase III PN Trial or (b) the Efficacy Determination reports that Serlopitant Significance was not achieved in both Phase III PN Trials or the Efficacy Determination has not been delivered on or before May 31, 2020, respectively.



 

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The exchange of Foamix shares for Menlo common stock will result in Foamix shareholders owning, in the aggregate, approximately 59% of the Combined Company’s common stock. If the events described in clauses (a) or (b) above occur prior to the Effective Time, Foamix shareholders will own, in the aggregate, 76% or 82%, respectively, of the Combined Company’s common stock.

In the event that (i) the Merger is completed on or before May 31, 2020 and (ii) the Efficacy Determination is not delivered to Menlo and Foamix on or before the date the Merger is completed, then, at the Effective Time, in addition to receiving 0.5924 of a share of Menlo common stock, each outstanding Foamix share will be entitled to receive one CSR, which may potentially convert, following the Effective Time, into additional shares of Menlo common stock, depending on the Efficacy Determination. Menlo and a rights agent mutually acceptable to Foamix and Menlo will enter into a CSR Agreement governing the terms of those CSRs. Upon the occurrence, following the Effective Time, of the results for the Efficacy Determination as are described in clauses (a) and (b) above, the CSRs will convert into additional shares of Menlo common stock such that the resulting effective Exchange Ratio (following that conversion) will be 1.2739 or 1.8006, respectively. As a result of the conversion of the CSRs, Foamix shareholders, in the aggregate, would own approximately 76% or 82%, as applicable, of the Combined Company’s common stock.

Each of the percentages above is calculated based on the fully-diluted number of Foamix shares and Menlo shares (including all dilutive stock options, units and warrants) using the treasury stock method, calculated as of November 4, 2019 and assuming no subsequent issuances from that date until the signing of the Merger Agreement. For more information on the consideration to be received by Foamix shareholders, see the sections entitled “The Merger Agreement—Consideration to Foamix Shareholders” and “The Merger Agreement—Contingent Stock Rights”.

Each holder of Foamix shares who otherwise would be entitled to receive a fraction of a share of Menlo common stock pursuant to the Merger Agreement or the CSR Agreement will be paid an amount in cash (without interest) equal to (i) the fraction of a share of Menlo common stock to which such holder would otherwise be entitled multiplied by (ii) the applicable Menlo common stock value (as defined, respectively, in the sections entitled “The Merger Agreement—No Fractional Shares” and “Agreements Relating to the Merger—Contingent Stock Rights Agreement—Exercisability”).

Holders of additional outstanding securities of Foamix will be entitled to the assumption of their securities by Menlo in the Merger, as described in this Summary under “Treatment of Foamix Equity Awards”, “Treatment of Foamix Employee Stock Purchase Rights” and “Treatment of Foamix Warrants” below.

Board of Directors and Management After the Merger

The Combined Company’s board of directors (the “Board”) will consist of seven individuals, five of whom will be selected by the Foamix Board (each, a “Foamix Designee,” and one of whom will be the current Chief Executive Officer of Foamix, Mr. David Domzalski), and two of whom will be selected by the Menlo Board (each, a “Menlo Designee,” and one of whom will be the current Chief Executive Officer of Menlo, Mr. Steven Basta). The Board will have classified members who are elected once every three years, as follows:

 

  i.

Class I directors will consist of both of the Menlo Designees and one Foamix Designee whose term will end at the 2022 annual meeting of stockholders of the Combined Company;

 

  ii.

Class II directors will consist of two Foamix Designees whose term will end at the 2020 annual meeting of stockholders of the Combined Company; and

 

  iii.

Class III directors will consist of two Foamix Designees whose term will end at the 2021 annual meeting of stockholders of the Combined Company.



 

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If a Menlo Designee becomes unable to serve or resigns prior to the 2022 annual meeting, then that Menlo Designee will have the right to fill the vacancy with an individual chosen from among the persons who previously served on the Menlo Board immediately prior to the Closing (subject to such person being satisfactory to the Nominating and Corporate Governance Committee of the Board).

Pursuant to the Merger Agreement, following the Effective Time, Menlo will take all action necessary to appoint the officers of Foamix to become the equivalent officers of Menlo. The executive management team of Menlo is expected to be composed solely of the members of Foamix’s executive management team, as listed below:

 

Name

  

Title

David Domzalski    Chief Executive Officer
Ilan Hadar    Chief Financial Officer and Country Manager
Matt Wiley    Chief Commercial Officer
Dr. Iain Stuart    Chief Scientific Officer
Mutya Harsch    General Counsel and Chief Legal Officer

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

It is intended that the Merger qualify as a reorganization within the meaning of Section 368(a) of the Code. If the Merger does not qualify as such a reorganization, the receipt of Menlo shares or the CSRs (if any) in exchange for Foamix shares in the Merger would constitute a taxable exchange for U.S. federal income tax purposes and the corresponding tax consequences of the Merger could materially differ from those described here. Neither Foamix nor Menlo have sought, nor do they intend to seek, any ruling from the IRS or opinion of counsel with respect to the qualification of the Merger as a reorganization within the meaning of Section 368(a) of the Code, and no assurance can be given that the IRS will agree with the views expressed herein, or that a court will not sustain any challenge by the IRS in the event of litigation.

Except as provided in the section titled “Certain Tax Consequences of the Merger and the Ownership and Disposition of Menlo Shares—U.S. Federal Income Tax Consequences—Passive Foreign Investment Company Rules”, assuming that the Merger qualifies as a reorganization within the meaning of Section 368(a) of the Code, except as with respect to the receipt of cash in lieu of fractional shares, Foamix shareholders will not recognize gain or loss for U.S. federal income tax purposes on their receipt of Menlo shares or the CSRs (if any) in exchange for their Foamix shares in the Merger.

Foamix shareholders should read the section of this joint proxy statement/prospectus captioned “Certain Tax Consequences of the Merger and the Ownership and Disposition of Menlo Shares”.

This joint proxy statement/prospectus contains a discussion of the material U.S. federal income tax consequences and Israeli tax consequences of the Merger and the ownership and disposition of Menlo shares. This discussion does not address any non-U.S. or non-Israeli tax consequences, nor does it pertain to state or local income or other tax consequences. Foamix shareholders should consult their tax advisors regarding the particular U.S. federal income tax consequences and Israeli tax consequences of the Merger and the ownership and disposition of Menlo shares to them in light of their particular circumstances, as well as the particular tax consequences to them of the Merger under any state, local or other non-U.S. income or other tax laws.

Material Israeli Tax Consequences of the Merger

The following statements are only a summary of certain material Israeli tax consequences of the Merger. These statements are limited to shareholders for whom disposition of their shares is treated as a capital gain within the meaning of Part E of the Israeli Income Tax Ordinance, 1961 (the “ITO”) (generally, where an asset held for passive investment is sold).



 

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As a consequence of the Merger, Foamix shareholders will be treated as having sold their Foamix shares in the Merger. When the shares of an Israeli company are sold, regardless of whether the consideration in the sale is cash or stock, and as further described below, its shareholders, either individuals or corporations, are generally subject to Israeli taxation.

As further described below, under certain circumstances, shareholders, who are non-Israeli residents, of a company, such as Foamix, whose shares are traded on an authorized stock exchange outside of Israel, or on a regulated market outside of Israel, should generally be exempt from Israeli capital gains tax on the sale or transfer of the shares.

Notwithstanding such exemption for non-resident shareholders, withholding requirements are still applicable. Foamix will be filing requests for tax rulings from the ITA with respect to (i) an exemption from withholding of Israeli tax on payments of Merger Consideration paid to Foamix shareholders who are non-Israeli residents and who meet certain conditions (the “Withholding Tax Ruling”), (ii) deferral of the obligation of Israeli tax resident Foamix shareholders to pay Israeli tax on the exchange of the Foamix shares for Menlo common stock in accordance with the provisions of Section 104H of the ITO (the “104H Tax Ruling”), and (iii) the application of Israeli tax withholding and other Israeli tax requirements applicable to holders of Foamix options, Foamix RSUs and Foamix shares issued to certain directors and employees under Section 102 of the ITO and to certain directors and others under Section 3(i) of the ITO. If and when the tax rulings are obtained, Foamix will issue a press release and/or file a Form 8-K or other document with the SEC describing the scope of the exemptions provided by the rulings. There can be no assurance that such rulings will be granted before the Closing or at all, or that if obtained, such rulings will be granted under the conditions requested by Foamix.

Whether or not a particular Foamix shareholder, Israeli or non-Israeli, is actually subject to Israeli capital gains tax in connection with the Merger, absent receipt by Foamix of a tax ruling from the ITA prior to Closing, all Foamix shareholders will be subject to Israeli tax withholding at the rate of 25% (for individuals) and 23% (for corporations) on the gross Merger Consideration (unless the shareholder requests and obtains an individual certificate of exemption or a reduced tax rate from the ITA, as described below). To the extent that Menlo or the exchange agent in connection with the Merger (which exchange agent may use a local Israeli sub-paying agent) (the “Exchange Agent”) is obliged to withhold Israeli taxes, the shareholder will be required to pay to Menlo or the Exchange Agent the amount due with regards to such Israeli taxes prior to the release of the Merger Consideration payable to the shareholder. In the event that the shareholder fails to timely provide Menlo or the Exchange Agent with the full amount necessary to satisfy such Israeli taxes, the Exchange Agent will be entitled to sell the shareholder’s retained shares of Menlo common stock to the extent necessary to satisfy the full amount due with regards to those Israeli taxes.

Regardless of whether Foamix obtains the requested tax rulings from the ITA, any holder of Foamix shares who believes that it is entitled to an exemption (or reduced tax rate) may separately apply to the ITA to obtain a certificate of exemption from withholding or an individual tax ruling providing for no withholding or withholding at a reduced rate, and submit that certificate of exemption or ruling to the Exchange Agent at least five business days prior to the date that is 180 days following the date on which the Closing occurs (the “Closing Date”). If Menlo or the Exchange Agent receive a valid exemption certificate or tax ruling (as determined, in good faith, at Menlo’s or the Exchange Agent’s discretion) at least five business days prior to the date that is 180 days following the Closing Date, then the withholding (if any) of any amounts under the ITO from the Merger Consideration to be paid shall be carried out only in accordance with the provisions of such Israeli tax certificate or tax ruling.

You are urged to consult with your own tax advisor for a full understanding of the tax consequences of the Merger to you, including the consequences under any applicable, state, local, foreign or other tax laws.



 

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For a more detailed description of the material Israeli tax consequences of the Merger, see the section entitled “Certain Tax Consequences of the Merger and the Ownership and Disposition of Menlo Shares—Israeli Tax Considerations”.

Recommendation of the Foamix Board

The Foamix Board unanimously recommends a vote “FOR” the Foamix Merger Proposal. For a discussion of the factors that the Foamix Board considered in determining to recommend the approval and adoption of the Merger Agreement, the Merger, the Merger Consideration and all other transactions contemplated by the Merger Agreement, see the section entitled “The Merger—Recommendation of the Foamix Board of Directors and Foamixs Reasons for the Merger”. In addition, in considering the recommendation of the Foamix Board with respect to the Merger Agreement, the Merger, the Merger Consideration and the other transactions contemplated by the Merger Agreement, you should be aware that Foamix’s directors and executive officers have interests that may be different from, or in addition to, the interests of the Foamix shareholders generally. For more information, see the section entitled “The Merger—Interests of Foamix Directors and Executive Officers in the Merger”. The Foamix Board furthermore recommends that Foamix’s shareholders vote “FOR” the Foamix Executive Compensation Proposal. The Foamix Executive Compensation Proposal provides for a non-binding, advisory vote concerning the compensatory payments and/or benefits for Foamix’s named executive officers that may be paid or become payable to the named executive officers of Foamix in connection with the Merger and contemplated by the Merger Agreement. Please see “The Foamix Extraordinary General Meeting” below in this Summary.

Recommendation of the Menlo Board

The Menlo Board unanimously recommends a vote “FOR” the Menlo Merger Proposal and the Menlo Adjournment Proposal to be presented at the Menlo meeting. For a discussion of the factors that the Menlo Board considered in determining to recommend the approval of the Menlo Merger Proposal by Menlo’s stockholders, and, more generally, in approving Menlo’s entry into the Merger Agreement and all transactions contemplated by the Merger Agreement, see the section of this joint proxy statement/prospectus entitled “The Merger— Recommendation of the Menlo Board and Menlos Reasons for the Merger/Share Issuance”.

Opinion of Foamix’s Financial Advisor

Foamix engaged Barclays Bank PLC (“Barclays”) to act as its financial advisor in connection with the Merger and the other transactions contemplated by the Merger Agreement. On November 10, 2019, Barclays rendered its oral opinion (which was subsequently confirmed in writing) to the Foamix Board that, as of such date and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the Merger Consideration (as defined in Barclays’ written opinion) to be offered to Foamix shareholders (other than the holders of Excluded Shares), in the proposed Merger was fair, from a financial point of view, to such holders.

The full text of Barclays’ written opinion, dated as of November 10, 2019, is attached as Annex C to this joint proxy statement/prospectus. Barclays’ written opinion sets forth, among other things, the assumptions made, procedures followed, factors considered and limitations upon the review undertaken by Barclays in rendering its opinion. You are encouraged to read the opinion carefully in its entirety. This summary is qualified in its entirety by reference to the full text of the opinion. Barclays’ opinion is addressed to the Foamix Board for the information and assistance of the Foamix Board in connection with its consideration of the Merger Agreement and addresses only the fairness, from a financial point of view, of the Merger Consideration (as defined in Barclays’ written opinion) to be offered to the Foamix shareholders (other than the holders of Excluded Shares) in the proposed Merger and does not constitute a recommendation to any holder of Foamix shares as to how such holder should vote with respect to the



 

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Foamix Merger Proposal or any other matter. For a further discussion of the opinion that Foamix received from Barclays, see the section entitled “The Merger—Opinion of Barclays as Foamix’s Financial Advisor,” which provides a summary of Barclays’ opinion and the methodology that Barclays used to render its opinion that is qualified in its entirety by reference to the full text of the opinion attached hereto as Annex C.

Opinion of Menlo’s Financial Advisor

Menlo retained Guggenheim Securities, LLC (“Guggenheim Securities”) as its financial advisor in connection with the potential sale of or another extraordinary corporate transaction involving Menlo. In connection with the Merger, Guggenheim Securities rendered an opinion to the Menlo Board to the effect that, as of November 10, 2019 and based on and subject to the matters considered, the procedures followed, the assumptions made and various limitations of and qualifications to the review undertaken, the exchange ratio in connection with the Merger (which exchange ratio, as it may be adjusted pursuant to the Merger Agreement or effectively adjusted pursuant to the CSR Agreement, we refer to herein as the “Final Exchange Ratio”) was fair, from a financial point of view, to Menlo. The full text of Guggenheim Securities’ written opinion, which is attached as Annex D to this joint proxy statement/prospectus and which you should read carefully and in its entirety, is subject to the assumptions, limitations, qualifications and other conditions contained in such opinion and is necessarily based on economic, capital markets and other conditions, and the information made available to Guggenheim Securities, as of the date of such opinion.

Guggenheim Securities’ opinion was provided to the Menlo Board (in its capacity as such) for its information and assistance in connection with its evaluation of the Final Exchange Ratio. Guggenheim Securities’ opinion and any materials provided in connection therewith did not constitute a recommendation to the Menlo Board with respect to the Merger, nor does Guggenheim Securities’ opinion or the summary of its underlying financial analyses elsewhere in this joint proxy statement/prospectus constitute advice or a recommendation to any holder of Menlo common stock as to how to vote or act in connection with the Merger or otherwise. Guggenheim Securities’ opinion addressed only the fairness, from a financial point of view and as of the date of such opinion, of the Final Exchange Ratio to Menlo and did not express any view or opinion as to (i) any other term, aspect or implication of (a) the Merger (including, without limitation, the form or structure of the Merger) or the transaction agreements (other than the adjustments to the Final Exchange Ratio contemplated by the Merger Agreement or the effective adjustments to the Final Exchange Ratio contemplated by the CSR Agreement) or (b) any voting or support agreement or any other agreement, transaction document or instrument contemplated by the transaction agreements or to be entered into or amended in connection with the Merger, (ii) the likelihood or probability of the (a) achievement of Serlopitant Significance, (b) timing of the Efficacy Determination or results of either of the Phase III PN Trials, (c) adjustment to the Final Exchange Ratio under the Merger Agreement or (d) effective adjustment to the Final Exchange Ratio under the CSR Agreement or (iii) the fairness, financial or otherwise, of the Merger to, or of any consideration to be paid to or received by, the holders of any class of securities, creditors or other constituencies of Menlo or Foamix. Furthermore, Guggenheim Securities did not express any view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation payable to or to be received by any of Menlo’s or Foamix’s directors, officers or employees, or any class of such persons, in connection with the Merger relative to the Final Exchange Ratio or otherwise.

For a description of the opinion that the Menlo Board received from Guggenheim Securities, see “The Merger— Opinion of Guggenheim Securities as Menlo’s Financial Advisor” beginning on page 124.

Interests of Foamix Directors and Executive Officers in the Merger

The directors and executive officers of Foamix have interests in the Merger that may be different from, or in addition to, the interests of the Foamix shareholders generally. These interests are described in more detail in the



 

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section entitled “The Merger—Interests of Foamix’s Directors and Executive Officers in the Merger” beginning on page 142. The Foamix Board was aware of these interests prior to the execution of the Merger Agreement and considered them, among other matters, in approving the Merger Agreement, the Merger, the Merger Consideration and all transactions contemplated under the Merger Agreement and in determining to recommend that the Foamix shareholders approve and adopt the same. These interests may include the following, among others:

 

   

the continuing service of several directors and officers of Foamix as directors and officers of the Combined Company following the Merger;

 

   

the conversion of Foamix options and Foamix RSUs into options in respect of Menlo common stock and Menlo RSUs; and

 

   

continued indemnification and directors’ and officers’ liability insurance to be provided by Menlo.

None of the above interests triggers any special shareholder voting requirements under the Companies Law.

Interests of Menlo Directors and Executive Officers in the Merger

The directors and executive officers of Menlo have interests in the Merger that may be different from, or in addition to, the interests of the Menlo stockholders generally. These interests are described in more detail in the section entitled “The Merger—Interests of Menlo’s Directors and Executive Officers in the Merger” beginning on page 148. The Menlo Board was aware of these interests prior to the execution of the Merger Agreement and considered them, among other matters, in approving the issuance of shares of Menlo common stock to Foamix’s shareholders pursuant to the Merger Agreement and upon conversion, if applicable, of the CSRs pursuant to the CSR Agreement, in each case, in connection with the Merger and in determining to recommend that the Menlo stockholders approve the same. These interests may include the following, among others:

 

   

the continuing service of certain directors of Menlo as directors of the Combined Company following the Merger;

 

   

the accelerated vesting of equity awards held by Mr. Basta at the Effective Time of the Merger;

 

   

the potential entitlement of the executive officers to receive severance benefits under their respective employment agreements upon a potential qualifying termination of employment following the completion of the Merger, including accelerated vesting of outstanding equity-based awards;

 

   

the ownership of shares of Foamix by Menlo’s Chief Executive Officer and holders related to him; and

 

   

continued indemnification and directors’ and officers’ liability insurance to be provided by Menlo.

None of the above interests triggers any special stockholder voting requirements under Delaware law.

Treatment of Foamix Equity Awards

At the Effective Time, each Foamix option and Foamix RSU that is outstanding immediately prior to the Effective Time will be assumed by Menlo as described below.

 

   

Each Foamix RSU will be converted into an Adjusted RSU Award and will have the same terms and conditions as applied to the Foamix RSU immediately prior to the Effective Time. The Adjusted RSU Award will settle in the number of shares of Menlo common stock equal to the product obtained by multiplying (i) the number of Foamix shares subject to the Foamix RSU immediately prior to the Effective Time by (ii) the Exchange Ratio.

 

   

Each Foamix option will be converted into an Adjusted Option with the same terms and conditions as applied to the Foamix option; however, the Adjusted Option will cover a number of shares of Menlo



 

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common stock equal to the product of (i) the number of Foamix shares subject to the Foamix option immediately prior to the Effective Time and (ii) the Exchange Ratio, and will have an exercise price per share equal to the quotient of (x) the exercise price per Foamix share subject to such Foamix option immediately prior to the Effective Time divided by (y) the Exchange Ratio.

If the CSR converts into shares of Menlo common stock in accordance with the terms of the CSR Agreement, (i) holders of Adjusted RSU Awards will receive a number of additional restricted stock units based on the additional shares of Menlo common stock that each Foamix share receives upon conversion of a CSR and (ii) the Menlo Board shall make equitable adjustments to the exercise price per share and the number of shares of Menlo common stock subject to the Adjusted Option to reflect the value of the Menlo common stock issuable in respect of the CSR.

Treatment of Foamix Employee Stock Purchase Rights

Prior to the Effective Time, Foamix will (i) cause any outstanding offering period under the Foamix ESPP to be terminated as of the Designated Date, (ii) make any pro-rata adjustments that may be necessary to reflect the shortened offering period and (iii) cause the exercise as of the Designated Date of each outstanding purchase right under the Foamix ESPP, in each case, conditioned upon the consummation of the Merger. On the Designated Date, Foamix will apply the funds credited as of such date under the Foamix ESPP within each participant’s payroll withholding account to the purchase of whole Foamix shares in accordance with the terms of the Foamix ESPP.

At least five (5) days prior to the Closing, Foamix may terminate the Foamix ESPP, or may require that Menlo terminate the Menlo ESPP, effective as of immediately prior to the Effective Time (and subject to the Closing of the Merger). If the Foamix ESPP is not terminated prior to the Effective Time, then at the Effective Time, Menlo will assume the Foamix ESPP, which will continue in effect in accordance with its terms following the Effective Time, except that each purchase right under the Foamix ESPP following the Effective Time will relate to shares of Menlo common stock.

Treatment of Foamix Warrants

Each warrant to purchase one Foamix share that is outstanding and unexercised immediately prior to the Closing will be assumed by Menlo and converted into a warrant to purchase a number of shares of Menlo common stock equal to the number of Foamix shares that the holder of the Foamix warrant would have been entitled to receive had that Foamix warrant been exercised prior to the Closing multiplied by the Exchange Ratio. Menlo will assume each such Foamix warrant in accordance with its terms. All rights with respect to Foamix shares under Foamix warrants assumed by Menlo shall, upon assumption, be converted into rights with respect to Menlo common stock.

Antitrust Clearances Required for the Merger

The parties have not identified any antitrust or competition filings that will be required in connection with the consummation of the Merger.

Expected Timing of the Merger

Menlo and Foamix expect the Closing to occur late in the first quarter or early in the second quarter of calendar year 2020. The Merger cannot be consummated until 30 days after the approval of the Merger by Foamix shareholders and 50 days after the filing of the merger proposal with the Registrar. The filing of the merger proposal with the Registrar will be made concurrently with the mailing of this joint proxy statement/



 

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prospectus and it is expected that the 50 day period following such filing will terminate at or before the end of the 30 day waiting period that must expire after the approval of the Foamix Merger Proposal. Prior to the Closing, Menlo must comply with the Israeli Securities Law, 1968 (the “ISL”) in connection with the deemed offer of Menlo shares and additional equity securities to Foamix’s Israeli resident shareholders and equity award holders, respectively, in the Merger. Accordingly, Menlo will seek to obtain the ISA No-Action Letter (as defined in the Merger Agreement) to exempt the deemed offering from the prospectus publication requirements under the ISL. If it is unable to obtain the ISA No-Action Letter, Menlo is required under the Merger Agreement to either (i) seek a permit from the ISA for a registration statement that will effect the dual listing of the shares of Menlo common stock on the Tel Aviv Stock Exchange and exempt the deemed offering of Merger Consideration from the requirement to publish a prospectus under Israeli law, or (ii) publish the Israeli Prospectus (as defined in the Merger Agreement), in accordance with the ISL (as described under “The Merger Agreement—Israeli Law Matters—ISA Approval”). Any of the above ISA-related processes could delay the Closing Date. Menlo has prepared and filed with the ISA an application for the foregoing no-action letter. The Merger is also subject to the satisfaction or waiver of other conditions, and it is possible that factors outside the control of Menlo and Foamix could result in the Merger being completed at an earlier time, a later time or not at all. There may be a substantial amount of time between the date on which the meetings are held and the date of the completion of the Merger. The Merger will become effective following the satisfaction or waiver of the conditions to Closing and upon the issuance by the Registrar of a certificate of merger.

Conditions to Completion of the Merger

Under the Merger Agreement, each party’s obligation to effect the Merger is subject to satisfaction or, to the extent permitted where permissible under applicable law, mutual waiver at the Effective Time of each of the following conditions:

 

   

The approval by Foamix’s shareholders of the Foamix Merger Proposal shall have been obtained.

 

   

The approval by Menlo’s stockholders of the Menlo Merger Proposal shall have been obtained.

 

   

No governmental entity of competent jurisdiction shall have (i) enacted, issued, promulgated, entered, enforced or deemed applicable to the Merger any applicable law that is in effect and has the effect of making the Merger illegal in the U.S. or any material jurisdiction or which has the effect of prohibiting or otherwise preventing the consummation of the Merger in the U.S. or any material jurisdiction; or (ii) issued or granted any order (whether temporary, preliminary or permanent) that has the effect of making the Merger illegal in the U.S. or any material jurisdiction or which has the effect of prohibiting or otherwise preventing the consummation of the Merger in any such jurisdiction.

 

   

No suit, action or proceeding shall be pending by any governmental entity that challenges or seeks to enjoin the Merger or the other transactions contemplated by the Merger Agreement.

 

   

The shares of Menlo common stock issuable as Merger Consideration in connection with the Merger shall have been approved for listing on Nasdaq, subject to official notice of issuance.

 

   

Any waiting period, or any extension thereof, applicable to the consummation of the Merger any applicable foreign antitrust, competition or similar Law shall have expired or been terminated.

 

   

50 days shall have elapsed after the filing of the merger proposal with the Registrar and 30 days shall have elapsed after the approval of the Merger by Foamix shareholders. The filing of the merger proposal with the Registrar will be made concurrently with the mailing of this joint proxy statement/prospectus and it is expected that the 50 day period following such filing will terminate at or before the end of the 30 day waiting period that must expire after the approval of the Foamix Merger Proposal.



 

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The Registration Statement shall have become effective under the Securities Act and shall not be the subject of any stop order or proceedings seeking a stop order.

 

   

Menlo shall have obtained the ISA No-Action Letter (as defined in the Merger Agreement), or, in the alternative, Menlo shall have either (i) received a permit from the ISA for a registration statement with respect to the dual listing of the shares of Menlo common stock on the Tel Aviv Stock Exchange and an exemption from the requirement to publish a prospectus under Israeli law in respect of the Merger Consideration or (ii) published the Israeli Prospectus (as defined in the Merger Agreement), as applicable, in accordance with the ISL. Menlo has prepared and filed with the ISA an application for such no-action letter.

No Solicitation of Alternative Proposals

Neither Menlo nor Foamix is permitted to solicit, initiate or knowingly encourage, or take any other action designed to, or which is reasonably expected to, facilitate, any competing transaction proposals from third parties or to engage in discussions or negotiations with third parties regarding any competing transaction proposals, unless such party’s board of directors determined in good faith that such counterparty is capable of making a takeover proposal that is reasonably expected to lead to a Superior Proposal (as defined in the section entitled “The Merger Agreement—No Solicitation”), and the failure to take action would be inconsistent with the board’s fiduciary duties as determined by Delaware law or Israeli law, respectively (provided, in the case of the Foamix Board, that its determination of those Israeli law duties may be informed by the corresponding applicable standards under Delaware law). Each party’s board of directors may change its recommendation to its shareholders/stockholders in response to a Superior Proposal or an intervening event (as described more fully in the section entitled “The Merger Agreement—No Solicitation”) if such board of directors determines in good faith that the failure to take such action would constitute a breach of the directors’ fiduciary duties under applicable law.

Termination of the Merger Agreement; Termination Fees; Expenses

The Merger Agreement contains specified termination rights for Menlo and Foamix, including a mutual termination right in the event that the Merger is not consummated by June 30, 2020. Upon termination of the Merger Agreement under certain specified circumstances, Foamix or Menlo, as applicable, may be required to pay the other party a termination fee of $3,700,000 including following a change of recommendation with respect to the transactions contemplated by the Merger Agreement by the Foamix or Menlo Board, as applicable, or if Foamix or Menlo, as applicable, terminates the Merger Agreement to enter into a definitive agreement with a third party with respect to a Superior Proposal, as set forth in, and subject to the conditions of, the Merger Agreement. Under certain additional circumstances described in the Merger Agreement, Foamix or Menlo, as applicable, must also pay such termination fee if the Merger Agreement is terminated in certain specified circumstances after an alternative acquisition proposal to the Merger has been publicly announced, and, within twelve months following such termination, Foamix or Menlo, as applicable, enters into a definitive agreement with respect to a business combination transaction of the type described in the relevant provisions of the Merger Agreement, or such a transaction is consummated.

All fees and expenses incurred in connection with the Merger, the Merger Agreement and the transactions contemplated by the Merger Agreement shall be paid by the party incurring such fees or expenses, whether or not the Merger is consummated, except that each of Foamix and Menlo shall bear and pay one-half of the costs and expenses incurred in connection with the filing, printing and mailing of the Registration Statement and this joint proxy statement/prospectus (including SEC filing fees) and any fees due to the Registrar that are associated with such filings and any related fees and expenses.



 

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Accounting Treatment

Although Menlo will issue shares of its common stock to Foamix shareholders and will remain the surviving parent company following the Merger from a legal/corporate perspective, Foamix will be the “accounting acquirer” in the Merger. Accordingly, the Merger will be accounted for as a reverse acquisition, with Foamix allocating the purchase price consideration to the tangible and intangible assets acquired and liabilities assumed from Menlo, and the excess purchase price recorded as goodwill. In accordance with reverse acquisition accounting, Foamix’s historical consolidated financial statements will be deemed those of the Combined Company and will reflect the Merger with Menlo beginning on the day of the Merger. For more information see the section entitled “The Merger—Accounting Treatment of the Merger”.

