PROSPECTUS
SUMMARY
The
Company
We
are a
research and development biopharmaceutical company focused on the development
of
oral therapeutic products intended for areas of unmet medical need and
biodefense vaccines. We have filed a new drug application (“NDA”) for our lead
product orBec®
(oral
beclomethasone dipropionate) with the U.S. Food and Drug Administration
(the
“FDA”) for the treatment of gastrointestinal Graft-versus-Host-Disease (“GI
GVHD”), and have received a Prescription Drug User Fee Act (“PDUFA”) date for
the FDA to complete its review of all materials regarding orBec®
of
July
21, 2007. In addition, the FDA’s Oncologic Drugs Advisory Committee (“ODAC”)
will review the NDA for orBec®
on May
10, 2007. We have also filed a Marketing Authorization Application (“MAA”) with
the European Central Authority, European Medicines Evaluation Agency (“EMEA”)
for orBec®,
which
has also been validated for review.
We
were
incorporated in 1987. We maintain two active segments: BioTherapeutics
and
BioDefense. Our business strategy is to: (a) prepare for the potential
marketing
approval of orBec®
by the
FDA and the EMEA; (b) conduct prophylactic use clinical trials of
orBec®
for the
prevention of GI GVHD; (c) evaluate and initiate additional clinical trials
to
explore the effectiveness of oral BDP (orBec®)
in
other therapeutic indications involving inflammatory conditions of the
gastrointestinal tract; (d) reinitiate development of our other biotherapeutics
products namely LPMTM-Leuprolide,
and OraprineTM;
(e)
explore acquisition strategies under which the Company may be acquired
by
another company with oncologic or GI products; (f) identify a sales and
marketing partner for orBec®
for
territories outside of the U.S., and potentially inside the U.S.; (g) secure
government funding for each of our biodefense programs through grants,
contracts, and procurements; (h) convert our biodefense vaccine programs
from
early stage development to advanced development and manufacturing with
the
potential to collaborate and/or partner with other companies in the biodefense
area; and (i) acquire or in-license new clinical-stage compounds for
development.
Our
principal executive offices are located at 1101 Brickell Avenue, Suite
701-S,
Miami, Florida 33131 and our telephone number is 786-425-3848.
orBec®
Our
lead
therapeutic product orBec®
is an
orally administered corticosteroid that exerts a potent, local anti-inflammatory
effect within the mucosal tissue of the gastrointestinal tract.
We filed
an NDA on September 21, 2006 for orBec®
with
the
FDA for the treatment of GI GVHD. The NDA was accepted on November 21,
2006, and
in accordance with the PDUFA the FDA will complete and review of all materials
regarding orBec®
by July
21, 2007. Additionally, on May 9, 2007, the ODAC will review the NDA. We
also
filed an MAA with the EMEA on November 3, 2006, which was validated for
review
on November 28, 2006. We assembled an experienced team of consultants and
contractors who worked on all aspects of the NDA preparation, including
data
management, data analysis, biostatistics, and medical writing. Manufacturing
of
the requisite NDA stability batches of drug product have been completed
with the
process validation batches anticipated to begin in the second quarter of
2007.
We
anticipate the market potential for orBec®
for
the
treatment of GI GVHD to be approximately 70 percent of the more than 12,000
bone
marrow and stem cell transplants that occur each year in the U.S.
We
are
having strategic discussions with a number of pharmaceutical companies
regarding
the partnering or sale of orBec®
in the
U.S. and abroad, including evaluating acquisition opportunities of the
entire
company. We also may seek a partner for the other potential indications
of
orBec®.
We are
also actively considering an alternative strategy of a commercial launch
of
orBec®
by
ourselves in the U.S.
RiVax™
The
development of RiVaxTM,
our
ricin toxin vaccine, has progressed significantly this year. Our academic
partner, The University of Texas Southwestern led by Dr. Ellen Vitetta,
completed a Phase 1 safety and immunogenicity trial of RiVaxTM
in human
volunteers. The results of the Phase 1 safety and immunogenicity dose-escalation
study indicate that the vaccine is well tolerated and induces antibodies
in
humans that neutralize ricin toxin. Despite the absence of an adjuvant,
antibodies were present in the blood of several volunteers for as long
as 127
days after their last vaccination. The functional activity of the antibodies
was
confirmed by transferring serum globulins from the vaccinated individuals
along
with active ricin toxin to sensitive mice, which then survived subsequent
exposure to ricin toxin. The outcome of the study was recently published
in the
Proceedings of the National Academy of Sciences. In January of 2005, we
entered
into a manufacturing and supply agreement for RiVax™ with Cambrex Corporation.
In July of 2006, we announced successful completion of current Good
Manufacturing Practices (”cGMP”) milestone for the production of
RiVaxTM.
BT-VACC™
Our
botulinum toxin vaccine, called BT-VACC™, was developed through the research of
Dr. Lance Simpson at Thomas Jefferson University in Philadelphia, Pennsylvania.
Botulinum toxin is the product of the bacteria Clostridium
botulinum.
Botulinum toxin is one of the most poisonous natural substances known.
Botulinum
toxin causes acute, symmetric, descending flaccid paralysis due to its
action on
peripheral cholinergic nerves. Paralysis typically presents 12 to 72 hours
after
exposure. Death results from paralysis of the respiratory muscles. Current
treatments include respiratory support and passive immunization with antibodies
which must be administered before symptoms occur, which leaves little time
post-exposure for effective treatment.
Recent
Developments
On
January 3, 2007, we received $3 million under a non-binding letter of intent
with Sigma-Tau Pharmaceuticals, Inc. (“Sigma-Tau”), which granted Sigma-Tau an
exclusive right to negotiate terms and conditions for a possible business
transaction or strategic alliance regarding orBec®
and
potentially other DOR pipeline compounds until March 1, 2007. Sigma-Tau
is a
pharmaceutical company that creates novel therapies for the unmet needs
of
patients with rare diseases. They have both prescription and consumer products
in metablolic, oncology, renal and supplements. Under the terms of the
letter of
intent, Sigma-Tau has purchased $1 million of our common stock at the market
price of $0.246 per share, representing approximately four million shares.
Sigma-Tau paid an additional $2 million, which was to be considered an
advance
payment to be deducted from upfront monies due to us by Sigma-Tau pursuant
to
any future orBec®
commercialization arrangement reached between the two parties. On February
21,
2007, Sigma-Tau relinquished its exclusive rights under the letter of intent
with regard to acquisition discussions. However, all other terms of the
letter
of intent remain in effect, and Sigma-Tau and us are engaged in discussions
for
a European collaboration relating to orBec®.
Also,
because no agreement was reached by March 1, 2007, we are obligated to
return $2
million to Sigma-Tau by April 30, 2007. If we do not pay Sigma Tau back
in cash
by May 31, 2007, interest will accrue at a rate of 6% compounded annually and
Sigma Tau will have the option in its sole discretion of converting the
accrued
amount into common stock at a price per share equal to 80% of the market
price
at the time the payment is made.
On
January 17, 2007, we received an unsolicited non-binding expression of
interest
from Cell Therapeutics, Inc. (“CTIC”) to acquire us.
After
due deliberation and consideration by a committee of independent Board
members
established by our Board of Directors (the “Independent Committee”) and further
deliberation and consideration by our full Board of Directors, on April
9, 2007,
the Independent Committee as well as our full Board of Directors each
unanimously resolved to reject as inadequate for stockholders the expression
of
interest by CTIC to acquire us and notified CTIC of such
resolutions.
On
February 9, 2007, we completed the sale of an aggregate of 11,680,850 shares
of
our common stock to institutional investors and certain of our officers
and
directors for an aggregate purchase price of $5,490,000. Pursuant to a
registration rights agreement, we agreed to file this registration statement
with the Securities and Exchange Commission in order to register the resale
of
the shares.
As
of
April 11, 2007, there were 91,913,336
shares outstanding, including the 17,557,195
shares of our common stock offered by the Selling Stockholders pursuant
to this
prospectus. The number of shares offered by this prospectus, including
the
1,160,106 shares of our common stock underlying warratns, represent
approximately 21% of the total common stock outstanding as of April 11,
2007,
assuming such Warrants were fully exercised.
The
Selling Stockholders may sell these shares in the over-the-counter market
or
otherwise, at market prices prevailing at the time of sale, at prices related
to
the prevailing market price, or at negotiated prices. We will not receive
any
proceeds from the sale of shares by the Selling Stockholders.
We
are
also registering for sale any additional shares of common stock which may
become
issuable by reason of any stock dividend, stock split, recapitalization
or other
similar transaction effected without the receipt of consideration, which
results
in an increase in the number of outstanding shares of our common
stock
Risk
Factors
You
should carefully consider the risks, uncertainties and other factors described
below before you decide whether to buy shares of our common stock. Any
of the
factors could materially and adversely affect our business, financial condition,
operating results and prospects and could negatively impact the market
price of
our common stock. Also, you should be aware that the risks and uncertainties
described below are not the only ones facing us. Additional risks and
uncertainties that we do not yet know of, or that we currently think are
immaterial, may also impair our business operations. You should also refer
to
the other information contained in and incorporated by reference into this
Annual Report, including our financial statements and the related
notes.
Risks
Related to our industry
We
have had significant losses and anticipate future losses; if additional
funding
cannot be obtained, we may reduce or discontinue our product development
and
commercialization efforts and we may be unable to continue our
operations.
We
are a
company that has experienced significant losses since inception and have
a
significant accumulated deficit. We expect to incur additional operating
losses
in the future and expect our cumulative losses to increase. As of December
31,
2006, we had approximately $120,000 in cash available. On January 3, 2007,
we
completed the sale of 4,065,041 shares of our common stock to Sigma-Tau
for a
purchase price of $1 million. On February 9, 2007, we completed the sale
of an
aggregate of 11,680,850 shares of our common stock to institutional investors
and certain of our officers and directors for an aggregate purchase price
of
$5,490,000 In addition, during 2007, we had warrant exercises in the amount
of
$677,312. Consequently, as of March 1, 2007, we had $7,089,092 in cash
of which
$2,000,000 is payable to Sigma-Tau. Based
on
our budgetary projections of $5,500,000 over the next 12 months, the financings
will allow us to continue and maintain operations into the first quarter
of
2008. In addition, our existing NIH biodefense grant facilities provide
us with
significant overhead contributions to continue to operate our business.
On
September 29, 2006, we announced that we had received approximately $5,300,000
in grants for the development of our biodefense programs. We estimate that
the
overhead revenue contribution from our existing NIH biodefense grants will
generate an additional $850,000 over the next four quarters.
All
of
our products are currently in development, preclinical studies or clinical
trials, and we have not generated any revenues from sales or licensing
of these
products. Through December 31, 2006, we had expended approximately $17,400,000
developing our current product candidates for preclinical research and
development and clinical trials, and we currently expect to spend at least
$6.0
million over the next two years in connection with the development and
commercialization of our vaccines and therapeutic products, licenses, employee
agreements, and consulting agreements. Unless and until we are able to
generate
sales or licensing revenue from orBec®, our leading product candidate, or
another one of our product candidates, we may require additional funding
to meet
these commitments, sustain our research and development efforts, provide
for
future clinical trials, and continue our operations. We may not be able
to
obtain additional required funding on terms satisfactory to our requirements,
if
at all. If we are unable to raise additional funds when necessary, we may
have
to reduce or discontinue development, commercialization or clinical testing
of
some or all of our product candidates or take other cost-cutting steps
that
could adversely affect our ability to achieve our business objectives.
If
additional funds are raised through the issuance of equity securities,
stockholders may experience dilution of their ownership interests, and
the newly
issued securities may have rights superior to those of the common stock.
If
additional funds are raised by the issuance of debt, we may be subject
to
limitations on our operations.
If
we are unsuccessful in developing our products, our ability to generate
revenues
will be significantly impaired.
To
be
profitable, our organization must, along with corporate partners and
collaborators, successfully research, develop and commercialize our technologies
or product candidates. Our current product candidates are in various stages
of
clinical and preclinical development and will require significant further
funding, research, development, preclinical and/or clinical testing, regulatory
approval and commercialization, and are subject to the risks of failure
inherent
in the development of products based on innovative or novel technologies.
Specifically, each of the following is possible with respect to any of
our other
product candidates:
| · |
we
will not be able to maintain our current research and development
schedules;
|
| · |
we
may be unsuccessful in our efforts to secure profitable procurement
contracts from the U.S. government or others for our biodefense
products;
|
| · |
we
will encounter problems in clinical trials; or
|
| · |
the
technology or product will be found to be ineffective or unsafe.
|
If
any of
the risks set forth above occurs, or if we are unable to obtain the necessary
regulatory approvals as discussed below, we may not be able to successfully
develop our technologies and product candidates and our business will be
seriously harmed. Furthermore, for reasons including those set forth below,
we
may be unable to commercialize or receive royalties from the sale of any
other
technology we develop, even if it is shown to be effective, if:
| · |
it
is uneconomical or the market for the product does not develop
or
diminishes;
|
| · |
we
are not able to enter into arrangements or collaborations to
manufacture
and/or market the product;
|
| · |
the
product is not eligible for third-party reimbursement from government
or
private insurers;
|
| · |
others
hold proprietary rights that preclude us from commercializing the
product;
|
| · |
others
have brought to market similar or superior products; or
|
| · |
the
product has undesirable or unintended side effects that prevent
or limit
its commercial use.
|
Our
business is subject to extensive governmental regulation, which can be
costly,
time consuming and subjects us to unanticipated
delays.
Our
business is subject to very stringent United States, federal, foreign,
state and
local government laws and regulations, including the Federal Food, Drug
and
Cosmetic Act, the Environmental Protection Act, the Occupational Safety
and
Health Act, and state and local counterparts to these acts. These laws
and
regulations may be amended, additional laws and regulations may be enacted,
and
the policies of the FDA and other regulatory agencies may change.
The
regulatory process applicable to our products requires pre-clinical and
clinical
testing of any product to establish its safety and efficacy. This testing
can
take many years and require the expenditure of substantial capital and
other
resources. We may be unable to obtain, or we may experience difficulties
and
delays in obtaining, necessary domestic and foreign governmental clearances
and
approvals to market a product. Also, even if regulatory approval of a product
is
granted, that approval may entail limitations on the indicated uses for
which
the product may be marketed. The pivotal clinical trial of our product
candidate
orBec®
began in
2001. In December of 2004, we announced top line results for our pivotal
Phase 3
trial of orBec®
in
GI
GVHD, in which orBec®
demonstrated
a statistically significant reduction in mortality during the prospectively
defined Day 200 post-transplant period and positive trends on its primary
endpoint. While orBec®
did not
achieve statistical significance in its primary endpoint of time to treatment
failure at Day 50 (p-value 0.1177), orBec®
did
achieve a statistically significant reduction in mortality compared to
placebo.
Additional clinical trials may be necessary prior to approval by the FDA
of a
marketing application.
Following
any regulatory approval, a marketed product and its manufacturer are subject
to
continual regulatory review. Later discovery of problems with a product
or
manufacturer may result in restrictions on such product or manufacturer.
These
restrictions may include withdrawal of the marketing approval for the product.
Furthermore, the advertising, promotion and export, among other things,
of a
product are subject to extensive regulation by governmental authorities
in the
United States and other countries. If we fail to comply with applicable
regulatory requirements, we may be subject to fines, suspension or withdrawal
of
regulatory approvals, product recalls, seizure of products, operating
restrictions and/or criminal prosecution.
There
may be unforeseen challenges in developing biodefense
products.
For
development of biodefense vaccines and therapeutics, the FDA has instituted
policies that are expected to result in accelerated approval. This includes
approval for commercial use using the results of animal efficacy trials,
rather
than efficacy trials in humans. However, we will still have to establish
that
the vaccine and countermeasures it is developing are safe in humans at
doses
that are correlated with the beneficial effect in animals. Such clinical
trials
will also have to be completed in distinct populations that are subject
to the
countermeasures; for instance, the very young and the very old, and in
pregnant
women, if the countermeasure is to be licensed for civilian use. Other
agencies
will have an influence over the risk benefit scenarios for deploying the
countermeasures and in establishing the number of doses utilized in the
Strategic National Stockpile. We may not be able to sufficiently demonstrate
the
animal correlation to the satisfaction of the FDA, as these correlates
are
difficult to establish and are often unclear. Invocation of the two animal
rule
may raise issues of confidence in the model systems even if the models
have been
validated. For many of the biological threats, the animal models are not
available and we may have to develop the animal models, a time-consuming
research effort. There are few historical precedents, or recent precedents,
for
the development of new countermeasure for bioterrorism agents. Despite
the two
animal rule, the FDA may require large clinical trials to establish safety
and
immunogenicity before licensure and it may require safety and immunogenicity
trials in additional populations. Approval of biodefense products may be
subject
to post-marketing studies, and could be restricted in use in only certain
populations.
We
will be dependent on government funding, which is inherently uncertain,
for the
success of our biodefense operations.
We
are
subject to risks specifically associated with operating in the biodefense
industry, which is a new and unproven business area. We do not anticipate
that a
significant commercial market will develop for our biodefense products.
Because
we anticipate that the principal potential purchasers of these products,
as well
as potential sources of research and development funds, will be the U.S.
government and governmental agencies, the success of our biodefense division
will be dependent in large part upon government spending decisions. The
funding
of government programs is dependent on budgetary limitations, congressional
appropriations and administrative allotment of funds, all of which are
inherently uncertain and may be affected by changes in U.S. government
policies
resulting from various political and military developments.
The
manufacture of our products is a highly exacting process, and if we or
one of
our materials suppliers encounter problems manufacturing our products,
our
business could suffer.