Appraisal Rights

Under Israeli law, Foamix shareholders are not entitled to statutory appraisal rights in connection with the Merger.

Comparison of Rights of Foamix Shareholders and Menlo Stockholders

Foamix shareholders receiving Menlo common stock will have different rights once they become stockholders of Menlo due to differences between the governing laws and charter document of Foamix and the governing laws and charter documents of Menlo. Certain principal differences are described under the section entitled Comparison of Rights of Foamix Shareholders and Menlo Stockholders.

Listing of Additional Shares of Menlo Common Stock

Menlo will use its reasonable best efforts to cause the shares of Menlo common stock to be issued in connection with the Merger to be approved for listing on Nasdaq, subject to official notice of issuance, prior to the Effective Time.

De-Listing and Deregistration of Foamix Shares

If the Merger is completed, the Foamix shares will be delisted from Nasdaq and deregistered under the Securities Act, and Foamix shares will no longer be publicly traded.

The Foamix Extraordinary General Meeting

The Foamix meeting will be held on                 , 2020, at                 , Eastern Standard Time, at Foamix’s U.S. offices located at 520 U.S. Highway 22, Suite 204, Bridgewater, NJ 08807.

The Foamix meeting is being held to consider and vote on the following proposals:

 

   

Approval and adoption of (i) the Merger Agreement; (ii) the Merger of Merger Sub with and into Foamix on the terms and subject to the conditions set forth in the Merger Agreement and in accordance with the provisions of Sections 314-327 of the Companies Law, following which Merger Sub will cease to exist, and Foamix will become a wholly-owned subsidiary of Menlo; (iii) the Merger Consideration for Foamix’s shareholders, consisting of (a) 0.5924 of a share of common stock of Menlo (subject to upwards adjustment to 1.2739 or 1.8006 shares of Menlo common stock if one or both of Menlo’s Phase III PN Trials, respectively, fail to demonstrate Serlopitant Significance) for each Foamix share that is issued and outstanding (other than Excluded Shares) and that will be deemed transferred to Menlo upon the Merger and (b) if the Closing of the Merger occurs on or before May 31, 2020 and the Efficacy Determination has not



 

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yet been received, CSRs, subject to the terms and conditions of the CSR Agreement; and (iv) all other transactions contemplated by the Merger Agreement, all upon the terms and subject to the conditions set forth in the Merger Agreement; and

 

   

Approval, on a non-binding, advisory basis, in accordance with the rules under the Exchange Act, of certain compensation that may be paid or become payable to the named executive officers of Foamix in connection with the Merger and contemplated by the Merger Agreement.

Required Vote by Foamix Shareholders

The affirmative vote of a majority of the voting rights of Foamix shares represented, in person or by proxy, and voting thereon at the Foamix meeting is necessary for the approval of the Foamix Merger Proposal and, on a non-binding, advisory basis, the Foamix Executive Compensation Proposal. In the case of the Foamix Merger Proposal, such majority must include at least a majority of the votes cast by Foamix shareholders that are not Menlo, Merger Sub or a Menlo Related Person, who are present, in person or represented by proxy, and voting.

Pursuant to the Companies Law, each Foamix shareholder voting on the Foamix Merger Proposal is required to inform Foamix prior to voting at the meeting whether the shareholder is any of Menlo, Merger Sub, or a Menlo Related Person and to indicate such matter in the appropriate place in the enclosed proxy. For more information, see the section entitled “The Foamix Extraordinary General Meeting—Vote Required at the Foamix Meeting”.

How Foamix Proxies are Counted; Abstentions and Broker Non-Votes

Continental has been engaged as Foamix’s independent agent to tabulate shareholder votes. If you are a Foamix shareholder of record, your completed, executed proxy card should be returned directly to Continental for tabulation. As noted above, if you hold your shares through a broker, once you submit your voting instructions (whether online, by telephone or in hard-copy form, as directed by your broker), your bank, broker or other nominee returns one proxy card to Continental on behalf of all its clients.

Votes will be counted by Continental, who will separately count “FOR” and “AGAINST” votes, abstentions and broker non-votes. Abstentions and broker non-votes will also be treated as shares present for the purpose of determining the presence of a quorum for the transaction of business at the Foamix meeting. Abstentions and broker non-votes will not, however, be considered votes cast at the Foamix meeting and will therefore not have any effect with respect to the Foamix Merger Proposal and the Foamix Executive Compensation Proposal.

The Menlo Special Meeting

The Menlo meeting will be held on                 , 2020 at                 , Pacific Standard Time, at Menlo’s principal executive offices at 200 Cardinal Way, 2nd floor, Redwood City, California 94063.

The Menlo meeting is being held to consider and vote on the following proposals:

 

   

Approval of the issuance of shares of Menlo common stock to Foamix’s shareholders (including potential Foamix shareholders under Foamix’s equity incentive plans and warrants being assumed by Menlo and under Foamix’s employee stock purchase plan) pursuant to the Merger Agreement and upon conversion, if applicable, of the CSRs pursuant to the CSR Agreement, in each case, in connection with the Merger and the change of control of Menlo resulting from the Merger.

 

   

Approval of the adjournment of the Menlo meeting to a later date or dates, if necessary, to permit the solicitation of additional proxies if, based upon the tabulated vote at the time of the Menlo meeting, there are not sufficient votes to approve the Menlo Merger Proposal.



 

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Required Vote by Menlo Stockholders

The affirmative vote of a majority of votes cast in person or by proxy at the Menlo meeting, assuming a quorum is present, is required for approval of the Menlo Merger Proposal. The affirmative vote of a majority of the votes cast in person or by proxy at the Menlo meeting, assuming a quorum is present, is required for approval of the Menlo Adjournment Proposal.

How Menlo Proxies are Counted; Abstentions and Broker Non-Votes

AST has been engaged as Menlo’s independent agent to tabulate stockholder votes. If you are a Menlo stockholder of record, your executed proxy card is returned directly to AST for tabulation. As noted above, if you hold your shares through a broker, your broker returns one proxy card to AST on behalf of all its clients.

Votes will be counted by AST, who will separately count “FOR,” “AGAINST” and “ABSTAIN” votes and broker non-votes. Abstentions and broker non-votes will also be treated as shares present for the purpose of determining the presence of a quorum for the transaction of business at the Menlo meeting. Abstentions and broker non-votes will not, however, be considered votes cast at the Menlo meeting and will therefore not have any effect with respect to the Menlo Merger Proposal and the Menlo Adjournment Proposal.



 

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RISK FACTORS

In addition to the other information included and incorporated by reference into this joint proxy statement/prospectus, including the matters addressed in the section entitled “Cautionary Statement Regarding Forward-Looking Statements”, you should carefully consider the following risks before deciding whether to vote for the Foamix Merger Proposal or Menlo Merger Proposal (as applicable). In addition, you should read and consider the risks associated with each of the businesses of Menlo and Foamix because these risks will also affect the Combined Company. The risks associated with Menlo and Foamix are set forth in their respective filings with the SEC, including each of Menlo’s or Foamix’s most recently filed Annual Report on Form 10-K, subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings with the SEC, which are available on the SEC’s website at www.sec.gov. See in particular Item 1A of Part II of Menlo’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 under the heading “Risk Factors” and Item 1A of Part II of Foamix’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 under the heading “Risk Factors”. Such filings by Menlo and Foamix are incorporated by reference into this joint proxy statement/prospectus to the extent described in the section entitled “Where You Can Find More Information”. You should also read and consider the other information in this joint proxy statement/prospectus and the other documents incorporated by reference into this joint proxy statement/prospectus. For more information, see the section entitled “Where You Can Find More Information”.

Risk Factors Relating to the Merger

The consummation of the Merger is contingent upon the satisfaction of a number of conditions, including certain conditions that are outside of Foamix’s and Menlo’s control. As a result, one or more conditions to Closing of the Merger may not be satisfied and the Merger may not be completed.

Foamix and Menlo cannot provide any assurance that the Merger will be completed or that there will not be a delay in the completion of the Merger. The ability to consummate the Merger is subject to risks and uncertainties, including, but not limited to, the risks that the conditions to the Merger are not satisfied, or if possible, waived, including, among others, (a) the approval of Foamix shareholders of the Merger; (b) the approval of Menlo stockholders of the issuance of Menlo common stock; (c) the effectiveness of the Registration Statement relating to the Menlo common stock to be issued in the Merger; (d) the accuracy of each party’s representations and warranties (subject to certain materiality qualifiers) and compliance by each party with its covenants under the Merger Agreement in all material respects; and (e) the absence of governmental restraints or prohibitions preventing the consummation of the Merger. Neither Foamix nor Menlo can predict whether and when these other conditions will be satisfied.

If the Merger is not completed for any reason, Foamix’s and Menlo’s respective businesses may each be subjected to a number of material risks. The price of Foamix shares and Menlo common stock may decline to the extent that the current market price reflects a market assumption that the Merger will be completed. In addition, some costs related to the Merger must be paid by both parties whether or not the Merger is completed. Furthermore, Foamix and Menlo may receive negative reactions from Foamix shareholders, Menlo stockholders and employees of both companies.

The Merger Agreement contains provisions that restrict Foamix’s and Menlo’s ability to pursue alternatives to the Merger and could discourage a potential competing acquirer of Foamix or Menlo from making a favorable alternative transaction proposal and, in specified circumstances, Foamix may be required to pay Menlo a termination fee of $3.7 million, or Menlo may be required to pay Foamix a termination fee of $3.7 million.

Under the Merger Agreement, Foamix and Menlo are each restricted, subject to certain exceptions, from soliciting, initiating, knowingly encouraging, facilitating, discussing or negotiating, or furnishing information with regard to, any inquiry, proposal or offer for an alternative transaction from any person or entity.

 

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The Merger Agreement further provides that one party may be required to pay the other a termination fee of $3.7 million upon its termination under specified circumstances.

Foamix may be required to pay Menlo a termination fee of $3.7 million upon termination of the Merger Agreement under specified circumstances, including (i) termination by Menlo after a change in the recommendation of the Foamix Board, (ii) termination by Foamix, to accept and enter into a binding agreement to be acquired by a third party who submitted a Superior Proposal (subject to the terms and conditions of the Merger Agreement) or (iii) (A) if a takeover proposal is made for Foamix and is publicly known and is not withdrawn at the time of the Foamix meeting, (B) the Merger Agreement is terminated due to the failure of Foamix shareholders to approve the Merger or by Menlo due to a material breach of the Merger Agreement by Foamix (including the “no solicitation” provisions) and (C) Foamix enters into or consummates an alternative transaction within 12 months following such date of termination.

Menlo may be required to pay Foamix a termination fee of $3.7 million upon termination of the Merger Agreement under specified circumstances, including (i) termination by Foamix after a change in the recommendation of the Menlo Board; (ii) termination by Menlo, to accept and enter into a binding agreement to be acquired by a third party who submitted a Superior Proposal (subject to the terms and conditions of the Merger Agreement) or (iii) (A) if a takeover proposal is made for Menlo and is publicly known and is not withdrawn at the time of the Menlo meeting, (B) the Merger Agreement is terminated due to the failure of Menlo stockholders to approve the Merger or by Foamix due to a material breach of the Merger Agreement by Menlo (including the “no solicitation” provisions) and (C) Menlo enters into or consummates an alternative transaction within 12 months following such date of termination.

These provisions could discourage a potential third-party acquirer or merger partner that might have an interest in acquiring all or a significant portion of Foamix or Menlo in pursuing an alternative transaction with either from considering or proposing such a transaction or result in a potential third-party acquirer or merger partner proposing to pay a lower price to the stockholders of Menlo or the shareholders of Foamix than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances.

Foamix shareholders cannot be sure of the value of the consideration they will receive in the Merger or of the ownership or voting interest they will have in Menlo. Additionally, Foamix shareholders will receive common stock of Menlo as a result of the Merger, which has rights different from Foamix shares.

Because the market price of Menlo common stock and Foamix shares will fluctuate, Foamix shareholders cannot be sure of the value of the consideration they will receive in the Merger. In addition, because the Exchange Ratio (and any adjustments thereto) is fixed, the number of shares of Menlo common stock to be received by Foamix shareholders in the Merger will not change between now and the time the Merger is completed to reflect changes in the trading prices of Foamix shares or Menlo common stock. The market value of Foamix shares and Menlo common stock at the Effective Time of the Merger may vary significantly from their respective values on the date the Merger was announced or on other dates, including on the date that this joint proxy statement/prospectus was mailed to Foamix shareholders and Menlo stockholders, the date of the Foamix meeting and the date of the Menlo meeting. Stock price changes may result from a variety of factors, including general market and economic conditions, the operations and prospects of Foamix and Menlo and an evolving regulatory landscape. Market assessments of the benefits of the Merger and the likelihood that the Merger will be consummated, as well as general and industry specific market and economic conditions, may also impact market prices of Foamix shares and Menlo common stock. Many of these factors are beyond Foamix’s and Menlo’s control. There will be no adjustment to the Exchange Ratio for changes in the market price of either Foamix shares or Menlo common stock.

In addition, in connection with the Merger, Foamix shareholders may receive CSRs if the Closing of the Merger occurs on or before May 31, 2020 and the Efficacy Determination has not yet been received. If the CSRs

 

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become convertible pursuant to the CSR Agreement, Foamix shareholders may receive additional shares of Menlo common stock as consideration in connection with the Merger. The value of any CSR depends on the trading price of Menlo common stock on the date of conversion. Additionally, if the CSRs become convertible pursuant to the CSR Agreement, Foamix shareholders will obtain increased ownership and voting interest in Menlo. The CSRs may not become convertible. Because the Efficacy Determination may not be received by the time Foamix shareholders vote on the Merger, or by the time the Merger is consummated, Foamix shareholders may not know, at the time of voting or at the time of Closing, whether they will receive additional shares of Menlo common stock in the Merger as a result of the Efficacy Determination.

Upon completion of the Merger, the rights of Foamix shareholders will be governed by the articles of incorporation and bylaws of Menlo. The rights associated with Foamix shares are different from the rights associated with Menlo common stock. In addition, the laws of Delaware differ from the laws in effect in Israel and may afford less or different rights and protections to holders of securities in Menlo.

The CSRs, if issued, may not result in the issuance of any additional shares of Menlo common stock to holders of CSRs.

As discussed in the risk factor above, Foamix shareholders may receive CSRs in connection with the Merger if the Closing of the Merger occurs on or before May 31, 2020 and the Efficacy Determination has not yet been received. There is no assurance, however, that the CSRs will become convertible pursuant to the CSR Agreement, as the Efficacy Determination may be received on or before May 31, 2020 and may report that Serlopitant Significance was achieved in both of the Phase III PN Trials. In that case, Foamix shareholders will not receive any additional shares of Menlo common stock in respect of the CSRs as consideration in connection with the Merger.

There is no assurance that the CSRs will be issued at all or that Foamix shareholders will be entitled to an upwards adjustment to the Exchange Ratio at the Closing in connection with the Efficacy Determination. For more information regarding the CSRs, see the section entitled “Agreements Relating to the Merger—Contingent Stock Rights Agreement”.

Both Foamix and Menlo will be subject to business uncertainties and contractual restrictions until the Merger is consummated.

Uncertainty about the effect of the Merger on employees, contractors, vendors, distributors and other persons with whom Foamix or Menlo have business relationships, as well as on regulatory permits, licenses, and other contracts, particularly for which the Merger could be deemed a “change-in-control” under the applicable terms and conditions, may have an adverse effect on Foamix or Menlo. These uncertainties may impair the ability of Foamix and Menlo to attract, retain and motivate key personnel, contractors and vendors until the consummation of the Merger and for a period of time thereafter, and could cause others that deal with the parties to delay or defer certain business decisions or decide to terminate, modify or renegotiate their relationships with Foamix or Menlo, decide not to conduct business with Foamix or Menlo or take other actions as a result of the Merger, which could negatively affect Foamix’s and Menlo’s revenues, earnings and cash flows, as well as the market price of Foamix shares and Menlo common stock, regardless of whether the Merger is consummated. Retention of employees could be challenging during the pendency of the Merger due to uncertainty about their future roles. If key employees depart because of issues related to the uncertainty and difficulty of integration or a desire not to remain with the businesses, the Combined Company’s business following the consummation of the Merger could be negatively impacted.

In addition, the Merger Agreement restricts each party from taking certain specified actions without the consent of the other party until the earlier of the completion of the Merger or the termination of the Merger Agreement. These restrictions include, but are not limited to, amending the party’s organizational documents, declaring or paying dividends, repurchasing securities, issuing securities, incurring debt outside of certain agreed

 

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exceptions, making loans, disposing of any material assets, leasing property, settling any litigation, making capital expenditures over a specified threshold and, in Menlo’s case, maintaining a certain amount of cash and entering into certain contracts relating to the new development or commercialization of any pharmaceutical product. These restrictions may prevent or delay pursuit of strategic corporate or business opportunities that may arise prior to the consummation of the Merger and may impair Foamix’s or Menlo’s ability to attract, retain and motivate key personnel. Adverse effects arising during the pendency of the Merger could be exacerbated by any delays in consummation of the Merger or termination of the Merger Agreement.

Foamix and Menlo directors and officers may have interests in the merger transactions different from the interests of Foamix shareholders and Menlo stockholders.

Certain of the directors and executive officers of Foamix and Menlo negotiated the terms of the Merger Agreement. Foamix and Menlo directors and executive officers may have interests in the merger transactions that are different from, or in addition to, those of Foamix shareholders and Menlo stockholders, respectively. These interests include, but are not limited to, the continued service of certain directors of Foamix and Menlo as directors of the Combined Company, the continued employment of certain executive officers of Foamix and Menlo by the Combined Company, the treatment in the merger transactions of Foamix stock options, Foamix RSUs, the Foamix ESPP, the Menlo ESPP, severance agreements and amended employment terms and other rights held by Foamix and Menlo directors and executive officers, and provisions in the Merger Agreement regarding continued indemnification of Foamix and Menlo directors and officers. In addition, Menlo’s Chief Executive Officer and holders related to him own shares of Foamix. Foamix shareholders and Menlo stockholders should be aware of these interests when they consider the recommendation of the Foamix Board in favor of the Foamix Merger Proposal and the recommendation of the Menlo Board in favor of the Menlo Merger Proposal, respectively.

The members of the Foamix Board were aware of and considered these interests, among other matters, in evaluating the business combination agreement and the transactions contemplated thereby, and in making the Foamix Board’s recommendation that Foamix shareholders approve the Foamix Merger Proposal. The interests of Foamix directors and executive officers are described in more detail in the section of this joint proxy statement/prospectus entitled “The Merger—Interests of Foamix’s Directors and Executive Officers in the Merger”.

The members of the Menlo Board were aware of and considered these interests, among other matters, in evaluating the business combination agreement and the transactions contemplated thereby, and in making the Menlo Board recommendation that Menlo stockholders approve the Menlo Merger Proposal. The interests of Menlo directors and executive officers are described in more detail in the section of this joint proxy statement/prospectus entitled “The Merger—Interests of Menlo’s Directors and Executive Officers in the Merger”.

Foamix shareholders and Menlo stockholders will not be entitled to appraisal rights in the Merger.

Appraisal rights are statutory rights that, if applicable under law, enable stockholders to dissent from an extraordinary transaction, such as a merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to stockholders in connection with the extraordinary transaction.

Under Israeli law, Foamix shareholders are not entitled to statutory appraisal rights in connection with the Merger. Under the DGCL, the Menlo stockholders are not entitled to exercise any appraisal rights in connection with the Merger or the transactions contemplated by the Merger.

If Foamix is not successful in obtaining favorable tax rulings from the ITA, or if such rulings are issued after the Closing Date of the Merger, Foamix shareholders may not be able to defer their tax liability and Foamix non-Israeli shareholders may be subject to withholding tax in Israel.

Foamix intends to prepare and file with the ITA an application for tax rulings with respect to withholding tax from capital gain as a result of the Merger, both for Israeli tax residents and non-Israeli tax residents. Foamix

 

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also intends to file with the ITA an application for a ruling deferring the tax liability for shareholders electing to be bound by such ruling, if obtained. Assuming Foamix receives the Israeli tax rulings from the ITA, the Israeli withholding tax consequences of the Merger and the ability to elect to defer the tax liability will be in accordance with such tax rulings (if applicable to a particular Foamix shareholder).

If Foamix does not obtain the tax rulings and does not agree with the ITA to an alternative interim arrangement, Foamix shareholders may be subject to Israeli withholding taxes on the exchange of securities in the Merger. In general, under the ITO, the disposition of shares of an Israeli company is deemed to be a sale of capital assets (unless such shares are held for the purpose of trading). The Ordinance generally imposes a capital gains tax on the sale of capital assets located in Israel, including shares in an Israeli resident company, by both residents and non-residents of Israel, unless a specific exemption is available under the Ordinance or unless a treaty for the prevention of double taxation between Israel and the seller’s country of residence provides otherwise. In this regard, the Ordinance provides that if certain conditions are met, a non-Israeli tax resident should be exempt from capital gains tax in Israel subject to the presentation of a withholding tax certificate from the ITA.

No assurance can be given that the tax rulings will be issued to Foamix in a timely manner, or at all, or that an interim arrangement will be reached with the ITA. For a more detailed discussion of the material Israeli income tax consequences of the Merger, see the sections entitled “The Merger Agreement—Israeli Tax Rulings” and “Certain Tax Consequences of the Merger and Ownership and Disposition of Menlo Shares—Israeli Tax Considerations” beginning on pages 169 and 183, respectively, in this joint proxy statement/prospectus. Foamix shareholders should consult their tax advisors to understand all the tax consequences of the Merger to them.

Litigation against Menlo or Foamix, or the members of the Foamix Board, could prevent or delay the completion of the Merger or result in the payment of damages following completion of the Merger.

Claims related to the Merger may be asserted by purported shareholder plaintiffs at any point prior to the Closing. The Companies Law, which governs the Merger, contains provisions that delay the overall process for the Merger, thereby providing a greater opportunity for such a claim to be brought. For example, the Merger may not be consummated unless at least 50 days have passed from the date on which a merger proposal is filed by each merging company with the Israel Registrar of Companies and at least 30 days have passed from the date on which the shareholders of Foamix and Merger Sub have approved the Merger. The filing of the merger proposal with the Registrar will be made concurrently with the mailing of this joint proxy statement/prospectus and it is expected that the 50 day period following such filing will terminate at or before the end of the 30 day waiting period that must expire after the approval of the Foamix Merger Proposal. The results of any such potential legal proceedings are difficult to predict and could further delay or prevent the Merger from becoming effective in a timely manner. The existence of litigation related to the Merger could affect the likelihood of obtaining the required approvals from the Foamix shareholders and Menlo stockholders at their respective meetings. Moreover, any litigation could be time-consuming and expensive, could divert Foamix’s and Menlo’s management’s attention away from their respective regular businesses and, if any lawsuit is adversely resolved against any of Foamix, Menlo or the members of the Foamix Board, could have a material adverse effect on Foamix’s or Menlo’s financial condition.

One of the conditions to the Closing of the Merger is the absence of any law, temporary restraining order, preliminary or permanent injunction or other judgment, order or decree instituted by a governmental entity with competent jurisdiction, that is in effect and has the effect of making the Merger illegal, or prohibiting or otherwise preventing the consummation of the Merger in any jurisdiction. Consequently, if a settlement or other resolution is not reached in any lawsuit that is filed and a claimant secures injunctive or other relief prohibiting, delaying or otherwise adversely affecting Foamix’s and/or Menlo’s ability to complete the Merger on the terms contemplated by the Merger Agreement, then such injunctive or other relief may prevent the Merger from becoming effective in a timely manner or at all.

 

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Even if the Merger qualifies as a reorganization under Section 368(a) of the Code, a U.S. Holder may still recognize gain as a result of the Merger if Foamix is or was classified as a PFIC for any taxable year during which a U.S. Holder held Foamix shares.

Even if the Merger qualifies as a “reorganization” within the meaning of Section 368(a) of the Code, if Foamix was a PFIC, or “passive foreign investment company,” for any taxable year during which a U.S. Holder (as defined in “ Certain Tax Consequences of the Merger and the Ownership and Disposition of Menlo Shares—U.S. Federal Income Tax Consequences”) owned Foamix shares, certain adverse U.S. federal income tax consequences, including recognition of gain, could apply to such U.S. Holder as a result of the Merger, unless certain exceptions apply. U.S. Holders of Foamix shares should consult their tax advisors regarding the possible classification of Foamix as a PFIC and the resulting U.S. federal income tax considerations. See the section entitled “Certain Tax Consequences of the Merger and the Ownership and Disposition of Menlo Shares—U.S. Federal Income Tax Consequences—Passive Foreign Investment Company Rules” beginning on page 179.

Risk Factors Relating to the Combined Company Following the Merger

If the Merger is completed, Menlo may fail to realize the anticipated benefits, cost savings and synergies of the Merger, which could adversely affect the value of shares of Menlo common stock.

The success of the Merger will depend, in part, on Menlo’s ability to realize the anticipated benefits, cost savings and synergies from combining the businesses of Menlo and Foamix. Menlo’s ability to realize these anticipated benefits, cost savings and synergies is subject to certain risks, including, among others:

 

   

Menlo’s ability to successfully combine the businesses of Menlo and Foamix;

 

   

the risk that the combined businesses will not perform as expected;

 

   

the extent to which Menlo will be able to realize the expected cost savings and synergies, which include potential savings from leveraging Foamix’s commercial infrastructure, eliminating duplication and redundancy, adopting an optimized operating model between both companies and value creation resulting from the combination of the businesses of Menlo and Foamix; and

 

   

the possibility of costly litigation challenging the Merger.

If Menlo is not able to successfully combine the businesses of Menlo and Foamix within the anticipated time frame, or at all, the anticipated benefits, synergies, operational efficiencies and cost savings of the Merger may not be realized fully or may take longer to realize than expected, the combined businesses may not perform as expected and the share price, revenues, levels of expenses and results of operations of Menlo may be adversely affected.

Menlo and Foamix have operated and, until completion of the Merger will continue to operate, independently, and there can be no assurances that their businesses can be integrated successfully. It is possible that the integration process could result in the loss of key Menlo or Foamix employees, the disruption of either company’s or both companies’ ongoing businesses or in unexpected integration issues, higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated. Specifically, issues that must be addressed in integrating the operations of Menlo and Foamix in order to realize the anticipated benefits of the Merger so the combined business performs as expected include, among others:

 

   

combining the companies’ separate operational, financial, reporting and corporate functions;

 

   

integrating the companies’ technologies, products, product candidates and services;

 

   

identifying and eliminating redundant and underperforming operations and assets;

 

   

harmonizing the companies’ operating practices, employee development, compensation and benefit programs, internal controls and other policies, procedures and processes;

 

   

addressing possible differences in corporate cultures and management philosophies;

 

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maintaining employee morale and retaining key management and other employees;

 

   

attracting and recruiting prospective employees;

 

   

consolidating the companies’ corporate, administrative and information technology infrastructure;

 

   

managing the movement of certain businesses and positions to different locations;

 

   

maintaining existing agreements with third-parties and avoiding delays in entering into new agreements with potential business partners;

 

   

coordinating geographically dispersed organizations;

 

   

consolidating facilities; and

 

   

effecting potential actions that may be required in connection with obtaining regulatory approvals.

In addition, at times, the attention of certain members of each company’s management and each company’s resources may be focused on completion of the Merger and the integration of the businesses of the two companies and diverted from day-to-day business operations, which may disrupt each company’s ongoing business and the business of the Combined Company.

The financial analyses, estimates and forecasts presented herein and considered by Menlo and Foamix in connection with the Merger may not be realized.

The unaudited prospective financial information of Menlo and Foamix presented herein and considered by Menlo and Foamix in connection with the Merger were not prepared with a view toward public disclosure, and such information and the estimated synergies were not prepared with a view toward compliance with published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The estimates and assumptions underlying the unaudited prospective financial information and estimated synergies involve judgments with respect to, among other things, future economic, competitive, regulatory and financial market conditions, future tax rates and future business decisions which may not be realized and that are inherently subject to significant business, economic, competitive and regulatory uncertainties and contingencies, including, among others, risks and uncertainties described under the sections entitled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements,” all of which are difficult to predict and many of which are beyond the control of Menlo and/or Foamix. In addition, the unaudited prospective financial information and estimated synergies will be affected by Menlo’s or Foamix’s, as applicable, ability to achieve strategic goals, objectives and targets over the applicable periods. As a result, there can be no assurance that the underlying assumptions will prove to be accurate or that the projected results or synergies will be realized, and actual results or synergies likely will differ, and may differ materially, from those reflected in the unaudited prospective financial information and the estimated synergies, whether or not the Merger is completed, which could have an adverse effect on Menlo’s business, financial condition and result of operations.

Menlo’s actual financial position and results of operations may differ materially from the unaudited pro forma financial information included in this joint proxy statement/prospectus.

The pro forma financial information contained in this joint proxy statement/prospectus in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” is presented for illustrative purposes only and does not necessarily reflect the operating results or financial position that would have occurred if the Merger had been consummated on the dates indicated. Such pro forma financial information has been derived from the historical financial statements of Menlo and Foamix, and certain adjustments and assumptions have been made regarding Menlo after giving effect to the Merger. Such pro forma financial information does not give effect to, among other things, revenue synergies, operating efficiencies, cost savings, future adjustments related to integration or planned or unplanned restructuring activities, or future acquisitions or disposals not yet known or probable.