The
FDA
and foreign regulators require manufacturers to register manufacturing
facilities. The FDA and foreign regulators also inspect these facilities
to
confirm compliance with cGMP or similar requirements that the FDA or foreign
regulators establish. We or our materials suppliers may face manufacturing
or
quality control problems causing product production and shipment delays
or a
situation where we or the supplier may not be able to maintain compliance
with
the FDA’s cGMP requirements, or those of foreign regulators, necessary to
continue manufacturing our drug substance. Any failure to comply with cGMP
requirements or other FDA or foreign regulatory requirements could adversely
affect our clinical research activities and our ability to market and develop
our products.
If
the parties we depend on for supplying our drug substance raw materials
and
certain manufacturing-related services do not timely supply these products
and
services, it may delay or impair our ability to develop, manufacture and
market
our products.
We
rely
on suppliers for our drug substance raw materials and third parties for
certain
manufacturing-related services to produce material that meets appropriate
content, quality and stability standards and use in clinical trials of
our
products and, after approval, for commercial distribution. To succeed,
clinical
trials require adequate supplies of drug substance and drug product, which
may
be difficult or uneconomical to procure or manufacture. We and our suppliers
and
vendors may not be able to (i) produce our drug substance or drug product
to
appropriate standards for use in clinical studies, (ii) perform under any
definitive manufacturing, supply or service agreements with us or (iii)
remain
in business for a sufficient time to successfully produce and market our
product
candidates. If we do not maintain important manufacturing and service
relationships, we may fail to find a replacement supplier or required vendor
or
develop our own manufacturing capabilities which could delay or impair
our
ability to obtain regulatory approval for our products and substantially
increase our costs or deplete profit margins, if any. If we do find replacement
manufacturers and vendors, we may not be able to enter into agreements
with them
on terms and conditions favorable to us and, there could be a substantial
delay
before a new facility could be qualified and registered with the FDA and
foreign
regulatory authorities.
We
do not have sales and marketing experience and our lack of experience may
restrict our success in commercializing our product candidates.
We
do not
have experience in marketing or selling pharmaceutical products. We may
be
unable to establish satisfactory arrangements for marketing, sales and
distribution capabilities necessary to commercialize and gain market acceptance
for orBec®
or our
other product candidates. To obtain the expertise necessary to successfully
market and sell orBec®,
or any
other product, will require the development of our own commercial infrastructure
and/or collaborative commercial arrangements and partnerships. Our ability
to
make that investment and also execute our current operating plan is dependent
on
numerous factors, including, the performance of third party collaborators
with
whom we may contract. Accordingly, we may not have sufficient funds to
successfully commercialize orBec®
or any
other potential product in the United States or elsewhere.
Our
products, if approved, may not be commercially viable due to health care
changes
and third party reimbursement limitations.
Recent
initiatives to reduce the federal deficit and to change health care delivery
are
increasing cost-containment efforts. We anticipate that Congress, state
legislatures and the private sector will continue to review and assess
alternative benefits, controls on health care spending through limitations
on
the growth of private health insurance premiums and Medicare and Medicaid
spending, price controls on pharmaceuticals, and other fundamental changes
to
the health care delivery system. Any changes of this type could negatively
impact the commercial viability of our products, if approved. Our ability
to
successfully commercialize our product candidates, if they are approved,
will
depend in part on the extent to which appropriate reimbursement codes and
authorized cost reimbursement levels of these products and related treatment
are
obtained from governmental authorities, private health insurers and other
organizations, such as health maintenance organizations. In the absence
of
national Medicare coverage determination, local contractors that administer
the
Medicare program may make their own coverage decisions. Any of our product
candidates, if approved and when commercially available, may not be included
within the then current Medicare coverage determination or the coverage
determination of state Medicaid programs, private insurance companies or
other
health care providers. In addition, third-party payers are increasingly
challenging the necessity and prices charged for medical products, treatments
and services.
We
may not be able to retain rights licensed to us by third parties to
commercialize key products or to develop the third party relationships
we need
to develop, manufacture and market our products.
We
currently rely on license agreements from, the University of Texas Southwestern
Medical Center, The University of Texas Medical Branch at Galveston, Thomas
Jefferson University, Southern Research Institute, the University of Alabama
Research Foundation, and George B. McDonald M.D. for the rights to commercialize
key product candidates. We may not be able to retain the rights granted
under
these agreements or negotiate additional agreements on reasonable terms,
or at
all.
Furthermore,
we currently have very limited product development capabilities and no
manufacturing, marketing or sales capabilities. For us to research, develop
and
test our product candidates, we need to contract or partner with outside
researchers, in most cases with or through those parties that did the original
research and from whom we have licensed the technologies. If products are
successfully developed and approved for commercialization, then we will
need to
enter into collaboration and other agreements with third parties to manufacture
and market our products. We may not be able to induce the third parties
to enter
into these agreements, and, even if we are able to do so, the terms of
these
agreements may not be favorable to us. Our inability to enter into these
agreements could delay or preclude the development, manufacture and/or
marketing
of some of our product candidates or could significantly increase the costs
of
doing so. In the future, we may grant to our development partners rights
to
license and commercialize pharmaceutical and related products developed
under
the agreements with them, and these rights may limit our flexibility in
considering alternatives for the commercialization of these products.
Furthermore, third-party manufacturers or suppliers may not be able to
meet our
needs with respect to timing, quantity and quality for the products.
Additionally,
if we do not enter into relationships with third parties for the marketing
of
our products, if and when they are approved and ready for commercialization,
we
would have to build our own sales force. Development of an effective sales
force
would require significant financial resources, time and expertise. We may
not be
able to obtain the financing necessary to establish a sales force in a
timely or
cost effective manner, if at all, and any sales force we are able to establish
may not be capable of generating demand for our product candidates, if
they are
approved.
We
may suffer product and other liability claims; we maintain only limited
product
liability insurance, which may not be sufficient.
The
clinical testing, manufacture and sale of our products involves an inherent
risk
that human subjects in clinical testing or consumers of our products may
suffer
serious bodily injury or death due to side effects, allergic reactions
or other
unintended negative reactions to our products. As a result, product and
other
liability claims may be brought against us. We currently have clinical
trial and
product liability insurance with limits of liability of $5 million, which
may
not be sufficient to cover our potential liabilities. Because liability
insurance is expensive and difficult to obtain, we may not be able to maintain
existing insurance or obtain additional liability insurance on acceptable
terms
or with adequate coverage against potential liabilities. Furthermore, if
any
claims are brought against us, even if we are fully covered by insurance,
we may
suffer harm such as adverse publicity.
We
may not be able to compete successfully with our competitors in the
biotechnology industry.
The
biotechnology industry is intensely competitive, subject to rapid change
and
sensitive to new product introductions or enhancements. Most of our existing
competitors have greater financial resources, larger technical staffs,
and
larger research budgets than we have, as well as greater experience in
developing products and conducting clinical trials. Our competition is
particularly intense in the gastroenterology and transplant areas and is
also
intense in the therapeutic area of inflammatory bowel disease. We face
intense
competition in the area of biodefense from various public and private companies
and universities as well as governmental agencies, such as the U.S. Army,
which
may have their own proprietary technologies that may directly compete with
our
technologies. In addition, there may be other companies that are currently
developing competitive technologies and products or that may in the future
develop technologies and products that are comparable or superior to our
technologies and products. We may not be able to compete successfully with
our
existing and future competitors.
We
may be unable to commercialize our products if we are unable to protect
our
proprietary rights, and we may be liable for significant costs and damages
if we
face a claim of intellectual property infringement by a third
party.
Our
success depends in part on our ability to obtain and maintain patents,
protect
trade secrets and operate without infringing upon the proprietary rights
of
others. In the absence of patent and trade secret protection, competitors
may
adversely affect our business by independently developing and marketing
substantially equivalent or superior products and technology, possibly
at lower
prices. We could also incur substantial costs in litigation and suffer
diversion
of attention of technical and management personnel if we are required to
defend
ourselves in intellectual property infringement suits brought by third
parties,
with or without merit, or if we are required to initiate litigation against
others to protect or assert our intellectual property rights. Moreover,
any such
litigation may not be resolved in our favor.
Although
we and our licensors have filed various patent applications covering the
uses of
our product candidates, patents may not be issued from the patent applications
already filed or from applications that we might file in the future. Moreover,
the patent position of companies in the pharmaceutical industry generally
involves complex legal and factual questions, and recently has been the
subject
of much litigation. Any patents we have obtained, or may obtain in the
future,
may be challenged, invalidated or circumvented. To date, no consistent
policy
has been developed in the United States Patent and Trademark Office regarding
the breadth of claims allowed in biotechnology patents.
In
addition, because patent applications in the United States are maintained
in
secrecy until patents issue, and because publication of discoveries in
the
scientific or patent literature often lags behind actual discoveries, we
cannot
be certain that we and our licensors are the first creators of inventions
covered by any licensed patent applications or patents or that we or they
are
the first to file. The Patent and Trademark Office may commence interference
proceedings involving patents or patent applications, in which the question
of
first inventorship is contested. Accordingly, the patents owned or licensed
to
us may not be valid or may not afford us protection against competitors
with
similar technology, and the patent applications licensed to us may not
result in
the issuance of patents.
It
is
also possible that our patented technologies may infringe on patents or
other
rights owned by others, licenses to which may not be available to us. We
may not
be successful in our efforts to obtain a license under such patent on terms
favorable to us, if at all. We may have to alter our products or processes,
pay
licensing fees or cease activities altogether because of patent rights
of third
parties.
In
addition to the products for which we have patents or have filed patent
applications, we rely upon unpatented proprietary technology and may not
be able
to meaningfully protect our rights with regard to that unpatented proprietary
technology. Furthermore, to the extent that consultants, key employees
or other
third parties apply technological information developed by them or by others
to
any of our proposed projects, disputes may arise as to the proprietary
rights to
this information, which may not be resolved in our favor.
Our
business could be harmed if we fail to retain our current personnel or
if they
are unable to effectively run our business.
We
have
only eight employees and we depend upon these employees to manage the day-to-day
activities of our business. Because we have such limited personnel, the
loss of
any of them or our inability to attract and retain other qualified employees
in
a timely manner would likely have a negative impact on our operations.
Dr.
Christopher J. Schaber, Chief Executive Officer, was hired in August 2006;
Evan
Myrianthopoulos, our Chief Financial Officer, was hired in November 2004,
although he was on the Board for two years prior to that; James Clavijo,
our
Controller, Treasurer and Corporate Secretary was hired in October 2004;
and Dr.
Robert Brey, our Chief Scientific Officer was hired in 1996. In August
2006, Dr.
James S. Kuo was appointed Chairman of the Board. We will not be successful
if
this management team cannot effectively manage and operate our business.
Several
members of our board of directors are associated with other companies in
the
biopharmaceutical industry. Stockholders should not expect an obligation
on the
part of these board members to present product opportunities to us of which
they
become aware outside of their capacity as members of our board of
directors.
Risks
Related to our Common Stock
Our
stock price is highly volatile.
The
market price of our common stock, like that of many other research and
development public pharmaceutical and biotechnology companies, has been
highly
volatile and may continue to be so in the future due to a wide variety
of
factors, including:
| · |
announcements
of technological innovations, more important bio-threats or new
commercial
therapeutic products by us, our collaborative partners or our present
or
potential competitors;
|
| · |
our
quarterly operating results and
performance;
|
| · |
announcements
by us or others of results of pre-clinical testing and clinical
trials;
|
| · |
developments
or disputes concerning patents or other proprietary
rights;
|
| · |
litigation
and government proceedings;
|
| · |
changes
in government regulations;
|
| · |
economic
and other external factors; and
|
| · |
general
market conditions
|
Our
stock
price has fluctuated between January 1, 2003 through December 31, 2006,
the per
share price of our common stock ranged between a high of $1.71 per share
to a
low of $0.20 per share. As of April 11, 2007, our common stock traded at
$0.62.
The fluctuation in the price of our common stock has sometimes been unrelated
or
disproportionate to our operating performance.
Our
stock trades on the over the counter bulletin board and our stock is not
listed
on the American Stock Exchange
On
April
18, 2006, our stock was delisted from the American Stock Exchange (“AMEX”) and
began trading on the Over-the-Counter Bulletin Board (the “OTCBB”) securities
market on April 18, 2006 under the ticker symbol DORB. The OTCBB is a
decentralized market regulated by the National Association of Securities
Dealers
(NASD) in which securities are traded via an electronic quotation system
that
serves more than 3,000 companies. On the OTCBB, securities are traded by
a
network of brokers or dealers who carry inventories of securities to facilitate
the buy and sell orders of investors, rather than providing the order
matchmaking service seen in specialist exchanges. OTCBB securities include
national, regional, and foreign equity issues. Companies traded OTCBB must
be
current in their reports filed with the SEC and other regulatory
authorities.
Our
stock
was delisted from the AMEX because we did not maintain shareholder equity
above
the $6,000,000, as required under the maintenance requirement for continued
listing.
If
our
common stock is not listed on a national exchange or market, the trading
market
for our common stock may become illiquid. Our common stock is subject to
the
penny stock rules of the SEC, which generally are applicable to equity
securities with a price of less than $5.00 per share, other than securities
registered on certain national securities exchanges or quoted on the NASDAQ
system, provided that current price and volume information with respect
to
transactions in such securities is provided by the exchange or system.
The penny
stock rules require a broker-dealer, before a transaction in a penny stock
not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document prepared by the SEC that provides information about penny stocks
and
the nature and level of risks in the penny stock market. The broker-dealer
also
must provide the customer with bid and ask quotations for the penny stock,
the
compensation of the broker-dealer and its salesperson in the transaction
and
monthly account statements showing the market value of each penny stock
held in
the customer’s account. In addition, the penny stock rules require that, before
a transaction in a penny stock that is not otherwise exempt from such rules,
the
broker-dealer must make a special written determination that the penny
stock is
a suitable investment for the purchaser and receive the purchaser’s written
agreement to the transaction. As a result of these requirements, our common
stock could be priced at a lower price and our stockholders could find
it more
difficult to sell their
shares.
Shareholders
may suffer substantial dilution.
We
have a
number of agreements or obligations that may result in dilution to investors.
These include:
| · |
warrants
to purchase approximately 34,400,000 shares of our common stock at a
current weighted average exercise price of approximately $0.69;
|
| · |
anti-dilution
rights associated with a portion of the above warrants which can
permit
purchase of additional shares and/or lower exercise prices under
certain
circumstances; and
|
| · |
options
to purchase approximately 11,900,000 shares of our common stock
of a
current weighted average exercise price of approximately $0.50.
|
To
the
extent that anti-dilution rights are triggered, or warrants or options
are
exercised, our stockholders will experience substantial dilution and our
stock
price may decrease.
Our shares of common stock are thinly traded, so stockholders may be unable
to
sell at or near ask prices or at all if they need to sell shares to raise
money
or otherwise desire to liquidate their shares.
Our
common stock has from time to time been “thinly-traded,” meaning that the number
of persons interested in purchasing our common stock at or near ask prices
at
any given time may be relatively small or non-existent. This situation
is
attributable to a number of factors, including the fact that we are a small
company that is relatively unknown to stock analysts, stock brokers,
institutional investors and others in the investment community that generate
or
influence sales volume, and that even if we came to the attention of such
persons, they tend to be risk-averse and would be reluctant to follow an
unproven company such as ours or purchase or recommend the purchase of
our
shares until such time as we became more seasoned and viable. As a consequence,
there may be periods of several days or more when trading activity in our
shares
is minimal or non-existent, as compared to a seasoned issuer which has
a large
and steady volume of trading activity that will generally support continuous
sales without an adverse effect on share price. We cannot give stockholders
any
assurance that a broader or more active public trading market for our common
shares will develop or be sustained, or that current trading levels will
be
sustained.
RECENT
DEVELOPMENTS
On
January 3,
2007, we received $3 million under a non-binding letter of intent with
Sigma-Tau
Pharmaceuticals, Inc. (“Sigma-Tau”), which granted Sigma-Tau an exclusive right
to negotiate terms and conditions for a possible business transaction or
strategic alliance regarding orBec®
and
potentially other DOR pipeline compounds until March 1, 2007. Sigma-Tau
is a
pharmaceutical company that creates novel therapies for the unmet needs
of
patients with rare diseases. They have both prescription and consumer products
in metablolic, oncology, renal and supplements. Under the terms of the
letter of
intent, Sigma-Tau has purchased $1 million of our common stock at the market
price of $0.246 per share, representing approximately four million shares.
Sigma-Tau paid an additional $2 million, which was to be considered an
advance
payment to be deducted from upfront monies due to us by Sigma-Tau pursuant
to
any future orBec®
commercialization arrangement reached between the two parties. On February
21,
2007, Sigma-Tau relinquished its exclusive rights under the letter of intent
with regard to acquisition discussions. However, all other terms of the
letter
of intent remain in effect, and Sigma-Tau and us are engaged in discussions
for
a European collaboration relating to orBec®.
Also,
because no agreement was reached by March 1, 2007, we are obligated to
return $2
million to Sigma-Tau by April 30, 2007. If we do not pay Sigma Tau back
in cash
by May 31, 2007, interest will accrue at a rate of 6% compounded annually
and
Sigma Tau will have the option in its sole discretion of converting the
accrued
amount into common stock at a price per share equal to 80% of the market
price
at the time the payment is made.
On
January
17, 2007, we received an unsolicited non-binding expression of interest
from
Cell Therapeutics, Inc. (“CTIC”) to acquire us.
After
due deliberation and consideration by a committee of independent Board
members
established by our Board of Directors (the “Independent Committee”) and further
deliberation and consideration by our full Board of Directors, on April
9, 2007,
the Independent Committee as well as our full Board of Directors each
unanimously resolved to reject as inadequate for stockholders the expression
of
interest by CTIC to acquire us and notified CTIC of such
resolutions.
On
February
9, 2007, we completed the sale of an aggregate of 11,680,850 shares of
our
common stock to institutional investors and certain of our officers and
directors for an aggregate purchase price of $5,490,000. Pursuant to a
registration rights agreement, we agreed to file this registration statement
with the Securities and Exchange Commission in order to register the resale
of
the shares.
We
are a
research and development biopharmaceutical company focused on the development
of
oral therapeutic products intended for areas of unmet medical need and
biodefense vaccines. We have filed a new drug application (“NDA”) for our lead
product orBec®
(oral
beclomethasone dipropionate) with the U.S. Food and Drug Administration
(the
“FDA”) for the treatment of gastrointestinal Graft-versus-Host-Disease (“GI
GVHD”), and have received a Prescription Drug User Fee Act (“PDUFA”) date for
the FDA to complete its review of all materials regarding orBec®
of
July
21, 2007. In addition, the FDA’s Oncologic Drugs Advisory Committee (“ODAC”)
will review the NDA for orBec®
on May
10, 2007. We have also filed a Marketing Authorization Application (“MAA”) with
the European Central Authority, European Medicines Evaluation Agency
(“EMEA”)
for orBec®,
which
has also been validated for review.
We
were
incorporated in 1987. We maintain two active segments: BioTherapeutics
and
BioDefense. Our business strategy is to: (a) prepare for the potential
marketing
approval of orBec®
by the
FDA and the EMEA; (b) conduct prophylactic use clinical trials of
orBec®
for the
prevention of GI GVHD; (c) evaluate and initiate additional clinical
trials to
explore the effectiveness of oral BDP (orBec®)
in
other therapeutic indications involving inflammatory conditions of the
gastrointestinal tract; (d) reinitiate development of our other biotherapeutics
products namely LPMTM-Leuprolide,
and OraprineTM;
(e)
explore acquisition strategies under which the Company may be acquired
by
another company with oncologic or GI products; (f) identify a sales and
marketing partner for orBec®
for
territories outside of the U.S., and potentially inside the U.S.; (g)
secure
government funding for each of our biodefense programs through grants,
contracts, and procurements; (h) convert our biodefense vaccine programs
from
early stage development to advanced development and manufacturing with
the
potential to collaborate and/or partner with other companies in the biodefense
area; and (i) acquire or in-license new clinical-stage compounds for
development.
On
January 3, 2007, we received $3 million under a non-binding letter of
intent
with Sigma-Tau Pharmaceuticals, Inc. (“Sigma-Tau”), which granted Sigma-Tau an
exclusive right to negotiate terms and conditions for a possible business
transaction or strategic alliance regarding orBec®
and
potentially other DOR pipeline compounds until March 1, 2007. Sigma-Tau
is a
pharmaceutical company that creates novel therapies for the unmet needs
of
patients with rare diseases. They have both prescription and consumer
products
in metablolic, oncology, renal and supplements. Under the terms of the
letter of
intent, Sigma-Tau has purchased $1 million of our common stock at the
market
price of $0.246 per share, representing approximately four million shares.
Sigma-Tau paid an additional $2 million, which was to be considered an
advance
payment to be deducted from upfront monies due to us by Sigma-Tau pursuant
to
any future orBec®
commercialization arrangement reached between the two parties. On February
21,
2007, Sigma-Tau relinquished its exclusive rights under the letter of
intent
with regard to acquisition discussions. However, all other terms of the
letter
of intent remain in effect, and Sigma-Tau and us are engaged in discussions
for
a European collaboration relating to orBec®.
Also,
because no agreement was reached by March 1, 2007, we are obligated to
return $2
million to Sigma-Tau by April 30, 2007. If we do not pay Sigma Tau back
in cash
by May 31, 2007, interest will accrue at a rate of 6% compounded annually
and
Sigma Tau will have the option in its sole discretion of converting the
accrued
amount into common stock at a price per share equal to 80% of the market
price
at the time the payment is made.
On
January
17, 2007, we received an unsolicited non-binding expression of interest
from
Cell Therapeutics, Inc. (“CTIC”) to acquire us.
After
due deliberation and consideration by a committee of independent Board
members
established by our Board of Directors (the “Independent Committee”) and further
deliberation and consideration by our full Board of Directors, on April
9, 2007,
the Independent Committee as well as our full Board of Directors each
unanimously resolved to reject as inadequate for stockholders the expression
of
interest by CTIC to acquire us and notified CTIC of such
resolutions.
.
BioTherapeutics
Overview
Through
our BioTherapeutics Division, we are in the process of developing oral
therapeutic products to treat unmet medical needs. Our lead product,
orBec®,
has
been evaluated in a randomized, multi-center, double-blinded, placebo-controlled
pivotal Phase 3 clinical trial for the treatment of GI GVHD, a serious
and
life-threatening gastrointestinal inflammation associated with allogeneic
bone
marrow or stem cell transplant therapy. orBec®
demonstrated a statistically significant reduction in mortality during
the
prospectively defined Day 200 post-transplant period and positive trends
on it’s
primary endpoint. While
orBec®
did not
achieve statistical significance in time to treatment failure through
Day 50
(p-value 0.1177), the primary endpoint of its pivotal trial, it did achieve
statistical significance in other key outcomes such as median time to
treatment
failure through Day 80 (p-value 0.0226), and most importantly, it demonstrated
a
statistically significant survival advantage in comparison to placebo
at 200
days post-transplant (p-value 0.0139) and at one year post-randomized
(p-value
0.04).
We
filed
an NDA on September 21, 2006 for orBec®
with
the
FDA for the treatment of GI GVHD. The NDA was accepted on November 21,
2006, and
in accordance with the PDUFA the FDA will complete its review of all
materials
regarding orBec®
by
July
21, 2007. Additionally, on May 10, 2007 an ODAC panel will review the
NDA. We
also filed an MAA with the EMEA on November 3, 2006, which was validated
on
November 28, 2006.
To
build
upon the positive results obtained during development of orBec®
for the
treatment of GI GVHD, we will pursue a follow-on development program
targeting
the prevention of acute GVHD. This program will be a Phase 2 single center
trial
that will be conducted at the Fred Hutchinson Cancer Research Center.
This study
will enroll approximately 138 patients and is designed to assess the
safety and
efficacy of orBec®
in
preventing acute GVHD after allogeneic hematopoietic stem cell transplantation.
We anticipate initiating this Phase 2 clinical trial in the second quarter
of
2007.
We
expect to initiate in
mid-2007 our next pipeline development program in the biotherapeutics
area,
which is our LPMÔ
(Lipid
Polymer Micelle) drug delivery system to enhance the intestinal absorption
of
water-soluble drugs/peptides, like leuprolide. This system incorporates
biocompatible lipids and polymers and is potentially useful for a wide
variety
of molecular structures of water-soluble drugs, particularly those based
on
peptides that are not readily absorbed in the GI tract. Leuprolide is
both a
candidate drug for further development in several indications, such as
prostate
cancer and endometriosis as well as a prototype for development of other
similar
non-absorbable, but water soluble drugs. Preclinical animal pharmacokinetic
(“PK”) data indicate high relative bioavailability of leuprolide in the 20-40%
range. The mechanism for absorption by LPM is to promote the passive
uptake
through the opening of paracellular channels in intestinal epithelial
tissue.
Based on the work in animals, we anticipate conducting a Phase 1 PK safety
and
tolerability study in humans in mid-2007.
BioDefense
Overview
In
collaboration with two United States academic research institutions,
we are
developing vaccines to combat the threat posed by two potent biological
toxins;
ricin toxin and botulinum toxin. Both vaccines under development are
recombinant
products in bacterial hosts and both consist of nontoxic subunits of
the native
toxins. These subunits induce antibodies that neutralize the toxins from
which
they are derived. Through exclusive licenses with two Universities, we
have
secured important intellectual property rights related to these vaccines.
Both
of these are considered bioterrorism threats by the U.S. Department of
Homeland
Security (“DHS”), National Institute of Allergic and Infectious Diseases
(“NIAID”), Department of Defense (“DOD”) and Centers for Disease Control and
Prevention (“CDC”). We are developing our biodefense countermeasures for
potential U.S. government procurement pursuant to the Project Bioshield
Act of
2004, which provides incentives to industry to supply biodefense countermeasures
to the Strategic National Stockpile.
On
September 13, 2004, we were awarded a $6,433,316 grant from the NIAID
for
RiVaxTM,
our
genetically engineered vaccine against ricin toxin, one of the most lethal
plant
toxins known to man. Ricin toxin can inflict serious damage to lungs
and cause
death if inhaled. The grant supports the process development for manufacturing
of RiVaxTM,
our
recombinant vaccine against ricin toxin. The grant is based on milestones
and
certain budget amounts are earned as we meet milestones in the development
of
RiVaxTM.
On
September 29, 2006, we announced that we had been awarded a grant of
approximately $4,800,000 from the NIAID over a three-year period for
the
continued development of RiVaxTM.
This
continuing grant supports additional characterization of the vaccine
and animal
testing that is necessary for obtaining FDA licensure under conditions
where
human efficacy testing is not ethical or permitted.
On
January 30, 2006, we announced results of a Phase 1 clinical trial of
RiVaxTM.
This
study was completed by investigators at the University of Texas Southwestern
Medical Center (“UT Southwestern”) led by Dr. Ellen Vitetta, Director of the
Cancer Immunobiology Center at UT Southwestern. Results from the trial
demonstrated that RiVaxTM
is safe
and immunogenic after immunization with three monthly injections of vaccine,
with volunteers developing antibodies against ricin toxin. The functional
activity of the antibodies was confirmed by transferring serum samples
from the
vaccinated volunteers into mice, which then survived exposure to ricin
toxin.
Results of the study were published in the Proceedings
of the National Academy of Sciences.
Under
the sponsorship of the NIH grant, we have developed a scaleable process
for the
manufacture of the subunit immunogen component of RiVax™, begun long term
stability testing, and have developed a second generation formulation
of RiVax™
which will be tested in a Phase 2 trial.
Our
vaccine against botulinum neurotoxin, BT-VACC™, is a mucosally administered
vaccine that protects against exposure to botulinum neurotoxins. Botulinum
neurotoxin is the most potent natural toxin and is on the NIAID Category
A list
of biothreats. Based on promising preclinical results that demonstrate
induction
of protective immune responses via oral or intranasal vaccination, we
anticipate
that BT-VACC™ can be developed as either a stand alone vaccine or administered
as a booster to the current injected vaccines. We are developing BT-VACC™ to be
administered by the mucosal route since such vaccines induce more complete
protection than injected vaccines and are thought to confer better protection
against aerosol or oral exposure to botulinum neurotoxin. Since mucosally
administered formulations can be given without needles and trained personnel,
we
expect that that BT-VACC™ will be poised for rapid distribution and vaccination
for military use or civilian vaccination in response to bioterrorism.
Any
vaccine for botulinum will have to be composed of multiple antigens representing
several natural serotypes. At this point, we have demonstrated that combinations
of three serotypes can induce protective immune response in animals.
The three
serotypes are A, B, and E, which represent the most common of the botulinum
serotypes and the ones most likely to be used as bioweapons. Our plans
are to
focus on development of the oral vaccine concept using formulation technology
that permits increased contact of the antigen with immune inductive sites
in the
GI tract, and alternatively develop the A-B-E trivalent vaccine as a
nasal spray
vaccine. In conjunction with DOW Pharma, we have demonstrated that it
will be
feasible to manufacture the required antigens in a bacterial host (P.
fluorescens), and are anticipating developing purification processes
for each
antigen. BT-VACC™ is covered by issued and pending U.S. patents.
On
September 29, 2006, we announced that we had been awarded a Small Business
Innovation Research (“SBIR”) grant of approximately $500,000 from the NIAID over
a one year period for further
work to combine antigens from different serotypes of botulinum toxin
for a
prototype multivalent vaccine. This grant will support further work in
identifying an effective formulations technology that permits the oral
administration of the three vaccine subunits in a single combination
vaccine.
BioTherapeutics
Division
orBec®
Our lead therapeutic product orBec®
is an
orally administered corticosteroid that exerts a potent, local anti-inflammatory
effect within the mucosal tissue of the gastrointestinal tract.
We filed
an NDA on September 21, 2006 for orBec®
with
the
FDA for the treatment of GI GVHD. The NDA was accepted on November 21, 2006,
and
in accordance with the PDUFA the FDA will complete and review of all materials
regarding orBec®
by July
21, 2007. Additionally, on May 9, 2007, the ODAC will review the NDA. We
also
filed an MAA with the EMEA on November 3, 2006, which was validated for review
on November 28, 2006. We assembled an experienced team of consultants and
contractors who worked on all aspects of the NDA preparation, including data
management, data analysis, biostatistics, and medical writing. Manufacturing
of
the requisite NDA stability batches of drug product have been completed with
the
process validation batches anticipated to begin in the second quarter of
2007.
Both
filings are supported by data from two randomized, double-blinded, placebo
controlled clinical trials. The first was a 129 patient pivotal Phase 3
multi-center clinical trial for orBec®
conducted at 16 bone marrow/stem cell transplant centers in the U.S. and
France.
The second was a 60 patient Phase 2 supportive clinical trial conducted at
the
Fred Hutchinson Cancer Center.
Comprehensive
Long-Term Mortality Results
Among
the
new data reported in the January 2007 pre-published online first edition
issue
of Blood,
the
peer-reviewed Journal of the American Society of Hematology, orBec®
showed
continued survival benefit when compared to placebo one year after randomization
in the pivotal Phase 3 clinical trial. Overall, 18 patients (29%) in the
orBec®
group
and 28 patients (42%) in the placebo group died within one year of randomization
(46% reduction in mortality, hazard ratio 0.54, 95% CI: 0.30, 0.99, p=0.04,
stratified log-rank test). Results from the Phase 2 trial also demonstrated
enhanced long-term survival benefit with orBec®
versus
placebo. In that study, at one year after randomization, 6 of 31 patients
(19%)
in the orBec®
group
had
died while 9 of 29 patients (31%) in the placebo group had died (45% reduction
in mortality, p=0.26). Pooling the survival data from both trials demonstrated
that the survival benefit of orBec®
treatment was sustained long after orBec®
was
discontinued and extended well beyond 3 years after the transplant. As of
September 25, 2005, median follow-up of patients in the two trials was 3.5
years
(placebo patients) and 3.6 years (orBec®
patients), with a range of 10.6 months to 11.1 years. The risk of mortality
was
37% lower for patients randomized to orBec®
compared
with placebo (hazard ratio 0.63, p=0.03, stratified log-rank test).
200
Days Post Transplant Mortality Results
| |
Phase
3 trial
|
Phase
2 trial
|
| |
orBec®
|
Placebo
|
orBec®
|
Placebo
|
|
Number
of patients randomized
|
62
|
67
|
31
|
29
|
|
Number
(%) who died
|
5
(8%)
|
16
(24%)
|
3
(10%)
|
6
(21%)
|
|
Hazard
ratio (95% confidence interval)
|
0.33
(0.12, 0.89)
|
0.47
(0.12, 1.87)
|
|
Death
with infection*
|
3
(5%)
|
9
(13%)
|
2
(6%)
|
5
(17%)
|
|
Death
with relapse*
|
3
(5%)
|
9
(13%)
|
1
(3%)
|
4
(14%)
|
*Some
patients died with both infection and relapse of their underlying
malignancy.
In
the
pivotal Phase 3 clinical trial, survival at the pre-specified endpoint of
200
days post-transplant showed a clinically meaningful and statistically
significant result. According to the manuscript, “the risk of mortality during
the 200-day post-transplant period was 67% lower with orBec®
treatment compared to placebo treatment (hazard ratio 0.33; 95% CI: 0.12,
0.89;
p=0.03, Wald chi-square test).” Although orBec®
did not
achieve statistical significance in the primary endpoint of its pivotal trial,
namely time to treatment failure through Day 50 (p=0.1177), orBec®
did
achieve statistical significance in other key outcomes such as reduction
in the
risk of treatment failure through Day 80 (p=0.0226) and, most importantly,
demonstrated a statistically significant long-term survival advantage compared
with placebo. The most common proximate causes of death by transplant day-200
were relapse of the underlying malignancy and infection. Relapse of the
hematologic malignancy had contributed to the deaths of 9/67 patients (13.4%)
in
the placebo arm and 3/62 patients (4.8%) in the BDP arm. Infection contributed
to the deaths of 9/67 patients (13.4%) in the placebo arm and 3/62 (4.8%)
in the
BDP arm. Acute or chronic GVHD was the proximate cause of death in 3/67 patients
(4.5%) in the placebo arm and in 1/62 (1.6%) in the BDP arm.
A retrospective analysis of survival at 200 days post-transplant in the
supportive Phase 2 clinical trial showed consistent response rates with the
pivotal Phase 3 trial; three patients (10%) who had been randomized to
orBec®
had
died, compared with six deaths (21%) among patients who had been randomized
to
placebo, leading to a reduced hazard of day-200 mortality, although not
statistically significantly different. Detailed analysis of the likely proximate
cause of death showed that mortality with infection or with relapse of
underlying malignancy were both reduced in the same proportion after treatment
with orBec®
compared
to placebo. By transplant day-200, relapse of hematologic malignancy had
contributed to the deaths of 1 of 31 patients (3%) in the orBec®
arm and
4 of 29 patients (14%) in the placebo arm. Infection contributed to the deaths
of 2 of 31 patients (6%) in the orBec®
arm and
5 of 29 patients (17%) in the placebo arm.