 

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In addition, the assumptions used in preparing such pro forma financial information may not prove to be accurate. Such assumptions can be adversely affected by known or unknown facts, risks and uncertainties, many of which are beyond Menlo’s or Foamix’s control. Other factors may also affect Menlo’s financial condition or results of operations following the Closing. In addition, following the Merger, certain adjustments to the accounting policies applied by Menlo or Foamix to their respective financial information may be made in order to conform the treatment of such financial information to the accounting policies of Menlo if deemed preferable. In certain cases, the information necessary to determine the appropriate adjustments may not be available until after the Closing, and therefore, when conformed, the financial information of Menlo following Closing may vary materially from the pro forma financial information contained in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information”. Any material variance from the pro forma financial information in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” may cause significant variations in the market price of the Menlo common stock following the Merger. In view of these uncertainties, the inclusion of pro forma financial information in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” is for illustrative purposes and does not purport to project the future consolidated results of operations or consolidated financial condition for any future period or as of any future date. Such pro forma financial information represents historical results as if Menlo and Foamix had operated as a combined company and does not include anticipated future benefits from the Merger, such as those resulting from estimated synergies, and related costs, such as those costs expected to achieve certain benefits. See the sections entitled “Unaudited Pro Forma Condensed Combined Financial Information”.

The shares of Menlo common stock to be held by Foamix shareholders upon the Closing will have different rights than shares of Foamix shares prior to the Closing.

Upon the Closing, the rights of Menlo stockholders will be governed by the laws of the state of Delaware and the terms of Menlo’s Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws. The DGCL and Menlo’s Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws are in many respects materially different than the Companies Law and Foamix’s Articles of Association, which currently govern the rights of Foamix shareholders. See the section entitled “Comparison of Rights of Foamix Shareholders and Menlo Stockholders” for a discussion of the different rights associated with shares of Menlo common stock and shares of Foamix shares. In addition, for a discussion of the risks associated with Menlo’s organizational documents and Delaware law, see the documents incorporated by reference into this joint proxy statement/prospectus and referred to under the section entitled “Where You Can Find More Information”.

Menlo and Foamix have incurred, and will incur, substantial direct and indirect costs as a result of the Merger.

Menlo and Foamix have incurred, and will incur, substantial expenses in connection with and as a result of completing the Merger, including financial advisory, legal, accounting, consulting and other advisory fees and expenses, regulatory filings and filing and printing fees. In addition, over a period of time following the Closing, Menlo also expects to incur substantial expenses in connection with integrating and coordinating the businesses, operations, policies and procedures of Menlo and Foamix and employee-benefit and related expenses. A portion of the transaction costs related to the Merger will be incurred regardless of whether the Merger is completed. While Menlo and Foamix have assumed that a certain level of transaction expenses will be incurred, factors beyond Menlo’s and Foamix’s control could affect the total amount or the timing of these expenses. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately. These expenses will exceed the costs historically borne by Menlo and Foamix. These costs could adversely affect the financial condition and results of operations of Menlo and Foamix prior to the Merger and of Menlo following the Merger and there can be no assurance that the elimination of certain duplicative costs, as well as the realization of other efficiencies related to the integration of the two businesses, will offset the incremental transaction-related costs over time.

 

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The market price for Menlo common stock following the Closing may be affected by factors different from those that historically have affected or currently affect Menlo common stock and Foamix shares.

Upon the Closing, Foamix shareholders will receive shares of Menlo common stock. Following the Closing, Menlo’s business and financial position will differ from the business and financial position of Menlo and Foamix before the Closing and, accordingly, the results of operations of Menlo following the Closing will be affected by some factors that are different from those currently affecting the results of operations of Menlo and those currently affecting the results of operations of Foamix, as separate companies. Accordingly, the market price and performance of Menlo common stock post-Closing is likely to be different from the performance of Menlo common stock and Foamix shares in the absence of the Merger. In addition, general fluctuations in stock markets could have a material adverse effect on the market for, or liquidity of, Menlo’s common stock post-Closing, regardless of Menlo’s actual operating performance. For a discussion of the businesses of Menlo and Foamix and important factors to consider in connection with those businesses, see the documents incorporated by reference into this joint proxy statement/prospectus and referred to under the section entitled “Where You Can Find More Information”.

The Combined Company will be subject to the risks that Foamix faces, in addition to the risks faced by Menlo. In particular, the success of the Combined Company will depend on its ability to successfully commercialize AMZEEQTM and its other product candidates.

To date, Foamix has invested a majority of its efforts and financial resources in the research and development of AMZEEQTM for the treatment of moderate-to-severe acne, which received approval from the FDA on October 18, 2019 for the treatment of inflammatory lesions of non-nodular moderate-to-severe acne vulgaris in patients nine years of age and older, and FMX103 for the treatment of moderate-to-severe papulopustular rosacea in adults, for which the FDA has set a PDUFA action date of June 2, 2020. In addition, Menlo has invested substantially all of its efforts and financial resources in the development of serlopitant, which is Menlo’s sole product candidate in development as of the date of this joint proxy statement/prospectus. The success of the Combined Company depends largely on its ability to (i) successfully commercialize AMZEEQTM, (ii) obtain regulatory approval for and successfully commercialize FMX103 and serlopitant for the treatment of pruritus associated with PN and (iii) advance the Combined Company’s pipeline candidates. If the Combined Company fails to successfully commercialize AMZEEQTM, obtain requisite regulatory approvals within the expected time frames, or at all, for FMX103 and serlopitant or does not successfully develop and commercialize its pipeline candidates, the Combined Company’s financial position and results of operations would be adversely affected.

Current Menlo stockholders and Foamix shareholders will have a reduced ownership and voting interest after the Merger and will exercise less influence over the management of the Combined Company.

It is expected that, immediately after completion of the Merger, former Foamix shareholders and current Menlo stockholders will own approximately 59% and 41%, respectively, of the outstanding shares of the Combined Company’s common stock, calculated on a fully diluted basis using the treasury stock method and based on certain other assumptions described elsewhere. Consequently, current Menlo stockholders in the aggregate will have significantly less influence over the management and policies of Menlo than they currently have over the management and policies of Menlo, and Foamix shareholders in the aggregate will have significantly less influence over the management and policies of Menlo than they currently have over the management and policies of Foamix. As described elsewhere, Foamix shareholders and Menlo stockholders may own different percentages of the outstanding shares of the Combined Company’s common stock if the Exchange Ratio is adjusted prior to Closing or if CSRs are issued and become convertible. See the sections entitled “The Merger Agreement—Consideration to Foamix Shareholders” and “The Merger Agreement—Contingent Stock Rights” for more information.

 

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The Combined Company will require substantial additional financing to achieve its goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force the Combined Company to delay, limit, reduce or terminate product development, other operations or commercialization efforts.

It is expected that the Combined Company will expend substantial resources for the foreseeable future for the commercialization of AMZEEQTM and for pre-commercialization efforts related to FMX103, serlopitant for the treatment of pruritus associated with PN and other pipeline candidates. The Combined Company also wishes to continue the development of other indications and product candidates. However, the Combined Company may not have sufficient funds to carry out and complete all of these plans and may need to raise additional funds for such purposes, and/or alter or defer some activities.

These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, and manufacturing and supply, as well as marketing and selling any products approved for sale. In addition, other unanticipated costs may arise. Because of the numerous risks and uncertainties associated with product development and commercialization, the actual amounts necessary to successfully complete the development and commercialization of any of the Combined Company’s product candidates cannot be precisely estimated.

Based on Foamix’s and Menlo’s unaudited balance sheets as of September 30, 2019 and Foamix’s and Menlo’s unaudited prospective financial information, it is anticipated that cash and investments along with funds that the Combined Company may be entitled to receive under the Credit Agreement and the 2020 estimated revenues, on a pro forma basis for the Combined Company, taking into consideration the Merger and restructuring associated costs, will be sufficient to fund the Combined Company’s operating expenses and capital requirements into 2021. However, the operating plan of the Combined Company may change as a result of many factors currently unknown. The Combined Company may therefore need to seek additional capital sooner than planned, through public or private equity or debt financings or other sources, such as strategic collaborations or additional license arrangements. Such financings may result in dilution to stockholders, imposition of debt covenants and repayment obligations or other restrictions that may affect the business of the Combined Company. In addition, due to favorable market conditions or strategic considerations, the Combined Company may seek additional capital even if it is believed that the Combined Company has sufficient funds for its current or future operating plans.

The Combined Company’s future capital requirements depend on many factors, including:

 

   

the cost of commercialization activities for AMZEEQTM, FMX103, serlopitant or any other product candidates that may be approved for sale, if any, including marketing, sales and distribution costs;

 

   

the ability to incur additional indebtedness under the Credit Agreement;

 

   

the degree and rate of market acceptance of AMZEEQTM and any future approved products;

 

   

the time and cost necessary to complete ongoing and planned clinical trials of serlopitant, FCD105 and other product candidates, as well as the success of such trials;

 

   

the emergence, approval, availability, perceived advantages, relative cost, relative safety and relative efficacy of alternative and competing products or treatments;

 

   

the timing of, and the costs involved in, obtaining regulatory approvals for the Combined Company’s product candidates;

 

   

the number and characteristics of any additional product candidates developed or acquired by the Combined Company;

 

   

the scope, progress, results and costs of researching and developing the Combined Company’s product candidates, and conducting preclinical and clinical trials;

 

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the cost of manufacturing our product candidates and any products successfully commercialized by the Combined Company, and maintaining the Combined Company’s related facilities;

 

   

the Combined Company’s ability to establish and maintain strategic collaborations, licensing or other arrangements and the terms of and timing of such arrangements;

 

   

any product liability or other lawsuits related to the Combined Company’s products;

 

   

the expenses needed to attract and retain skilled personnel;

 

   

the costs associated with being a public company;

 

   

the costs associated with evaluation of the Combined Company’s product candidates;

 

   

the costs associated with evaluation of third-party intellectual property;

 

   

the costs associated with obtaining and maintaining licenses;

 

   

the costs associated with creating, obtaining, protecting defending and enforcing intellectual property, such as costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, litigation costs, including for patent infringement arising out of ANDA submissions by generic companies to manufacture and sell generic products, and the outcome of such litigation; and

 

   

the timing, receipt and amount of sales of, or royalties on, approved products.

Additional capital may not be available when needed, on terms that are acceptable or at all. If adequate funds are not available on a timely basis, the Combined Company may be required to:

 

   

delay, limit, reduce or terminate our establishment of manufacturing, sales and marketing or distribution capabilities or other activities that may be necessary to commercialize AMZEEQTM, and, if approved, FMX103, serlopitant or any other product candidates;

 

   

delay, limit, reduce or terminate research and development activities; or

 

   

delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for the Combined Company’s product candidates.

If the Combined Company raises additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, it may have to relinquish certain valuable rights to its product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable. If the Combined Company raises additional capital through public or private equity offerings, the ownership interest of its stockholders following the completion of the Merger will be diluted and the terms of any new equity securities may have a preference over the common stock of the Combined Company. If the Combined Company raises additional capital through debt financing, it may be subject to covenants limiting or restricting its ability to take specific actions, such as incurring additional debt or making capital expenditures or specified financial ratios, any of which could restrict its ability to commercialize its product candidates or operate as a business.

The status of the Combined Company as a U.S. corporation may be disadvantageous, from a tax perspective, relative to Foamix’s current status as an Israeli company.

Foamix is currently an Israeli company and is taxed based on Israeli corporate tax rates. The regular Israeli corporate tax rate has been 23% since the start of 2018. In addition, although Foamix has not benefited from them in the past, there are various benefits programs under Israeli tax laws that provide for tax exemptions or reduced corporate tax rates for certain periods of time, from which Foamix could potentially benefit in the future if it were to remain an Israeli company. As a result of the Merger, the surviving public company will be Menlo, a U.S. corporation. The Surviving Company’s future taxable income (if and when it becomes profitable) will be

 

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subject to U.S. corporate tax rates, which may be higher than the corresponding Israeli corporate tax rate. The Surviving Company may also generate Global Intangible Low Taxed Income, or GILTI, from its non-U.S. subsidiary, which may accelerate the Surviving Company’s utilization of its U.S. net operating losses, which could adversely affect the Surviving Company’s effective tax rate. Additionally, if the Combined Company increases its activities outside of Israel relative to Foamix’s historical activities, those non-Israeli activities will likely not be eligible for inclusion in Israeli tax benefit programs, even if those activities would have qualified for such programs had Foamix remained an Israeli company. The potential greater tax burden to be borne by the Surviving Company as a U.S. corporation may harm its financial condition and results of operations.

The Combined Company’s facilities and operations may be adversely affected by political, economic and military instability in Israel.

It is expected that the Combined Company will maintain Foamix’s offices located in Rehovot, Israel. In addition, some of Foamix’s key employees and officers are residents of Israel. Accordingly, political, economic and military conditions in Israel may directly affect Foamix’s or, following the Merger, the Combined Company’s business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. Over the past decade, Israel has been engaged in several armed conflicts with Hamas, a terrorist group and political party that controls the Gaza Strip, and other terrorist groups from the Gaza Strip. During the summer of 2006, Israel was engaged in an armed conflict with Hezbollah, a Lebanese Islamist Shiite terrorist group and political party. These conflicts have involved missile strikes against civilian targets in various parts of Israel, including the area where Foamix’s facilities are located, and negatively affected business conditions in Israel. Any future hostilities involving Israel, or terrorist activities or political instability in the region, could interrupt or curtail trade between Israel and its trading partners, which could adversely affect Foamix’s or the Combined Company’s results of operations. Any such further armed conflicts could furthermore make it more difficult for Foamix or the Combined Company to raise capital. In addition, operations could be disrupted by the obligations of Foamix’s or the Combined Company’s Israeli personnel to perform military reserve service as a result of any such further conflicts.

Foamix’s commercial insurance does not cover losses that may occur as a result of an event associated with the security situation in the Middle East. Although the Israeli government is currently committed to covering the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained, or if maintained, will be sufficient to compensate Foamix or the Combined Company fully for damages incurred. Any losses or damages incurred by our Israeli operations could have a material adverse effect on our business.

Further, certain countries, as well as certain companies and organizations, continue to participate in a boycott of Israeli businesses and businesses with large Israeli operations. Such boycott or other restrictive laws, policies or practices may have a material adverse effect on our business and financial condition in the future.

Menlo and Foamix 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 growth of the Combined Company’s business as opposed to paying dividends. 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.

 

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In connection with the Merger, Menlo will become a guarantor and an obligor under Foamix’s Credit Agreement (as defined below) and will become subject to various financial and other restrictive covenants. These restrictions may limit Menlo’s operational or financial flexibility and failure on the part of Menlo or any other obligor (under Foamix’s Credit Agreement) to comply with these covenants could subject Menlo to defaults under Foamix’s Credit Agreement.

In connection with entering into the Merger Agreement, Foamix also entered into to a Waiver and Consent Agreement to Credit Agreement and Guaranty (the “Waiver Agreement”), among Foamix, Foamix Pharmaceuticals Inc., a Delaware corporation, the lenders party thereto, and Perceptive Credit Holdings II, LP, as administrative agent for the lenders, relating to the Credit Agreement and Guaranty, dated as of July 29, 2019 (the “Credit Agreement”). Pursuant to the Waiver Agreement, the lenders under the Credit Agreement have, among other things, (i) granted consent to Foamix’s entering into the Merger Agreement and waived events of default under the Credit Agreement that would result therefrom and (ii) granted consent to the consummation of the transactions set forth under the Merger Agreement and waived certain events of default under the Credit Agreement as would result therefrom. This waiver is subject to the satisfaction of certain closing conditions as specified therein (including amendments to the Credit Agreement and other applicable loan documents so as to ensure that Menlo becomes a guarantor and an obligor under the Credit Agreement and grants a first priority security interest in substantially all of Menlo’s assets).

The Credit Agreement contains financial and other restrictive covenants that would (upon Menlo becoming a party to it) limit the ability of Menlo to incur new indebtedness; create liens on assets; make or enter into transactions that result in certain fundamental corporate changes, such as mergers or acquisitions; sell assets; change business activities; make certain investments or payments; pay dividends; change fiscal periods; enter into or become bound by certain inbound and outbound licenses; or enter into transactions with affiliates. The Credit Agreement also contains certain financial covenants, requiring that (1) the obligors maintain a minimum aggregate cash balance of $2.5 million; and (2) Foamix and its subsidiaries achieve certain revenue targets as of a specific date.

The restrictive covenants in the Credit Agreement may limit Menlo’s ability to plan for or react to market conditions, meet capital needs or otherwise restrict our activities or business plans and adversely affect its ability to finance its operations, enter into acquisitions or to engage in other business activities that could be in its interest. Menlo’s ability to comply with the financial covenants can be affected by events beyond its control and it may not be able to do so. If Menlo or any other obligor under the Credit Agreement is unable to remain in compliance with any of the covenants under the Credit Agreement, then it would cause a default under the Credit Agreement and amounts outstanding thereunder may be accelerated and become due immediately. Any such acceleration of debt could have a material adverse effect on Menlo’s financial condition and results of operations.

Menlo’s obligation to guaranty debt under the Credit Agreement, in connection with the Merger, exposes Menlo to risks that could adversely affect its business, operating results, overall financial condition and may result in further dilution to Menlo stockholders.

Upon consummation of the Merger, Menlo will become a guarantor and an obligor under the Credit Agreement (as described above). The Credit Agreement provides for a senior secured delayed draw term loan facility in an aggregate principal amount of $50.0 million, and upon consummation of the Merger it is expected that approximately $35.0 million of loans will be outstanding under the Credit Agreement. Menlo’s indebtedness under the Credit Agreement in connection with its guaranty obligations or in the event it incurs additional indebtedness from another source could have an adverse impact on its business or operations. For example, it could:

 

   

limit its flexibility in planning for the development of pipeline product candidates and the commercialization of products (including AMZEEQTM) and the approval and marketing of products (including FMX103);

 

   

increase Menlo’s vulnerability to both general and industry-specific adverse economic conditions; and

 

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limit Menlo’s ability to obtain additional funds for working capital, capital expenditures, acquisitions, general corporate and other purposes.

Any future indebtedness that Menlo incurs will require Menlo to make certain interest and principal payments. Its ability to make payments on any indebtedness (including indebtedness in connection with the guaranty obligations pursuant to the Credit Agreement) depends on its ability to generate cash in the future. It is expected that the Combined Company will experience negative cash flow for the foreseeable future as it funds its operations and capital expenditures. There can be no assurance we will be in a position to repay this indebtedness when due or obtain extensions to the maturity date. In order to repay these obligations when due, Menlo may be required to sell assets, to refinance all or a portion of such indebtedness or to obtain additional financing, including on terms that are less favorable to Menlo. If that additional financing involves the sale of equity securities or convertible securities, it would result in the issuance of additional shares of capital stock, which would result in dilution to Menlo’s stockholders.

Changes in interest rates could adversely affect Menlo’s earnings and/or cash flows.

Loans under the Credit Agreement are made at variable rates that use LIBOR as a benchmark for establishing the interest rate. LIBOR is the subject of recent proposals for reform. On July 27, 2017, the United Kingdom’s Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. These reforms may cause LIBOR to cease to exist, new methods of calculating LIBOR to be established or the establishment of an alternative reference rate(s). These consequences cannot be entirely predicted and could have an adverse impact on the market value for or value of LIBOR-linked loans that are due under the Credit Agreement that will be guaranteed by Menlo. Changes in market interest rates may influence the financing costs and could reduce Menlo’s earnings and cash flows.

Risk Factors Relating to Menlo and Foamix

Menlo and Foamix are, and following completion of the Merger Menlo will continue to be, subject to the risks described in Part I, Item 1A in Menlo’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 28, 2019, and Part I, Item 1A in Foamix’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 28, 2019, as updated by their respective Quarterly Reports on Form 10-Q and future filings with the SEC, in each case, incorporated by reference into this joint proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 211 of this joint proxy statement/prospectus.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This joint proxy statement/prospectus and the documents incorporated by reference into this joint proxy statement/prospectus contains forward-looking statements within the meaning of the federal securities law that are subject to various risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in such statements. Words such as “anticipate,” “expect,” “project,” “intend,” “forecast,” “believe,” and words and terms of similar substance used in connection with any discussion of future plans, actions or events identify forward-looking statements. Such factors include, but are not limited to: (i) Menlo or Foamix may be unable to obtain stockholder/shareholder approval as required for the Merger; (ii) other conditions to the Closing of the Merger may not be satisfied; (iii) the Merger may involve unexpected costs, liabilities or delays; (iv) the effect of the announcement of the Merger on the ability of Menlo or Foamix to retain and hire key personnel and maintain relationships with customers, suppliers and others with whom Menlo or Foamix does business, or on Menlo’s or Foamix’s operating results and business generally; (v) Menlo’s or Foamix’s respective businesses may suffer as a result of uncertainty surrounding the Merger and disruption of management’s attention due to the Merger; (vi) the outcome of any legal proceedings related to the Merger; (vii) Menlo or Foamix may be adversely affected by other economic, business, and/or competitive factors; (viii) the risks and costs associated with clinical trials, including with respect to Menlo’s serlopitant for the treatment of pruritus associated with various conditions such as PN; (ix) the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement; (x) the risks and costs associated with the integration of, and the ability of Menlo and Foamix to integrate, the businesses successfully and to achieve anticipated synergies and other benefits from the Merger; (xi) risks that the Merger disrupts current plans and operations; (xii) the risk that Menlo or Foamix may be unable to obtain governmental and regulatory approvals required for the transaction, or that required governmental and regulatory approvals may delay the transaction or result in the imposition of conditions that could reduce the anticipated benefits from the proposed transaction or cause the parties to abandon the proposed transaction; and (xiii) other risks to consummation of the Merger, including the risk that the Merger will not be consummated within the expected time period or at all. In addition to the risk factors set forth herein, additional factors that may affect the future results of Menlo and Foamix are set forth in their respective filings with the SEC, including each of Menlo’s or Foamix’s most recently filed Annual Report on Form 10-K, subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other filings with the SEC, which are available on the SEC’s website at www.sec.gov. See in particular Item 1A of Part II of Menlo’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 under the heading “Risk Factors” and Item 1A of Part II of Foamix’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 under the heading “Risk Factors”. The risks and uncertainties described above and in Menlo’s most recent Quarterly Report on Form 10-Q and Foamix’s most recent Quarterly Report on Form 10-Q are not exclusive and further information concerning Menlo and Foamix and their respective businesses, including factors that potentially could materially affect its business, financial condition or operating results, may emerge from time to time. Readers are urged to consider these factors carefully in evaluating these forward-looking statements. Readers should also carefully review the risk factors described in other documents that Menlo and Foamix file from time to time with the SEC. The forward-looking statements in this joint proxy statement/prospectus and the documents incorporated by reference into this joint proxy statement/prospectus speak only as of the date of this joint proxy statement/prospectus and the documents incorporated by reference into this joint proxy statement/prospectus. Except as required by law, Menlo and Foamix assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

 

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SELECTED HISTORICAL FINANCIAL DATA

The following tables present summary historical financial data for Menlo and Foamix, summary unaudited pro forma condensed combined financial data for Menlo and Foamix, and comparative historical and unaudited pro forma per share data for Menlo and Foamix included elsewhere herein.

Selected Historical Financial Data of Menlo

Menlo’s selected statements of operations data for the years ended December 31, 2018, 2017, and 2016, and its selected balance sheet data as of December 31, 2018, 2017, and 2016, are derived from Menlo’s audited financial statements. Menlo’s selected statements of operations data for the nine months ended September 30, 2019 and 2018, and its selected balance sheet data as of September 30, 2019 and 2018, are derived from Menlo’s unaudited interim financial statements. Menlo has prepared the unaudited interim financial statements on the same basis as the audited financial statements and has included, in its opinion, all adjustments, consisting only of normal recurring adjustments, that it considers necessary for a fair statement of the financial information set forth in those statements.

Menlo’s unaudited historical financial statements for the nine months ended September 30, 2019 and 2018, and as of September 30, 2019, are contained in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 (the “Menlo Q3 2019 Quarterly Report”). Menlo’s audited historical financial statements for the fiscal years ended December 31, 2018, 2017 and 2016, and as of December 31, 2018 and 2017, are contained in its Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the “Menlo 2018 Annual Report”). Each of the Menlo Q3 2019 Quarterly Report and Menlo 2018 Annual Report is incorporated by reference into this joint proxy statement/prospectus. Menlo’s selected balance sheet data as of September 30, 2018, and as of December 31, 2016, are derived from Menlo’s unaudited and audited financial statements, respectively, that are not included (including by way of incorporation by reference) in this joint proxy statement/prospectus.

Menlo’s historical results are not necessarily indicative of the results that may be expected in any future period and its interim results for the nine months ended September 30, 2019 are not necessarily indicative of results to be expected for the full year ending December 31, 2019, or any other period. The selected historical financial data below should be read in conjunction with Menlo management’s discussion and analysis of financial condition and results of operations and Menlo’s financial statements and the notes related thereto included in each of the Menlo 2018 Annual Report and Menlo Q3 2019 Quarterly Report, as applicable, which are incorporated by reference into this joint proxy statement/prospectus. For additional information, see the section titled “Where You Can Find More Information” beginning on page 211 of this joint proxy statement/prospectus.

 

    Year Ended December 31,     Nine Months
Ended
September 30,
 
    2018     2017     2016     2019     2018  
    (in thousands, except share and per share numbers)  
                      (unaudited)  

Statements of Operations Data:

         

Collaboration and license revenue

  $ 10,640     $ 4,582     $ 674     $ —       $ 10,640  

Operating expenses:

         

Research and development

    52,989       29,007       11,255       42,003       37,913  

General and administrative

    12,186       5,168       3,751       12,309       8,822  

Total operating expenses

    65,175       34,175       15,006       54,312       46,735  

Loss from operations

    (54,535     (29,593     (14,332     (54,312     (36,095

Interest income and other expenses, net

    3,090       517       264       2,107       2,243  

Net loss attributable to common stockholders

  $ (51,445   $ (29,076   $ (14,068   $ (52,205   $ (33,852

Net loss attributable to common stockholder per share, basic and diluted

  $ (2.37   $ (5.69   $ (2.82   $ (2.20   $ (1.60

Weighted-average number of common shares used to compute basic and diluted net loss per share

    21,668,689       5,108,121       4,987,133       23,708,123       21,164,069  

 

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     As of December 31,     As of September 30,  
     2018     2017     2016     2019     2018  
     (in thousands)  
                       (unaudited)  

Balance Sheet Data:

          

Cash, cash equivalents and investments

   $ 136,250     $ 62,479     $ 41,328     $ 93,360     $ 152,657  

Working capital

     129,956       56,044       27,637       83,977       146,406  

Total assets

     139,928       66,867       42,053       96,576       154,958  

Convertible preferred stock

     —         109,327       59,003       —         —    

Accumulated deficit

     (110,636     (59,191     (30,115     (162,841     (93,042

Total stockholders’ equity (deficit)

     130,377       (57,034     (29,441     87,002       146,884  

Selected Historical Financial Data of Foamix

Foamix’s selected statements of operations data for the years ended December 31, 2018, 2017 and 2016, and its balance sheet data as of December 2018, 2017 and 2016, are derived from Foamix’s consolidated audited financial statements. Foamix’s selected statements of operations data for the nine months ended September 30, 2019 and 2018, and its balance sheet data as of September 30, 2019 and 2018, are derived from Foamix’s unaudited consolidated condensed financial statements. Foamix has prepared the unaudited interim financial statements on the same basis as the audited financial statements and has included, in its opinion, all adjustments, consisting of normal recurring adjustments, that it considers necessary for a fair statement of the financial information set forth in those statements.

Foamix’s unaudited historical financial statements for the nine months ended September 30, 2019 and 2018, and as of September 30, 2019, are contained in Foamix’s Quarterly Report on Form 10-Q for the period ended September 30, 2019, filed with the SEC on November 12, 2019 and incorporated by reference in this joint proxy statement/prospectus. Foamix’s consolidated audited financial statements for the years ended December 31, 2018, 2017 and 2016, and as of December 31, 2018 and 2017, appear in Foamix’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 28, 2019 and incorporated by reference in this joint proxy statement/prospectus. Foamix’s unaudited balance sheet data as of September 30, 2018, and its audited balance sheet data as of December 31, 2016, which in each case are included herein, are derived from Foamix’s peiodic reports that are not incorporated by reference in this joint proxy statement/prospectus.

 

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The information set forth below is not necessarily indicative of the results of future operations of Foamix (as part of the Combined Company) following the Merger, and you should read the selected historical financial and other data together with Foamix’s audited financial statements and the related notes thereto, and Foamix’s unaudited condensed financial statements and the related notes thereto, and the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, which are incorporated by reference in this joint proxy statement/prospectus.

 

     Year Ended December 31,      Nine Months
Ended
September 30,
 
Statements of Operations Data:    2018      2017      2016      2019      2018  
   (in thousands, except per share data)  
                          (unaudited)  

Revenues

   $ 3,595      $ 3,669      $ 5,527      $ 308      $ 2,735  

Cost of revenues

     —          13        59        —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     3,595        3,656        5,468        308        2,735  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Operating expenses:

              

Research and development

     64,474        57,779        25,897        35,856        52,809  

Selling, general and administrative

     14,013        11,491        9,221        22,894        10,019  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     78,487        69,270        35,118        58,750        62,828  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Operating loss

     74,892        65,614        29,650        58,442        60,093  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net loss

   $ 74,163      $ 65,715      $ 29,336      $ 57,358      $ 60,085  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loss per share, basic and diluted

     1.70        1.76        0.91        1.05        1.50  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of ordinary shares (in thousands)

              

Basic and Diluted

     43,660        37,376        32,263        54,420        39,932  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

    As of December 31,     As of September 30,  
Balance Sheets Data:   2018     2017     2016     2019     2018  
  (in thousands, except share data)        
                      (unaudited)  

Cash, cash equivalents and investments(1)

  $ 99,385     $ 76,412     $ 130,988     $ 75,689     $ 110,474  

Working capital(2)

    90,699       59,276       111,730       63,155       103,021  

Total assets

    103,731       80,254       135,635       81,583       115,187  

Total long-term liabilities

    1,081       1,425       379       14,684       1,093  

Total shareholders’ equity

    92,182       68,601       129,985       53,529       105,058  

Ordinary shares

  $ 2,331     $ 1,576     $ 1,561     $ 2,638       2,327  

Number of ordinary shares

    54,351,140       37,498,128       37,167,791       61,121,087       54,270,174  

 

(1)

Foamix’s cash, cash equivalents and investments includes cash and cash-equivalents, restricted cash, bank deposits, marketable securities and restricted marketable securities.