In
the
pivotal Phase 3 trial, orBec®
achieved
these mortality results despite the fact that there where more “high risk of
underlying cancer relapse” patients in the orBec®
group
than in the placebo group: 40, or 65%, versus 29, or 43%, respectively. There
was also an imbalance of non-myeloablative patients in the orBec®
treatment group, 26, or 42%, in the orBec®
group
versus 15, or 22%, in the placebo group, putting the orBec®
group at
further disadvantage. In addition, a subgroup analysis also revealed that
patients dosed with orBec®
who had
received stem cells from unrelated donors had a 94% reduction in the risk
of
mortality 200 days post-transplant.
Safety
and Adverse Events
The
frequencies of severe adverse events, adverse events related to study drug,
and
adverse events resulting in study drug discontinuation were all comparable
to
that of the placebo group in both trials. Patients who remained on
orBec®
until
Day 50 in the pivotal study had a higher likelihood of having biochemical
evidence of abnormal hypothalamic-pituitary-adrenal (“HPA”) axis function
compared to patients on placebo.
Commercialization
and Market
We
anticipate the market potential for orBec®
for
the
treatment of GI GVHD to be approximately 70 percent of the more than 12,000
bone
marrow and stem cell transplants that occur each year in the U.S.
We
are
having strategic discussions with a number of pharmaceutical companies regarding
the partnering or sale of orBec®
in the
U.S. and abroad, including evaluating acquisition opportunities of the entire
company. We also may seek a partner for the other potential indications of
orBec®.
We are
also actively considering an alternative strategy of a commercial launch
of
orBec®
by
ourselves in the U.S.
On
January 3, 2007, we received $3 million under a non-binding letter of intent
with Sigma-Tau Pharmaceuticals, Inc. (“Sigma-Tau”), which granted Sigma-Tau an
exclusive right to negotiate terms and conditions for a possible business
transaction or strategic alliance regarding orBec®
and
potentially other DOR pipeline compounds until March 1, 2007. Sigma-Tau is
a
pharmaceutical company that creates novel therapies for the unmet needs of
patients with rare diseases. They have both prescription and consumer products
in metablolic, oncology, renal and supplements.
Under the terms of the letter of intent, Sigma-Tau has purchased $1 million
of
our common stock at the market price of $0.246 per share, representing
approximately four million shares. Sigma-Tau paid an additional $2 million
in
cash, which was to be considered an advance payment to be deducted from upfront
monies due to us by Sigma-Tau pursuant to any future orBec®
commercialization arrangement reached between the two parties. Because no
agreement was reached by March 1, 2007, we are obligated to return $2 million
to
Sigma-Tau by April 30, 2007. If we do not pay Sigma-Tau back in cash by May
31,
2007, interest will accrue at a rate of 6% compounded annually and Sigma-Tau
will have the option in its sole discretion of converting the accrued amount
into common stock at a price per share equal to 80% of the market price at
the
time the payment is made. On February 21, 2007, Sigma-Tau relinquished its
exclusive rights under the letter of intent with regard to acquisition
discussions. However, all other terms of the letter of intent remain in effect,
and Sigma-Tau and us are engaged in discussions for a European collaboration
relating to orBec®.
Research
and Development
Since
2000, we have incurred expenses of approximately $15,000,000 in the development
of orBec®.
Research and development costs for orBec®
totaled
$3,019,756 in 2006 and $2,209,770 in 2005, of which $124,958 are for costs
reimbursed under the FDA orphan products grant. If orBec®
is
approved by the FDA in the third quarter of 2007, we expect orBec®
to begin
generating revenues by the fourth quarter of 2007. If the FDA rejects the
NDA or
does not approve orBec®
in a
timely manner (or in accordance with anticipated and established timelines),
our
financial condition, liquidity, and ability to raise additional equity financing
could be impaired.
To
build
upon the positive results obtained during development of orBec®
for the
treatment of GI GVHD, we will pursue a follow-on development program targeting
the prevention of acute GVHD. This program will be a Phase 2 single center
trial
that will be conducted at the Fred Hutchinson Cancer Research Center. This
study
will enroll approximately 138 patients and is designed to assess the safety
and
efficacy of orBec®
in
preventing acute GVHD after allogeneic hematopoietic stem cell transplantation.
We anticipate initiating this Phase 2 clinical trial in the second quarter
of
2007. If
the
data from this clinical trial demonstrates positive results, the potential
market for orBec®
would
expand to potentially include all patients in the U.S. who undergo allogeneic
hematopoietic
stem cell transplantation
and who
are at risk for developing acute GVHD.
About
Graft-versus-Host Disease
Graft-versus-Host
Disease occurs in patients following an allogeneic bone marrow transplant
in
which tissues of the host, most frequently the gut, liver, and skin, are
attacked by lymphocytes in the donor (graft) marrow. Patients with mild to
moderate GI GVHD present to the clinic with early satiety, anorexia, nausea,
vomiting and diarrhea. If left untreated, symptoms of GI GVHD persist and
can
progress to necrosis and exfoliation of most of the epithelial cells of the
intestinal mucosa, frequently a fatal condition. Approximately 50 to 70%
of the
approximate 12,000 annual allogeneic transplant patients in the United States
will develop some form of acute GI GVHD.
GI
GVHD
is one of the most common causes for the failure of bone marrow transplant
procedures. These procedures are being increasingly utilized to treat leukemia
and other cancer patients with the prospect of eliminating residual disease
and
reducing the likelihood of relapse. orBec®
represents
a first-of-its-kind oral, locally acting therapy tailored to treat the
gastrointestinal manifestation of GVHD, the organ system where GVHD is most
frequently encountered and highly problematic. orBec®
is
intended to reduce the need for systemic immunosuppressives to treat GI GVHD.
Currently approved systemic immunosuppressives utilized to control GI GVHD
substantially inhibit the highly desirable graft-versus-leukemia (“GVL”) effect
of bone marrow transplants, leading to high rates of aggressive forms of
relapse, as well as substantial rates of mortality due to opportunistic
infection.
About
Allogeneic Bone Marrow/Stem Stem Cell Transplantation
(HSCT)
Allogeneic hematopoietic stem cell transplantation (“HSCT”) is considered a
potentially curative option for many leukemias as well as other forms of
blood
cancer. In an allogeneic HSCT procedure, hematopoietic stem cells are harvested
from a closely matched relative or unrelated person, and are transplanted
into
the patient following either high-dose chemotherapy or intense immunosuppressive
conditioning therapy. The curative potential of allogeneic HSCT is now partly
attributed to the so-called GVL or graft-versus-tumor (“GVT”) effects of the
newly transplanted donor cells to recognize and destroy malignant cells in
the
recipient patient.
The
use
of allogeneic HSCT has grown substantially over the last decade due to advances
in human immunogenetics, the establishment of unrelated donor programs, the
use
of cord blood as a source of hematopoietic stem cells and the advent of
non-myeloablative conditioning regimens (“mini-transplants”) that avoid the side
effects of high-dose chemotherapy. Based on the latest statistics available,
it
is estimated that there are more than 10,000 HSCT procedures annually in
the
U.S. and a comparable number in Europe. Estimates as to the current annual
rate
of increase in these procedures are as high as 20%. High rates of morbidity
and
mortality occur in this patient population. Clinical trials are also underway
testing allogeneic HSCT for treatment of some metastatic solid tumors such
as
breast cancer, renal cell carcinoma, melanoma and ovarian cancer. Allogeneic
transplants have also been used as curative therapy for several genetic
disorders, including immunodeficiency syndromes, inborn errors of metabolism,
thalassemia and sickle cell disease. The primary toxicity of allogeneic HSCT,
however, is GVHD in which the newly transplanted donor cells damage cells
in the
recipient’s gastrointestinal tract, liver and skin.
Future
Potential Indications of orBec®
Based
on
its pharmacological characteristics, orBec®
may
have
utility in treating other conditions of the gastrointestinal tract having
an
inflammatory component. We have an issued U.S. patent (6,096,731) claiming
the
use of oral BDP as a method for preventing the tissue damage that is associated
with both GI GVHD following hematopoietic cell transplantation, as well as
GVHD,
as occurs following organ allograft transplantation. We plan on initiating
a
Phase 2 trial of orBec®
in the
prevention of acute GVHD sometime in the second quarter of 2007. In addition,
we
are exploring the possibility of testing orBec®
for
local inflammation associated with Ulcerative Colitis, Crohn’s Disease,
Lymphocytic Colitis, Irritable Bowel Syndrome and liver disease, among other
indications.
Other
Products in BioTherapeutics Pipeline
The following is a brief description of other products in our pipeline. Due
to
past resource limitations, we have focused our R&D efforts on
orBec®, RiVax® and BT-VACCTM. However with
the completion of our recent financing, we anticipate re-initiating development
of some of these products, all of which are currently available for licensing
or
acquisition. These products consist of drug delivery technologies that
facilitate the oral delivery of hydrophobic and hydrophilic drugs, including
peptides, and macromolecules such as leuprolide. The drug delivery systems,
LPM™, LPETM, PLPTM, were
developed internally and we have submitted and pursued patents on these
products. We acquired an oral form of the immunosuppressant azathioprine
(Oraprine™) as a result of the merger of Endorex and CTD in November 2001. We
also acquired patent applications from Dr. Joel Epstein of the University
of
Washington. We conducted a Phase 1 study that established the feasibility
of the
oral drug to treat oral ulcerative lesions resulting from graft versus host
disease.
LPMTM -
Leuprolide
Lipid
Polymer Micelle (LPMTM).
We are
developing the LPMÔ
system
for enhancing the intestinal absorption of water-soluble drugs/peptides that
are
not ordinarily absorbed or are degraded in the gastrointestinal tract.
As
the
first example of a peptide drug that can be delivered orally, we are developing
an oral formulation of the peptide drug Leuprolide, a hormone drug that is
among
the leading drugs used to treat prostate cancer and endometriosis. The
oral
dosage form utilizes a novel drug delivery system composed of safe and well
characterized ingredients to enhance intestinal absorption. The LPMTM
system
incorporates biocompatible lipids and polymers and is potentially useful
for a
wide variety of molecular structures of water-soluble drugs, particularly
those
based on peptides. Although both small molecules and large molecules can
be
incorporated into our system, there is a molecular size cutoff for a
commercially viable oral bioavailability enhancement, and this system is
most
effective with hydrophilic drugs/peptides below 5,000 Daltons in molecular
weight. Utilizing a simple and scaleable manufacturing process, aqueous
solutions of peptides can be incorporated into lipid-polymer mixtures forming
stable micelles.
Leuprolide
is a potent analogue agonist of the Luteinizing Hormone Releasing Hormone
(“LHRH”), currently used to treat hormone responsive prostate cancer in men,
endometriosis in women, and precocious puberty in children. The current injected
LHRH analog formulations are depot formulations that are designed to be injected
under the skin and release Leuprolide in a controlled fashion over 1 to 4
months
(Lupron® marketed by TAP Pharmaceuticals and Zoladex® marketed by Astra Zeneca)
and for periods up to 6 months (Eligard®, marketed in the U.S. by Sanofi).
Leuprolide
is used in treating prostate cancer to slow the growth of the cancer. In
children with central precocious puberty, Leuprolide reduces the levels of
estrogen and testosterone. Estrogens promote the growth of abnormal uterine
tissue that exists outside the uterus and thus Leuprolide is used to reduce
the
production of estrogen and treat both fibroids and endometriosis.
Based
on
promising preclinical data and high bioavailability achieved in animals with
oral administration of Leuprolide in the LPM™ system, we believe that
LPM™-Leuprolide may have a competitive role in a segment of the current
Leuprolide market and effectively compete with the depot formulations of
Leuprolide. Specifically we believe that LPM™ -Leuprolide can be developed as a
once-a-day oral formulation that can maintain blood levels of Leuprolide
resulting in suppression of estrogen production in women suffering from
endometriosis. We believe there is a need for a better formulation of a
LHRH-like product, such as LPM™-Leuprolide that will increase compliance and
efficacy, with fewer side effects.
Research
and Development
In
preclinical studies, we have been able to demonstrate significant intestinal
absorption enhancement of both LPM™-Leuprolide and Leuprolide in comparison to
solution formulations of the peptides in rats and dogs. Based on these promising
preclinical data, we plan further development of LPMÔ-Leuprolide.
Because of the wide applicability of Leuprolide in other medical conditions,
such as in prostate cancer, it is possible that an oral formulation will
prove
to be acceptable for other indications. Obtaining marketing approval for
further
indications will require additional clinical testing in patients. In addition
to
LHRH and agonists, we plan to evaluate other classes of water-soluble
drugs/peptides with the LPMÔ
system
when resources permit.
Cost
and Development analysis for LPM™ Leuprolide
| |
2007
|
2008
|
2009
|
2010
|
2011
|
|
Pilot
stability
|
$50,000
|
$150,000
|
$-
|
$-
|
$-
|
|
Process
Development
Scale
up
Product
characterization
|
100,000
|
150,000
|
|
|
|
|
Acute
toxicity studies
|
100,000
|
250,000
|
|
|
|
|
Clinical
supply manufacture
|
|
250,000
|
|
|
|
|
Phase
1 Clinical studies
|
150,000
|
300,000
|
|
|
|
|
Animal
dosing studies (efficacy)
|
|
250,000
|
|
|
|
|
Phase
2 clinical
(dose
ranging)
|
|
|
1,500,000
|
500,000
|
|
|
Phase
3
(endometriosis)
|
|
|
|
2,500,000
|
1,000,000
|
|
Manufacture
-
Characterization
|
|
|
|
750,000
|
|
|
TOTALS
|
$400,000
|
$1,350,000
|
$1,500,000
|
$3,250,000
|
$1,000,000
|
We
have
completed proof of concept studies in rats and dogs. We first plan to conduct
a
small Phase 1 bioavailability study to compare the absorption of a
enteric-coated gelatin capsule of LPMÔ-Leuprolide
with an injected formulation. We anticipate initiating this trial in mid-2007.
We then plan to conduct Phase 2 trials in volunteers to establish the proper
dosing regimen before moving to Phase 3 trials in women with endometriosis
when
resources permit. Being able to move forward towards product launch and
generation of revenue along the above timeline is highly dependent upon the
results from the prior phase and ongoing interactions with the FDA. The
scheduling of product launch is also highly dependent on being able to recruit
sufficient numbers of patients for Phase 2 evaluation. We will have to raise
additional funds in order to conduct later phase clinical trials. This may
require partnering of the product at various stages during
development.
The
costs that we have incurred to develop LPMTM-Leuprolide since
2000 total $1,248,324. Research and development costs for LPMTM-Leuprolide
totaled $3,900 in 2005 and $5,679 in 2006. These costs are mainly legal costs
in
connection with maintenance of our patent positions. It is our intention
to
out-license this program to another pharmaceutical company. If we are unable
to
develop LPMTM-Leuprolide
on our own, it would not have a material adverse effect on us.
OraprineTM
OraprineTM is
an oral suspension of azathioprine, which we believe may be bioequivalent
to the
oral azathioprine tablet currently marketed in the United States as
Imuran®. We
acquired the azathioprine drug (OraprineTM)
as a
result of the merger of Endorex and CTD in November 2001. Also acquired were
patent applications licensed from Dr. Joel Epstein of the University of
Washington. We conducted a Phase 1 bioequivalence trial following a trial
conducted by Dr. Epstein that established the feasibility of the oral drug
to
treat oral ulcerative lesions resulting from graft versus host disease.
Azathioprine is one of the most widely used immunosuppressive medications
in
clinical medicine. Azathioprine is commonly prescribed to organ transplant
patients to decrease their natural defense mechanisms to foreign bodies (such
as
the transplanted organ). The decrease in the patient’s immune system
increases the chances of preventing rejection of the transplanted organ in
the
patient. OraprineTM
may
provide a convenient dosage form for patients who have difficulty swallowing
pills or tablets, such as children.
Based
on
the outcomes of two Phase 1 clinical trials of Oraprine™, we are planning to
reformulate AZA (OraprineTM)
as a
stable oral liquid suspension with the intent of demonstrating bioequivalence
to
the branded oral azathioprine tablets currently marketed in the United States
(Imuran®
and
Azasan®). One Phase 1 bioequivalence trial was conducted with an early
formulation and demonstrated bioequivalence to the marketed product.
Research
and Development
Our
research and development plans are primarily focused on obtaining sufficient
stability data on the reformulated product to allow us to proceed into
additional humans trials. We propose to position Oraprine™ initially in the
market as a specialty generic product to be used by transplant or rheumatoid
arthritis patients who cannot swallow medicines in tablet form. We anticipate
that the market will include the pediatric transplant populations, the elderly,
and cancer patients who have received stem cell transplants. We thus plan
to
file an abbreviated new drug application (“ANDA”) for Oraprine™ based on small
bioequivalence trials in healthy humans accompanied by new manufacturing
data on
the characterization of the stable formulation and to obtain approval for
use in
pediatric patients when resources permit. If approval is received, we then
plan
to conduct additional studies when resources permit in patients with chronic
oral ulcerations, such as oral graft versus host disease (GVHD) and other
autoimmune diseases of the mouth and upper esophagus, where topical application
of AZA may have an advantage in treatment of mucosal lesions whose underlying
cause is mediated by activated T cells. The FDA has granted orphan drug status
for our application for use of Oraprine™ for the treatment of oral
GVHD.
Cost
and timeline analysis of Oraprine™ development.
| |
2007
|
2008
|
2009
|
2010
|
2011
|
|
Continued
reformulation
|
$75,000
|
$-
|
$-
|
$-
|
$-
|
|
Pilot
stability
|
50,000
|
|
|
|
|
|
Formal
stability
|
75,000
|
225,000
|
|
|
|
|
Bioequivalence
(Clinical) Adults
|
|
250,000
|
500,000
|
|
|
|
Bioequivalence
(clinical) - pediatric
|
|
|
500,000
|
|
|
|
Juvenile
Rheumatoid arthritis (RA)
|
|
|
1,000,000
|
500,000
|
|
|
Toxicology
|
|
|
|
400,000
|
|
|
Manufacture-
Quality
control
|
|
|
750,000
|
750,000
|
500,000
|
|
TOTALS
|
$200,000
|
$475,000
|
$2,750,000
|
$1,650,000
|
$500,000
|
The
cost
estimates in the table above are based upon conducting continued research
into
the development of a stable liquid formulation, which are planned to be
completed before the end of 2007, with concurrent initiation of stability
assessments. A series of bioequivalence studies are to be completed in adults
and children by 2009, with trials to establish safety and efficacy in pediatric
juvenile rheumatoid arthritis patients completed by 2010. Marketing approval
with indications for kidney transplant and adult rheumatoid arthritis are
anticipated by 2011, with generation of revenue by 2012. Market approval
for
Oraprine™ for juvenile rheumatoid arthritis is anticipated by 2012. The
assumption in the above scenario is that we will develop the drug on our
own
without partners and market the drug through our own sales force. The premise
behind the development of the drug under the ANDA strategy is that the technical
objective of achieving a stable liquid formulation can be achieved in the
light
of the known chemical instability of azathioprine. Thus, the major milestone
in
2007 is the completion of stability data with demonstration of acceptable
drug
stability. It is possible that, based on achievement of any of the milestones,
we will achieve revenue through outlicensing and partnering
arrangements.
The
costs
that we have incurred to develop Oraprine™
since
2000 total $415,096. Research and development costs for Oraprine™
totaled
$8,100 in 2005 and $6,996 in 2006. These costs are mainly legal costs in
connection with maintenance of our patent positions. It is our intention
to
out-license this program to another pharmaceutical company. If we are unable
to
develop Oraprine™
on our
own, it would not be material.
LPETM
and PLPTM
Systems for Delivery of Water-Insoluble Drugs
We
have
also conducted initial research studies to identify drug delivery systems
that
promote the oral (intestinal) absorption of water insoluble drugs. One of
the
main difficulties in delivering drugs by the oral route is the low solubility
of
many therapeutic compounds. We have developed two novel delivery systems
that we
think will be useful for oral delivery of water insoluble drugs. One of these
systems is based on emulsions composed of polymers (LPE, or lipid polymer
emulsions) and another is a composed of solid lipid particles (PLP, or polymer
lipid particles). We have conducted initial studies in animals that demonstrate
that the LPE system used with the anticancer drug paclitaxel, the active
drug in
Taxol, promotes oral absorption with significant bioavailability in rodents
in
relationship to formulations of the injected drug. We believe that this example
demonstrates the promise of using these systems for not only paclitaxel for
further development but also for oral delivery of other water insoluble drugs.
We anticipate that the general level of expenditure for pre-clinical research
needed to advance oral LP-paclitaxel to Phase 1 studies, including preclinical
toxicology evaluations, will be approximately $0.8 million, and will take
1-1.5
years.
The LPETM system
is in the form of an emulsion or an emulsion pre-concentrate incorporating
lipids, polymers and co-solvents. We have filed for patent applications on
the
use of perillyl alcohol as a solvent, surfactant and absorption enhancer
for
lipophilic compounds. The polymers used in these formulations can either
be
commercially available or proprietary polymerized lipids and lipid
analogs.
BioDefense
Programs
In
collaboration with two United States academic research institutions, we are
developing vaccines to combat the threat posed by two potent biological toxins;
ricin toxin and botulinum toxin. Both vaccines under development are recombinant
products produced in bacterial hosts and both consist of nontoxic subunits
of
the native toxins. These subunits induce antibodies that neutralize the toxins
from which they are derived. Through exclusive licenses with these Universities,
we have secured intellectual property rights for these vaccines.
RivaxTM
- Ricin Toxin Vaccine
The
development of RiVaxTM,
our
ricin toxin vaccine, has progressed significantly this year. Our academic
partner, The University of Texas Southwestern led by Dr. Ellen Vitetta,
completed a Phase 1 safety and immunogenicity trial of RiVaxTM
in human
volunteers. The results of the Phase 1 safety and immunogenicity dose-escalation
study indicate that the vaccine is well tolerated and induces antibodies
in
humans that neutralize ricin toxin. Despite the absence of an adjuvant,
antibodies were present in the blood of several volunteers for as long as
127
days after their last vaccination. The functional activity of the antibodies
was
confirmed by transferring serum globulins from the vaccinated individuals
along
with active ricin toxin to sensitive mice, which then survived subsequent
exposure to ricin toxin. The outcome of the study was recently published
in the
Proceedings of the National Academy of Sciences. In January of 2005, we entered
into a manufacturing and supply agreement for RiVax™ with Cambrex Corporation.
In July of 2006, we announced successful completion of current Good
Manufacturing Practices (“cGMP”) milestone for the production of
RiVaxTM.
On
September 29, 2006, we announced that we had been awarded a grant of
approximately $4,800,000 from the NIAID over a three year period for the
continued development of RiVaxTM.
This is
in addition to the $6,433,316 already awarded by the NIAID. This new grant
will
fund the development
of animal models which will be used to correlate human immune response to
the
vaccine with protective efficacy in animals. This is necessary for ultimate
licensure by the FDA, when human efficacy vaccine trials are not possible.
This
new grant also supports the further biophysical characterization of the vaccine
containing a well-characterized adjuvant that is needed to enhance the immune
response to recombinant proteins. These studies will be required to assure
that
the vaccine is stable and potent over a period of years.
Ricin
Toxin
Ricin toxin is a heat stable toxin that is easily isolated and purified from
the
bean of the castor plant. As a bioterrorism agent, ricin could be disseminated
as an aerosol, by injection, or as a food supply contaminant. The CDC have
classified ricin as a Category B biological agent. Ricin works by first binding
to glycoproteins found on the exterior of a cell, and then entering the cell
and
inhibiting protein synthesis leading to cell death. Once exposed to ricin
toxin,
there is no effective therapy available to reverse the course of the toxin.
Currently, there is no FDA approved vaccine to protect against the possibility
of ricin toxin being used in a terrorist attack, or its use as a weapon on
the
battlefield, nor is there a known antidote for ricin toxin exposure.
Research
and Development
RiVax™
is
being developed as a conventional vaccine, to be administered by injections.
We
have secondary plans to develop RiVax™ as a nasally administered vaccine for the
medical purpose of stimulating immunity in the lungs to prevent toxicity
by the
anticipated route of exposure through inhalation if ricin were to be used
as a
bio-weapon. At this point we are focusing our efforts on the development
of the
injectable vaccine, and have deferred the development of a nasal vaccine.
Cost
and Development analysis for RiVax™
| |
2007
|
2008
|
2009
|
2010
|
2011
|
|
cGMP
stability
|
$85,000
|
$-
|
$-
|
$-
|
$-
|
|
Adjuvant
characterization
|
210,000
|
|
|
|
|
|
Animal
model development
|
500,000
|
|
|
|
|
|
Vaccine/protection
Inhaled
ricin
|
295,000
|
295,000
|
295,000
|
|
|
|
Clinical
supply
(3000
doses)
|
150,000
|
|
|
|
|
|
Release
and potency testing
|
|
250,000
|
|
|
|
|
Human/animal
correlation
|
130,000
|
130,000
|
|
|
|
|
Phase
1/2
(dose
determination)
|
150,000
|
1,250,000
|
|
|
|
|
Pivotal
animal studies
(primates)
|
|
|
1,500,000
|
|
|
|
Additional
manufacture
|
|
|
750,000
|
|
|
|
Other
|
|
|
|
50,000
|
50,000
|
|
TOTALS
|
$1,520,000
|
$1,925,000
|
$2,545,000
|
$50,000
|
$50,000
|
The
costs
that we have incurred to develop RiVax™ since 2002 total $6,360,523. Research
and development costs for RiVax™ totaled $2,422,196 in 2005 of which $1,942,076
was for costs reimbursed under the NIH grant, and $2,130,516 in the second
quarter of 2006, of which $1,128,257 was for costs reimbursed under this
grant.
2.
BT-VACCTM
- Botulinum Toxin Vaccine
Our
botulinum toxin vaccine, called BT-VACC™, was developed through the research of
Dr. Lance Simpson at Thomas Jefferson University in Philadelphia, Pennsylvania.
Botulinum toxin is the product of the bacteria Clostridium
botulinum.
Botulinum toxin is one of the most poisonous natural substances known. Botulinum
toxin causes acute, symmetric, descending flaccid paralysis due to its action
on
peripheral cholinergic nerves. Paralysis typically presents 12 to 72 hours
after
exposure. Death results from paralysis of the respiratory muscles. Current
treatments include respiratory support and passive immunization with antibodies
which must be administered before symptoms occur, which leaves little time
post-exposure for effective treatment.
We
are
developing a multivalent vaccine against botulinum neurotoxins serotypes
A, B
and E, which account for almost all human cases of disease. Currently,
the recombinant vaccines under development are given by intramuscular
injections. Typically,
vaccines given by mucosal routes are not immunogenic because they do not
attach
to immune inductive sites. In the case of the combination BT-VACCTM
both the
A and the B antigens were capable of attaching to cells in the mucosal
epithelium and inducing an immune response with similar magnitude to the
injected vaccine. The
alternate route provides a self administration option, which will bypass
the
requirement for needles and personnel to administer the vaccine. We
have
identified lead antigens against Serotypes A, B and E consisting of the Hc50
fragment of the botulinum toxin. Our preclinical data to date suggests that
a
bivalent formulation of serotypes A and B is effective at low, mid and high
doses as an intranasal vaccine and effective at the higher dose level orally
in
animal models. The animals were given a small quantity of the bivalent
combination vaccine containing each of the type A and type B antigens (10
micrograms) three times a day at two week intervals. All of the animals
developed equivalent immune responses to A and B types in the serum.
Importantly, they were then protected against exposure to each of the native
toxin molecules given at 1000 fold the dose that causes lethality. The immune
responses were also comparable to the same vaccines when given by intramuscular
injection.
Ongoing
studies are focused on serotype E and multivalent immunization experiments
using
serotype A, B and E antigens given simultaneously to animals. Further, we
are
engaged in formulation work to create an oral dosage form, which we anticipate
will improve immunogenicity and potency. We have been collaborating with
Thomas
Jefferson University to conduct vaccine efficacy experiments under a sponsored
research agreement. We have applied for and intend to continue to apply for
research grants and contracts from the U.S. government to continue development
of this vaccine. We have also entered into a joint development agreement
with
Dowpharma, a business unit of the Dow Chemical Company. Dowpharma is providing
process development leading to current Good Manufacturing Practices (cGMP)
production services
for
BT-VACC™ using its Pfēnex Expression TechnologyTM,
a high
yield expression system based on Pseudomonas
fluorescens..
On
September 29, 2006, we announced that we had been awarded a Small Business
Innovation Research (“SBIR”) grant of approximately $500,000 from the NIAID over
a one year period for further
work to combine antigens from different serotypes of botulinum toxin for
a
prototype multivalent vaccine. The grant funding will support further work
in
characterizing antigen formulations.
The
government has classified botulinum toxin as a Category A biothreat and has
allotted up to $1.7 Billion under the current project BioShield bill. We
are
aware that the Department of Defense (“DoD”) has infused $200 Million into
advanced development of an injectable vaccine for botulinum toxin, which
is
still in early clinical phases of development.
Research
and Development
We
have
conducted a series of studies in animals that have demonstrated that the
key
immunogenic antigen derived from botulinum toxin can be given to animals
orally
and elicit a protective immune response. This has been shown with a single
serotype of botulinum toxin and recently the observation has been expanded
to a
prototype mixture of three antigens given to animals by intranasal immunization.
We have used our own capital to invest in the demonstration of product
feasibility since the inception of this project in 2003, but now are using
grant
funding to advance further product development. We have received a Phase
1 $0.5
Million SBIR grant from the NIH for project funding during 2007, and anticipate
being able to obtain additional SBIR funding of $1.0-3.0 Million for 2008.
Cost
and Development analysis for BT-VACC™
| |
2007
|
2008
|
2009
|
2010
|
2011
|
|
Definition
of enteric formulation
|
$130,000
|
$-
|
$-
|
$-
|
$-
|
|
Stability
characterization
|
50,000
|
|
|
|
|
|
Animal
efficacy
|
150,000
|
250,000
|
|
|
|
|
Process
development
3
components
|
|
150,000
|
350,000
|
|
|
|
Assay
development
|
|
250,000
|
|
|
|
|
Scale
up and production
|
|
|
500,000
|
|
|
|
Toxicology
evaluation
|
|
|
300,000
|
|
|
|
Release/potency
|
|
|
200,000
|
|
|
|
Phase
1
Safety/immunogenicity
-volunteers
|
|
|
150,000
|
|
|
|
Phase
2 +manufacture
|
|
|
|
5,000,000
|
4,000,000
|
|
Pivotal
animal
|
|
|
|
1,500,000
|
500,000
|
|
TOTALS
|
$330,000
|
$650,000
|
$1,500,000
|
$6,500,000
|
$4,500,000
|
The costs that we have incurred to develop BT-VACC™
from
2002
total $2,104,767. Research and development costs for BT-VACC™
totaled
$979,247 in 2005 and $130,381 in the second quarter of 2006.
Strategy
for development of BioDefense products
Since
2001, the United States government has developed an initiative to stockpile
countermeasures and vaccines for over 30 biological threats that could be
used
in bioterrorist attacks or on the battlefield. The CDC and the NIAID have
recognized threats based on several factors: 1) public health impact based
on
illness and death; 2) ability for an agent to be disseminated, produced,
and
transmitted from person to person; 3) public perception and fear; and 4)
special
public health preparedness needs. This prioritization has resulted in
classification into three threat categories: A, B, and C, where agents in
Category A have the greatest potential for adverse public health impact,
and
agents in Category B have potential for large scale dissemination, but generally
cause less illness and death. Biological agents that are not regarded to
present
a high public health risk but may emerge as future threats, as the scientific
understanding of the agents develops, have been placed in Category C. Very
few
countermeasures or vaccines currently exist for Category A, B, or C agents.
We
believe that we have identified and will continue to identify products with
relatively low development risk for addressing biological threats in Category
A
(e.g., botulinum toxin) and B (e.g., ricin toxin). Biodefense products can
be
developed and sold to the U.S. government before the FDA has licensed them
for
commercial use. Secondly, the FDA itself has facilitated the approval process,
whereby portions of the human clinical development pathway can be truncated.
Under the two animal rule, when it is not ethical to perform human efficacy
trials, the FDA can rely on safety evidence in humans and evidence from animal
studies to provide substantial proof of a product’s effectiveness under
circumstances where there is a reasonably well-understood mechanism for the
toxicity of the agent and its prevention or cure by the product. This effect
has
to be demonstrated in more than one animal species expected to react with
a
response predictive of humans or in one animal species. The animal study
endpoint must be clearly related to the desired benefit in humans and the
information obtained from animal studies allows selection of an effective
dose
in humans. Biodefense products are eligible for priority review in cases
where
the product is a significant advance for a serious or life threatening
condition. The government would also purchase countermeasures upon expiration,
so there is a recurrent market to replenish the stockpile. Under a $5.6 Billon
appropriation bill over 10 years, the BioShield Act of 2004 authorizes the
government to procure new countermeasures. This bill also allows the NIH
to use
simplified and accelerated peer-review and contracting procedures for research
and development and empowers the FDA to approve distribution of unapproved
medical products on an emergency basis. Further, additional legislation,
such as
the recently enacted Biomedical
Advanced Research and Development Authority (BARDA)
bill,
may help provide funding for products at an intermediate state of
development.
Summary
of Our Products in Development
The
following tables summarize the products that we are currently developing:
BioTherapeutic
Products
|
Product
|
Therapeutic
Indication
|
Stage
of Development
|
|
orBec®
|
Treatment
of gastrointestinal Graft-versus-Host Disease
|
NDA
and MAA filed and under review
|
|
|
Endometriosis
and Prostate Cancer
|
Phase
1
|
|
OraprineTM
|
Oral
lesions resulting from Graft-versus-Host Disease
|
Phase
1/2
|
|
LPETM
and PLPTM
Systems
|
Delivery
of Water-Insoluble Drugs
|
Pre-Clinical
|
Biodefense
Products
|
Select
Agent
|
Currently
Available Countermeasure
|
DOR
Biodefense Product
|
|
Ricin
Toxin
|
No
vaccine or antidote currently FDA approved
|
Injectable
Ricin Vaccine
Phase
I Clinical Trial Successfully Completed
|
|
Botulinum
Toxin
|
No
vaccine or antidote currently FDA approved
|
Oral/Nasal
Botulinum Vaccine
|
The
Drug Approval Process
General
Before
marketing, each of our products must undergo an extensive regulatory approval
process conducted by the FDA and applicable agencies in other countries.