(2)

Working capital is defined as total current assets minus total current liabilities.

 

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SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following tables set forth selected unaudited pro forma condensed combined financial information giving effect to the Merger. The unaudited pro forma condensed combined statements of operations and other comprehensive loss for the nine months ended September 30, 2019, and the year ended December 31, 2018, give effect to the Merger as if it had been consummated on January 1, 2018. The unaudited pro forma condensed combined balance sheet as of September 30, 2019 gives effect to the Merger as if it had been consummated on September 30, 2019.

The selected unaudited pro forma condensed combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or consolidated financial condition of the Combined Company would have been had the Merger actually occurred on the dates indicated, nor does it purport to project the future consolidated results of operations or consolidated financial condition of the Combined Company for any future period or as of any future date. See “Risk Factors—Risk Factors Relating to the Combined Company following the Merger—Menlo’s actual financial position and results of operations may differ materially from the unaudited pro forma financial information included in this joint proxy statement/prospectus.

The selected unaudited pro forma condensed combined financial information as of and for the nine months ended September 30, 2019 and for the year ended December 31, 2018 are derived from the unaudited pro forma condensed combined financial information included under the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” and should be read in conjunction with that information. The unaudited pro forma adjustments are based upon available information and certain assumptions that Foamix and Menlo believe are reasonable under the circumstances. The selected unaudited pro forma condensed combined financial information also gives effect to the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial information included in this joint proxy statement/prospectus. For more information, please see the section titled “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 61 of this joint proxy statement/prospectus.

 

     Nine Months Ended
September 30, 2019
     Year Ended
December 31, 2018
 
     (in thousands, except for per share data)  

Condensed Combined Statements of Operations Data:

     

Revenues

   $ 308      $ 14,235  

Net loss

     109,563        125,608  

Basic and diluted net loss per share

   $ 1.82      $ 2.17  

 

     As of
September 30, 2019
 
     (in thousands)  

Condensed Combined Balance Sheet Data:

  

Cash, cash equivalents and investments

   $ 169,049  

Total assets

     222,632  

Total long-term liabilities

     14,806  

Total shareholders’ equity

     143,037  

 

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COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE FINANCIAL DATA

Presented below are each of Menlo’s and Foamix’s historical per share data for the nine months ended September 30, 2019 and the year ended December 31, 2018, as well as unaudited pro forma combined per share data for the nine months ended September 30, 2019 and the year ended December 31, 2018, and unaudited pro forma equivalent data for the nine months ended September 30, 2019 and the year ended December 31, 2018. This information should be read together with the financial statements and related notes of Menlo and Foamix that are incorporated by reference into this joint proxy statement/prospectus and with the unaudited pro forma condensed combined financial information included under the section entitled “Unaudited Pro Forma Condensed Combined Financial Information”. The pro forma information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the Merger had been completed as of the beginning of the periods presented or on the dates presented, nor is it necessarily indicative of the future operating results or financial position of the Combined Company. The historical book value per share is computed by dividing total stockholders’ equity by the number of shares outstanding at the end of the relevant period. The pro forma net loss per share of the Combined Company is computed by dividing the pro forma net loss by the pro forma weighted average number of shares outstanding. The pro forma book value per share of the Combined Company is computed by dividing total pro forma stockholders’ equity by the pro forma number of shares outstanding at the end of the period.

 

    Nine Months Ended
September 30, 2019
    Year Ended
December 31, 2018
 

MENLO HISTORICAL DATA

   

Historical per share of common stock

   

Basic and diluted net loss per share

  $ 2.20     $ 2.37  

Book value per share (at period end)

  $ 3.63     $ 5.61  
    Nine Months Ended
September 30, 2019
    Year Ended
December 31, 2018
 

FOAMIX HISTORICAL DATA

   

Historical per ordinary share

   

Basic and diluted net loss per share

  $ 1.05     $ 1.70  

Book value per share (at period end)

  $ 0.88     $ 1.70  
    Nine Months Ended
September 30, 2019
    Year Ended
December 31, 2018
 

PRO FORMA COMBINED DATA

   

Unaudited pro forma per share of common stock

   

Basic and diluted net loss per share

  $ 1.82     $ 2.17  

Book value per share (at period end)

  $ 2.37       N/A  

FOAMIX PRO FORMA EQUIVALENT DATA(1)

   

Unaudited pro forma per ordinary share

   

Basic and diluted net loss per share

  $ 1.08     $ 1.28  

Book value per share (at period end)

  $ 1.41       N/A  

 

The pro forma equivalent Foamix share amounts were calculated by multiplying the pro forma combined amounts by the Exchange Ratio of 0.5924 (the number of shares of Menlo common stock to be issued to Foamix shareholders for each Foamix share held as of the consummation of the Merger). The pro forma equivalent data assumes that no adjustment will be made to the Exchange Ratio at or following the Closing due to the failure of one or both of Menlo’s Phase III PN Trials, which would result in the issuance of additional shares of Menlo common stock per Foamix share. A maximum of an additional 1.2082 shares of Menlo common stock may be issued for each Foamix share outstanding as of the consummation of the Merger pursuant to the foregoing adjustment.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following sets forth certain unaudited pro forma condensed combined financial information giving effect to the Merger.

The below unaudited pro forma condensed combined balance sheet as of September 30, 2019 combines the historical unaudited condensed balance sheets of Menlo and Foamix as of September 30, 2019, giving effect to the Merger as if it had been consummated on September 30, 2019. The below unaudited pro forma condensed combined statement of operations and other comprehensive loss for the nine months ended September 30, 2019 and the fiscal year ended December 31, 2018 give effect to the Merger as if it had been consummated on January 1, 2018. The unaudited pro forma condensed combined financial information also gives effect to the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements.

In order to effect the Merger, Foamix, Menlo and Merger Sub have entered into the Merger Agreement, pursuant to which Merger Sub, a wholly-owned subsidiary of Menlo, will merge with and into Foamix, with Foamix as the Surviving Company. As a result of the Merger, Menlo will become the parent company of Foamix. Upon the effectiveness of the Merger, Menlo will issue to Foamix’s shareholders 0.5924 of a share of Menlo common stock for each outstanding Foamix share held by them. The number of shares of Menlo common stock to be received per Foamix share will be subject to upwards adjustment prior to the Effective Time: (a) to 1.2739 shares of Menlo common stock, if the Efficacy Determination reports that (1) Serlopitant Significance was achieved in only one Phase III PN Trial and (2) Serlopitant Significance was not achieved or has not been determined in each case on or before May 31, 2020 in the second Phase III PN Trial; or (b) to 1.8006 shares of Menlo common stock, if the Efficacy Determination reports that Serlopitant Significance was not achieved in both Phase III PN Trials or the Efficacy Determination has not been delivered on or before May 31, 2020. The exchange of Foamix shares for Menlo common stock will result in Foamix shareholders owning, in the aggregate, approximately 59% of the Combined Company’s common stock. If the events described in clauses (a) or (b) above occur prior to the Effective Time, Foamix shareholders will own, in the aggregate, 76% or 82%, respectively, of the Combined Company’s common stock.

In the event that the (i) the Merger is completed on or before May 31, 2020 and (ii) the Efficacy Determination is not delivered to Menlo and Foamix on or before the date the Merger is completed, then, at the Effective Time, in addition to receiving 0.5924 of a share of Menlo common stock, each outstanding Foamix share will be entitled to receive one CSR, which may potentially convert, following the Effective Time, into additional shares of Menlo common stock, depending on the Efficacy Determination. Menlo and a rights agent mutually acceptable to Foamix and Menlo will enter into a CSR Agreement governing the terms of those CSRs. Upon the occurrence, following the Effective Time, of the results for the Efficacy Determination as are described in clauses (a) and (b) of the preceding paragraph, the CSRs will convert into additional shares of Menlo common stock such that the resulting effective Exchange Ratio (following such conversion) will be 1.2739 or 1.8006, respectively. As a result of the conversion of the CSRs, Foamix shareholders, in the aggregate, would own approximately 76% or 82%, as applicable, of the Combined Company’s common stock. Subject to shareholder/stockholder and regulatory approvals, the Merger is expected to close late in the first quarter or early in the second quarter of 2020.

Each of the percentages above is calculated based on the fully-diluted number of Foamix shares and Menlo shares (including all dilutive stock options, units and warrants) using the treasury stock method, calculated as of November 4, 2019 and assuming no subsequent issuances from that date until the signing of the Merger Agreement.

The unaudited pro forma combined financial information has been prepared in accordance with SEC Regulation S-X Article 11 and by using the acquisition method of accounting in accordance with the business combination accounting guidance set forth in Accounting Standards Codification 805, Business Combinations. The unaudited pro forma combined financial information is presented for illustrative purposes only and is not

 

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necessarily indicative of the combined operating results or financial position that would have occurred if the Merger had been consummated on the dates and in accordance with the assumptions described herein, nor is it necessarily indicative of future results of operations or financial position of the Combined Company. See “Risk Factors—Risk Factors Relating to the Combined Company Following the Merger—Menlo’s actual financial position and results of operations may differ Materially from the unaudited pro forma financial information included in this joint proxy statement/prospectus.

Menlo will issue shares of its common stock to Foamix shareholders and will, upon the effectiveness of the Merger, become the legal parent company of Foamix, however, Foamix will be the “accounting acquirer” in the Merger. For further information, see the section entitled “Accounting Treatment of the Merger”. Accordingly, the below unaudited pro forma combined financial information reflects Foamix acquiring Menlo, and the Merger will be accounted for as a reverse acquisition, with Foamix allocating the purchase price consideration to the tangible and intangible assets acquired and liabilities assumed from Menlo, and the excess purchase price recorded as goodwill. In accordance with reverse acquisition accounting, Foamix’s consolidated financial statements will be deemed those of the predecessor entity and will reflect the Merger with Menlo beginning on the day of the Merger.

Foamix conducted detailed preliminary valuation studies to determine the fair values of the Menlo assets and liabilities deemed being acquired, and sought to determine whether there were any adjustments necessary to conform Menlo’s significant accounting policies to those of Foamix. Based upon Foamix’s review of Menlo’s summary of significant accounting policies and preliminary discussions with management teams of Foamix and Menlo, Foamix determined that there were no material adjustments in significant accounting policies required, nor were there any amounts in the historical financial statements of Menlo that were required to be reclassified in the unaudited pro forma condensed combined financial information in order to conform to Foamix’s financial statement presentation. Upon completion of the Merger, further review of Menlo’s accounting policies may result in additional revisions to Menlo’s accounting policies and classifications to conform to those of Foamix.

Under the acquisition method of accounting, the total purchase price is allocated to the assets acquired and liabilities assumed from Menlo based on their preliminary estimated fair values. The preliminary estimated fair values were determined based on preliminary valuation studies, discussions with Menlo’s management, due diligence and information presented in public filings. Historical financial information concerning Foamix and Menlo has been adjusted to give effect to matters that are (i) directly attributable to the Merger, (ii) factually supportable and (iii) with respect to the statements of operations and other comprehensive loss, expected to have a continuing impact on the operating results of the Combined Company. The unaudited pro forma purchase price allocation and related adjustments are preliminary and are subject to further adjustments as additional information becomes available and as additional valuations and analyses are completed. Subsequent to the Merger, Foamix will undertake to complete final valuations of the assets acquired and liabilities assumed from Menlo. Accordingly, there may be increases or decreases in the fair value of Menlo’s assets and liabilities reflected in the pro forma balance sheet that may also impact the pro forma statements of operations and other comprehensive loss. There can be no assurance that such final fair values of the assets acquired and liabilities assumed from the acquisition of Menlo will not result in material changes to the accompanying unaudited pro forma condensed combined financial information.

The unaudited pro forma condensed combined financial information furthermore does not give effect to the potential impact of any anticipated synergies, operating efficiencies or cost savings that may result from the Merger, or to any integration costs.

This unaudited pro forma condensed combined financial information should be read together with the accompanying notes to the unaudited pro forma condensed combined financial information and in conjunction with the following:

 

   

the separate historical audited financial statements of Foamix as of, and for the three years ended, December 31, 2018, included in Foamix’s Annual Report on Form 10-K filed with the SEC on February 28, 2019;

 

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the separate historical unaudited financial information of Foamix as of September 30, 2019, and for the nine months ended September 30, 2019 and 2018, included in Foamix’s Quarterly Report on Form 10-Q filed with the SEC on November 12, 2019;

 

   

the separate historical audited financial statements of Menlo as of, and for the three years ended, December 31, 2018, included in Menlo’s Annual Report on Form 10-K filed with the SEC on February 28, 2019; and

 

   

the separate historical unaudited condensed financial statements of Menlo as of September 30, 2019, and for the nine months ended September 30, 2019 and 2018, included in Menlo’s Quarterly Report on Form 10-Q filed with the SEC on October 31, 2019.

In addition, this unaudited pro forma condensed combined financial information should be read together with the information under “Risk Factors” in this joint proxy statement/prospectus as well as the information under similar titles in the documents incorporated by reference herein.

 

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Unaudited Pro Forma Condensed Combined Balance Sheet

As of September 30, 2019

(in thousands, except per share data)

 

     Historical                     
     Foamix     Menlo     Pro Forma
Adjustments
    Note      Pro Forma
Combined
 

ASSETS

           

Current assets:

           

Cash and cash equivalents

   $ 40,534     $ 34,244     $ —          $ 74,778  

Restricted cash

     250       —         —            250  

Short-term bank deposits

     19,141       —         —            19,141  

Investment in marketable securities

     15,333       57,112       —            72,445  

Restricted investment in marketable securities

     288       —         —            288  

Prepaid expenses and other current assets

     979       2,073       —            3,052  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total current assets

     76,525       93,429       —            169,954  
  

 

 

   

 

 

   

 

 

      

 

 

 

Non-current assets

           

Long-term investment in marketable securities

     —         2,004       —            2,004  

Restricted investment in marketable securities

     143       —         —            143  

Property and equipment, net

     2,809       113       (113        2,809  

Operating lease right-of-use assets

     1,947       830       33          2,810  

Prepaid expenses and other non-current assets

     159       200            359  

In-process research & development

     —       —       37,832       4(c)        37,832  

Other intangible assets

     —       —       2,077       4(c)        2,077  

Goodwill

     —       —       4,644       4(b)        4,644  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total non-current assets

     5,058       3,147       44,473          52,678  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total assets

   $ 81,583     $ 96,576     $ 44,473        $ 222,632  
  

 

 

   

 

 

   

 

 

      

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

           

Current liabilities:

           

Accounts payable and accruals:

           

Trade

   $ 7,357     $ 2,992     $ —          $ 10,349  

Operating lease liabilities

     1,136       741       —            1,877  

Contingent stock right

     —       —       23,040       4(e)        23,040  

Other liabilities

     4,877       5,719       18,927       4(d)        29,523  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total current liabilities

     13,370       9,452       41,967          64,789  
  

 

 

   

 

 

   

 

 

      

 

 

 

Long-term liabilities:

           

Liability for employee severance benefits

     419       —         —          419  

Operating lease liabilities

     870       122       —            992  

Long-term debt

     12,939       —         —          12,939  

Other liabilities

     456       —         —          456  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total long-term liabilities

     14,684       122       —            14,806  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total liabilities

     28,054       9,574       41,967          79,595  

Commitments

           

Shareholders’ equity:

           4(f)     

Stockholders’ equity

     2,638       3       (2,635        6  

Additional paid-in capital

     323,657       249,805       (138,738        434,724  

Accumulated deficit

     (272,767     (162,841     143,914          (291,694

Accumulated other comprehensive loss

     1       35       (35        1  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total shareholders’ equity

     53,529       87,002       2,506          143,037  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total liabilities and shareholders’ equity

   $ 81,583     $ 96,576     $ 44,473        $ 222,632  
  

 

 

   

 

 

   

 

 

      

 

 

 

 

See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information.

 

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Unaudited Pro Forma Condensed Combined Statement of Operations and Other

Comprehensive Loss For the Nine Months Ended September 30, 2019

(in thousands, except per share data)

 

     Historical                      
     Foamix     Menlo     Pro Forma
Adjustments
     Note      Pro Forma
Combined
 

Revenues

   $ 308     $ —       $ —           $ 308  

Operating expenses:

            

Research and development

     35,856       42,003       —             77,859  

Selling, general and administrative

     22,894       12,309       —             35,203  
  

 

 

   

 

 

   

 

 

       

 

 

 

Total operating expenses

     58,750       54,312       —             113,062  
  

 

 

   

 

 

   

 

 

       

 

 

 

Operating loss

     58,442       54,312       —             112,754  

Finance income, net

     (908     (2,107     —             (3,015
  

 

 

   

 

 

   

 

 

       

 

 

 

Loss before income tax

     57,534       52,205       —             109,739  

Income tax

     (176           —             (176
  

 

 

   

 

 

   

 

 

       

 

 

 

Net loss for the period

   $ 57,358     $ 52,205     $ —           $ 109,563  
  

 

 

   

 

 

   

 

 

       

 

 

 

Net unrealized gains from marketable securities

     (41     (131     —             (172

Net unrealized gains on derivative financial instruments

     (3     —         —             (3
  

 

 

   

 

 

   

 

 

       

 

 

 

Comprehensive loss

   $ 57,314     $ 52,074     $ —           $ 109,388  
  

 

 

   

 

 

   

 

 

       

 

 

 

Loss per share, basic and diluted

     N/A     $ 2.20     $ —           $ 1.82  
  

 

 

   

 

 

   

 

 

       

 

 

 

Weighted-average number of shares outstanding used in computation of basic and diluted loss per share in thousands

     N/A       23,708       36,308        4(a)        60,016  
  

 

 

   

 

 

   

 

 

       

 

 

 

 

See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information.

 

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Unaudited Pro Forma Condensed Combined Statement of Operations and Other

Comprehensive Loss For the Year Ended December 31, 2018

(in thousands, except per share data)

 

     Historical                      
     Foamix     Menlo     Pro Forma
Adjustments
     Note      Pro Forma
Combined
 

Revenues

   $ 3,595     $ 10,640     $ —           $ 14,235  

Operating expenses:

            

Research and development

     64,474       52,989       —             117,463  

Selling, general and administrative

     14,013       12,186       —             26,199  
  

 

 

   

 

 

   

 

 

       

 

 

 

Total operating expenses

     78,487       65,175       —             143,662  
  

 

 

   

 

 

   

 

 

       

 

 

 

Operating loss

     74,892       54,535       —             129,427  

Finance income, net

     (941     (3,090     —             (4,031
  

 

 

   

 

 

   

 

 

       

 

 

 

Loss before income tax

     73,951       51,445       —             125,396  

Income tax

     212       —         —             212
  

 

 

   

 

 

   

 

 

       

 

 

 

Net loss for the period

   $ 74,163     $ 51,445     $ —           $ 125,608  
  

 

 

   

 

 

   

 

 

       

 

 

 

Net unrealized losses (gains) from marketable securities

     (59     45     —           (14

Losses on marketable securities reclassified into net loss

     (5     —       —           (5

Net unrealized losses on derivative financial instruments

     74       —       —           74  

Losses on derivative financial instruments reclassified into net loss

     (60     —       —           (60
  

 

 

   

 

 

   

 

 

       

 

 

 

Comprehensive loss

   $ 74,113     $ 51,490     $ —           $ 125,603  
  

 

 

   

 

 

   

 

 

       

 

 

 

Loss per share, basic and diluted

     N/A     $ 2.37     $ —           $ 2.17  
  

 

 

   

 

 

   

 

 

       

 

 

 

Weighted-average number of shares outstanding used in computation of basic and diluted loss per share in thousands

     N/A       21,669       36,308        4(a)        57,977  
  

 

 

   

 

 

   

 

 

       

 

 

 

 

See accompanying Notes to Unaudited Pro Forma Condensed Combined Financial Information.

 

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NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Note 1. Description of the Transaction

Foamix, Menlo and Merger Sub have entered into the Merger Agreement, pursuant to which Merger Sub, a wholly-owned subsidiary of Menlo, will merge with and into Foamix, with Foamix continuing as the Surviving Company. As a result of the Merger, Menlo will be the parent company of Foamix. Upon the effectiveness of the Merger, Menlo will issue to Foamix’s shareholders 0.5924 of a share of Menlo common stock for each outstanding Foamix share held by them. The number of shares of Menlo common stock to be received per Foamix share will be subject to upwards adjustment prior to the Effective Time: (a) to 1.2739 shares of Menlo common stock if the Efficacy Determination reports that (1) Serlopitant Significance was achieved in only one Phase III PN Trial and (2) Serlopitant Significance was not achieved or has not been determined in each case on or before May 31, 2020 in the second Phase III PN Trial; or (b) to 1.8006 shares of Menlo common stock if the Efficacy Determination reports that Serlopitant Significance was not achieved in both Phase III PN Trials or the Efficacy Determination has not been delivered on or before May 31, 2020. The exchange of Foamix shares for Menlo common stock will result in Foamix shareholders owning, in the aggregate, approximately 59% of the Combined Company’s common stock. If the events described in clauses (a) or (b) above occur prior to the Effective Time, Foamix shareholders will own, in the aggregate, 76% or 82%, respectively, of the Combined Company’s common stock.

In the event that the (i) the Merger is completed on or before May 31, 2020 and (ii) the Efficacy Determination is not delivered to Menlo and Foamix on or before the Merger is completed, then, at the Effective Time, in addition to receiving 0.5924 of a share of Menlo common stock, each outstanding Foamix share will be entitled to receive one CSR, which may potentially convert, following the Effective Time, into additional shares of Menlo common stock, depending on the Efficacy Determination. Menlo and a rights agent mutually acceptable to Foamix and Menlo will enter into a CSR Agreement governing the terms of those CSRs. Upon the occurrence, following the Effective Time, of the results for the Efficacy Determination as are described in clauses (a) and (b) of the preceding paragraph, the CSRs will convert into additional shares of Menlo common stock such that the resulting effective Exchange Ratio (following such conversion) will be 1.2739 or 1.8006, respectively. As a result of the conversion if the CSRs, Foamix shareholders, in the aggregate, would own approximately 76% or 82%, as applicable, of the Combined Company’s common stock. Subject to shareholder/stockholder and regulatory approvals, the Merger is expected to close late in the first quarter or early in the second quarter of 2020.

Each of the percentages above is calculated based on the fully-diluted number of Foamix shares and Menlo shares (including all dilutive stock options, units and warrants) using the treasury stock method, calculated as of November 4, 2019 and assuming no subsequent issuances from that date until the signing of the Merger Agreement.

Note 2. Basis of Pro Forma Presentation

The unaudited pro forma condensed combined financial information has been prepared in accordance with SEC Regulation S-X Article 11 and by using the acquisition method of accounting in accordance with the business combination accounting guidance set forth in Accounting Standards Codification 805, Business Combinations (“ASC 805”). The unaudited pro forma condensed combined statements of operations and other comprehensive loss for the nine months ended September 30, 2019, and the year ended December 31, 2018, give effect to the Merger as if it had been consummated on January 1, 2018. The unaudited pro forma condensed combined balance sheet as of September 30, 2019 gives effect to the Merger as if it had been consummated on September 30, 2019.

The unaudited pro forma condensed combined financial information has been derived from the historical financial statements of Foamix and Menlo that are incorporated by reference into this joint proxy statement/prospectus. Based on Foamix’s preliminary review of Foamix’s and Menlo’s summary of significant accounting policies and preliminary discussions between management teams of Foamix and Menlo, the nature and amount of any adjustments to the historical financial statements of Menlo to conform its accounting policies to those of Foamix are not expected to be material. Upon completion of the Merger, further review of Menlo’s accounting policies may result in additional revisions to Menlo’s accounting policies and classifications to conform to those of Foamix.

 

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The unaudited pro forma condensed combined financial information has been prepared using the acquisition method of accounting in accordance with the business combination accounting guidance as provided in ASC 805, with Foamix treated as the accounting acquirer. Since Menlo is the legal acquirer, the Merger will be accounted for as a reverse acquisition. Under ASC 805, Foamix’s total estimated purchase price is calculated as described in Note 3, and the net assets acquired and the liabilities assumed of Menlo are measured and recorded at their estimated fair values. For the purpose of measuring the estimated fair value of the assets acquired and liabilities assumed, Foamix estimated the fair values as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The fair value measurements utilize estimates based on key assumptions of the Merger, including historical and current market data. The unaudited pro forma adjustments included herein are preliminary and will be adjusted as additional information becomes available and as additional analyses are performed. The final purchase price allocation will be determined subsequent to the Merger, and the final amounts of the assets acquired and liabilities assumed in the acquisition of Menlo may differ materially from the values recorded in the pro forma financial information.

The historical financial information has been adjusted to give effect to matters that are (i) directly attributable to the Merger, (ii) factually supportable and (iii) with respect to the statements of operations and other comprehensive loss, expected to have a continuing impact on the operating results of the Combined Company. Estimated transaction costs have been excluded from the unaudited pro forma condensed combined statements of operations and other comprehensive loss as they reflect charges directly related to the Merger which do not have an ongoing impact. However, the anticipated transaction costs are reflected in the unaudited pro forma condensed combined balance sheet as an increase to accounts payable and other current liabilities and a decrease to retained earnings (which is an increase to accumulated deficit, in the case of the Combined Company). In addition, the unaudited pro forma condensed combined statement of operations and other comprehensive loss does not include one-time costs directly attributable to the transaction, employee retention costs or professional fees incurred or expected to be incurred by Foamix or Menlo pursuant to provisions contained in the Merger Agreement, as those costs are not considered part of the purchase price.

Foamix and Menlo expect to incur significant costs associated with integrating the operations of Foamix and Menlo after the Merger is completed. The unaudited pro forma condensed combined financial information do not reflect the costs of any integration activities or benefits that may result from realization of future cost savings from operating efficiencies or revenue synergies expected to result from the Merger.

The unaudited pro forma condensed combined financial information may differ from the final purchase accounting for a number of reasons, including the fact that the estimates of fair values of assets and liabilities acquired are preliminary and subject to change when the valuation and other studies are finalized. In addition, the values will be based on the actual value as of the Closing Date. The differences that may occur between the preliminary estimates and the final purchase accounting could have a material impact on the accompanying unaudited pro forma condensed combined financial information.

Note 3. Estimate of Consideration Expected to be Transferred

The following is a preliminary estimate of the Merger Consideration to be transferred to effect the Merger (in thousands, except share data):

 

     Total  

Deemed (for accounting purposes only) issuance of Foamix shares to Menlo stockholders

   $ 140,890  

Deemed (for accounting purposes only) conversion of Menlo equity awards

     13,625  
  

 

 

 

Total consideration(1)

   $ 154,515  
  

 

 

 

 

(1)

This amount reflects total consideration prior to reduction in respect of the CSRs that may be issued to Foamix shareholders and that would reduce the Menlo stockholders’ relative ownership in the Combined Company. If the effect of the CSRs is included, the total consideration deemed paid by Foamix, as the accounting acquirer, to Menlo stockholders and equity award holders in the Merger would be reduced to approximately $131.5 million, as shown in the purchase price allocation table further below in this Note 3.

 

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Based on Foamix’s closing share price of $3.48 as of November 18, 2019, the Merger Consideration under reverse acquisition accounting would be approximately $154.5 million, consisting of $140.9 million for the deemed (for accounting purposes only) issuance of 40.5 million Foamix shares (assuming that no upwards adjustment is made to the Exchange Ratio relating to the CSR), and $13.6 million for the fair value of Menlo equity awards deemed (for accounting purposes only) to be converted into Foamix equity awards. The converted stock options represent the fair value of such options attributable to service prior to the Merger date using the current Foamix share price as an input to the Black Scholes valuation model to determine the fair value of the options.

The estimated value of the Merger Consideration reflected in this pro forma condensed combined financial information does not purport to represent the actual value of the Merger Consideration that will be deemed to be received by Menlo’s stockholders when the Merger is consummated. The fair value of equity securities issued as part of the Merger Consideration will be measured on the Closing Date at the then-current market price of Foamix shares. This requirement will likely result in a per share equity component different from the $3.48 assumed in this pro forma condensed combined financial information and that difference may be material. For example, an increase or decrease by 10% in the price of Foamix shares on the Closing Date from the share price assumed in this pro forma condensed combined financial information would increase or decrease the value of the Merger Consideration by approximately $16.3 million, which would be reflected in this pro forma condensed combined financial information as an increase or decrease to goodwill, offset with a decrease or increase to shareholders’ equity.

The allocation of the preliminary purchase price to the fair values of assets acquired and liabilities assumed includes unaudited pro forma adjustments to reflect the fair value of Menlo’s assets and liabilities. The allocation of the preliminary purchase price is as follows:

 

(in thousands)       

Cash and cash equivalents

   $ 34,244  

Investment in marketable securities

     57,112  

Prepaid expenses and other current assets

     2,073  

Long-term investments

     2,004  

Prepaid expenses and other long-term assets

     200  

In-process research and development

     37,832  

Other intangible assets

     2,077  

Goodwill

     4,644  

Total assets

     140,186  
  

 

 

 

Current liabilities

     (8,711
  

 

 

 

Total liabilities

     (8,711
  

 

 

 

Estimated purchase price(1)

   $ 131,475  

 

(1)

Reflects reduction in the purchase price deemed paid to Menlo stockholders in the Merger on the assumption that the CSRs, in an aggregate value of $23.0 million, will convert into additional shares of the Combined Company for the Foamix shareholders, thereby resulting in a lower percentage of the Combined Company’s outstanding shares being owned by Menlo stockholders following the Merger, see Note 4(e).