Testing, manufacturing, commercialization, advertising, promotion, export
and
marketing, among other things, of the proposed products are subject to
extensive
regulation by government authorities in the United States and other countries.
All products must go through a series of tests, including advanced human
clinical trials, which the FDA is allowed to suspend as it deems necessary.
Our
products will require, prior to commercialization, regulatory clearance
by the
FDA and by comparable agencies in other countries. The nature and extent
of
regulation differs with respect to different products. In order to test,
produce
and market certain therapeutic products in the United States, mandatory
procedures and safety standards, approval processes, manufacturing and
marketing
practices established by the FDA must be satisfied.
An
Investigational New Drug Application (“IND”) is required before human clinical
use in the United States of a new drug compound or biological product can
commence. The IND includes results of pre-clinical animal studies evaluating
the
safety and efficacy of the drug and a detailed description of the clinical
investigations to be undertaken.
Clinical
trials are normally done in three Phases, although the phases may overlap.
Phase
1 trials are concerned primarily with the safety of the product. Phase
2 trials
are designed primarily to demonstrate effectiveness and safety in treating
the
disease or condition for which the product is indicated. These trials typically
explore various doses and regimens. Phase 3 trials are expanded multi-center
clinical trials intended to gather additional information on safety and
effectiveness needed to clarify the product’s benefit-risk relationship,
discover less common side effects and adverse reactions, and generate
information for proper labeling of the drug, among other things. The FDA
receives reports on the progress of each phase of clinical testing and
may
require the modification, suspension or termination of clinical trials
if an
unwarranted risk is presented to patients. When data is required from long-term
use of a drug following its approval and initial marketing, the FDA can
require
Phase 4, or post-marketing, studies to be conducted.
With
certain exceptions, once successful clinical testing is completed, the
sponsor
can submit an NDA for approval of a drug. The process of completing clinical
trials for a new drug is likely to take a number of years and require the
expenditure of substantial resources. Furthermore, the FDA or any foreign
health
authority may not grant an approval on a timely basis, if at all. The FDA
may
deny an NDA, in its sole discretion, if it determines that its regulatory
criteria have not been satisfied or may require additional testing or
information. Among the conditions for marketing approval is the requirement
that
the prospective manufacturer’s quality control and manufacturing procedures
conform to good manufacturing regulations. In complying with standards
contained
in these regulations, manufacturers must continue to expend time, money
and
effort in the area of production, quality control and quality assurance
to
ensure full technical compliance. Manufacturing facilities, both foreign
and
domestic, also are subject to inspections by, or under the authority of,
the FDA
and by other federal, state, local or foreign agencies.
Even
after initial FDA or foreign health authority approval has been obtained,
further studies, including Phase 4 post-marketing studies, may be required
to
provide additional data on safety and will be required to gain approval
for the
use of a product as a treatment for clinical indications other than those
for
which the product was initially tested. Also, the FDA or foreign regulatory
authority will require post-marketing reporting to monitor the side effects
of
the drug. Results of post-marketing programs may limit or expand the further
marketing of the products. Further, if there are any modifications to the
drug,
including any change in indication, manufacturing process, labeling or
manufacturing facility, an application seeking approval of such changes
may be
required to be submitted to the FDA or foreign regulatory authority.
In
the
United States, the Federal Food, Drug, and Cosmetic Act, the Public Health
Service Act, the Federal Trade Commission Act, and other federal and state
statutes and regulations govern or influence the research, testing, manufacture,
safety, labeling, storage, record keeping, approval, advertising and promotion
of drug, biological, medical device and food products. Noncompliance with
applicable requirements can result in, among other things, fines, recall
or
seizure of products, refusal to permit products to be imported into the
U.S.,
refusal of the government to approve product approval applications or to
allow
the Company to enter into government supply contracts, withdrawal of previously
approved applications and criminal prosecution. The FDA may also assess
civil
penalties for violations of the Federal Food, Drug, and Cosmetic Act involving
medical devices.
For
development of biodefense vaccines and therapeutics, the FDA has instituted
policies that are expected to result in accelerated approval. This includes
approval for commercial use using the results of animal efficacy trials,
rather
than efficacy trials in humans. However, the Company will still have to
establish that the vaccine and countermeasures it is developing are safe
in
humans at doses that are correlated with the beneficial effect in animals.
Such
clinical trials will also have to be completed in distinct populations
that are
subject to the countermeasures; for instance, the very young and the very
old,
and in pregnant women, if the countermeasure is to be licensed for civilian
use.
Other agencies will have an influence over the risk benefit scenarios for
deploying the countermeasures and in establishing the number of doses utilized
in the Strategic National Stockpile. We may not be able to sufficiently
demonstrate the animal correlation to the satisfaction of the FDA, as these
correlates are difficult to establish and are often unclear. Invocation
of the
two animal rule may raise issues of confidence in the model systems even
if the
models have been validated. For many of the biological threats, the animal
models are not available and the Company may have to develop the animal
models,
a time-consuming research effort. There are few historical precedents,
or recent
precedents, for the development of new countermeasure for bioterrorism
agents.
Despite the two animal rule, the FDA may require large clinical trials
to
establish safety and immunogenicity before licensure and it may require
safety
and immunogenicity trials in additional populations. Approval of biodefense
products may be subject to post-marketing studies, and could be restricted
in
use in only certain populations.
Marketing
Strategies
We
have
had strategic discussions with a number of pharmaceutical companies regarding
the partnering or sale of orBec®
and sale
or merger of all of our assets. We
may seek
a marketing partner in the U.S. and abroad in anticipation of commercialization
of orBec®.
We are
actively seeking a partner for orBec®
for
territories outside North America. We are actively seeking a partner for
the
development of other potential indications of orBec®
as well
as for our OraprineTM,
LPMTM
-
Leuprolide, LPETM
and
PLPTM
Systems
for Delivery of Water-Insoluble Drugs. We also are actively considering
a
strategy of a commercial launch of orBec®
by
ourselves in the U.S.
We
have
had strategic discussions with a number of pharmaceutical companies regarding
the partnering or sale of our biodefense vaccine products. We may market
our
biodefense vaccine products directly to government agencies. We believe
that
both military and civilian health authorities of the United States and
other
countries will increase their stockpiling of therapeutics and vaccines
to treat
and prevent diseases and conditions that could ensue following a bioterrorism
attack.
Competition
Our
competitors are pharmaceutical and biotechnology companies, most of whom
have
considerably greater financial, technical, and marketing resources than
we
currently have. Another source of competing technologies is universities
and
other research institutions, including the U.S. Army Medical Research Institute
of Infectious Diseases, and we face competition from other companies to
acquire
rights to those technologies.
Biodefense
Vaccine Competition
We
face
intense competition in the area of biodefense from various public and private
companies, universities and governmental agencies, such as the U.S. Army,
some
of whom may have their own proprietary technologies which may directly
compete
with the our technologies. Acambis, Inc., Avant Immunotherapeutics, Inc.,
Dynavax, Emergent Biosolution (formerly Bioport Corporation), VaxGen, Inc.,
Chimerix, Inc., GlaxoSmithKline through acquisition of ID Biomedical
Corporation, Human Genome Sciences, Inc., CpG Immunotherapeutics, Inc.,
Avanir
Pharmaceuticals, Inc., Dynport Vaccine Company, LLC., Pharmatheneand others
have
announced vaccine or countermeasure development programs for biodefense.
Some of
these companies have substantially greater human and financial resources
than we
do, and many of them have already received grants or government contracts
to
develop anti-toxins and vaccines against bioterrorism. VaxGen and Avecia
Biotechnology, Inc. have both received NIH contracts to develop a next
generation injectable anthrax vaccine. VaxGen has also received approximately
$900 million procurement order from the U.S. government to produce and
deliver
75 million doses of Anthrax vaccine. This contract was recently withdrawn
by the
HHS because of the inability of Vaxgen to enter into Phase 2 clinical trials
according to contract timelines. Several companies have received development
grants from NIH for biodfense products. For example, CpG Immunotherapeutics,
Inc. has received a $6 million Department of Defense grant to develop vaccine
enhancement technology. ID Biomedical Corporation, has entered into an
$8
million contract to develop a plague vaccine in conjunction with Dynport
Vaccine
Company, LLC, a prime contractor with the DoD. Dynport Vaccine Company
currently
has a $200 million contract to develop vaccines for the U.S. Military,
including
a multivalent botulinum toxin vaccine. Although we have received significant
grant funding to date for product development, we have not yet been obtained
contract awards for government procurement of products.
orBec®
Competition
Competition
is intense in the gastroenterology and transplant areas. Companies are
attempting to develop technologies to treat GVHD by suppressing the immune
system through various mechanisms. Some companies, including Sangstat,
Abgenix,
and Protein Design Labs, Inc., are developing monoclonal antibodies to
treat
graft-vs.-host disease. Novartis, Medimmune, and Ariad are developing both
gene
therapy products and small molecules to treat graft-vs.-host disease. All
of
these products are in various stages of development. For example, Novartis
currently markets Cyclosporin, and Sangstat currently markets Thymoglobulin
for
transplant related therapeutics. We face potential competition from Osiris
Therapeutics if their product Prochymal for the treatment of GI GVHD is
successful in ongoing Phase 3 clinical trials and reaches market. We believe
that orBec®’s
unique
release characteristics, intended to deliver topically active therapy to
both
the upper and lower gastrointestinal systems, should make orBec®
an
attractive alternative to existing therapies for inflammatory diseases
of the
gastrointestinal tract.
Competition
is also intense in the therapeutic area of inflammatory bowel disease.
Several
companies, including Centocor, Immunex, and Celgene, have products that
are
currently FDA approved. For example, Centocor, a subsidiary of Johnson
&
Johnson, markets the drug product RemicadeTM
for
Crohn’s disease. Other drugs used to treat inflammatory bowel disease include
another oral locally active corticosteroid called budesonide, which is
being
marketed by AstraZeneca in Europe and Canada and by Prometheus Pharmaceuticals
in the U.S. under the tradename of Entocort®.
Entocort
is structurally similar to beclomethasone dipropionate, and the FDA approved
Entocort for Crohn’s disease late in 2001. In Italy, Chiesi Pharmaceuticals
markets an oral formulation of beclomethasone dipropionate, the active
ingredient of orBec® for ulcerative colitis and may seek marketing approval for
their product in countries other than Italy including the United States.
In
addition, Salix Pharmaceuticals, Inc. markets an FDA-approved therapy for
ulcerative colitis called Colazal®.
Several
companies have also established various colonic drug delivery systems to
deliver
therapeutic drugs to the colon for treatment of Crohn’s disease. These companies
include Ivax Corporation, Inkine Pharmaceutical Corporation, and Elan
Pharmaceuticals, Inc. Other approaches to treat gastrointestinal disorders
include antisense and gene therapy. Isis Pharmaceuticals, Inc. is in the
process
of developing antisense therapy to treat Crohn’s disease.
Patents
and Other Proprietary Rights
Our
goal
is to obtain, maintain and enforce patent protection for our products,
formulations, processes, methods and other proprietary technologies, preserve
our trade secrets, and operate without infringing on the proprietary rights
of
other parties, both in the United States and in other countries. Our policy
is
to actively seek to obtain, where appropriate, the broadest intellectual
property protection possible for our product candidates, proprietary information
and proprietary technology through a combination of contractual arrangements
and
patents, both in the U.S. and elsewhere in the world.
We
also
depend upon the skills, knowledge and experience of our scientific and
technical
personnel, as well as that of our advisors, consultants and other contractors,
none of which is patentable. To help protect our proprietary knowledge
and
experience that is not patentable, and for inventions for which patents
may be
difficult to enforce, we rely on trade secret protection and confidentiality
agreements to protect our interests. To this end, we require all employees,
consultants, advisors and other contractors to enter into confidentiality
agreements, which prohibit the disclosure of confidential information and,
where
applicable, require disclosure and assignment to us of the ideas, developments,
discoveries and inventions important to our business.
We
have
"Orphan Drug" designations for orBec®
in the
United States and in Europe. Our Orphan Drug designations provide for seven
years of post approval marketing exclusivity in the U.S. and ten years
exclusivity in Europe for the use of orBec®
in the
treatment of GI GVHD. We have pending patent applications for this indication
that, if granted, may extend our anticipated marketing exclusivity beyond
the
seven year post-approval exclusivity provided by the Orphan Drug Act of
1983. We
are the exclusive licensee of an issued U.S. patent that covers the use
of
orBec®
for the
prevention of GI GVHD.
Under
the
Waxman-Hatch Act, a patent which claims a product, use or method of manufacture
covering drugs and certain other products may be extended for up to five
years
to compensate the patent holder for a portion of the time required for
development and FDA review of the product. The Waxman-Hatch Act also establishes
periods of market exclusivity, which are periods of time ranging from three
to
five years following approval of a drug during which the FDA may not approve,
or
in certain cases even accept, applications for certain similar or identical
drugs from other sponsors unless those sponsors provide their own safety
and
efficacy data.
orBec®
License Agreement
In
October 1998, our wholly-owned subsidiary, Enteron Pharmaceuticals, Inc.
(“Enteron”), entered into an exclusive, worldwide, royalty bearing license
agreement with George B. McDonald, M.D., including the right to grant
sublicenses, for the rights to the intellectual property and know-how relating
to orBec®.
In
addition, Dr. McDonald receives $40,000 per annum as a consultant.
Enteron
also executed an exclusive license to patent applications for "Use of
Anti-Inflammatories to Treat Irritable Bowel Syndrome" from the University
of
Texas Medical Branch-Galveston. Under the license agreements, we will be
obligated to make performance-based milestone payments, as well as royalty
payments on any net sales of orBec®.
Ricin
Vaccine Intellectual Property
In
January 2003, we executed a worldwide exclusive option to license patent
applications with the University of Texas Southwestern Medical Center (“UTSW”)
for the nasal, pulmonary and oral uses of a non-toxic ricin vaccine. In
June
2004, we entered into a license agreement with UTSW for the injectable
rights to
the ricin vaccine for initial license fees of $200,000 of our common stock
and
$100,000 in cash. Subsequently, in October of 2004, we negotiated the remaining
oral rights to the ricin vaccine for additional license fees of $150,000
in
cash. Our license obligates us to pay $50,000 in annual license
fees.
On
March
1, 2005 we signed a sponsored research agreement with UTSW extending through
March 31, 2007. The cost of this research is approximately $190,000. We
have
additional sponsored research agreements with UTSW funded by two NIH grants.
The
research will grant us certain rights to such intellectual property.
On
December 7, 2006 we announced that the United States Patent and Trademark
Office
(“USPTO”) issued a Notice of Allowance of patent claims based on U.S. Patent
Application #09/698,551 entitled “Ricin A chain mutants lacking enzymatic
activity as vaccines to protect against aerosolized ricin.” This patent includes
methods of use and composition claims for RiVax™.
Botulinum
Toxin Vaccine Intellectual Property
In
2003,
we executed an exclusive license agreement with Thomas Jefferson University
for
issued U.S. Patent No. 6,051,239 and corresponding international patent
applications broadly claiming the oral administration of nontoxic modified
botulinum toxins as vaccines. The intellectual property also includes patent
applications covering the inhaled and nasal routes of delivery of the vaccine.
This license agreement required that we pay a license fee of $160,000,
payable
in $130,000 of restricted common stock and $30,000 in cash. We also entered
into
a one-year sponsored research agreement with the execution of the license
agreement with Thomas Jefferson University, renewable on an annual basis,
under
which we are providing $300,000 in annual research support. In addition,
we also
executed a consulting agreement with Dr. Lance Simpson, the inventor of
the
botulinum toxin vaccine for a period of three years. Under this agreement,
Dr.
Simpson received options to purchase 100,000 shares of our common stock,
vesting
over two years. We are also required to pay a $10,000 non-refundable license
royalty fee no later than January 1 of each calendar year. We entered into
an
additional sponsored research agreement for $37,500 thru August 31, 2007.
Employees
As
of
March 1, 2007, we had eight full-time employees, three of whom are Ph.D.s.
Information
regarding our executive officers is set forth in Items 9 and 10 of this
Annual
Report, which information is incorporated herein by reference.
Research
and Development Spending
We
spent
approximately $4,800,000 and $3,700,000 in 2006 and 2005, respectively
on
research and development.
Description
of Property
We
currently lease approximately 2,500 square feet of office space at 1101
Brickell
Avenue, Suite 701-S, Miami, Florida 33131. The office space currently serves
as
our corporate headquarters located in Miami, Florida. We pay rent of
approximately $5,844 per month, or $28 per square foot, on a ten-month
lease,
which was entered into on August 7, 2006 and expires on June 23, 2007.
We
believe that our current leased facilities are sufficient to meet our current
needs. We do anticipate that we will seek a new facility in the second
quarter
of 2007.
Legal
Proceedings
From
time-to-time, we are a party to claims and legal proceedings arising in
the
ordinary course of business. Our management evaluates our exposure to these
claims and proceedings individually and in the aggregate and allocates
additional monies for potential losses on such litigation if it is possible
to
estimate the amount of loss and if the amount of the loss is
probable.
On
October 26, 2006, we received a summons in a civil case (Case No.
06-22629-CIV-COOKE/Brown, United States District Court for the Southern
District
of Florida) from Michael T. Sember, our former President and Chief Executive
Officer. The complaint claims that we breached the employment agreement
entered
into with Mr. Sember on December 7, 2004, specifically in the payment of
his
bonus. We have paid his severance and accrued vacation according to the
terms of
his employment agreement. Under the terms of this agreement, we have paid
Mr.
Sember $150,000 in severance and $28,383 for accrued vacation time, over
a six
month period beginning in August 2006. We deny the merit of the claim,
as it is
contrary to what is specifically stated in the agreement. On August 25,
2006,
Mr. Sember was dismissed without “Just Cause” (as such term is defined in the
agreement). Our position is that, upon termination of Mr. Sember without
Just
Cause, he was to be paid six months severance, any unpaid bonuses, and
any
vacation time accrued but not taken. The complaint contends that a minimum
annual bonus of $100,000 was due. In addition, Mr. Sember is also seeking
costs
and attorney’s fees incurred for this action. We deny that we owe Mr. Sember any
bonus and will vigorously defend against Mr. Sember’s claim that he is entitled
to a bonus of $100,000.
On
October 28, 2005, we entered into a letter of intent to acquire Gastrotech
Pharma A/S (“Gastrotech”), a private, Danish biotechnology company developing
therapeutics based on gastrointestinal peptide hormones to treat
gastrointestinal and cancer diseases and conditions. The letter of intent
provided for a $1,000,000 breakup fee in the event either party notified
the
other of its intention not to proceed with the transaction. On January
26, 2006,
we advised Gastrotech that we were not renewing our letter of intent with
Gastrotech, which had expired in accordance with its terms on January 15,
2006.
The attorney representing Gastrotech has advised us that if we are not
willing
to comply with the terms in the letter of intent, we will be in material
breach
of our obligations under the letter of intent and will be obligated to
pay
Gastrotech a break-up fee of $1,000,000. As of the date of this prospectus,
no
claim or complaint has been filed by Gastrotech as to the obligation to
pay a
break-up fee of $1,000,000. Our position is that it does not owe Gastrotech
any
break-up fee pursuant to not renewing its letter of intent to acquire
Gastrotech.
Management’s
Discussion and Analysis or Plan of Operation.
The
following discussion and analysis provides information that we believe
is
relevant to an assessment and understanding of our results of operation
and
financial condition. You should read this analysis in conjunction with
our
audited consolidated financial statements and related notes. This discussion
and
analysis contains statements of a forward-looking nature relating to future
events or our future financial performance. These statements are only
predictions, and actual events or results may differ materially. In evaluating
such statements, you should carefully consider the various factors identified
in
this Annual Report which could cause actual results to differ materially
from
those expressed in, or implied by, any forward-looking statements, including
those set forth in "Item1. Description of Business-Risk Factors" in this
Annual
Report. See "Item1 .Description of Business-Cautionary Note Regarding
Forward-Looking Statements."
Business
Overview and Strategy
We
are a
research and development biopharmaceutical company focused on the development
of
oral therapeutic products intended for areas of unmet medical need and
biodefense vaccines. We have filed a new drug application (“NDA”) for our lead
product orBec®
(oral
beclomethasone dipropionate) with the U.S. Food and Drug Administration
(the
“FDA”) for the treatment of gastrointestinal Graft-versus-Host-Disease (“GI
GVHD”), and have received a Prescription Drug User Fee Act (“PDUFA”) date for
the FDA to complete its review of all materials regarding orBec®
of
July
21, 2007. In addition, the FDA’s Oncologic Drugs Advisory Committee (“ODAC”)
will review the NDA for orBec®
on May
10, 2007. We also have filed a Marketing Authorization Application (“MAA”) with
the European Central Authority, European Medicines Evaluation Agency (“EMEA”)
for orBec®,
which
has been filed and validated for review.
Our
business strategy is to: (a) prepare for the potential marketing approval
of
orBec®
by the
FDA and the EMEA; (b) conduct prophylactic use clinical trials of
orBec®
for the
prevention of GI GVHD; (c) evaluate and initiate additional clinical trials
to
explore the effectiveness of oral BDP (orBec®)
in
other therapeutic indications involving inflammatory conditions of the
gastrointestinal tract; (d) reinitiate development of our other biotherapeutics
products namely LPMTM-Leuprolide,
and OraprineTM;
(e)
explore acquisition strategies under which the Company may be acquired
by
another company with oncologic or GI symmetry; (f) identify a sales and
marketing partner for orBec®
for
territories outside of the U.S., and potentially inside the U.S.; (g) secure
government funding for each of our biodefense programs through grants,
contracts, and procurements; (h) convert our biodefense vaccine programs
from
early stage development to advanced development and manufacturing with
the
potential to collaborate and/or partner with other companies in the biodefense
area; and (i) acquire or in-license new clinical-stage compounds for
development. We were incorporated in 1987. We maintain two active segments:
BioTherapeutics and BioDefense.
On
January 17,
2007, we received an unsolicited non-binding expression of interest from
Cell
Therapeutics, Inc. (“CTIC”) to acquire us.
After
due deliberation and consideration by a committee of independent Board
members
established by our Board of Directors (the “Independent Committee”) and further
deliberation and consideration by our full Board of Directors, on April
9, 2007,
the Independent Committee as well as our full Board of Directors each
unanimously resolved to reject as inadequate for stockholders the expression
of
interest by CTIC to acquire us and notified CTIC of such
resolutions.
On
January 3, 2007 we received $3 million under a non-binding letter of intent
with
Sigma-Tau Pharmaceuticals, Inc. (“Sigma-Tau”), which granted Sigma-Tau an
exclusive right to negotiate terms and conditions for a possible business
transaction or strategic alliance regarding orBec®
and
potentially other DOR private offering compounds until March 1, 2007. Sigma-Tau
is a pharmaceutical company that creates novel therapies for the unmet
needs of
patients with rare diseases. They have both prescription and consumer products
in metablolic, oncology, renal and supplements. Under the terms of the
letter of
intent, Sigma-Tau purchased $1 million of our common stock at the market
price
of $0.246 per share, representing approximately four million shares. Sigma-Tau
paid an additional $2 million, which was to be considered an advance payment
to
be deducted from upfront monies due to us by Sigma-Tau pursuant to any
future
orBec®
commercialization arrangement reached between the two parties. Because
no
agreement was reached by March 1, 2007, we are obligated to return $2 million
to
Sigma-Tau by April 30, 2007. If we do not pay Sigma-Tau back in cash by
May 31,
2007, interest will accrue at a rate of 6% compounded annually and Sigma-Tau
will have the option in its sole discretion of converting the accrued amount
into common stock at a price per share equal to 80% of the market price
at the
time the payment is made. We are currently under active discussions regarding
a
potential European partnership.
orBec®
Our
lead
therapeutic product orBec®,
is an
orally administered corticosteroid that exerts a potent, local anti-inflammatory
effect within the mucosal tissue of the gastrointestinal tract.
We filed
an NDA on September 21, 2006 for orBec®
with
the
FDA for the treatment of GI GVHD. The NDA was accepted on November 21,
2006, and
in accordance with the PDUFA the FDA will complete its review of all materials
related to orBec®
by
July
21, 2007. Additionally, on May 10, 2007 the FDA’s Oncology Drug Advisory
Committee will review the NDA. We also filed an MAA with the EMEA on November
3,
2006, which was validated for review on November 28, 2006. We have assembled
an
experienced team of consultants and contractors who worked on all aspects
of the
NDA preparation, including data management, data analysis, and biostatistics
medical writing. Manufacturing of the requisite batches of drug product
(registration batches) is completed and these batches are currently undergoing
stability testing.
We
anticipate the market potential for orBec®
for
the
treatment of gastrointestinal GI GVHD to be approximately 70 percent of
the
approximately 12,000 bone marrow and stem cell transplants that occur each
year
in the U.S.
We
have
had strategic discussions with a number of pharmaceutical companies regarding
the partnering or sale of orBec®.
We
may seek
a marketing partner in the U.S. and abroad in anticipation of commercialization
of orBec®.
We also
intend to seek a partner for the other potential indications of
orBec®.
We are
also actively considering an alternative strategy of a commercial launch
of
orBec®
by
ourselves in the U.S.
RiVax™
The
development of RiVaxTM,
our
ricin toxin vaccine, has progressed significantly this year. Our academic
partner, The University of Texas Southwestern led by Dr. Ellen Vitetta,
completed a Phase 1 safety and immunogenicity trial of RiVaxTM
in human
volunteers. The results of the Phase 1 safety and immunogenicity dose-escalation
study indicate that the vaccine is well tolerated and induces antibodies
in
humans that neutralize ricin toxin. Despite the absence of an adjuvant,
antibodies were present in the blood of several volunteers for as long
as 127
days after their last vaccination. The functional activity of the antibodies
was
confirmed by transferring serum globulins from the vaccinated individuals
along
with active ricin toxin to sensitive mice, which then survived subsequent
exposure to ricin toxin. The outcome of the study was recently published
in the
Proceedings
of the National Academy of Sciences.
In
January of 2005, we entered into a manufacturing and supply agreement for
RiVax™
with Cambrex Corporation. In July of 2006, we announced the successful
completion of the current Good Manufacturing Practices (“cGMP”) milestone for
the production of RiVaxTM.
BT-VACC™
Our
botulinum toxin vaccine, called BT-VACC™, was developed through the research of
Dr. Lance Simpson at Thomas Jefferson University in Philadelphia, Pennsylvania.
Botulinum toxin is the product of the bacteria Clostridium
botulinum.
Botulinum toxin is one of the most poisonous natural substances known.
Botulinum
toxin causes acute, symmetric, descending flaccid paralysis due to its
action on
peripheral cholinergic nerves. Paralysis typically presents 12 to 72 hours
after
exposure. Death results from paralysis of the respiratory muscles. Current
treatments include respiratory support and passive immunization with antibodies
which must be administered before symptoms occur, which leaves little time
post-exposure for effective treatment..
We are
developing a multivalent vaccine against botulinum neurotoxins serotypes
A, B
and E, which account for almost all human cases of disease. We have identified
lead antigens against Serotypes A, B and E consisting of the Hc50 fragment
of
the botulinum toxin. Typically, vaccines given by mucosal routes are not
immunogenic because they do not attach to immune inductive sites. In the
case of
the combination BT-VACCTM
both the
A and the B antigens were capable of attaching to cells in the mucosal
epithelium and inducing an immune response with similar magnitude to the
injected vaccine. Our preclinical data to date suggests that a bivalent
formulation of serotypes A and B are completely effective at low, mid and
high
doses as an intranasal vaccine and completely effective at the higher dose
level
orally in animal models. The animals were given a small quantity of the
bivalent
combination vaccine containing each of the type A and type B antigens (10
micrograms) three times a day at two week intervals. All of the animals
developed equivalent immune responses to A and B types in the serum.
Importantly, they were then protected against exposure to each of the native
toxin molecules given at 1000 fold the dose that causes lethality. The
immune
responses were also comparable to the same vaccines when given by intramuscular
injection.
LPMTM -
Leuprolide
Lipid
Polymer Micelle (LPMTM)-Leuprolide
is an oral dosage formulation of the peptide drug leuprolide, a hormone-based
drug that is among the leading drugs used to treat endometriosis and prostate
cancer, which utilizes a novel drug delivery system composed of safe and
well
characterized ingredients to enhance intestinal absorption. The LPMTM
system
incorporates biocompatible lipids and polymers and is potentially useful
for a
wide variety of molecular structures of water-soluble drugs, particularly
those
based on peptides. Although both small molecules and large molecules can
be
incorporated into our system, there is a molecular size cutoff for a
commercially viable oral bioavailability enhancement, and this system is
most
effective with hydrophilic drugs/peptides below 5,000 Daltons in molecular
weight. Utilizing a simple and scaleable manufacturing process, aqueous
solutions of peptides can be incorporated into lipid-polymer mixtures forming
stable micelles.
OraprineTM
OraprineTM is
an oral suspension of azathioprine, which we believe may be bioequivalent
to the
oral azathioprine tablet currently marketed in the United States as
Imuran®.
We acquired the azathioprine drug (OraprineTM)
as a
result of the merger of Endorex and CTD in November 2001. Also acquired
were
patent applications licensed from Dr. Joel Epstein of the University of
Washington. We conducted a Phase 1 bioequivalence trial following a trial
conducted by Dr. Epstein that established the feasibility of the oral drug
to
treat oral ulcerative lesions resulting from graft versus host disease.
Azathioprine is one of the most widely used immunosuppressive medications
in
clinical medicine. Azathioprine is commonly prescribed to organ transplant
patients to decrease their natural defense mechanisms to foreign bodies
(such as
the transplanted organ). The decrease in the patient’s immune system
increases the chances of preventing rejection of the transplanted organ
in the
patient. OraprineTM
may
provide a convenient dosage form for patients who have difficulty swallowing
pills or tablets, such as children.
LPETM
and PLPTM
Systems for Delivery of Water-Insoluble Drugs
We
may
develop two lipid-based systems, LPETM and
PLPTM,
to
support the oral delivery of small molecules of water insoluble drugs.
Such
drugs include most kinds of cancer chemotherapeutics currently delivered
intravenously. The LPETM system
is in the form of an emulsion or an emulsion pre-concentrate incorporating
lipids, polymers and co-solvents. We have filed for patent applications
on the
use of perillyl alcohol as a solvent, surfactant and absorption enhancer
for
lipophilic compounds. The polymers used in these formulations can either
be
commercially available or proprietary polymerized lipids and lipid analogs.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations
are
based upon our consolidated financial statements, which have been prepared
in
accordance with accounting principles generally accepted in the United
States.
The preparation of these financial statements requires us to make estimates
and
judgments that affect the reported amounts of assets, liabilities and expenses,
and related disclosure of contingent assets and liabilities. On an on-going
basis, we evaluate these estimates and judgments.
Intangible
Assets
Currently,
the most significant estimate or judgment that we make is whether to capitalize
or expense patent and license costs. We make this judgment based on whether
the
technology has alternative future uses, as defined in SFAS 2, "Accounting
for
Research and Development Costs". Based on this consideration, we capitalized
all
outside legal and filing costs incurred in the procurement and
defense of patents.
These
intangible assets are reviewed for impairment whenever events or changes
in
circumstances indicate that the carrying amount may not be recoverable.
If the
sum of the expected undiscounted cash flows is less than the carrying value
of
the related asset or group of assets, a loss is recognized for the difference
between the fair value and the carrying value of the related asset or group
of
assets.
We
capitalize and amortize intangibles over a period of 11 to 16 years. We
capitalize payments made to legal firms that are engaged in filing and
protecting our rights to our intellectual property and rights for our current
products in both the domestic and international markets.
We
capitalize intangible assets that have alternative future uses; this is
common
in the pharmaceutical development industry. Of the intangible asset balance,
$1,025,000 is for up-front license costs. We purchased a license from the
University of Texas Southwestern Medical Center, for the license to the
RiVaxTM
vaccine
for $425,000. We also purchased a license from a “pharmaceutical company” namely
Southern Research Institute/Brookwood Pharmaceuticals, for a license of
microsphere technology for $600,000. We capitalize license costs because
they
have alternative future use as referred to in paragraph
11 c. of SFAS No.2.
We
believe that both of these intangible assets purchased have alternative
future
uses.
We capitalize legal costs associated with the protection and maintenance
of our
patents. We have drug and vaccine products in an often lengthy basic and
clinical research process, we believe that patent rights form one of our
most
valuable assets. Patents and patent applications are a key currency of
intellectual property, especially in the early stage of product development,
as
their purchase and maintenance gives us access to key product development
rights
from our academic and industrial partners. These rights can also be sold
or
sub-licensed as part of our strategy to partner our products at each stage
of
development. The legal costs incurred for these patents consist of work
designed
to protect, preserve, maintain and perhaps extend the lives of the patents.
Therefore, our policy is to capitalize these costs and amortize them over
the
remaining useful life of the patents. We capitalize intangible assets
alternative future use as referred to in SFAS
No.142 and
in
paragraph 11 c. of SFAS No. 2.
During 2006, we capitalized $206,004 in patent related costs. This amount
is
represented in the cash flow statement, in the section for investing activities
presented in the 2006 10-KSB financial statements. On the balance sheet
this
amount is presented on the line intangible assets, net in the amount of
$1,073,239.
Research
and Development Costs
Research
and Development costs are charged to expense when incurred. Research and
development includes costs such as clinical trial expenses, contracted
research
and license agreement fees with no alternative future use, supplies and
materials, salaries and employee benefits, equipment depreciation and allocation
of various corporate costs. Purchased in-process research and development
expense (IPR&D) represents the value assigned or paid for acquired research
and development for which there is no alternative future use as of the
date of
acquisition.
Revenue
Recognition
All of our revenues are from government grants which are based upon
subcontractor costs and internal costs covered by the grant, plus a facilities
and administrative rate that provides funding for overhead expenses. Revenues
are recognized when expenses have been incurred by subcontractors or when
we
incur internal expenses that are related to the grant.
Material
Changes in Results of Operations
We
are a
research and development company. The 2006 revenues and associated expenses
were
from NIH Grants received in September 2004 and September 2006, and for
an FDA
grant which we received in September 2005. The NIH grants were associated
with
our ricin and botulinum vaccines. The original amount of the first NIH
grant was
$5,173,298. This was increased on May 6, 2005, to $6,433,316. The increase
of
$1,260,018 was awarded based on a new renegotiated F&A (facilities and
administrative) rate with the NIH. Part of this increase was attributed
to the
NIH reimbursement for overhead expenses for 2004 in the amount of $285,891
in
the second quarter of 2005. This new rate provided a fixed rate for facilities
and administrative costs (overhead expenditures) that is applied against
all
costs associated with the grant awarded. The new rate was a provisional
rate and
the final rate has not yet been finalized but the expectations are that
the rate
will be lower. In anticipation of this, we estimated that a charge in the
amount
of approximately $390,000 was necessary. The second NIH grant was received
for
ricin in September 2006 for $5,203,405. The NIH SBIR grant for botulinum
was
received in September 2006 for $465,191. We were awarded a one year FDA
grant on
September 23, 2005 for the “Oral BDP for the Treatment of GI GVHD” in the amount
of $318,750.