Note 4. Adjustments to Unaudited Pro Forma Condensed Combined Financial Statements

The unaudited adjustments included in the unaudited pro forma condensed combined financial information are as follows:

Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations and Other Comprehensive Loss and Condensed Combined Balance Sheets

(a) Shares outstanding. The unaudited pro forma weighted average number of basic and diluted shares outstanding is calculated for each period presented by adding Menlo’s weighted number of basic shares of common stock outstanding for that period and the number of Menlo shares of common stock that would have

 

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been issued to Foamix shareholders as a result of the Merger and assuming that no upwards adjustment is made to the Exchange Ratio relating to the CSR.

(b) Goodwill. Reflects the preliminary estimate of the excess of the purchase price paid over the fair value of Menlo’s net tangible and identifiable intangible assets and liabilities, assumed. Goodwill will not be amortized but will be tested for impairment annually or when events or circumstances change that could potentially reduce the fair value. The estimated purchase price of the transaction, based on the closing price of Foamix shares on November 18, 2019, and the excess purchase price over the fair value of the identifiable net assets acquired, are calculated as follows (in thousands):

 

Preliminary purchase price

   $ 131,475  

Less: fair value of net assets acquired, including other identifiable intangibles

     (126,831
  

 

 

 

Pro forma goodwill adjustment

   $ 4,644  
  

 

 

 

(c) In-process research and development (“IPR&D”) and other intangible assets. Represents the unaudited pro forma adjustment to reflect the preliminary estimated fair value of Menlo’s intangible assets of approximately $39.9 million. The provisional measurements of fair value reflected are subject to change. Such changes could be significant to the fair value and to the related amortization.

The general categories of the acquired identified intangible assets are expected to be the following:

 

   

IPR&D and

 

   

Other intangible assets

Identified intangibles assets expected to be acquired consist of the following (in millions):

 

Intangible asset    Estimated
Fair Value
 

Acquired indefinite-lived intangible assets(1)

   $ 37,832  

Acquired definite-lived intangible assets(2)

     2,077  
  

 

 

 

Estimated fair value of identified intangible assets

   $ 39,909  
  

 

 

 

 

(1) 

Represents acquired IPR&D assets which are initially recognized at fair value and are classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. Accordingly, during the research and development period after the Closing Date of the combination, these assets will not be amortized into earnings; instead these assets will be subject to periodic impairment testing. Upon successful completion of the development process for an acquired IPR&D project, determination as to the useful life of the asset will be made; at that point in time, the asset would then be considered a finite-lived intangible asset and Foamix would begin to amortize the asset into earnings.

(2)

These assets are expected to be amortized over their estimated useful lives. The useful lives of intangible assets are based on Foamix’s assessment of various factors including contractual terms, economic cash flows and competitive and regulatory factors.

(d) Accounts payable and other current liabilities. The adjustment amount represents an increase to accounts payable and other current liabilities of $18.9 million due to estimated transaction costs. Total Foamix transaction costs related to the Merger have been estimated to be $5.2 million, of which no material expenses have been recorded as an expense in selling, general and administrative expenses within the unaudited pro forma condensed combined statement of operations and other comprehensive loss for the nine months ended September 30, 2019. Total Menlo transaction costs related to the Merger have been estimated to be $13.7 million, including estimated severance benefits for employees expected to be terminated after the Closing, of which no material expenses have been recorded as an expense in selling, general and administrative expenses

 

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within the unaudited pro forma condensed combined statements of operations and other comprehensive loss for the nine months ended September 30, 2019. Furthermore, no costs related to this transaction were expensed within the unaudited pro forma condensed combined statements of operations and other comprehensive loss for the year ended December 31, 2018 for either Foamix or Menlo. The impact of the estimated transaction costs of $18.9 million is included in the accompanying unaudited pro forma condensed combined balance sheet.

(e) Contingent Stock Right. The CSR in an amount of $23.0 million is recognized as a liability in the unaudited pro forma condensed combined balance sheet. The liability is measured at fair value as of the acquisition date in accordance with ASC 805-30-25-5 and subsequently at each reporting date thereafter. The issuance of the CSR is dependent on (i) the Merger being completed on or before May 31, 2020 and (ii) the Efficacy Determination not being delivered to Menlo and Foamix on or before the date the Merger is completed. The fair value of the CSR as recorded in the unaudited pro forma condensed combined balance sheet takes into consideration the probabilities of the following scenarios (a) Serlopitant Significance was achieved in both Phase III PN Trials on or before May 31, 2020; (b) Serlopitant Significance was achieved in only one Phase III PN Trial on or before May 31, 2020; and (c) Serlopitant Significance was not achieved in either Phase III PN Trial or has not been determined on or before May 31, 2020.

(f) Stockholders’ equity. Under reverse acquisition accounting, the amount of common stock reflects the equity structure of the legal acquirer (the par value and the number of shares of common stock issued by Menlo). The unaudited pro forma condensed combined balance sheet reflects the elimination of Foamix’s historical ordinary shares and the recognition of approximately 36.3 million shares, par value $0.0001 per share, of Menlo common stock that will be issued and outstanding upon completion of the Merger (equal to $3.6 thousand of common stock). The amount of additional paid-in capital represents that of Foamix, as adjusted to reflect the preliminary purchase price related to Foamix shares deemed (for accounting purposes) issued in the Merger, less the par value of the shares of Menlo common stock outstanding after the combination, and includes $13.6 million to reflect the portion of the purchase price related to the total estimated fair value of Menlo stock options and Menlo RSUs outstanding as of November 18, 2019.

Accumulated deficit of Foamix as the accounting acquirer was increased by $18.9 million for estimated transaction costs. These estimated transaction costs have been excluded from the unaudited pro forma condensed combined statement of operations and other comprehensive loss, as they reflect charges directly related to the Merger that do not have an ongoing impact.

 

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UNAUDITED COMPARATIVE MARKET VALUE AND DIVIDEND INFORMATION

Historical Market Price Information

The following table sets forth, for the periods indicated, the intraday high and low sales prices per share of Menlo common stock and Foamix shares, in both cases as reported by Nasdaq.

 

     MENLO      FOAMIX  
     High      Low      High      Low  
     ($)      ($)      ($)      ($)  

Quarter ended March 31, 2017

     —        —          11.27        4.40  

Quarter ended June 30, 2017

     —        —          5.11        4.03  

Quarter ended September 30, 2017

     —        —          5.99        4.34  

Quarter ended December 31, 2017

     —        —          7.00        5.17  

Quarter ended March 31, 2018

     39.86      20.50      7.45        4.45  

Quarter ended June 30, 2018

     38.51      6.99      5.60        4.40  

Quarter ended September 30, 2018

     12.00      7.39      7.60        4.93  

Quarter ended December 31, 2018

     10.28      3.74      5.93        3.21  

Quarter ended March 31, 2019

     9.03      3.90      4.48        3.21  

Quarter ended June 30, 2019

     8.13      5.53      4.15        2.30  

Quarter ended September 30, 2019

     6.32      2.69      3.79        1.97  

Quarter ending December 31, 2019 (through December 3, 2019)

     5.80      3.69      4.35        2.53  

Recent Closing Prices

The following table presents the closing price of a share of Menlo common stock and a Foamix share on November 8, 2019, the last trading day before the execution of the Merger Agreement, and on December 3, 2019, the last practicable trading day prior to the date of this joint proxy statement/ prospectus.

For illustrative purposes, the following table also provides the equivalent per share value of the Merger Consideration, which is equal to 0.5924 of a share of Menlo common stock for each Foamix share outstanding as of such dates (assuming that no upwards adjustment is made to the exchange rate for Foamix shareholders under the Merger Agreement upon (i) the Closing, or (ii) the conversion, following the Closing, of a CSR that may be issued to Foamix shareholders at the Closing, due to, in either such case, the failure of either or both of Menlo’s Phase III PN Trials to demonstrate Serlopitant Significance), as of each of those recent dates.

 

     Foamix
Closing Price
     Menlo
Closing Price
     Implied Value of
the Merger
Consideration
Per Foamix
Share
 

November 8, 2019

   $ 4.34      $ 5.22      $ 3.09  

December 3, 2019

   $ 3.08      $ 4.36      $ 2.58  

The above table shows only historical comparisons. The market price of Foamix shares and Menlo common stock will fluctuate prior to the meetings and before consummation of the Merger, which will affect the implied value of the Merger Consideration payable to the Foamix shareholders. These comparisons may not provide meaningful information to Foamix shareholders or Menlo stockholders in determining whether to approve the Foamix Merger Proposal or Menlo Merger Proposal, respectively. Foamix shareholders and Menlo stockholders are urged to obtain current market quotations for Foamix shares and Menlo shares and to review carefully the other information contained in, or incorporated by reference into, this joint proxy statement/prospectus in considering whether to approve the Foamix Merger Proposal or the Menlo Merger Proposal, as applicable. For more information, see the section entitled “Where You Can Find More Information”.

Dividend Information

Neither Foamix nor Menlo has declared or paid cash dividends on its ordinary shares or shares of common stock, respectively, and does not expect to pay such dividends for the foreseeable future.

 

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THE FOAMIX EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS

This joint proxy statement/prospectus is being made available to the Foamix shareholders as part of a solicitation of proxies by the Foamix Board for use at the Foamix meeting to be held at the time and place specified below, and at any properly convened meeting following any adjournment or postponement thereof. This joint proxy statement/prospectus provides Foamix shareholders with the information they need to know to be able to vote or instruct their vote to be cast at the Foamix meeting.

Date, Time and Place

The Foamix meeting will be held on                 , 2020 at                 , Eastern Standard Time, at Foamix’s U.S. offices located at 520 U.S. Highway 22, Suite 204, Bridgewater, NJ 08807.

Attendance at the Foamix meeting is limited to holders of record of Foamix shares and holders of valid proxies. If you plan to attend the meeting, to gain access to the meeting we ask that you bring with you photo identification and appropriate verification of your status as a shareholder as of the close of trading on                 , 20    , the record date for the meeting. If you are a representative of an institutional investor, please bring evidence demonstrating your representative capacity for such entity to be verified against our list of shareholders as of the close of trading on the record date for the meeting. In addition, if your Foamix shares are held in the name of a broker, bank or other nominee, you will need a valid legal proxy from such entity evidencing your authority to vote Foamix shares that the institution or other nominee held for your account as of the close of trading on the record date for the meeting. You must contact your broker, bank or other nominee directly in advance of the meeting to obtain a legal proxy.

Purpose of the Meeting

The Foamix meeting is being held to consider and vote on the following items:

 

   

Proposal 1: Approval and adoption of (i) Merger Agreement, by and among Menlo, Merger Sub and Foamix; (ii) the Merger in accordance with the provisions of Sections 314-327 of the Companies Law, following which Merger Sub will cease to exist, and Foamix will become a wholly-owned subsidiary of Menlo; (iii) the Merger Consideration for Foamix’s shareholders, consisting of (a) 0.5924 of a share of Menlo common stock (subject to upwards adjustment to 1.2739 or 1.8006 shares of Menlo common stock if one or both of Menlo’s Phase III PN Trials, respectively, fail to demonstrate Serlopitant Significance) for each Foamix share that is issued and outstanding (other than Excluded Shares) and that will be deemed transferred to Menlo upon the Merger and (b) if the Closing of the Merger occurs on or before May 31, 2020 and the Efficacy Determination has not yet been received, one CSR, subject to the terms and conditions of the CSR Agreement; and (iv) all other transactions contemplated by the Merger Agreement, all upon the terms and subject to the conditions set forth in the Merger Agreement.

 

   

Proposal 2: Approval, on a non-binding, advisory basis, pursuant to the rules under the Exchange Act, of certain compensation that may be paid or become payable to the named executive officers of Foamix in connection with the Merger and contemplated by the Merger Agreement.

Copies of the Agreement and Plan of Merger and Amendment No. 1 to the Agreement and Plan of Merger are attached as Annex A and Annex B, respectively, to this joint proxy statement/prospectus and incorporated herein by reference. The text of the proposed resolutions to approve the Foamix Merger Proposal and the Foamix Executive Compensation Proposal, respectively, is set out in the sections entitled “Matters Being Submitted to a Vote of Foamix Shareholders—Foamix Merger Proposal” and “Matters Being Submitted to a Vote of Foamix Shareholders—Foamix Executive Compensation Proposal”, respectively.

 

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Recommendation of the Foamix Board

After careful consideration, the Foamix Board has (i) determined that the Merger Agreement, the Merger, the Merger Consideration to be paid to Foamix shareholders pursuant to the Merger Agreement and all other transactions contemplated by the Merger Agreement are advisable, fair to and in the best interests of Foamix and its shareholders and that, considering the financial position of the merging companies, and assuming, among other things, the accuracy of the representations and warranties of Menlo and Merger Sub in the Merger Agreement, no reasonable concern exists that the Surviving Company, as a result of the Merger, will be unable to fulfill the obligations of Foamix to its creditors; (ii) approved the Merger Agreement, the Merger, the Merger Consideration to be paid to Foamix shareholders pursuant to the Merger Agreement and all other transactions contemplated by the Merger Agreement; and (iii) resolved to direct that the Merger Agreement, the Merger, the Merger Consideration to be paid to Foamix shareholders pursuant to the Merger Agreement and all other transactions contemplated by Merger Agreement be submitted to the shareholders of Foamix for approval and adoption and recommend that the shareholders of Foamix vote in favor of the approval and adoption of the same, all upon the terms and subject to the conditions set forth in the Merger Agreement. Accordingly, the Foamix Board unanimously recommends that Foamix shareholders vote “FOR” the Foamix Merger Proposal. For a discussion of the factors that the Foamix Board considered in determining to recommend the approval and adoption of the Foamix Merger Proposal, see the section entitled “The Merger—Recommendation of the Foamix Board and Foamix’s Reasons for the Merger”.

The compensatory payments and/or benefits for Foamix’s named executive officers that may be paid or become payable to the named executive officers of Foamix in connection with the Merger, in general, are made pursuant to various plans and arrangements which are part of Foamix’s overall compensation program for its named executive officers, and have previously been disclosed to Foamix shareholders as part of the “Compensation Discussion and Analysis” and related sections of Foamix’s annual proxy statements. The Foamix Board believes such compensatory arrangements to be reasonable. In addition, the Foamix Executive Compensation Proposal is being submitted to Foamix shareholders pursuant to the rules of the Exchange Act and it is not anticipated that the payments and benefits disclosed herein will in fact be paid to Foamix’s executive officers in connection with the Merger.

Consequently, the Foamix Board unanimously recommends that Foamix shareholders vote “FOR” the Foamix Executive Compensation Proposal.

Foamix Record Date and Quorum

Only Foamix shareholders of record are entitled to vote the Foamix shares they held on the record date at the meeting. As of the close of trading on the Foamix record date, Foamix had                  outstanding Foamix shares, each of which is entitled to one vote upon each of the matters presented at the meeting.

Under Rule 5620(c) of the Nasdaq Listing Rules, which supersede Foamix’s Articles of Association, the quorum required for the Foamix meeting will consist of any one or more shareholders present, in person or by proxy, who hold Foamix shares, in the aggregate, conferring at least 3313% of the voting rights of Foamix. If within one-half hour from the time appointed for the holding of the Foamix meeting a quorum is not present, the meeting will be adjourned to                 , 2020, at the same time and place. At any such adjourned meeting, the same quorum requirement will apply (any one or more shareholders holding 3313% or more of the voting rights of Foamix will constitute a quorum).

In determining whether there is a quorum for the Foamix meeting and whether the required number of votes for the approval of the Foamix Merger Proposal and the Foamix Executive Compensation Proposal have been cast, Foamix shares subject to broker non-votes and abstentions are counted for purposes of determining whether there is a quorum for the meeting. Broker non-votes are votes that brokers holding Foamix shares of record for their clients are, pursuant to applicable stock exchange or other rules, precluded from casting in respect of certain

 

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non-routine proposals because such brokers have not received specific instructions from their clients as to the manner in which such Foamix shares should be voted on those proposals and as to which the brokers have advised Foamix that, accordingly, they lack voting authority.

Vote Required at the Foamix Meeting

The affirmative vote of a majority of the voting rights of Foamix represented, in person or by proxy, and voting thereon at the meeting is necessary for the approval of each of the Foamix Merger Proposal and, on a non-binding, advisory basis, the Foamix Executive Compensation Proposal.

In the case of the Foamix Merger Proposal, such majority must include at least a majority of the votes cast by Foamix shareholders that are not Menlo, Merger Sub or a Menlo Related Person, who are present, in person or represented by proxy, and voting.

Pursuant to the Companies Law, each Foamix shareholder voting on the Foamix Merger Proposal is required to inform Foamix prior to voting at the Foamix meeting whether the shareholder is any of Menlo, Merger Sub, or a Menlo Related Person and to indicate such matter in the appropriate place in the enclosed proxy or voting instruction form.

IMPORTANT NOTE: Your proxy card or voting instruction form will contain instructions for confirming that you are NOT Menlo, Merger Sub, or a Menlo Related Person. Please follow those instructions and check the box “FOR” in Item 1A on your proxy card or voting instruction form to make that conformation. If you check the box “AGAINST” in Item 1A on your proxy card or you do not check the box on any option, your Foamix shares shall not be counted towards the majority required for approval of the Foamix Merger Proposal.

Based on information provided by Menlo and Merger Sub to Foamix, as of the date of this joint proxy statement/prospectus, Foamix is not aware of any holdings of Foamix shares by Menlo, Merger Sub or any Menlo Related Persons (other than Menlo’s Chief Executive Officer, Steven Basta, and holders related to him), and therefore believes that all of its shareholders (other than Menlo’s Chief Executive Officer, Steven Basta, and holders related to him) should mark “FOR” in Item 1A on the enclosed proxy or voting instruction form (including if submitted electronically).

Votes will be counted at the Foamix meeting by an individual appointed for such purpose by Foamix. That appointed person will separately count “FOR” and “AGAINST” votes, as well as abstentions and broker non-votes. Abstentions and broker non-votes will not be considered votes cast at the Foamix meeting for purposes of determining whether the requisite majority has been achieved for either proposal and will therefore not have any effect with respect to the voting on the proposals.

Foamix’s Chief Executive Officer and a significant shareholder of Foamix, collectively owning approximately 19% of the outstanding Foamix shares, have entered into voting agreement pursuant to which they have agreed to vote all Foamix shares owned by them in favor of the Foamix Merger Proposal. See “Agreements Relating to the Merger—Voting Agreements” on page 174 of this joint proxy statement/prospectus.

Voting Procedures

Whether or not you plan to attend the Foamix meeting and regardless of the number of Foamix shares you own, your careful consideration of, and vote on, each of the Foamix Merger Proposal and Foamix Executive Compensation Proposal is important and we encourage you to vote promptly.

Record Shareholders

To ensure that your Foamix shares are voted at the Foamix meeting, we recommend that you provide voting instructions promptly by proxy, even if you plan to attend the meeting in person, by marking, dating and signing

 

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the proxy and returning it by mail in the enclosed postage-paid envelope. If you are mailing your proxy to an address outside your country of residence, you should add any necessary postage to the enclosed envelope to ensure delivery. In order to ensure that your vote is received by the deadline specified below, we recommend that your proxy be delivered by overnight mail.

In the alternative, you can print the form of proxy card from the “Investor Relations” portion of Foamix’s website, or request a copy from Foamix’s proxy solicitor, whose contact information is provided below under “—Assistance”. You can then mail your completed, signed proxy card directly to Foamix’s proxy solicitor (to the email address or physical address provided below under “—Assistance”). We (and/or the proxy solicitor) reserve the right to require additional identifying information if you submit your proxy card directly in that manner.

Continental will not be able to count a proxy card unless they receive it at 1 State Street, 30th Floor, New York, NY 10004 at least four hours prior to the Foamix meeting at                  Eastern Standard Time on                 , 2020.

YOU SHOULD NOT SEND IN YOUR SHARE CERTIFICATE(S) WITH YOUR PROXY. A letter of transmittal with instructions for the surrender of your certificates representing any Foamix shares will be mailed to Foamix shareholders if the Merger is completed.

“Street Name” Shareholders

If you are a Foamix shareholder with Foamix shares held in “street name”, which means your Foamix shares are held in an account at a broker, bank or other nominee, you must follow the instructions from your broker, bank or other nominee in order to vote—including by way of the Internet (at www.proxyvote.com). Without following those instructions, your Foamix shares will not be voted.

Please provide your voting instructions only once (unless you are revoking a previously delivered voting instruction) and as soon as possible, so that your shares can be voted at the Foamix meeting. If mailing in your physical voting instruction form, your vote must be received by 11:59 p.m. Eastern Standard Time, on                 ,      2020 to be validly included in the tally of Foamix shares voted at the Foamix meeting. If you provide your voting instructions online (at www.proxyvote.com) or via telephone, as directed by your broker, your vote must be received by 11:59 p.m. Eastern Standard Time on                 ,     , 2020.

For additional questions about the Merger, assistance in submitting proxies or voting instructions for your Foamix shares, or to request additional copies of this joint proxy statement/prospectus or the enclosed proxy, please contact Morrow Sodali LLC, which is acting as Foamix’s proxy solicitor in connection with the Merger, toll free at (800) 662-5200. Brokers, banks and other nominees may call collect at (203) 658-9400.

Treatment of Abstentions; Failure to Vote

Foamix shares that are subject to an abstention are deemed to be present at the Foamix meeting and are therefore counted for purposes of determining whether there is a quorum at the Foamix meeting. However, with regards to the approval or rejection of the Foamix Merger Proposal and/or the Foamix Executive Compensation Proposal, shares that are subject to an abstention are not counted as having been voted in respect thereof and will therefore have no impact as to whether the requisite majority vote for the approval of either such proposal has been achieved. An abstention will therefore effectively reduce the aggregate number of votes required to approve or reject the Foamix Merger Proposal and the Foamix Executive Compensation Proposal.

If you do not return a proxy or provide voting instructions and do not attend the Foamix meeting, your shares will furthermore not even be counted for purposes of determining whether a quorum is present at the meeting. Provided that there is a quorum at the meeting, the failure to return your proxy card or otherwise provide voting instructions will have no impact on the voting on the proposals. It will equally reduce the aggregate number of votes required to approve or reject the Foamix Merger Proposal and the Foamix Executive Compensation Proposal.

 

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Voting Proxies; Incomplete Proxies

If you provide specific instructions (by marking a box) with regard to a proposal, your shares will be voted as you instruct. If you sign and return your proxy card without giving specific instructions with respect to the Foamix Executive Compensation Proposal, your shares will be voted in favor of such proposal, in accordance with the recommendation of the Foamix Board. If no direction is made with respect to the Foamix Merger Proposal, you will be deemed to have abstained from voting on that proposal (unless you complete the box “FOR” or “AGAINST” in Item 1A, in which case your shares will be voted in favor of the Foamix Merger Proposal).

If you are a beneficial owner of shares holding your shares in “street name” and do not specify how you want to vote on a proposal on your voting instruction form, your broker will generally not be permitted to instruct its agent to cast a vote with respect to that proposal (commonly referred to as a “broker non-vote,” as described above).

Revocation of Proxies and Changes to a Foamix Shareholder’s Vote

If you are a Foamix shareholder of record, once you have given your proxy votes for the matters before our Foamix shareholders at the Foamix meeting as described in this joint proxy statement/prospectus, you may revoke such vote with respect to the meeting at any time prior to the time it is voted, (1) by filing with us a written notice of revocation of proxy; (2) by completing, signing, dating and returning a new proxy bearing a later date by mail to Continental; or (3) by attending the Foamix meeting and voting in person.

Merely attending the meeting will not, by itself, revoke a proxy. Please note that if you want to revoke your proxy by sending a new proxy or an instrument revoking such proxy to Continental, you should ensure that you send your new proxy or instrument revoking such proxy in sufficient time for it to be received by Continental prior to the Foamix meeting. Please note, however, that only your last-dated proxy will count. If you are a Foamix shareholder of record, you may obtain a new proxy by contacting:

Morrow Sodali, LLC

509 Madison Avenue

Suite 1608

New York, NY 10022

Call Collect: (203) 658-9400

Call Toll Free: (800) 662-5200

E-mail: FOMX@investor.morrowsodali.com

If you are a Foamix shareholder with Foamix shares held in “street name”, you should follow the instructions of your broker regarding the revocation of proxies. If your broker allows you to submit a proxy via the internet or by telephone, you may be able to change your vote by submitting a new proxy via the internet or by telephone or by mail. Please note that if your Foamix shares are held in the name of a broker, you must obtain and bring to the meeting a proxy issued in your name from the broker to be able to vote at the meeting.

Solicitation of Proxies

Proxies for use at the Foamix meeting are being solicited by the Foamix Board. Only Foamix shareholders of record at the close of trading on                 , 2020, the record date, will be entitled to vote at the meeting or at any adjournment thereof. Proxies are expected to be mailed to shareholders on or about                 , 2020, and their return will be solicited chiefly by mail; however, certain officers, directors, employees and agents of Foamix, none of whom will receive additional compensation therefor, may solicit proxies by telephone, facsimile transmission, electronic mail or other personal contact. In addition, Foamix has retained Morrow Sodali LLC to solicit Foamix shareholder proxies at a total cost to Foamix of approximately $7,500, plus reimbursement of reasonable out-of-pocket expenses and indemnification of losses in certain circumstances, which fees Foamix and Menlo will share equally.

 

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Adjournments and Postponements

If within one-half hour from the time appointed for the holding of the meeting a quorum is not present, the meeting shall be adjourned to                 , 2020, at the same time and place. At any such adjourned meeting, any one or more Foamix shareholders of record present in person or by proxy and possessing at least 3313% of the voting rights of Foamix’s outstanding ordinary shares shall constitute a quorum.

Voting in Person

Attendance at the meeting is limited to Foamix shareholders of record and holders of valid proxies. If you plan to attend the meeting, to gain access to the meeting we ask that you bring with you photo identification and appropriate verification of your status. If you represent an entity that is a shareholder of record, please also bring some documentation that proves that you are authorized to represent that entity and vote on its behalf at the meeting.

If you hold your Foamix shares in “street name”, you are deemed a beneficial owner of Foamix shares. Because a beneficial owner is not a shareholder of record, you may not vote your shares directly at the Foamix meeting unless you obtain a legal proxy from the bank, broker or nominee that holds your shares, giving you the right to vote the shares at the Foamix meeting. You will also need an account statement dated on or about the record date for the Foamix meeting that shows that you hold Foamix shares in your bank, brokerage or other account in order to vote in person at the Foamix meeting.

Even if you plan to attend the Foamix meeting in person, we encourage you to vote your Foamix shares by proxy or voting instruction form so that your vote will be counted if you later decide not to attend the meeting.

Appraisal Rights

Under Israeli law, Foamix shareholders are not entitled to statutory appraisal rights in connection with the Merger.

Foamix Shares Held by Foamix Directors and Executive Officers

As of the close of business on                 , 20    , the record date for the Foamix meeting, Foamix’s directors and executive officers owned, in the aggregate,                  Foamix shares, or collectively approximately     % of the outstanding Foamix shares. Foamix’s directors and executive officers have interests in the Merger that may be different from, or in addition to, the interests of the Foamix shareholders generally. For more information, please see the section entitled “The Merger—Interests of Foamix’s Directors and Executive Officers in the Merger”.

Assistance

If you need assistance in completing your proxy or have questions regarding the meeting, please contact Morrow Sodali LLC, which is acting as Foamix’s proxy solicitor in connection with the Merger, toll free at (800) 662-5200 or via email at FOMX@investor.morrowsodali.com. Brokers, banks and other nominees may call collect at (203) 658-9400.

Please send completed, executed proxy to Continental at the following address: Continental Stock, 1 State Street, 30th Floor, New York, NY 10004.

Other Matters

Foamix is unaware at this time of any other matters that will come before the Foamix meeting. If any other matters properly come before the meeting, it is the intention of the persons designated as proxies to vote in accordance with their judgment on such matters. Foamix shares represented by executed and unrevoked proxies will be voted in accordance with such judgment.

 

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THE MENLO SPECIAL MEETING OF STOCKHOLDERS

This joint proxy statement/prospectus is being made available to the Menlo stockholders as part of a solicitation of proxies by the Menlo Board for use at the meeting to be held at the time and place specified below, and at any properly convened meeting following any adjournment or postponement thereof. This joint proxy statement/prospectus provides Menlo stockholders with the information they need to know to be able to vote or instruct their vote to be cast at the meeting.

Date, Time and Place

The Menlo meeting will be held on                 , 2020 at                 , Pacific Standard Time, at Menlo’s principal executive offices at 200 Cardinal Way, 2nd Floor, Redwood City, California 94063.

Attendance at the Menlo meeting is limited to holders of record of Menlo shares and holders of valid proxies. If you plan to attend the meeting, to gain access to the meeting we ask that you bring with you photo identification and appropriate verification of your status as a shareholder as of the close of trading on                 , 20        , the record date for the meeting. If you are a representative of an institutional investor, please bring evidence demonstrating your representative capacity for such entity to be verified against our list of shareholders as of the close of trading on the record date for the meeting. In addition, if your Menlo shares are held in the name of a broker, bank or other nominee, you will need a valid legal proxy from such entity evidencing your authority to vote Menlo shares that the institution or other nominee held for your account as of the close of trading on the record date for the meeting. You must contact your broker, bank or other nominee directly in advance of the meeting to obtain a legal proxy.

Purpose of the Meeting

The meeting is being held to consider and vote the following items:

 

  1.

The Menlo Merger Proposal: To approve the issuance of shares of Menlo common stock to Foamix shareholders (including potential Foamix shareholders under Foamix’s equity incentive plans, stock purchase plan and warrants being assumed by Menlo) pursuant to the Merger Agreement and upon conversion, if applicable, of the CSRs pursuant to the CSR Agreement, in each case, in connection with the Merger, and the change of control of Menlo resulting from the Merger;

 

  2.

The Menlo Adjournment Proposal: To approve the adjournment of the Menlo meeting to a later date or dates, if necessary, to permit the solicitation of additional proxies if, based upon the tabulated vote at the time of the Menlo meeting, there are not sufficient votes to approve the Menlo Merger Proposal.

 

  3.

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

The approval of the Menlo Merger Proposal is a condition to the completion of the Merger. Therefore, the Merger cannot be consummated without the approval of the Menlo Merger Proposal. The issuance of Menlo common stock in connection with the Merger will not take place unless the Menlo Merger Proposal is approved by Menlo stockholders.

Copies of the Agreement and Plan of Merger, Amendment No. 1 to the Agreement and Plan of Merger and the form of CSR Agreement are attached as Annex A, Annex B and Annex G, respectively, to this joint proxy statement/prospectus and are incorporated herein by reference. See the section entitled “Matters Being Submitted to a Vote of Menlo Stockholders”.

 

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Recommendation of the Menlo Board

 

   

The Menlo Board has determined and believes that the issuance of shares of Menlo common stock to Foamix’s shareholders (including potential Foamix shareholders under Foamix’s equity incentive plans, stock purchase plan and warrants being assumed by Menlo) pursuant to the Merger Agreement and upon conversion, if applicable, of the CSRs pursuant to the CSR Agreement, in each case, in connection with the Merger and the change of control of Menlo resulting from the Merger is fair to, in the best interests of, and advisable to, Menlo and its stockholders and has approved such issuance. The Menlo Board recommends that Menlo stockholders vote “FOR” the Menlo Merger Proposal to approve the issuance of shares of Menlo common stock pursuant to the Merger Agreement and upon conversion, if applicable, of the CSRs pursuant to the CSR Agreement, in each case, in connection with the Merger and the change of control of Menlo resulting from the Merger.

 

   

The Menlo Board has determined and believes that adjourning the Menlo meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the Menlo Merger Proposal is fair to, in the best interests of, and advisable to, Menlo and its stockholders and has approved and adopted the proposal. The Menlo Board recommends that Menlo stockholders vote “FOR” the Menlo Adjournment Proposal to adjourn the Menlo meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the Menlo Merger Proposal.

Menlo Record Date and Quorum

At the close of trading on                 , 20        , the Menlo record date, Menlo had                  Menlo shares outstanding, each of which is entitled to one vote upon each of the matters to be presented at the Menlo meeting. A quorum will be present at the Menlo meeting if the holders of a majority in voting power of the Menlo shares issued and outstanding and entitled to vote are present in person, or by remote communication, if applicable, or represented by proxy at the Menlo meeting. If there is no quorum, either the chair of the Menlo meeting or a majority in voting power of the Menlo stockholders entitled to vote at the Menlo meeting, present in person, or by remote communication, if applicable, or represented by proxy, may adjourn the Menlo meeting to another time or place, at which the Menlo meeting can be reconvened if a quorum is present or represented.

Vote Required at the Menlo Meeting

The affirmative vote of a majority of the outstanding shares of votes cast in person or by proxy at the Menlo meeting, assuming a quorum is present, is required for approval of the Menlo Merger Proposal and the Menlo Adjournment Proposal.

Menlo’s Chief Executive Officer and two significant stockholders, collectively owning approximately 30% of the outstanding Menlo shares, have entered into voting agreements pursuant to which they have agreed to vote all shares of Menlo common stock owned by them as of the record date in favor of the Menlo Merger Proposal and the Menlo Adjournment Proposal and against any action or agreement that would reasonably be expected, to impede, interfere with, delay, or postpone the transactions contemplated by the Merger Agreement. See “Agreements Relating to the Merger—Voting Agreements” on page 174 of this joint proxy statement/prospectus.

Voting Procedures

Whether or not you plan to attend the meeting and regardless of the number of Menlo shares you own, your careful consideration of, and vote on, the Menlo Merger Proposal is important and we encourage you to vote promptly.

If you are a Menlo stockholder of record, you may vote or provide your proxy instructions in one of four different ways:

 

   

You can attend the Menlo meeting in person, and we will give you a ballot when you arrive.

 

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You can mail your signed proxy card in the enclosed return envelope.

 

   

You can provide your proxy instructions via telephone by following the instructions on your proxy card.

 

   

You can provide your proxy instructions via the Internet by following the instructions on your proxy card.

To ensure that your Menlo shares are voted at the meeting, we recommend that you provide voting instructions promptly by proxy, even if you plan to attend the meeting in person, by marking, dating and signing the proxy and returning it by mail in the enclosed postage-paid envelope. If you are mailing your proxy to an address outside your country of residence, you should add any necessary postage to the enclosed envelope to ensure delivery. In order to ensure that your vote is received on or prior to the date of the meeting, we recommend that your proxy be returned to us by overnight mail. Your vote must be received by                 , 2020, 11:59 p.m. Eastern Standard Time to be counted.

If you are a Menlo stockholder with Menlo shares held in “street name”, which means your Menlo shares are held in an account at a broker, bank or other nominee, you must follow the instructions from your broker, bank or other nominee in order to vote. Without following those instructions, your Menlo shares will not be voted.

All properly executed proxies that are not revoked will be voted at the Menlo meeting and at any adjournments or postponements of the Menlo meeting in accordance with the instructions contained in the proxy.

For additional questions about the Merger, assistance in submitting proxies or voting Menlo shares, or to request additional copies of this joint proxy statement/prospectus or the enclosed proxy, please contact MacKenzie Partners, Inc., which is acting as Menlo’s proxy solicitor in connection with the Merger, toll free at (800) 322-2885.

Treatment of Abstentions; Failure to Vote

Votes will be counted by AST, who will separately count “FOR,” “AGAINST” and “ABSTAIN” votes and broker non-votes. Abstentions and broker non-votes will also be treated as shares present for the purpose of determining the presence of a quorum for the transaction of business at the Menlo meeting. Abstentions and broker non-votes will not, however, be considered votes cast at the Menlo meeting and will therefore not have any effect with respect to the Menlo Merger Proposal and the Menlo Adjournment Proposal.

Voting Proxies; Incomplete Proxies

If you properly execute, date and return the form of proxy to Menlo prior to the meeting, each person named as proxy will follow your instructions. If you properly execute and return the form of proxy to Menlo prior to the meeting without indicating how you intend to vote with respect to the Menlo Merger Proposal and/or Menlo Adjournment Proposal, the Menlo shares represented by the proxy will be counted as being present for quorum purposes and will be voted in favor of the Menlo Merger Proposal and the Menlo Adjournment Proposal, in accordance with the recommendation of the Menlo Board.

Revocation of Proxies and Changes to a Menlo Stockholder’s Vote

If you are a Menlo stockholder of record, once you have given your proxy votes for the matters before our Menlo stockholders as described in this joint proxy statement/prospectus, unless your vote is subject to a voting agreement, you may change your vote at any time before their proxy is voted at the Menlo meeting in one of three ways:

 

   

You may submit another properly completed proxy with a later date.

 

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You may send a written notice that you are revoking your proxy to Menlo’s Chief Financial Officer and Corporate Secretary at 200 Cardinal Way, 2nd Floor, Redwood City, California 94063.

 

   

You may attend the Menlo meeting in person and vote in person. Simply attending the Menlo meeting will not, by itself, revoke a proxy.

Please note that if you want to revoke your proxies by sending a new proxy or an instrument revoking such proxy to Menlo, you should ensure that you send your new proxy or instrument revoking such proxy in sufficient time for it to be received by Menlo prior to the meeting. Please note, however, that only your last-dated proxy will count. If you are a Menlo stockholder of record, you may obtain a new proxy by contacting MacKenzie Partners, Inc. at 1407 Broadway, 27th Floor, New York, New York 10018, or by telephone at +1-800-322-2885 or email at proxy@mackenziepartners.com.

If you are a Menlo stockholder with Menlo shares held in “street name”, you should follow the instructions of your broker regarding the revocation of proxies. If your broker allows you to submit a proxy via the internet or by telephone, you may be able to change your vote by submitting a new proxy via the internet or by telephone or by mail. Please note that if your Menlo shares are held in the name of a broker, you must obtain and bring to the meeting a proxy issued in your name from the broker to be able to vote at the meeting.

Solicitation of Proxies

Proxies for use at the meeting are being solicited by the Menlo Board. Only Menlo stockholders of record at the close of trading on                 , 20    , the record date, will be entitled to vote at the meeting or at any adjournment thereof. Proxies are expected to be mailed to shareholders on or about                 , 20    , and their return will be solicited chiefly by mail; however, certain officers, directors, employees and agents of Menlo, none of whom will receive additional compensation therefor, may solicit proxies by telephone, facsimile transmission, electronic mail or other personal contact. In addition, Menlo has retained MacKenzie Partners, Inc. to assist it in soliciting proxies using the means referred to above. Menlo and Foamix will share equally the fees of MacKenzie Partners, Inc., which Menlo expects to be approximately $15,000, plus reimbursement of out-of-pocket expenses.

Voting in Person

Attendance at the meeting is limited to Menlo stockholders of record and holders of valid proxies. If you plan to attend the meeting, to gain access to the meeting we ask that you bring with you photo identification and appropriate verification of your status as a shareholder as of the close of trading on                 , 20     the record date for the meeting. If you are a representative of an institutional investor, please bring evidence demonstrating your representative capacity for such entity to be verified against our list of shareholders as of the close of trading on the record date for the meeting. In addition, if your Menlo shares are held in the name of a broker, bank or other nominee, you will need a valid legal proxy from such entity evidencing your authority to vote Menlo shares that the institution or other nominee held for your account as of the close of trading on the record date for the meeting. You must contact your broker, bank or other nominee directly in advance of the meeting to obtain a valid legal proxy.

Even if you plan to attend the meeting in person, we encourage you to vote your Menlo shares by proxy so that your vote will be counted if you later decide not to attend the meeting.

Appraisal Rights

Under the DGCL, the Menlo stockholders are not entitled to exercise any appraisal rights in connection with the Merger or the transactions contemplated by the Merger.

 

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Menlo Shares Held by Menlo Directors and Executive Officers

As of the close of business on                 , 20    , the record date for the meeting, Menlo’s directors and executive officers owned, in the aggregate,              Menlo shares, or collectively approximately     % of the outstanding Menlo shares. Menlo’s directors and executive officers have interests in the Merger that may be different from, or in addition to, the interests of the Menlo stockholders generally. For more information, please see the section entitled “The Merger—Interests of the Menlo Directors and Executive Officers in the Merger”.

Assistance

If you need assistance in completing your proxy or have questions regarding the meeting, please contact MacKenzie Partners, Inc., which is acting as Menlo’s proxy solicitor in connection with the Merger, toll free at (800) 322-2885 or via email at proxy@mackenziepartners.com.

Other Matters

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

 

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MATTERS BEING SUBMITTED TO A VOTE OF FOAMIX SHAREHOLDERS

Foamix Merger Proposal

As discussed elsewhere in this joint proxy statement/prospectus, Foamix shareholders will consider and vote on the Foamix Merger Proposal, which consists of a proposal for Foamix shareholders to approve and adopt (i) the Merger Agreement; (ii) the Merger on the terms and subject to the conditions set forth in the Merger Agreement and in accordance with the provisions of Sections 314-327 of the Companies Law, following which Merger Sub will cease to exist, and Foamix will become a wholly-owned subsidiary of Menlo; (iii) the Merger Consideration; and (iv) all other transactions contemplated by the Merger Agreement, all upon the terms and subject to the conditions set forth in the Merger Agreement.

You are urged to carefully read this joint proxy statement/prospectus in its entirety for more detailed information concerning the Merger and the Merger Agreement, including the information set forth under the sections entitled “The Merger” and “The Merger Agreement”. A copy of the Merger Agreement is attached as Annex A to this joint proxy statement/prospectus and incorporated by reference herein. You are urged to read the Merger Agreement carefully and in its entirety.

It is proposed that at the Foamix meeting the following resolution be adopted to approve the Foamix Merger Proposal:

RESOLVED, that (i) the Merger Agreement, by and among Menlo, Merger Sub and Foamix; (ii) the Merger in accordance with the provisions of Sections 314-327 of the Companies Law 5759-1999 of the State of Israel (together with the rules and regulations promulgated thereunder, the “Companies Law”), following which Merger Sub will cease to exist, and Foamix will become a wholly-owned subsidiary of Menlo; (iii) the Merger Consideration for Foamix’s shareholders, consisting of (a) 0.5924 of a share of Menlo common stock (subject to upwards adjustment to 1.2739 or 1.8006 shares of Menlo common stock if one or both of Menlo’s Phase III PN Trials, respectively, fail to demonstrate Serlopitant Significance) for each share of Foamix that is issued and outstanding (other than Excluded Shares) and that will be deemed transferred to Menlo upon the Merger and (b) if the Closing of the Merger occurs on or before May 31, 2020 and the Efficacy Determination has not yet been received, one CSR, subject to the terms and conditions of the CSR Agreement; and (iv) all other transactions contemplated by the Merger Agreement, all upon the terms and subject to the conditions set forth in the Merger Agreement be, and each hereby is, approved and adopted in all respects.”

THE FOAMIX BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE FOAMIX MERGER PROPOSAL AND THE ABOVE RESOLUTION BY THE FOAMIX SHAREHOLDERS.

Foamix Executive Compensation Proposal

Section 14A of the Exchange Act, which was enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, requires that Foamix provide Foamix shareholders with the opportunity to vote to approve, on a non-binding, advisory basis, specified compensation that may be paid or become payable to Foamix’s named executive officers in connection with the Merger and contemplated by the Merger Agreement, as disclosed in the section below entitled “The Merger—Interests of Foamix’s Directors and Executive Officers in the Merger—Golden Parachute Compensation” beginning on page 146 of this joint proxy statement/prospectus. In general, the various plans and arrangements pursuant to which these compensation payments may be made formed part of Foamix’s overall compensation program for its named executive officers and have previously been disclosed to Foamix shareholders as part of the “Compensation Discussion and Analysis” and related sections of Foamix’s annual proxy statements. The Foamix Board believes such compensatory arrangements to be reasonable.

The disclosure of Merger-related potential compensation is presented herein strictly due to the requirements under the Exchange Act; any such potential compensation does not trigger any special shareholder voting requirements under the Companies Law.

 

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It is not anticipated that the payments and benefits presented herein will in fact be paid to Foamix’s named executive officers in connection with the Merger.

The Foamix Board encourages Foamix shareholders to review carefully the named executive officer merger-related compensation information disclosed in this joint proxy statement/prospectus. The Foamix Board unanimously recommends that Foamix shareholders vote “FOR” the following resolution:

RESOLVED, that the Foamix shareholders approve, on a non-binding, advisory basis, specified compensation that may be paid or become payable to Foamix’s named executive officers in connection with the Merger and contemplated by the Merger Agreement as disclosed pursuant to Item 402(t) of Regulation S-K in the section entitled “The Merger—Interests of Foamix’s Directors and Executive Officers in the Merger—Golden Parachute Compensation” in Foamix’s proxy statement for the special meeting.”

Foamix shareholders should note that this proposal is not a condition to completion of the Merger and, as an advisory vote, the result will not be binding on Foamix, the Foamix Board, the Surviving Company or Menlo. Further, the underlying plans and arrangements are contractual in nature and not, by their terms, subject to shareholder approval. Accordingly, regardless of the outcome of the advisory vote, if the Merger is consummated, Foamix’s named executive officers will be entitled to receive the compensation that is based on or otherwise relates to the Merger in accordance with the terms and conditions applicable to those payments.

THE FOAMIX BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE PROPOSAL TO APPROVE, ON A NON-BINDING, ADVISORY BASIS, SPECIFIED COMPENSATION THAT MAY BE PAID OR BECOME PAYABLE TO FOAMIX’S NAMED EXECUTIVE OFFICERS IN CONNECTION WITH THE MERGER AND CONTEMPLATED BY THE MERGER AGREEMENT.

Other Matters to Come Before the Foamix Extraordinary General Meeting

Foamix is unaware at this time of any other matters that will come before the Foamix meeting. If any other matters properly come before the meeting, it is the intention of the persons designated as proxies to vote in accordance with their judgment on such matters. Foamix shares represented by executed and unrevoked proxies will be voted in accordance with such judgment.

 

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MATTERS BEING SUBMITTED TO A VOTE OF MENLO STOCKHOLDERS

The Menlo Merger Proposal:

Approval of the Issuance of Common Stock in the Merger and the Change of Control of Menlo Resulting from the Merger

As discussed elsewhere in this joint proxy statement/prospectus, at the Menlo meeting, Menlo’s stockholders will be asked to approve the issuance of shares of Menlo common stock to Foamix’s shareholders (including potential Foamix shareholders under Foamix’s equity incentive plans, stock purchase plan and warrants being assumed by Menlo) pursuant to the Merger Agreement and upon conversion, if applicable, of the CSRs pursuant to the CSR Agreement, in each case, in connection with the Merger and the change of control of Menlo resulting from the Merger.

Each Foamix share that is issued and outstanding (other than the Excluded Shares) will be deemed transferred to Menlo in consideration for the right to receive 0.5924 of a share of Menlo common stock. The Exchange Ratio will be subject to upwards adjustment prior to the Effective Time to 1.2739 or 1.8006 shares of Menlo common stock if (a) the Efficacy Determination reports that (1) Serlopitant Significance was achieved in only one Phase III PN Trial and (2) Serlopitant Significance was not achieved or has not been determined in each case on or before May 31, 2020 in the second Phase III PN Trial or (b) the Efficacy Determination reports that Serlopitant Significance was not achieved in both Phase III PN Trials or the Efficacy Determination has not been delivered on or before May 31, 2020, respectively, as further described in this joint proxy statement/prospectus.

The percent of the fully-diluted common stock of Menlo, as the surviving parent company, owned by the current Menlo stockholders and the current shareholders of Foamix will depend on timing and the results of Efficacy Determination:

 

   

If the Efficacy Determination reports that Serlopitant Significance was achieved in both of the Phase III PN Trials on or before May 31, 2020, then current Menlo stockholders will own approximately 41%, and current Foamix shareholders will own approximately 59%, of the Combined Company;

 

   

If the Efficacy Determination reports that Serlopitant Significance was achieved in only one Phase III PN Trial on or before May 31, 2020, then current Menlo stockholders will own approximately 24%, and current Foamix shareholders will own approximately 76%, of the Combined Company; and

 

   

If the Efficacy Determination reports that Serlopitant Significance was not achieved in both Phase III PN Trials or the Efficacy Determination has not been delivered on or before May 31, 2020, then current Menlo stockholders will own approximately 18%, and current Foamix shareholders will own approximately 82%, of the Combined Company.

Each of the percentages above is calculated based on the fully-diluted number of Foamix shares and Menlo shares (including all dilutive stock options, units and warrants) using the treasury stock method, calculated as of November 4, 2019 and assuming no subsequent issuances from that date until the signing of the Merger Agreement. For a more complete description of the Merger Consideration, please see the section entitled “The Merger Agreement—Consideration to Foamix Shareholders”.

In the event that the (i) the Closing of the Merger occurs on or before May 31, 2020 and (ii) the Efficacy Determination is not delivered to Menlo and Foamix on or before such Closing, then Menlo and a rights agent mutually acceptable to Foamix and Menlo will enter into a CSR Agreement governing the terms of the CSRs to be received by Foamix’s shareholders. Pursuant to the CSR Agreement, each CSR will become convertible upon the occurrence of certain triggering events (and upon certain triggering events will entitle its holder to receive from Menlo a number of shares of Menlo common stock). For a more complete description of such adjustments to the Exchange Ratio after the Effective Time, please see the section entitled “The Merger Agreement—Contingent Stock Rights” in this joint proxy statement/prospectus.

 

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The terms of, reasons for and other aspects of the Merger Agreement, the Merger and the issuance of Menlo common stock and CSRs in the Merger pursuant to the Merger Agreement are described in detail in the other sections in this joint proxy statement/prospectus. Copies of the Agreement and Plan of Merger, Amendment No. 1 to the Agreement and Plan of Merger and the form of CSR Agreement are attached as Annex A, Annex B Annex G, respectively.

Under Nasdaq Listing Rule 5635(a)(1), a company listed on Nasdaq is required to obtain stockholder approval prior to the issuance of common stock, among other things, in connection with the acquisition of another company’s stock, if the number of shares of common stock to be issued is in excess of 20% of the number of shares of common stock then outstanding. The potential issuance of up to approximately 120,609,873 shares of Menlo common stock (assuming both Phase III PN Trials do not demonstrate Serlopitant Significance) in the Merger exceeds the 20% threshold under the Nasdaq Listing Rules and is expected to represent up to 82% (and no less than 59%) of Menlo common stock following the Merger on a fully diluted basis using the treasury stock method, subject to certain other assumptions described elsewhere. Accordingly, in order to ensure compliance with Nasdaq Listing Rule 5635(a)(1), Menlo must obtain the approval of Menlo stockholders for the issuance of the shares of Menlo common stock to Foamix’s shareholders (including potential Foamix shareholders under Foamix’s equity incentive plans, stock purchase plan and warrants being assumed by Menlo) pursuant to the Merger Agreement and upon conversion, if applicable, of the CSRs pursuant to the CSR Agreement, in each case, in connection with the Merger.

Under Nasdaq Listing Rule 5635(b), a company listed on Nasdaq is required to obtain stockholder approval prior to an issuance of stock that will result in a “change of control” of the listed company. Although Nasdaq has not adopted any rule as to 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. Accordingly, in order to ensure compliance with Nasdaq Listing Rule 5635(b), Menlo must obtain the approval of Menlo stockholders of the change of control resulting from the Merger.

Required Vote

The affirmative vote of the majority of votes cast in person or by proxy (not counting “abstentions” or “broker non-votes” as votes cast at the Menlo meeting) is required to approve the issuance of Menlo common stock to Foamix’s shareholders (including potential Foamix shareholders under Foamix’s equity incentive plans, stock purchase plan and warrants being assumed by Menlo) pursuant to the Merger Agreement and upon conversion, if applicable, of the CSRs pursuant to the CSR Agreement, in each case, in connection with the Merger and the change of control of Menlo resulting from the Merger.

THE MENLO BOARD RECOMMENDS A VOTE “FOR” THIS MENLO MERGER PROPOSAL TO APPROVE THE ISSUANCE OF MENLO COMMON STOCK TO FOAMIX’S SHAREHOLDERS (INCLUDING POTENTIAL FOAMIX SHAREHOLDERS UNDER FOAMIX’S EQUITY INCENTIVE PLANS, EMPLOYEE STOCK PURCHASE PLAN AND WARRANTS BEING ASSUMED BY MENLO) PURSUANT TO THE MERGER AGREEMENT AND UPON CONVERSION, IF APPLICABLE, OF THE CSRS PURSUANT TO THE CSR AGREEMENT, IN EACH CASE, IN CONNECTION WITH THE MERGER AND THE CHANGE OF CONTROL OF MENLO RESULTING FROM THE MERGER.

Unless otherwise instructed, it is the intention of the persons named in the accompanying proxy card to vote shares represented by properly executed proxy cards “FOR” the approval of the issuance of Menlo common stock in the Merger and the change of control of Menlo resulting from the Merger.

 

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The Menlo Adjournment Proposal:

Approval of Possible Adjournment of The Special Meeting

If Menlo fails to receive a sufficient number of votes to approve the Menlo Merger Proposal, Menlo may propose to adjourn the Menlo meeting to a later date or dates, if necessary, to permit the solicitation of additional proxies if, based upon the tabulated vote at the time of the Menlo meeting, there are not sufficient votes to approve the Menlo Merger Proposal.

Required Vote

If a quorum is present, the affirmative vote of the majority of votes cast in person or by proxy (not counting “abstentions” or “broker non-votes” as votes cast) is required to approve the adjournment of the Menlo meeting for the purpose of soliciting additional proxies to approve the Menlo Merger Proposal.

THE MENLO BOARD RECOMMENDS A VOTE “FOR” THIS MENLO ADJOURNMENT PROPOSAL TO ADJOURN THE MENLO MEETING, IF NECESSARY, TO SOLICIT ADDITIONAL PROXIES IF THERE ARE NOT SUFFICIENT VOTES IN FAVOR OF THE MENLO MERGER PROPOSAL. THEREFORE, THE APPROVAL OF EACH SUCH PROPOSAL IS REQUIRED TO CONSUMMATE THE MERGER.

Unless otherwise instructed, it is the intention of the persons named in the accompanying proxy to vote shares “FOR” the ratification to adjourn the Menlo meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of the Menlo Merger Proposal.

Other Matters to Come Before the Menlo Special Meeting

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

 

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THE MERGER

The following is a discussion of the Merger. You are urged to read the Merger Agreement carefully and in its entirety, a copy of which is attached as Annex A to this joint proxy statement/prospectus and incorporated by reference herein.

Timing of the Merger

Menlo and Foamix expect the Merger to be completed late in the first quarter of 2020 or early in the second quarter of 2020. Neither Menlo nor Foamix can predict, however, the actual date on which the Merger will be completed because it is subject to conditions beyond each party’s control, including obtaining the necessary approvals. For a more complete description of the conditions to the Merger, see the section entitled “The Merger Agreement—Conditions to Consummation of the Merger” elsewhere in this joint proxy statement/prospectus.

Effects of the Merger

Subject to the terms and conditions of the Merger Agreement and the applicable provisions of Sections 314-327 of the Companies Law, at the Effective Time, Merger Sub will be merged with and into Foamix, with (a) Foamix surviving the Merger as a wholly-owned subsidiary of Menlo; (b) Foamix (as the Surviving Company) succeeding to all the rights and properties and the business of each of Foamix and Merger Sub; and (c) all debts, claims, liabilities and obligations of each of Foamix and Merger Sub becoming the debts, claims, liabilities and obligations of Foamix (as the Surviving Company). Merger Sub will cease to exist and will be stricken from the records of the Registrar, and Foamix will become a private company and a direct wholly-owned subsidiary of Menlo, all as provided under the Merger Agreement and in accordance with the Companies Law.

Consideration to Foamix Shareholders

At the Effective Time, by virtue of the Merger, each Foamix share outstanding immediately prior to the Effective Time, other than the Excluded Shares, shall be deemed transferred to Menlo in exchange for the right to receive (a) 0.5924 of a share of Menlo common stock and, potentially (as described below), (b) one CSR which, if issued, will be subject to the terms and conditions of the CSR Agreement.

Depending on when the Merger is completed, the Merger Consideration may be subject to adjustment prior to the Effective Time as described in paragraphs (A), (B) and (C) immediately below, and upon the occurrence of any such case, Foamix shareholders will not receive any CSRs at the Effective Time.

 

  (A)

If, prior to the completion of the Merger, the Efficacy Determination reports that Serlopitant Significance was achieved in both Phase III PN Trials on or before May 31, 2020, then there will be no adjustment to the Exchange Ratio;

 

  (B)

If, prior to the completion of the Merger, the Efficacy Determination reports that (1) Serlopitant Significance was achieved in only one Phase III PN Trial on or before May 31, 2020 and (2) Serlopitant Significance was not achieved or has not been determined in each case on or before May 31, 2020 in the second Phase III PN Trial, then the Exchange Ratio will instead be 1.2739 shares of Menlo common stock per Foamix share; and

 

  (C)

If, prior to the completion of the Merger, the Efficacy Determination reports that Serlopitant Significance was not achieved or the Efficacy Determination has not been delivered on or before May 31, 2020, in respect to both Phase III PN Trials, then in each case the Exchange Ratio will instead be 1.8006 shares of Menlo common stock per Foamix share.

No fractional shares of Menlo common stock will be issued in the Merger, and Foamix shareholders will receive cash in lieu of fractional shares, as specified in the Merger Agreement.

 

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In the event that the (i) the Closing of the Merger occurs on or before May 31, 2020 and (ii) the Efficacy Determination is not delivered to Menlo and Foamix on or before such Closing, then, at the Effective Time, in addition to receiving 0.5924 of a share of Menlo common stock, each outstanding Foamix share will be entitled to receive one CSR, which may potentially convert, following the Effective Time, into additional shares of Menlo common stock, depending on the Efficacy Determination. Menlo and a rights agent mutually acceptable to Foamix and Menlo will enter into a CSR Agreement governing the terms of those CSRs. Upon the occurrence, following the Effective Time, of the results for the Efficacy Determination as are described in paragraphs (A), (B) and (C) above, the CSRs will convert into additional shares of Menlo common stock such that the resulting effective Exchange Ratio (following that conversion or non-conversion) will mimic the respective Exchange Ratios described in those paragraphs. For a more complete description of the CSRs, please see the section entitled “The Merger Agreement—Contingent Stock Rights” in this joint proxy statement/prospectus.

Background of the Merger

The Foamix Board and the Menlo Board, together with their respective management teams, regularly review their respective company’s research and development programs, business opportunities and potential transactions to strengthen their respective positions and enhance stockholder value. Each of them also, from time to time in the past, has had informal discussions with a number of participants in the biopharmaceutical industry relating to potential transactions or relationships, including mergers, collaborations, partnerships, licensing and other arrangements.

Throughout 2018 and until August 2019, Foamix management reviewed and conducted due diligence with respect to multiple potential product candidates to in-license. Foamix ultimately concluded that it would be difficult to finance the acquisition and development costs of those product candidates in the near term in light of Foamix’s current need to fund its own product launches planned for 2020. A business combination with Menlo provided a unique opportunity to synergistically obtain a late-stage dermatology asset with significant commercial opportunity and potential other indications for future development without immediate financing requirements due to each company’s existing capital resources.

On September 19, 2018, Steve Basta, Menlo’s Chief Executive Officer, was informed by a Menlo stockholder of the potential interest of a publicly listed biopharmaceutical company, Company A, in exploring a potential business combination with Menlo.

On September 21, 2018, Mr. Basta, spoke by telephone with the Chief Executive Officer of Company A and subsequently met in person with the CEO of Company A on October 3, 2018 to discuss the product candidates of both companies and to explore whether discussions regarding a potential strategic transaction would be of mutual interest. On October 17, 2018, Menlo and Company A executed a mutual non-disclosure agreement, which contained a customary standstill provision that terminated upon Menlo’s entry into the Merger Agreement with Foamix. Following execution of the non-disclosure agreement, Menlo and Company A subsequently provided each other with access to preliminary diligence information and had diligence discussions until January 2019. In March 2019, Company A communicated to Menlo that it had determined not to further pursue or submit a proposal regarding a potential strategic transaction at that time and requested that the companies remain in contact.

From December 2018 through June 2019, members of Menlo management met with representatives of Guggenheim Securities periodically to discuss the state of the dermatology industry and emerging trends, including the anticipated duplication of commercial organizations that would result from product launches by several companies and the potential advantages to industry consolidation given the ability of one commercial organization to sell multiple products while incurring only limited additional cost, the greater financing challenges associated with weakness in dermatology stock prices and the dilution that shareholders of each of those companies would likely experience as a result of additional equity capital that would need to be raised in order to finance the build-out of commercial organizations. Menlo management met with Guggenheim Securities

 

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because Guggenheim Securities was familiar with Menlo and its business as a result of serving as a joint book-running manager for Menlo in its initial public offering in 2018, and Menlo management viewed Guggenheim Securities as qualified to support Menlo should financial advisory services be required for an evaluation of strategic alternatives with respect to a potential strategic transaction. Menlo did not engage Guggenheim Securities as Menlo’s financial advisor with respect to a potential strategic transaction at this time.

At the end of December 2018, Menlo began to explore potential ex-U.S. partnering arrangements with respect to its product candidate, serlopitant. Members of Menlo management, with the assistance of representatives of Guggenheim Securities, identified a list of biopharmaceutical companies which were potential strategic partners for an ex-U.S. commercial collaboration with respect to serlopitant. Members of Menlo management and representatives of Guggenheim Securities communicated with ten biopharmaceutical companies to ascertain their interest in an ex-U.S. commercial collaboration and had meetings in January and February 2019 with six companies which expressed preliminary interest in discussion of a potential collaboration. Menlo subsequently entered into a mutual non-disclosure agreement with Company B, a publicly listed biopharmaceutical company, on February 21, 2019, which did not include a standstill, and Menlo provided Company B with access to diligence information. Menlo’s discussions with each of the companies other than Company B terminated by March 2019, and Menlo did not enter into non-disclosure agreements with any of the other parties. Between February 2019 and October 2019, Company B and Menlo continued to evaluate the potential for an ex-U.S. commercial collaboration with respect to serlopitant.

In March 2019, Foamix also had discussions with another pharmaceutical company about a potential merger. Following clinical diligence, Foamix and the pharmaceutical company determined not to further explore a potential transaction.

In May 2019, Mr. Basta had discussions with representatives of Guggenheim Securities to identify companies that Guggenheim Securities believed were most likely to be interested in a strategic transaction with Menlo based upon the development status or commercial status of those companies’ products, the potential synergies available by combining the companies particularly in avoiding duplication of commercial organizations, the potential to realize other efficiencies, and the opportunity to reduce potential future dilution to shareholders by reducing the amount of future capital that would need to be raised by the combined companies as compared to the separate companies. Mr. Basta and representatives of Guggenheim Securities identified three potential companies for initial outreach to discuss a strategic transaction with Menlo, including Foamix. In May and June 2019, Mr. Basta spoke by telephone individually with several members of the Menlo Board regarding the potential benefits of a strategic combination between Menlo and a commercial stage dermatology company, including the potential reduction in Menlo’s capital requirements and the cost savings in the commercialization of serlopitant.

From time to time leading into August 2019, without signing an engagement letter, members of Foamix management periodically discussed with representatives of various investment banks including Barclays and Guggenheim Securities the state of the dermatology industry, emerging trends and Foamix’s existing financing and strategic opportunities to increase shareholder value. Among the considerations discussed in the context of the broader weaknesses in dermatology stock prices were the need for mid-term diversification of Foamix’s foam platform outside of acne and rosacea in order to create longevity for the Foamix business, improve Foamix’s ability to broaden its investment base and create financing opportunities for future growth while at the same time leveraging its existing commercial infrastructure. During this time period, Foamix management and the Foamix Board also discussed the advantages and disadvantages of various strategic alternatives including in- and out-licensing opportunities and potential transformative transactions, including the appropriate timing for such, as compared to its current organic pipeline development and commercial launch plans using its existing proprietary platform technology. Foamix continued to explore opportunistic strategies consistent with its overall corporate strategy to solidify its existing business in acne and rosacea and diversify in the mid-term into other dermatologic conditions to sustain profitability.

 

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On June 19, 2019, a representative from Guggenheim Securities introduced Mr. Domzalski, Chief Executive Officer of Foamix, and Mr. Basta by email.

Also on June 19, 2019, Mr. Basta met with the Chief Executive Officer of Company A at a conference, who indicated that Company A remained interested in considering a potential strategic transaction with Menlo and would contact Mr. Basta once Company A made a determination to engage in further discussions.

On June 21, 2019, Mr. Basta and Mr. Domzalski spoke by telephone and discussed the current status of the product candidates of each of their companies and the anticipated timelines for regulatory approval and commercialization of each product candidate. Mr. Basta discussed the history of the Menlo product development activities and the ongoing Phase II clinical trial and Phase III PN Trials of serlopitant. Mr. Basta expressed his belief that the current public market environment for dermatology companies could make financing a one-product launch challenging and highly dilutive for a company such as Menlo, and there may be merit in combining the companies to achieve greater scale and efficiency. Mr. Domzalski noted that Foamix was already building a commercial infrastructure in anticipation of the approval of its first drug candidate, AMZEEQTM, which would include hiring a commercial salesforce targeting dermatologists. Mr. Domzalski also expressed a desire to add a late-stage pipeline asset to Foamix’s product portfolio that could help diversify the company’s product offerings into new dermatologic indications outside of acne and rosacea. During the discussion, Mr. Basta and Mr. Domzalski discussed the strategic rationale for a business combination between Menlo and Foamix, including potential cost savings and value creation for each company’s stockholders. Messrs. Domzalski and Basta did not discuss the potential value ascribed to the two companies or other material terms of a potential transaction.

On June 25, 2019, the Menlo Board met, with members of Menlo management and representatives from Menlo’s outside counsel, Latham & Watkins LLP (“Latham & Watkins”). During the meeting, Mr. Basta updated the Menlo Board on management’s evaluation of strategic alternatives for Menlo, including identification of biopharmaceutical companies for potential outreach regarding a strategic transaction in consultation with Guggenheim Securities. Mr. Basta also updated the Menlo Board regarding his conversations with representatives of Company A and Mr. Domzalski. The Menlo board discussed the various dermatology companies that might be appropriate candidates for such a possible transaction.

On June 26, 2019, Mr. Basta contacted by email the Chief Executive Officer of Company C, a publicly listed biopharmaceutical company focused on medical dermatology, to arrange time to meet. On July 3, 2019, Mr. Basta met with the Chief Executive Officer of Company C to discuss the public market perceptions and pressures related to dermatology companies, the status and timeline for approval and commercialization of serlopitant and Company C’s product portfolio. Mr. Basta and the Chief Executive Officer of Company C expressed their mutual interest in exploring the rationale for a strategic transaction between Company C and Menlo, including an opportunity for cost savings and efficiency through consolidation. Menlo and Company C entered into a mutual non-disclosure agreement on July 3, 2019, which did not include a standstill, and subsequently Menlo provided access to preliminary diligence information to Company C.

During the period of July 2019 to August 2019, Mr. Basta and the Chief Executive Officer of Company C spoke by telephone several times to further discuss the strategic rationale for a combination and the challenges related to a transaction, including the movement of the companies’ stock prices, the dilution to Company C shareholders and Menlo stockholders that would result from a transaction, and the timing and uncertainty of the outcome of the Phase III PN Trials.

On July 18, 2019, Mr. Basta spoke by telephone with the Chief Executive Officer of Company A who indicated that Company A was considering re-engaging with Menlo regarding a potential strategic transaction. Mr. Basta indicated that Menlo would be receptive to interest from Company A in a strategic transaction. Mr. Basta provided the Chief Executive Officer of Company A an update on the progress of Menlo’s clinical trials and the anticipated timing of data from the ongoing Phase II clinical trial and Phase III PN Trials.

 

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On July 25, 2019, Messrs. Domzalski and Basta met in person at the American Academy of Dermatology’s 2019 Summer Meeting in New York City. After discussing the status of both companies’ clinical development programs and Foamix’s commercial launch plans for its leading product candidates, they agreed to enter into a mutual non-disclosure agreement and to engage in diligence.

On August 5, 2019, Foamix and Menlo entered into a mutual non-disclosure agreement effective as of July 25, 2019, which did not include a standstill, and management at Menlo and Foamix began to share preliminary due diligence information with each other.

On August 7, 2019, following the regularly-scheduled call with the Foamix Board, Mr. Domzalski had a conversation with certain members of the Foamix Board to discuss initial information regarding Menlo and to discuss a potential stock-for-stock acquisition of Menlo. Mr. Domzalski shared his initial thoughts on the potential outline for a transaction with members of the Foamix Board. Mr. Domzalski promised to report back if the discussions developed further.

On August 9, 2019, Messrs. Domzalski and Basta spoke by telephone to discuss a potential combination. Mr. Domzalski stated that he had not yet discussed deal terms with the Foamix Board, but that he initially envisioned an all-stock deal with a tax-free structure, where Foamix shareholders would own a majority of the combined entity given the two companies’ current market capitalization and enterprise values, projected peak sales of lead assets, the development stage of each company’s portfolios and the likelihood of regulatory approval, and the developing commercial infrastructure of Foamix. Given these factors, Mr. Domzalski anticipated that the combined entity would be led by Foamix management. Mr. Basta stated that he would review the material terms of the transaction with the Menlo Board following receipt of any proposal from Foamix. Messrs. Domzalski and Basta also discussed the timing of a potential transaction and planned their next meeting, but did not discuss the potential value ascribed to the two companies at that time.

On August 14, 2019, Messrs. Domzalski and Basta met in New York City and further discussed the benefits and timing of a potential business combination between Menlo and Foamix, the parties’ interest in initiating more substantial mutual diligence, the timing of retaining financial advisors to explore terms of a transaction, as well as next steps.

On August 16, 2019, Messrs. Domzalski and Basta communicated about beginning to share certain additional detailed diligence information. They also discussed timing of a potential deal announcement in light of Foamix’s expected PDUFA date for FMX101. Initial detailed due diligence by each company commenced shortly thereafter.

On August 20, 2019, the Chief Executive Officer of Company C spoke by telephone with Mr. Basta and communicated that Company C had determined not to consider a strategic transaction with Menlo at that time due to the significant stock dilution of Company C that would result from a transaction and the uncertainty regarding the outcome of the Phase III PN Trials. Company C did not submit a proposal for a strategic transaction with Menlo prior to termination of discussions.

Foamix engaged Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”) to assist it with a potential transaction with Menlo in mid-August 2019. Beginning in late August and ending by mid-September 2019, Foamix management consulted with its Israeli counsel Herzog, Fox & Neeman (“HFN”) regarding certain initial structuring issues relating to a potential transaction with Menlo. In mid-September 2019, Foamix engaged Meitar Liquornik Geva Leshem Tal (“Meitar”) to be its merger and acquisition Israeli counsel with respect to the potential transaction and ceased working with HFN with respect to the potential transaction but continued to work with HFN on other corporate matters not related to the potential transaction. In late September 2019, following receipt of appropriate waivers, Menlo engaged a different team of lawyers at HFN to be its Israeli counsel with respect to the transaction.

 

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On August 25, 2019, Messrs. Domzalski and Basta discussed the timeline for conducting further due diligence and for seeking agreement on certain material terms for a potential transaction. In late August 2019, both parties established data rooms and granted access to one another in order to conduct additional detailed financial and technical due diligence. Subsequently, members of Foamix and Menlo management participated in multiple meetings to discuss diligence topics.

On August 26, 2019, a representative from Guggenheim Securities discussed with Mr. Basta the potential of outreach to Company D, a publicly-listed medical dermatology company, regarding a potential strategic transaction with Menlo. The representative of Guggenheim Securities introduced Mr. Basta to the President and Chief Executive Officer of Company D.

On August 29, 2019, the Foamix Board held a special meeting during which Mr. Domzalski and other members of the Foamix management presented initial information regarding Menlo and the potential transaction. The Foamix management team presented background information on Menlo, information on its products in development, including the status of and future timeline for its clinical trials, financial data, business plans, legal and tax review to date and initial impressions. Mr. Domzalski reported on management’s discussions to date with Menlo. Mr. Domzalski recommended that Foamix engage Barclays due to its qualifications, expertise and reputation as well as its involvement in recent transactions in the biopharmaceutical industry. Barclays had served as a joint-bookrunner for Foamix in follow-on offerings in 2016 and 2018, and discussed strategic opportunities with Foamix management from time to time. The Foamix Board also discussed the potential timeline for moving forward on a transaction with Menlo. The Foamix Board authorized Foamix management to engage Barclays and external legal counsel, proceed with due diligence and preliminary negotiations with Menlo and share Foamix management’s updated financial forecasts with Barclays.

On September 1, 2019, Mr. Basta provided Mr. Domzalski with an outline of various upcoming milestones for products in development at Menlo and their implications for the timeline of the proposed transaction. Specifically, Mr. Basta shared that the data readout for the Phase II clinical trial of serlopitant for the treatment of chronic pruritus of unknown origin was expected in February 2020, and that the data readout for the Phase III PN Trials was expected in March 2020 or early April 2020. Mr. Basta expressed concerns that based on the timeline under discussion, a potential closing of a transaction with Menlo in March 2020 may be close to the reporting of the Phase III PN Trials.

During this time period and continuing through the signing of the Merger Agreement, Mr. Domzalski and Mr. Basta each had periodic informal discussions with certain members of the Foamix Board and Menlo Board respectively to provide updates regarding the status of discussions regarding the potential business combination with Menlo.

On September 5, 2019, Mr. Basta spoke by telephone with the Chief Executive Officer of Company A to determine whether Company A had any interest in further advancing discussions regarding a potential strategic transaction. Mr. Basta indicated that Menlo was engaged in discussions regarding a potential strategic transaction with another company and Company A should expedite its consideration of whether to make a proposal regarding a potential combination with Menlo. The Chief Executive Officer of Company A indicated that he would respond following an upcoming meeting of Company A’s board of directors.

On September 10, 2019, Mr. Domzalski, Mr. Basta and members of the senior management teams of Foamix and Menlo met in New York City to discuss, among other matters, the potential cost synergies of the proposed transaction.

Also on September 10, 2019, Mr. Basta and another member of Menlo senior management met in New York City with the President and Chief Executive Officer of Company D, the chairman of Company D, and certain other members of Company D management, during which each company shared information regarding their businesses and discussed the strategic rationale for a potential combination. Neither Menlo nor Company D

 

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elected to pursue further discussions. Company D did not submit a proposal for a strategic transaction with Menlo prior to termination of discussions.

On September 20 and 22, 2019, Mr. Basta spoke by telephone with the Chief Executive Officer of Company A and other members of Company A management. Representatives of Company A indicated that they were interested in a business combination transaction with Menlo, but they were sensitive to Company A’s current stock valuation, the dilutive impact of a transaction and the proximity of the completion of the Phase III PN Trials. Mr. Basta indicated that Menlo was engaged in active discussions regarding a strategic transaction with another party and that, as a result, any interest Company A had in pursuing a strategic transaction with Menlo would need to be acted upon promptly.

Effective September 20, 2019, Foamix and Barclays executed an engagement letter providing for the exclusive engagement of Barclays as Foamix’s financial advisor.

Also on September 20, 2019, at the direction of Foamix management, representatives of Barclays sent Foamix’s management revenue projections for the next five fiscal years to representatives of Guggenheim Securities, and on September 21, 2019, at the direction of Menlo, representatives of Guggenheim Securities sent Menlo management long-term revenue projections of revenue through fiscal year 2033 to representatives of Barclays, which Barclays shared with Foamix. For a detailed discussion of Foamix financial projections, see “—Summary of Certain Foamix Unaudited Prospective Financial Information” beginning on page 119 of this joint proxy statement/prospectus. For a detailed discussion of Menlo financial projections, see “—Summary of Certain Menlo Unaudited Prospective Financial Information” beginning on page 135 of this joint proxy statement/prospectus.

On September 24, 2019, the Menlo Board met with members of Menlo management and representatives from Latham & Watkins and Guggenheim Securities, to discuss the status of discussions with each of Foamix, Company A and other previously contacted parties and the rationale for a strategic consolidation. Representatives of Guggenheim Securities provided an overview of Foamix and Company A, as well as an analysis of the potential future dilution that would be experienced by shareholders of Menlo were Menlo to continue to operate on a stand-alone basis and raise financing for commercialization, and Menlo’s current cash burn.

Also on September 24, 2019, Mr. Basta spoke by telephone with the Chief Executive Officer of Company A, who informed Mr. Basta that the board of directors of Company A declined to pursue a strategic transaction with Menlo at this time due primarily to the dilution impact on Company A of a transaction at the current stock price for Company A, and also considering the challenges associated with proximity to the Menlo clinical trial readouts.

Messrs. Domzalski and Basta met in San Francisco later in the day on September 24, 2019. Mr. Domzalski shared, and Mr. Basta acknowledged, his belief that Foamix would need to adjust the respective ownership levels for potential adverse results of the Phase III PN Trials in order to secure Foamix Board and shareholder approval, given that the data readout for the Phase III PN Trials was expected in March 2020 or early April 2020.

On September 25, 2019, the Foamix Board held a special meeting, at which representatives of Barclays and Foamix counsel from Skadden and Meitar were in attendance. Members of Foamix management updated the Foamix Board on the status of its continued negotiations with Menlo, including that the parties contemplated an all-stock merger transaction, with Foamix’s shareholders owning a majority of the surviving entity and Foamix management leading the surviving company, and that the parties contemplated working toward an announcement date in late October or early November, after the PDUFA date for Foamix’s lead product candidate FMX101. Foamix management further discussed the potential synergies and risks relating to the proposed transaction, and summarized diligence findings to date. Representatives of Barclays reviewed its preliminary financial analysis and counsel reviewed the directors’ fiduciary duties in connection with its analysis of the transaction. Management noted that the parties had not yet discussed any specific valuation numbers. For additional

 

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discussion of such financial projections, see “Summary of Certain Foamix Unaudited Prospective Financial Information” beginning on page 119 of this joint proxy statement/prospectus. Foamix management proposed that the company present a transaction structure to Menlo, whereby Foamix shareholders would hold 62% of the publicly-traded parent of the surviving entity, which would continue to be listed on Nasdaq and be led by members of Foamix management, and Menlo stockholders would hold 38% of the publicly-traded parent of the surviving entity, assuming that both Phase III PN Trials were successful. They also proposed that the transaction structure shift to an allocation of ownership of 82% to Foamix shareholders and 18% to Menlo stockholders of the publicly-traded parent of the surviving entity in the event that either of the Phase III PN Trials failed. Foamix management and the Foamix Board also discussed the potential tax effects of the transaction, as well as the potential to redomicile Foamix to the U.S. as part of the transaction. The Foamix Board resolved that Foamix present a non-binding term sheet to Menlo containing such discussed terms.

On September 26, 2019, representatives of Barclays, at the direction of the Foamix Board, delivered a non-binding preliminary term sheet to representatives of Guggenheim Securities, proposing that Menlo stockholders would own 38% of the publicly-traded parent of the surviving entity assuming success in both Phase III PN Trials and proposed that Foamix shareholders would receive an adjustment, at Closing or through contingent value rights entitling such shareholders to receive up to 82% of the publicly-traded parent of the surviving entity in the event that either of the Phase III PN Trials failed to meet their primary efficacy endpoints.

On September 29, 2019, the Menlo Board met with members of Menlo management and representatives from Latham & Watkins and Guggenheim Securities. Representatives from Guggenheim Securities provided an update on strategic transaction discussions and presented an overview of Foamix’s initial non-binding proposal. Following discussions, the Menlo Board proposed modifications to the terms contemplated by Foamix’s initial non-binding proposal, including a revised pro forma ownership split that would be more favorable to Menlo than the currently proposed allocation of ownership of 38% to Menlo stockholders and 62% to Foamix shareholders of the publicly-traded parent of the surviving entity in the event that the clinical trial results for both Phase III PN Trials are positive and the currently proposed allocation of ownership of 18% to Menlo stockholders and 82% to Foamix shareholders of the publicly-traded parent of the surviving entity in the event that the clinical trial results demonstrate partial Phase III PN Trial success (meaning success in achieving the primary efficacy endpoint in one of the two ongoing Phase III PN Trials but failing in the other). The Menlo Board directed Menlo management to communicate such modifications to the proposed terms for a transaction to Foamix.

On September 30, 2019, Mr. Basta provided feedback to Mr. Domzalski that Foamix’s offer lacked appropriate value to Menlo in the event of a partial Phase III PN Trial success and suggested that the transaction structure contemplate an adjusted pro forma ownership ratio in the event that one Phase III PN Trial succeeded but the second Phase III PN Trial failed. Mr. Basta also informed Mr. Domzalski that the Menlo Board would expect greater than 38% of the publicly-traded parent of the surviving entity assuming success in both Phase III PN Trials, and suggested that the deal structure point be addressed first to account for the one trial success scenario, thus providing a framework for negotiation of terms. Messrs. Basta and Domzalski also discussed potential timing for a transaction relative to the upcoming FMX101 PDUFA date.

On October 2, 2019, in order to address the deal structure request raised by Mr. Basta, Foamix provided a revised offer, adding a scenario where Menlo stockholders would receive 22% of the publicly-traded parent of the surviving entity in the event that one Phase III PN Trial succeeded but the second Phase III PN Trial failed, and otherwise leaving the proposal unchanged.

On October 3, 2019, Messrs. Domzalski and Basta met in New York City and further discussed Foamix’s non-binding proposal, as well as the potential board structure of the Combined Company.

On October 4, 2019, at the direction of Menlo, representatives of Guggenheim Securities presented a revised non-binding proposal from Menlo to representatives of Barclays which representatives of Barclays shared with Foamix, providing that if both the Phase III PN Trials were successful, Menlo stockholders would hold 43% of

 

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the publicly-traded parent of the surviving entity; if one Phase III PN Trial succeeded but the second Phase III PN Trial failed, Menlo stockholders would hold 27% of the publicly-traded parent of the surviving entity; and in the event that both such trials failed, then Menlo stockholders would hold 18% of the publicly-traded parent of the surviving entity. Menlo also proposed that Menlo would have two or three designees on a seven-member board of the surviving entity.

On October 7, 2019, at the direction of Foamix management, representatives of Barclays presented a revised non-binding proposal from Foamix to representatives of Guggenheim Securities, providing that if both of the Phase III PN Trials were successful, Menlo stockholders would hold 40% of the publicly-traded parent of the surviving entity; if one Phase III PN Trial succeeded but the second Phase III PN Trial failed, Menlo stockholders would hold 22% of the publicly-traded parent of the surviving entity; and in the event that both such trials failed, then Menlo stockholders would hold 18% of the publicly-traded parent of the surviving entity.

On October 8, 2019, at the direction of Menlo, representatives from Guggenheim Securities telephonically informed representatives from Barclays that the Menlo Board was meeting in the next day and that the Menlo Board would likely have significant reservations and concerns with Foamix’s latest non-binding proposal, which information representatives of Barclays shared with Foamix.

Also on October 8, 2019, at the direction of Menlo, a representative of Guggenheim Securities communicated to a representative of Barclays that the Menlo Board was likely to view favorably a proposal that provided that if both of the Phase III PN Trials were successful, Menlo stockholders would hold 42% of the publicly-traded parent of the surviving entity; if one Phase III PN Trial succeeded but the second Phase III PN Trial failed, Menlo stockholders would hold 24% of the publicly-traded parent of the surviving entity; and in the event that both such trials failed, then Menlo stockholders would own 18% of the publicly-traded parent of the surviving entity.

On October 9, 2019, the Menlo Board met with members of Menlo management and representatives from Latham & Watkins and Guggenheim Securities. Mr. Basta and the representatives of Guggenheim Securities reviewed the proposals that had been received from Foamix and the history of recent discussions between representatives of Guggenheim Securities and Barclays. At this meeting, the Menlo Board also considered the engagement of Guggenheim Securities to act as Menlo’s exclusive financial advisor in connection with its review of the potential sale of or another extraordinary corporate transaction involving Menlo. In connection therewith, Guggenheim Securities made certain disclosures of its relationships with Foamix, including that it was invited by Foamix in 2018 to discuss and informally review potential strategic alternatives available to Foamix with certain members of Foamix management. However, Guggenheim Securities had not been engaged by Foamix during the previous two years to provide financial advisory or other investment banking services for which Guggenheim Securities received fees. After review and discussion of conflicts, the Menlo Board determined that Guggenheim Securities had no conflicts of interest that would prevent it from fulfilling its obligations as Menlo’s exclusive financial advisor, and approved the engagement of Guggenheim Securities to act as Menlo’s exclusive financial advisor in connection with its review of the potential sale or another extraordinary corporate transaction by Menlo. The Menlo Board selected Guggenheim Securities to act as Menlo’s financial advisor based on Guggenheim Securities’ qualifications, expertise and reputation, its knowledge of and involvement in recent transactions in the biopharmaceutical industry, and its knowledge of and familiarity with Menlo’s business. Representatives of Latham & Watkins reviewed the fiduciary duties of directors in connection with the consideration of the proposed transaction with Foamix. Representatives of Guggenheim Securities then presented their initial financial analysis of the proposed business combination transaction with Foamix, including an analysis of each of Menlo and Foamix on a standalone basis, based on financial projections prepared by Menlo management. For a detailed discussion of such financial projections, see “—Summary of Certain Menlo Unaudited Prospective Financial Information” beginning on page 135 of this joint proxy statement/prospectus. Following discussion, the Menlo Board authorized Mr. Basta to present a revised proposal to Foamix.

Later on October 9, 2019, Menlo and Guggenheim Securities executed an engagement letter providing for the exclusive engagement of Guggenheim Securities as Menlo’s financial advisor.

 

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On October 14, 2019, at the direction of Foamix management, representatives of Barclays communicated to Guggenheim Securities that Foamix intended to pause discussions with Menlo until after Foamix’s FMX101 PDUFA date.

On October 17, 2019, Foamix announced FDA acceptance of its NDA for its product candidate FMX103 for the treatment of moderate-to-severe papulopustular rosacea. On October 18, 2019, Foamix announced it received FDA approval of AMZEEQTM (minocycline) topical foam, 4%, for the treatment of inflammatory lesions of non-nodular moderate to severe acne vulgaris in adults and pediatric patients 9 years of age and older (formerly known as “FMX101”).

On October 21, 2019, Foamix provided another non-binding proposal to Menlo, proposing to simplify the transaction structure to provide that if both the Phase III PN Trials were successful, Menlo stockholders would hold 41% of the publicly-traded parent of the surviving entity; if one of such Phase III PN Trials was successful, or if both such Phase III PN Trials failed, then Menlo stockholders would hold 20% of the publicly-traded parent of the surviving entity.

On October 22, 2019, Messrs. Domzalski and Basta discussed by telephone Foamix’s latest non-binding proposal. Mr. Basta expressed his belief that the Menlo Board would not be able to accept a proposal that reflected ownership levels that were less favorable to Menlo stockholders than 42%, 24%, or 18% ownership by Menlo stockholders of the publicly-traded parent of the surviving entity in the three scenarios relating to success of the Phase III PN Trials. Mr. Domzalski stated that he would discuss Mr. Basta’s feedback with members of the Foamix Board and shared that Foamix’s acceptance of those terms would need to reflect a board composition of five seats for Foamix and two for Menlo. Mr. Basta said that he would communicate that expectation of board composition to members of the Menlo Board if Foamix would be willing to accept the economic proposal.

On October 23, 2019, Mr. Domzalski communicated with Mr. Basta, noting that he was willing to recommend the latest terms proposed by Menlo to the Foamix Board, subject to review of where each of the Foamix and Menlo stock prices traded after that date until the time that the terms of a transaction could otherwise be finalized and announced. The parties discussed a work plan aimed at finalizing terms of definitive acquisition agreements and targeting announcement of a transaction by November 12, 2019.

On October 24, 2019, the Foamix Board held a special meeting, at which representatives of Barclays, and Foamix counsel from Skadden and Meitar were in attendance. The Foamix Board discussed Foamix’s recent product approval, and the most recent discussions with Menlo. Representatives of Barclays reviewed its preliminary financial analysis. Management updated the Foamix Board on various aspects of the transaction and discussed asking Menlo to agree to a period of exclusivity to get the transaction signed (and offering to also agree to the same period of exclusivity). The Foamix Board approved continuing to negotiate with Menlo on the terms of the last Menlo proposal, provided that the proposal contain a covenant requiring Menlo to preserve cash between signing and closing and include the proposed board composition. Thereafter, Foamix sent a revised non-binding written proposal that included the proposed Combined Company board composition split (with five designees from Foamix and two from Menlo), a covenant obligating Menlo to maintain a certain amount of cash prior to closing and a 42%, 24%, or 18% ownership by Menlo stockholders of the publicly-traded parent of the surviving entity in the three scenarios relating to success of the Phase III PN Trials, and a draft exclusivity agreement to Menlo.

On October 26, 2019, Mr. Basta spoke by telephone with Mr. Domzalski and communicated that given where Foamix’s share price had traded in the recent days, the current terms would not provide a sufficient premium to Menlo stockholders, and expressed that Menlo would want a 10%-20% share price premium in the base case in exchange for the adjustment mechanisms against clinical trial failure that Foamix requested. Mr. Basta communicated this as an implied ownership of approximately 4-5 percentage points above the current “at-the-market” pro forma ownership of Menlo stockholders in the Combined Company. Mr. Domzalski acknowledged that he would be willing to bring this to the Foamix Board for consideration.

 

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On October 27, 2019, the Menlo Board met with members of Menlo management and representatives from Latham & Watkins and Guggenheim Securities. Mr. Basta and representatives of Guggenheim Securities provided an update on the status of discussions regarding the potential strategic transaction with Foamix, including a summary of the latest non-binding proposal from Foamix, the potential ownership levels that had been discussed with Foamix, and an illustrative timeline from the announcement of a definitive transaction agreement to the closing date. Following extensive discussions regarding the revised term sheet, the Menlo Board authorized Menlo management to send a revised non-binding written proposal to Foamix via representatives of Barclays providing for the same 42%/24%/18% ownership scenarios for Menlo stockholders, with an adjustment mechanism to provide more than 42% ownership of the publicly-traded parent of the surviving entity to Menlo stockholders based upon the relative trading prices of Menlo and Foamix stock prior to the public announcement of the transaction in order to maintain a reasonable premium for Menlo stockholders in the base ownership scenario. The Menlo Board also instructed management to inform Foamix that Menlo was not willing to enter into an exclusivity agreement at that time.

Also on October 27, 2019, after the Menlo Board meeting, Mr. Basta reached out to Mr. Domzalski and shared that the Menlo Board would be willing to move forward with the 42%/24%/18% structure, with the provision of a minimum premium of 4.5 percentage points above the “at-the-market” relative ownership percentage for Menlo stockholders at the time of entering into a definitive merger agreement, and that Menlo would send a revised non-binding term sheet. The parties agreed to have both sides work toward an announcement of a transaction on or about November 12, 2019, subject to agreement on final terms of a definitive merger agreement and CSR Agreement. Mr. Basta also noted that Menlo was not willing to sign an exclusivity agreement at that time. Following the conversation, Mr. Basta sent Mr. Domzalski a revised term sheet reflecting these terms.

Between October 27, 2019 and November 9, 2019, Menlo and Foamix conducted detailed legal, financial and technical diligence with respect to each other, including pursuant to numerous meetings between members of management and representatives of the legal and financial advisors to each party.

On October 28, 2019, Skadden sent an initial draft of a merger agreement to Latham & Watkins.

Also on October 28, 2019, at the direction of Menlo, representatives from Guggenheim Securities spoke by telephone with representatives from Company B, who at that time was evaluating an ex-U.S. partnering arrangement with Menlo. Representatives from Guggenheim Securities informed Company B that Menlo was contemplating other potential strategic transactions and would consider any interest from Company B in pursuing a strategic transaction. Company B subsequently requested and was provided with access to diligence information.

On October 29, 2019, Menlo announced that its Phase III PN Trials had completed enrollment.

On October 31, 2019, Messrs. Domzalski and Basta continued to discuss the relative ownership of the Foamix shareholders and Menlo stockholders in the transaction. Mr. Domzalski suggested using a ten-day volume-weighted trailing average to set the exchange ratio and shared concerns regarding Menlo’s proposed floor for an ownership level. Also on this day, Skadden sent an initial draft of the contingent stock rights agreement as well as an initial draft of a form of voting agreement to Latham & Watkins.

On November 2, 2019, Latham & Watkins sent a revised draft merger agreement to Skadden. In addition to the exchange ratio, significant open issues included (i) commitments relating to the structure of the Menlo Board going forward, (ii) restrictions on each party’s conduct of business pending closing, including with respect to expenditures that would impact the amount of cash on hand at closing, (iii) each party’s rights and obligations with respect to soliciting other offers for the company and having the right to terminate the Merger Agreement for a superior offer, (iv) commitments to employees following closing, (v) termination rights and triggers for owing the other party a termination fee, (vi) an expense reimbursement fee and triggers for owing the other party an expense reimbursement fee and (vii) certain matters that could be considered in determining whether a “material adverse effect” occurred with respect to Menlo between signing and closing.

 

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On November 4, 2019, Foamix, Menlo, Skadden and Latham & Watkins engaged in direct negotiations regarding the Merger Agreement, the CSR Agreement and the form of voting agreement. Foamix’s Israeli counsel, Meitar, and Menlo’s Israeli counsel HFN, also engaged in negotiations with respect to the Israeli aspects of the transaction and the transaction agreements.

Over the course of the week of November 4, 2019, multiple drafts of the transaction agreements were shared between Foamix, Menlo and their respective legal counsel and other advisors, and negotiations continued among the parties and their counsel.

On November 6, 2019, the Foamix Board had a regularly scheduled meeting, at which representatives of Barclays and Foamix’s counsel from Skadden and Meitar were in attendance. At this meeting, Mr. Domzalski provided an update on discussions with Menlo, Foamix management updated the Foamix Board on certain key due diligence investigations that were conducted, representatives of Barclays reviewed its updated preliminary financial analysis, Foamix management discussed the rationale for the structure of the Combined Company, Foamix management and representatives of Foamix’s accounting advisors at KPMG LLP discussed the potential tax consequences of the transaction, representatives of Skadden summarized the terms of the transaction agreements and the then current open issues, and representatives of Meitar spoke to the Foamix Board about their fiduciary duties. The Foamix Board authorized Foamix management to continue to work towards finalizing a transaction with Menlo.

On November 7, 2019, representatives from Company B telephonically communicated to representatives from Guggenheim Securities that the members of Company B’s senior management and board of directors had decided that Company B was not interested in pursuing a strategic transaction with Menlo at the current time. Company B did not submit a proposal for a strategic transaction with Menlo prior to termination of discussions.

On November 8, 2019, Messrs. Domzalski and Basta had final discussions with respect to the respective ownership of Foamix shareholders and Menlo stockholders in the Combined Company in light of recent movement in the trading prices of each company’s stock and the resulting relative market capitalizations. Mr. Domzalski said that the current share prices at Foamix and Menlo supported a deal with Menlo ownership of 40% of the publicly-traded parent of the surviving entity in the base case scenario. After substantial discussion of the base case ownership percentages, Mr. Basta said he believed that the Menlo Board would not agree to Menlo stockholders holding less than 41% of the publicly-traded parent of the surviving entity if both Phase III PN Trials were successful, but that he could take that recommendation to the Menlo Board for consideration. After further discussion, Mr. Domzalski agreed to bring 41% ownership by the Menlo stockholders of the publicly-traded parent of the surviving entity in the event that both Phase III PN Trials were successful to the Foamix Board for consideration as well. At the direction of the Foamix Board and the Menlo Board, representatives of Barclays and Guggenheim Securities participated in discussions over the course of November 8 and 9 to assist members of Foamix and Menlo management in calculating the exchange ratio of 0.5924 shares of common stock of Menlo for each Foamix share to reflect the agreed upon ownership levels, subject to adjustment to 1.2739 shares of Menlo common stock if one Phase III PN Trial is not successful and adjustment to 1.8006 shares of Menlo common stock if both Phase III PN Trials are not successful.

Between November 8 and November 10, 2019, representatives of Foamix, Menlo, Skadden, Meitar, Latham & Watkins and HFN finalized the outstanding terms of the Merger Agreement, CSR Agreement and voting agreements.

On November 10, 2019, the Foamix Board held a special meeting, at which representatives of Barclays and Foamix’s counsel from Skadden and Meitar were in attendance. At this meeting, Mr. Domzalski updated the Foamix Board on the most recent discussions with Menlo. Representatives of Barclays reviewed its financial analysis and rendered an oral opinion, which was confirmed by the delivery of its written opinion dated November 10, 2019, that, as of the date thereof and based on, and subject to the various assumptions made,

 

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procedures followed, matters considered, and limitations and qualifications described in such opinion, from a financial point of view, the Merger Consideration (as defined in Barclays’ written opinion) to be offered to Foamix shareholders (other than the holders of Excluded Shares) in the proposed Merger was fair to such Foamix shareholders. For a detailed discussion of the opinion provided by Barclays, see “—Opinion of Barclays as Foamixs Financial Advisor” beginning on page 112 of this joint proxy statement/prospectus. Representatives of Skadden then updated the Foamix Board on the terms of the Merger Agreement, including the open matters that had been resolved since the last Foamix Board meeting. The Foamix Board then unanimously (i) determined that the Merger is advisable, fair to, and in the best interests of Foamix and its shareholders, (ii) approved entry into the Merger Agreement and voting agreements, approved the form of the CSR Agreement, and approved the transactions contemplated thereby, including the Merger and the Merger Consideration pursuant to the Merger, (iii) determined that the Foamix Board had no reasonable concern that Foamix as the Surviving Company in the Merger with Merger Sub, would be unable to fulfill the obligations of Foamix to its shareholders and (iv) resolved to recommend that the Foamix shareholders approve the Merger Agreement, the Merger, the Merger Consideration pursuant to the Merger, and all other transactions contemplated under the Merger Agreement.

Also on November 10, 2019, the Menlo Board met with members of Menlo management and representatives from Latham & Watkins and Guggenheim Securities. At the meeting, Mr. Basta provided an update regarding recent discussions with Foamix. Latham & Watkins reviewed with the Menlo Board key terms of the transaction documents, including structure and timing considerations, the contingent stock rights, treatment of employee equity, the non-solicitation clause and fiduciary duty exceptions that would permit Menlo to negotiate and accept an unsolicited superior offer, the change of board recommendation provisions, the termination provisions and termination fee and circumstances under which the payment of the termination fee would be triggered and the voting agreements. Members of Menlo management reviewed with the Menlo Board the due diligence conducted with respect to Foamix. Latham & Watkins reviewed the fiduciary duties of the members of the Menlo Board in connection with the consideration of the proposed transaction. Also at this meeting of the Menlo Board, Guggenheim Securities reviewed its financial analysis of the exchange ratio in connection with the Merger (which exchange ratio, as it may be adjusted pursuant to the Merger Agreement or effectively adjusted pursuant to the CSR Agreement, Guggenheim Securities refers to herein as the “Final Exchange Ratio”) and rendered an oral opinion, confirmed by delivery of a written opinion dated November 10, 2019, to the Menlo Board to the effect that, as of that date and based on and subject to the matters considered, the procedures followed, the assumptions made and various limitations of and qualifications to the review undertaken, the Final Exchange Ratio was fair, from a financial point of view, to Menlo. For a detailed discussion of the opinion provided by Guggenheim Securities, see “—Opinion of Guggenheim Securities as Menlos Financial Advisor” beginning on page 124 of this joint proxy statement/prospectus. The Menlo Board then unanimously (i) determined that the transactions contemplated by the Merger Agreement and the CSR Agreement, including the Merger and, if applicable, the issuance of CSRs, upon the terms and subject to the conditions set forth in such transaction documents are advisable, fair to, and in the best interests of, Menlo and Menlo stockholders, (ii) approved the Merger Agreement, the Merger, the issuance of the shares of Menlo common stock and, if applicable, the CSRs to the Foamix shareholders pursuant to the terms of the Merger Agreement and the CSR Agreement and the other actions contemplated by the Merger Agreement and the CSR Agreement and deemed the Merger Agreement and the CSR Agreement advisable, and (iii) recommended that the Menlo stockholders vote to approve the issuance of shares of Menlo common stock to Foamix shareholders pursuant to the terms of the Merger Agreement and upon conversion, if applicable, of the CSRs pursuant to the CSR Agreement, in each case, in connection with the Merger and such other actions as contemplated by the Merger Agreement and the CSR Agreement.

Also on November 10, 2019, Foamix’s largest shareholder and Mr. Domzalski entered into voting agreements with Menlo, and Menlo’s two largest stockholders and Mr. Basta entered into voting agreements with Foamix. Perceptive Credit Holdings II, LP and OrbiMed Royalty & Credit Opportunities III also executed a waiver and consent relating to the Credit Agreement and guaranty, whereby the lenders under the Credit Agreement have, among other things, granted consent to Foamix’s entering into the Merger Agreement and

 

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waived events of default under the Credit Agreement that would result therefrom and granted consent to the consummation of the Merger and waived certain events of default under the Credit Agreement as would result therefrom, subject to satisfaction of certain closing conditions as specified therein.

Foamix and Menlo finalized the Merger Agreement and ancillary documents and executed the Merger Agreement on November 10, 2019.

The transaction was announced by joint press release before the opening of trading on Nasdaq on the morning of November 11, 2019.

Recommendation of the Foamix Board and Foamix’s Reasons for the Merger

At its meeting on November 10, 2019, the Foamix Board: (i) determined that the Merger Agreement and the transactions contemplated by the Merger Agreement, the Merger, the Merger Consideration pursuant to the Merger Agreement and all other transactions contemplated by the Merger Agreement are advisable, fair to and in the best interests of Foamix and its shareholders and that, considering the financial position of the merging companies, Foamix and Merger Sub, no reasonable concern exists that the Surviving Company will be unable to fulfill the obligations of Foamix to its creditors; (ii) approved the Merger Agreement, the Merger, the Merger Consideration pursuant to the Merger Agreement and all other transactions contemplated by the Merger Agreement; and (iii) resolved to direct that the Merger Agreement, the Merger, the Merger Consideration pursuant to the Merger, and all other transactions contemplated by the Merger Agreement be submitted to the shareholders of Foamix for approval and adoption, and recommend that the shareholders of Foamix vote in favor of the approval and adoption of the Merger Agreement, the Merger, the Merger Consideration pursuant to the Merger Agreement and the other transactions contemplated by the Merger Agreement, all upon the terms and subject to the conditions set forth in the Merger Agreement. The Foamix Board unanimously recommends that you vote “FOR” the Foamix Merger Proposal.

The Foamix Board considered many factors in making its determination that the Merger Agreement, the Merger, the Merger Consideration pursuant to the Merger Agreement and all other transactions contemplated by the Merger Agreement are advisable, fair to and in the best interests of Foamix and its shareholders, and that, considering the financial position of the merging companies, and assuming, among other things, the accuracy of the representations and warranties of Menlo and Merger Sub in the Merger Agreement, no reasonable concern exists that the Surviving Company, as a result of the Merger, will be unable to fulfill the obligations of Foamix to its creditors. In arriving at its determination, the Foamix Board consulted with and received the advice of its outside financial and legal advisors, discussed certain issues with Foamix’s management and considered a variety of factors weighing positively in favor of the Merger, including the following:

Strategic Rationale.

 

   

The Foamix Board considered that the proposed merger enhances the Combined Company’s late stage pipeline and commercial opportunity through the acquisition of a unique asset (serlopitant) for which Phase III clinical trial results are expected in late March or early April 2020.

 

   

The Foamix Board considered that the proposed merger creates a stronger, more diversified player in the dermatological space with the potential to launch three products within the next three years and the opportunities to take advantage of cost synergies.

 

   

The Foamix Board considered that the proposed merger strengthens Foamix’s cash position through the addition of approximately $43 million in net cash, cash equivalents and investments to the balance sheet after the Closing (assuming a Closing by the end of the first quarter of 2020).

 

   

The Foamix Board considered that the reverse merger structure results in a combined company domiciled in Delaware, a state that offers predictable and well-established corporate laws providing significant flexibility around corporate transactions, including the issuance of equity and the payment of dividends, while at the same time protecting the rights of stockholders.

 

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Merger Consideration.

 

   

The Foamix Board considered that the consideration per Foamix share of 0.5924 of a share of Menlo common stock represents a fair valuation for Foamix and a modest premium for Menlo, taking into account the Foamix Board’s familiarity with Foamix’s business, strategy, industry, and assets and prospects and its diligence on Menlo’s business.

 

   

The Foamix Board considered the downside protection that the structure of the transaction provided; specifically (i) that the Exchange Ratio is adjustable pursuant to the terms of the Merger Agreement and CSR Agreement and Foamix shareholders will receive more shares of Menlo common stock in the case that either or both of Menlo’s Phase III PN Trial results in respect of serlopitant are unfavorable or not delivered by May 31, 2020 (resulting in Foamix shareholders holding 76% of the Combined Company if only one trial succeeds on schedule, and resulting in Foamix shareholders holding 82% of the Combined Company if both fail or are not completed on schedule) and (ii) Foamix estimated that Menlo was expected to have at least $43 million of cash, cash equivalents and investments at Closing net of estimated transaction costs and expenses related to the Merger and post-Closing costs (assuming a Closing by the end of the first quarter of 2020).

 

   

The Foamix Board considered the fact that shares of Menlo common stock serving as Merger Consideration are being registered with the SEC under both the Securities Act and the Exchange Act and that Menlo is applying for listing of such shares on the Nasdaq, which, taken together, should provide the vast majority of Foamix’s shareholders with a continued opportunity for liquidity.

Opinion of Foamix’s Financial Advisor. The Foamix Board considered the financial analyses reviewed and discussed with the Foamix Board by representatives of Barclays, Foamix’s financial advisor, as well as the oral opinion of Barclays (which was subsequently confirmed in writing as of November 10, 2019) to the effect that, as of such date and based upon and subject to the qualifications, limitations and assumptions stated in its opinion, the Merger Consideration (as defined in Barclays’ written opinion) to be offered to Foamix shareholders (other than the holders of Excluded Shares) in the Merger was fair, from a financial point of view, to such holders, as more fully described in the section entitled “—Opinion of Barclays as Foamix’s Financial Advisor,” which provides a summary of Barclays’ opinion and the methodology that Barclays used to render its opinion that is qualified in its entirety by reference to the full text of the opinion attached hereto as Annex C.

Likelihood of Consummation.

 

   

The Foamix Board considered the fact that limited regulatory and third-party approvals are required as a condition to consummation of the transaction.

 

   

The Foamix Board considered the fact that a significant shareholder and the Chief Executive Officer of Foamix have entered into voting agreements with Menlo, pursuant to which such shareholders have expressed their support of the proposed merger and have agreed to vote in favor of approval of the Merger Agreement, the proposed merger and the other transactions contemplated by the Merger Agreement.

 

   

The Foamix Board considered the fact that two significant stockholders and the Chief Executive Officer of Menlo have entered into voting agreements with Foamix, pursuant to which such stockholders have expressed their support of the proposed merger and have agreed to vote in favor of approval of the issuance of shares of Menlo common stock in the Merger, the change of control of Menlo resulting from the Merger and the other transactions contemplated by the Merger Agreement and CSR Agreement.

Terms of the Merger Agreement.

 

   

The Foamix Board considered that the Merger Agreement contains terms that were the product of arm’s-length negotiation.

 

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The Foamix Board considered the terms of the Merger Agreement, including the parties’ respective representations, warranties and covenants, the conditions to their respective obligations to complete the Merger and the ability of the respective parties to terminate the Merger Agreement. The Foamix Board noted that the termination fee provisions of the Merger Agreement could have the effect of discouraging competing proposals for a business combination between Foamix and a third party, but that such provisions are customary for transactions of this size and type. The Foamix Board considered that the amount of the termination fee, which amount is equal to $3.7 million, or approximately 1.5% of Foamix’s equity value at the time of Foamix Board approval, was towards the low end of the range for transactions of this type.

 

   

The Foamix Board considered that the Merger Agreement permits Foamix and the Foamix Board to respond to a competing proposal that the Foamix Board determines is a Superior Proposal, subject to certain restrictions imposed by the Merger Agreement and the requirement that Foamix pay the termination fee in the event that Foamix terminates the Merger Agreement to accept a Superior Proposal, and also permits the Foamix Board to change its recommendation in favor of the Merger in response to certain unforeseen or unforeseeable intervening events.

Participation in Future Growth. The Foamix Board considered that Foamix’s current shareholders will receive, in the aggregate as Merger Consideration, a significant percentage of the Menlo common stock outstanding following the consummation of the proposed merger and will therefore have a meaningful opportunity to participate in any possible growth and profits of the Combined Company following the consummation of the proposed merger.

Structure; Foamix Shareholder Approval.

 

   

The Foamix Board considered that the transaction will result in detailed public disclosure and a substantial period of time prior to the convening of the shareholder meeting to consider the approval and adoption of the Foamix Merger Proposal during which a competing proposal could be brought forth.

 

   

The Foamix Board also considered that the affirmative vote of a majority of the Foamix shares present and voting at the Foamix meeting is necessary for the completion of the Merger.

The Foamix Board also identified and considered a number of other matters, some of which are countervailing factors and risks to Foamix and its shareholders, relating to the Merger and the Merger Agreement, including the following:

Risks Related to the Consummation of the Merger. The Foamix Board considered the possibility that the proposed merger might not be consummated and the fact that, if the proposed merger is not consummated, (i) Foamix’s directors, senior management and other employees will have expended extensive time and effort and will have experienced significant distractions from their work during the pendency of the proposed merger, (ii) Foamix will have incurred significant transaction costs, (iii) Foamix’s continuing business relationships with business partners and employees may be adversely affected, (iv) the trading price of Foamix shares could be adversely affected and (v) the market’s perceptions of Foamix’s prospects could be adversely affected;

Inability to Solicit Other Acquisition Proposals. The Foamix Board considered that, subject to certain exceptions, the Merger Agreement precludes Foamix from soliciting alternative acquisition proposals and requires Foamix to pay to Menlo a termination fee of $3.7 million if the Merger Agreement is terminated under certain circumstances, including a termination of the Merger Agreement by Foamix to accept a Superior Proposal. These factors might have the effect of discouraging other parties from making competing proposals that might be more advantageous to Foamix’s shareholders than the proposed merger. The Foamix Board also considered the right afforded to Menlo under the Merger Agreement to re-negotiate the terms of the Merger Agreement in response to a Superior Proposal may discourage other parties that might otherwise have an interest in a business combination with, or an acquisition of, Foamix.

 

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Risks the Combined Company Will Not Perform as Expected. The Foamix Board considered the risk that the Combined Company will not realize the expected revenue or operating results or business prospects at all or within the expected timeframes, the significant costs that the Combined Company will incur to commercialize its products and the potential dilution of the stockholders of the Combined Company as a result of fundraising to support commercialization and future growth.

Effect of Public Announcement. The Foamix Board considered the effect of the public announcement of Foamix entering into the Merger Agreement on its operations, including its relationships with customers and employees and the potential adverse effects on its financial results as a result of that disruption, the possibility of any litigation in respect of the Merger Agreement or the transactions contemplated thereby, including the Merger, and the possible volatility, at least in the short term, of the trading price of Foamix shares or Menlo shares resulting from the merger announcement.

Transaction Costs. The Foamix Board considered the fact that Foamix has incurred and will continue to incur significant transaction costs and expenses in connection with the Merger, regardless of whether the Merger is consummated, including the possible costs associated with any related litigation.

Potential Conflicts of Interest. The Foamix Board considered the risk that certain of Foamix’s directors and executive officers may have interests in the transactions contemplated by the Merger Agreement, including the Merger, as individuals that are in addition to, or that may be different from, the interests of its shareholders. See the section entitled “The Merger—Interests of Foamix’s Directors and Executive Officers in the Merger” beginning on page 142 of this joint proxy statement/prospectus.

Other Risks. The Foamix Board considered the other risks in connection with its evaluation of the proposed merger, including:

 

   

The restrictions on the conduct of Foamix’s business required by the Merger Agreement (subject to specified exceptions), which may have an adverse effect on Foamix’s ability to respond to changing market and business conditions in a timely manner or at all and to execute its strategic plans;

 

   

The fact that becoming a wholly-owned subsidiary of a U.S. entity may result in a higher effective tax rate than if Foamix was the acquiring entity in the transaction; and

 

   

The risks of the type and nature described under “Risk Factors” and the matters described under “Cautionary Statement Regarding Forward-Looking Statements”.

The foregoing discussion of the factors considered by the Foamix Board is not intended to be exhaustive, but rather includes the material factors considered by the Foamix Board. The Foamix Board unanimously (i) determined that the Merger Agreement, the Merger, the Merger Consideration and all other transactions contemplated by the Merger Agreement are advisable, fair to and in the best interests of Foamix and its shareholders and that, considering the financial position of the merging companies, and assuming, among other things, the accuracy of the representations and warranties of Menlo and Merger Sub in the Merger Agreement, no reasonable concern exists that the Surviving Company, as a result of the Merger, will be unable to fulfill the obligations of the Foamix to its creditors; (ii) approved the Merger Agreement, the Merger, the Merger Consideration and all other transactions contemplated by the Merger Agreement; and (iii) resolved to direct that the Merger Agreement, the Merger, the Merger Consideration and all other transactions contemplated by the Merger Agreement be submitted to the shareholders of Foamix for approval and adoption and recommend that the shareholders of Foamix vote in favor of the approval and adoption of the Merger Agreement, the Merger, the Merger Consideration and the other transactions contemplated by the Merger Agreement, all upon the terms and subject to the conditions set forth in the Merger Agreement. In view of the wide variety of factors considered by the Foamix Board in connection with its evaluation of the Merger and the complexity of these matters, the Foamix Board did not consider it practical, and did not attempt, to quantify, rank or otherwise assign relative or specific weights or values to any of the factors it considered in reaching its decision and did not undertake to

 

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make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to the ultimate determination of the Foamix Board. Rather, the Foamix Board considered all of these factors as a whole and made its recommendation based on the totality of the information available to the Foamix Board, including discussions with, and questioning of, Foamix’s management and its legal and financial advisors. In considering the factors discussed above, individual members of the Foamix Board may have given different weights to different factors and the factors are not presented in any order of priority.

This explanation of the Foamix Board’s reasons to recommend that Foamix’s shareholders vote in favor of the Foamix Merger Proposal presented in this section is forward-looking in nature and, therefore, should be read in light of the factors described in the section entitled “Cautionary Statement Regarding Forward-Looking Statements”.

Recommendation of the Menlo Board and Menlo’s Reasons for the Merger/Share Issuance

In evaluating the Merger Agreement and the transactions contemplated thereby, including the Merger and the issuance of shares of Menlo common stock to the Foamix shareholders pursuant to the Merger Agreement and upon conversion, if applicable, of the CSRs pursuant to the CSR Agreement, in each case, in connection with the Merger and the change of control of Menlo resulting from the Merger, the Menlo Board consulted with Menlo’s senior management, Menlo’s financial advisor, Guggenheim Securities, and Menlo’s outside legal counsel, Latham & Watkins, and, in the course of reaching its determination to approve the terms of the Merger Agreement, the Merger and to recommend, upon the terms and subject to the conditions set forth in the Merger Agreement, that Menlo’s stockholders vote to approve the issuance of shares of Menlo common stock to Foamix shareholders in connection with the Merger and the change of control of Menlo resulting from the Merger, the Menlo Board carefully considered a wide and complex range of factors, including the following non-exhaustive list of material factors and benefits of the Merger, each of which the Menlo Board believed supported its determination and recommendation:

Factors supporting recommendation of the Merger:

The Menlo Board considered the following factors in reaching its conclusion to approve the Merger Agreement, the CSR Agreement and the transactions contemplated thereby, including the Merger, and to recommend that Menlo stockholders approve the issuance of shares of Menlo common stock in connection with the Merger and the change of control of Menlo resulting from the Merger, all of which the Menlo Board viewed as supporting its decision to approve the Merger:

Overview of Rationale.

The Menlo Board considered several key rationales for reaching its conclusion to approve the Merger Agreement, including the following:

 

   

A combination with Foamix would create a dermatology company with a diversified and sustainable product portfolio with potentially three commercial product launches in 2020 and 2021.

 

   

The Foamix products represent first-in-class topical minocycline products. Based upon the market acceptance of oral minocycline, and the safety advantages of topical minocycline compared with oral administration, the Menlo Board considered the significant market opportunity and prospects for the Foamix products.

 

   

The Combined Company could become an emerging leader in dermatology if the Foamix products and serlopitant were successfully developed and commercialized.

 

   

The Combined Company would require substantially less future financing than Menlo in a stand-alone situation.

 

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In the event that both Phase III PN Trials are successful, the 41% ownership stake in the Combined Company would provide superior economic value in an anticipated three-product Combined Company than the ownership stake Menlo stockholders might retain after financing dilution in a Menlo stand-alone situation.

 

   

For example, the Menlo Board considered dilution to Menlo’s stockholders in the PN + PSO/CPUO (Two Successful Phase III PN Trials) Case and the PN Only (Two Successful Phase III PN Trials) Case. In each of the scenarios, Menlo would need to raise $200 million or more over the next three years to commercialize serlopitant (based on the projections discussed under the heading “The Merger—Summary of Certain Menlo Unaudited Prospective Financial Information” and a minimum year-end cash balance of $25 million) as compared with the Combined Company raising an estimated $75 million to reach profitability much sooner than Menlo on a stand-alone basis (based on the projections discussed under the heading “The Merger—Summary of Certain Menlo Unaudited Prospective Financial Information”).

 

   

Based upon assumed financings at an illustrative $3-$10 per share (subject to customary discounts and fees for the financings) in either stand-alone or combined scenarios, Menlo’s stockholders after dilution from future financings may own approximately 23% to 50% of Menlo as a stand-alone company after raising $200 million, as compared with 28% to 36% of the Combined Company after raising $75 million.

 

   

Based on the foregoing, the Menlo Board believed that Menlo’s stockholders would likely have greater economic value by holding 28-36% of the Combined Company with three commercial dermatology products than they would have by holding 23-50% of the one-product stand-alone Menlo. For a discussion of the relative equity values of the Combined Company and Menlo as a stand-alone company, see the discussion under the heading “Opinion of Guggenheim Securities as Menlo Financial Advisor”.

 

   

Based upon the foregoing assumption and projections, as compared with Menlo alone, the Menlo Board believed that the Combined Company would be more likely to:

 

   

Reach profitability sooner;

 

   

Have greater annual profitability;

 

   

Have greater access to capital; and

 

   

Have multiple commercial products and multiple products in development.

 

   

The Menlo Board considered that more than $50 million per year would be saved by the Combined Company beginning in 2021 as compared to the independent projected commercialization costs.

 

   

The operating cost savings result primarily from not having separate commercial organizations, separate public company G&A and other costs, and other infrastructure duplication.

 

   

The more than $50 million annual savings reduces future financing requirements, accelerates the projected time to profitability for the Combined Company, and increases future projected annual free cash flow for the Combined Company, each as compared with Menlo alone.