For
the
year ended December 31, 2006 we had grant revenues of $2,313,020 as compared
to
$3,075,736 in the 12 months ended December 31, 2005, a decrease of $762,716,
or
25%. We also incurred expenses related to revenues in 2006 and 2005 of
$1,965,074 and $2,067,034, respectively, a decrease of $101,960, or 5%.
These
costs relate to payments made to subcontractors and universities in connection
with the grants. The decrease in revenues and related expenses from 2005
are
related to the accelerated progress made on the grants in late 2005 and
early
2006. Additionally, the decrease is related to a charge in the amount of
$390,000 for the expectations of a lower overhead rate and that the 2005
revenues included $285,891 that was attributed to the NIH reimbursement
for
overhead expenses for 2004 but which was received in the second quarter
of 2005.
For
the
year ended December 31, 2006 the gross profit was $347,946 as compared
to
$1,008,702, in the 12 months ended December 31, 2005, a decrease of $660,756,
or
66%. This was due to the decreased grant revenues in the year ended 2006
that
were eligible for the F&A rate and the expected decrease in the final
F&A rate.
Research
and development spending increased by $121,702, or 3%, to $3,638,493, for
the
year ended December 31, 2006 as compared to $3,516,791 for the corresponding
period ended December 31, 2005. Expenses remained consistent as we continue
the
regulatory and filing costs associated with the preparation and completion
of
the NDA filing for orBec®.
In-process
research and development expenditures were $981,819 as compared to zero
for year
ended December 31, 2006 an increase of 100% for the same period ended December
31, 2005. This was due to the purchase of all of the remaining outstanding
common stock of its majority owned subsidiary Enteron that the Company
did not
already own.
Impairment
expense for intangibles was $816,300 as compared to $164,246 for the year
ended
December 31, 2006 an increase of 397% for the same period ended December
31,
2005. This was due to the impairment of the Southern Research
Institute/Brookwood Pharmaceuticals, license of microsphere
technology.
General
and administrative expenses for the 12 months ended December 31, 2006 were
$3,110,882 as compared to $2,162,616 for the 12 months ended December 31,
2005,
an increase of $948,266, or 44%. The increase was due to stock option expense
of
$557,182 for stock options vested and issued in the year ended December
31, 2006
under the new accounting treatment under SFAS No. 123R. Additionally, we
had
non-recurring acquisition costs of approximately $116,000 associated with
the
unconsummated acquisition of Gastrotech Pharma A/S. This increase was also
in
part attributed to a recovery of $284,855 in 2005 from reported income
in 2004
for the variable accounting treatment of options granted to new employees
under
the stock option plan that exceeded the number of allowed stock options
under
the plan which expenses did not occur in 2006.
Interest
income for the 12 months ended December 31, 2006 was $41,510 as compared
to
$78,242 for the 12 months ended December 31, 2005, a decrease of $36,733
or 47%.
This decrease was primarily due to a lower cash balance in 2006 as compared
to
2005.
Interest expense for the 12 months ended December 31, 2006 was $5,308 as
compared to $36,549 credit for the 12 months ended December 31, 2005, a
decrease
of $41,857 or 115%. This
decrease was primarily due to recovery of interest because of an agreement
reached with a pharmaceutical company for settlement of a note payable
in 2005.
This agreement required a payment of $41,865 in lieu of the $83,729 of
interest
we had accrued.
For
the
12 months ended December 31, 2006, we had a net loss of $8,163,346 as compared
to a $4,720,260 net loss for the 12 months ended December 31, 2005, a decrease
of $3,443,086, or 73%. This increase is primarily attributed to the greater
regulatory and filing costs associated with the preparation of the NDA
filing
for orBec®,
the
in-process research and development expense of $981,819 for acquiring all
of the
outstanding common stock of Enteron the Company did not already own, adjustments
to revenue as described in the preceding paragraphs of $390,000 and $285,891,
and an impairment expense for intangibles of $816,300.
Financial
Condition
Cash
and Working Capital
As
of
December 31, 2006, we had cash of $119,636 as compared to $821,702 as of
December 31, 2005 and negative working capital of $2,211,387 as compared
to
negative working capital of $319,675 as of December 31, 2005. For the 12
months
ended December 31, 2006, our cash used in operating activities was approximately
$4,100,000, versus approximately $4,700,000 in 2005.
As
of
March 1, 2007 we had cash of $7,089,092
of which $2,000,000 is currently obligated to Sigma-Tau.
Expenditures
We expect our expenditures for 2006, under existing product development
agreements and license agreements pursuant to letters of intent and option
agreements to approximate $3,600,000. We anticipate grant revenues in the
next
twelve months to offset research and development expenses for the development
of
our ricin toxin vaccine and botulinum toxin vaccine in the amount of
approximately $3,600,000 with $800,000 contributing towards our overhead
expenses.
The table below details our costs for 2006 and 2005 by project.
| |
2006
|
2005
|
|
Projects-Research
& Development Expenses
|
|
|
|
orBec®
|
$
3,060,778
|
$
2,045,424
|
|
RiVax™
|
274,635
|
480,120
|
|
BT-VACC™
|
290,405
|
979,247
|
|
Oraprine™
|
6,996
|
8,100
|
|
LPMTM-Leuprolide
|
5,679
|
3,900
|
|
Research
& Development Expense
|
$
3,638,493
|
$
3,516,791
|
| |
|
|
|
Projects-Reimbursed
under Grant
|
|
|
|
orBec®
|
$
-
|
$
124,958
|
|
RiVax™
|
1,961,074
|
1,942,076
|
|
BT-VACC™
|
4,000
|
-
|
|
Oraprine™
|
-
|
-
|
|
LPMTM-Leuprolide
|
-
|
-
|
|
Reimbursed
under Grant
|
$
1,965,074
|
$
2,067,034
|
| |
|
|
|
TOTAL
|
$
5,603,567
|
$
5,583,825
|
Debt
We
had no
notes payable at December 31, 2006 or at December 31, 2005. During 2005,
we paid
a note payable of $115,948, which represented the remaining balance to
a
pharmaceutical company in connection with our joint ventures.
Leases
The
following summarizes our contractual obligations at December 31, 2006,
and the
effect those obligations are expected to have on our liquidity and cash
flow in
future periods.
|
Contractual
Obligation
|
Year
2007
|
Year
2008
|
Year
2009
|
|
Non-cancelable
obligation (1)
|
$
33,706
|
$
-
|
$
-
|
|
TOTALS
|
$
33,703
|
$
-
|
$
-
|
| (1) |
On
August 7, 2006 we signed a 10 month lease at a new
location.
|
Equity
Transactions
Subsequent
to year-end, on February 9, 2007, we completed the sale of 11,680,850
shares
of
our common stock to institutional investors and certain of our officers
and
directors for a purchase price of $5,490,000.
We are
filing a registration statement with the Securities and Exchange Commission
covering the shares of common stock issued.
Subsequent
to year-end, on January 3, 2007, in
consideration for entering into an exclusive letter of intent, Sigma-Tau
agreed
to purchase $1,000,000 of the Company’s common stock at the market price of
$0.246 per share, representing 4,065,041 shares of common stock, and has
contributed an additional $2 million in cash. The $2 million contribution
was to
be considered an advance payment to be deducted from future payments due
to the
Company by Sigma-Tau pursuant to any future orBec® commercialization arrangement
reached between the two parties. Because of this transaction’s dilutive nature,
all investors in the April 2006 private placement had their warrants repriced
to
$0.246. Additionally, certain shareholders who still held shares of the
Company’s common stock were issued additional shares as a cost basis adjustment
from $0.277 to $0.246 per share of the Company’s common stock.
Because
no
agreement was reached by March 1, 2007, we are obligated to return the
$2
million to Sigma-Tau by April 30, 2007. If we do not repay Sigma-Tau by
May 31,
2007, interest will accrue at a rate of 6% compounded annually and Sigma
Tau
will have the option, at its sole discretion, of converting the accrued
amount
into common stock at a price per share equal to 80% of the market price
at the
time payment is made.
On
April
10, 2006, we completed the sale of 13,099,964 shares of our common stock
to
institutional and other accredited investors for gross proceeds of $3,630,000.
The investors also received warrants to purchase an aggregate of 13,099,964
shares of our common stock at an exercise price of $0.45 per share. The
warrants
are exercisable for a period of three years commencing on April 10, 2006.
We
filed a registration statement with the Securities and Exchange Commission
covering the shares of common stock issued and issuable pursuant to the
exercise
of the warrants, and it was declared effective on May 25, 2006.
On January 17, 2006, we entered into a common stock purchase agreement
with
Fusion Capital Fund II, LLC (“Fusion”). The Fusion facility allowed them to
purchase on each trading day $20,000 of our common stock up to an aggregate
of
$6,000,000 million over approximately a 15-month period. As part of this
agreement we issued Fusion 512,500 shares of common stock as a commitment
fee.
During 2006 Fusion purchased 329,540 common shares for $ 124,968. At this
point
in time we have no plans to utilize the Fusion facility.
In February 2005, we increased our cash position by the issuance and sale
of
8,396,100 shares of our common stock at $0.45 per share in a private placement
to institutional investors. These investors also received warrants to purchase
6,297,075 shares of our common stock at an exercise price of $0.505 per
share.
The proceeds after related expenses and closing costs were approximately
$3.5 million. We do not believe these warrants require application of SFAS
No. 133. We determined this based on two interpretations of SFAS No. 133.
First,
the warrants have no initial allocable investment (paragraph 8 of SFAS
No. 133).
All three classes of warrants in question were issued in connection with
private
placements whose participants purchased units that included upfront shares
as
well as a certain percentage of out-of-the-money warrants deemed to have
some
future benefit. Second, all three classes of warrants are “regular-way” security
trades as described in paragraph 10 of SFAS No. 133. Once exercised for
cash,
the warrant holders are issued common stock shares within three business
days as
required by public exchanges.
For the February 2005 private placement, the warrants provide that if the
shares
are not registered and are available for sale by the effectiveness date
as
specified in the respective registration rights agreements, then the holders
of
the warrants can do a cashless exercise. Both conditions were met so the
cashless feature expired. In the April 2006 private placement, warrant
holders
could only exercise the warrants on a cashless basis if the registration
statement for the shares was not declared effective by the SEC by the first
anniversary date of the closing of the transaction. The registration statement
was declared effective in May 2006.
All classes of warrants are classified as equity instrument under EITF
No. 00-19
because they bear:
1.
Physical
settlement method - That is we will issue shares for cash, and
2.
The
contracts are freestanding - As described in paragraphs 1, 2, 8, 38 and
39 of
EITF No. 00-19.
If these warrants were hedging relationships as described in SFAS No. 133,
paragraph 21, the warrants are not required to be accounted for as an asset
or a
liability because of our call option. See EITF 00-19, paragraph 7. Also,
specifically for the April 2006 Private Placement, the warrants issued
would
require that we deliver shares. This classification requires it to be classified
as equity. See (EITF 00-19, paragraph 9).
Based
on
our current rate of cash outflows, we believe that our cash will be sufficient
to meet our anticipated cash needs for working capital and capital expenditures
into first quarter of 2008. It is possible that within the upcoming twelve
months we will seek additional capital in the private and/or public equity
markets to expand our operations, to respond to competitive pressures,
to
develop new products and services and to support new strategic partnerships.
We
may obtain capital pursuant to one or more corporate partnerships relating
to
orBec®.
If we
obtain additional funds through the issuance of equity or equity-linked
securities, shareholders may experience significant dilution and these
equity
securities may have rights, preferences or privileges senior to those of
our
common stock. The terms of any debt financing may contain restrictive covenants
which may limit our ability to pursue certain courses of action. We may
not be
able to obtain such financing on acceptable terms or at all. If we are
unable to
obtain such financing when needed, or to do so on acceptable terms, we
may be
unable to develop our products, take advantage of business opportunities,
respond to competitive pressures or continue our operations.
Off-Balance
Sheet Arrangements
We
currently have no off-balance sheet arrangements.
Effects
of Inflation and Foreign Currency Fluctuations
We
do not believe that inflation or foreign currency fluctuations significantly
affected our financial position and results of operations as of and for
the
fiscal year ended December 31, 2006.
Directors
and Executive Officers
The
following table contains information regarding the current members of the
Board
of Directors and executive officers:
|
Name
|
Age
|
Position
|
|
James
S. Kuo, M.D., M.B.A.
|
42
|
Chairman
of the Board
|
|
Steve
H. Kanzer, C.P.A., J.D.
|
43
|
Vice
Chairman
|
|
Christopher
J. Schaber, Ph.D.
|
40
|
Chief
Executive Officer, President, and Director
|
|
Evan
Myrianthopoulos
|
42
|
Chief
Financial Officer, and Director
|
|
James
Clavijo, C.P.A., M.A.
|
41
|
Controller,
Treasurer, and Corporate Secretary
|
James
S. Kuo, M.D., M.B.A., has
been
a director since 2004 and currently serves as the non-executive Chairman
of the
Board. Since 2006, he has served as President and Chief Executive Officer
of
Cysteine Pharma, Inc. From 2003 to 2006, he served as founder, Chairman
and
Chief Executive Officer of BioMicro Systems, Inc. a private venture-backed,
microfluidics company. From 2001 to 2002, he served as President and
Chief
Executive Officer of Microbiotix, Inc., a private, anti-infectives drug
development company. Prior to that time, Dr. Kuo was co-founder, President
and
Chief Executive Officer of Discovery Laboratories, Inc., a public specialty
pharmaceutical company developing respiratory therapies, where he raised
over
$22 million in initial private funding and took the company public. He
has held
senior licensing and business development positions at Pfizer, Inc. and
Myriad
Genetics, Inc. Dr. Kuo has also been the Managing Director of Venture
Analysis
at HealthCare Ventures, LLC and Vice President at Paramount Capital Investments,
LLC. Dr. Kuo is further a founder of ArgiNOx Pharmaceuticals, Inc., and
Monarch Labs, LLC. Dr. Kuo simultaneously received his M.D. from the
University of Pennsylvania School of Medicine and his M.B.A. from the
Wharton
School of Business.
Steve
H. Kanzer, C.P.A.,
J.D.,
has
been a director since 1996 and currently serves as the non-executive
Vice
Chairman of the Board. Mr. Kanzer served as our Interim President from
June 30,
2002 through January 4, 2003. Since February 2001, Mr. Kanzer has served
as
Chairman and Chief Executive Officer, and from February 2001 until
May 2006 also
as President, of Pipex Therapeutics, Inc. (“Pipex”), a specialty pharmaceutical
company in Ann Arbor, Michigan developing oral late stage drug candidates
for
CNS and fibrotic diseases. He also serves as President and/or a member
of the
board of directors of several of Pipex’s subsidiaries, including CD4
Biosciences, Inc., Effective Pharmaceuticals, Inc., Putney Drug Corp.
and
Solovax, Inc. Since December 2000, he has served as Chairman of Accredited
Ventures Inc. and Accredited Equities Inc., respectively, a venture
capital firm
and NASD member investment bank specializing in the biotechnology
industry. From January 2001 until October 2003, Mr. Kanzer also served
as
President of Developmental Therapeutics, Inc. until its acquisition
by Titan
Pharmaceuticals, Inc. in October 2003. Prior to founding Accredited
Ventures and
Accredited Equities in December 2000, Mr. Kanzer was a co-founder of
Paramount
Capital, Inc. in 1992 and served as Senior Managing Director - Head
of Venture
Capital of Paramount Capital until December 2000. While at Paramount
Capital,
Mr. Kanzer was involved in the formation and financing of a number
of
biotechnology companies, including our company as well as a private
biopharmaceutical company, Corporate Technology Development, Inc. ("CTD").
Mr.
Kanzer was full-time Chief Executive Officer of CTD from March 1998
until
December 2000 and part-time Chief Executive Officer from December 2000
until our
company completed its acquisition of CTD in November 2001. From 1995
until June
1999, Mr. Kanzer was a founder and Chairman of Discovery Laboratories,
Inc., a
public biotechnology company. Prior to joining Paramount Capital in
1992, Mr.
Kanzer was an attorney at the law firm of Skadden, Arps, Slate, Meagher
&
Flom in New York. Mr. Kanzer received his J.D. from New York University
School
of Law and a B.B.A. in accounting from Baruch College where he was
a Baruch
Scholar.
Christopher
J. Schaber, Ph.D.,
has
been a director since August 2006 and is the President and Chief Executive
Officer. Prior to joining, Dr. Schaber served from 1998 to 2006 as
Executive
Vice President and Chief Operating Officer of Discovery Laboratories,
Inc. where
he was responsible for their operations including all drug development
and
commercial launch activities. From 1996 to 1998, Dr. Schaber was a
co-founder of
Acute Therapeutics, Inc., and served as Vice President of Regulatory
Compliance
and Drug Development. From 1994 to 1996, Dr. Schaber was employed by
Ohmeda PPD,
Inc., as Worldwide Director of Regulatory Affairs and Operations. From
1989 to
1994, Dr. Schaber held a variety of regulatory, development and operations
positions with The Liposome Company, Inc., and Elkins-Sinn Inc., a
division of
Wyeth-Ayerst Laboratories. Dr. Schaber received his B.A. from Western
Maryland
College, a M.S. in Pharmaceutics from Temple University School of Pharmacy
and a
Ph.D. in Phamaceutical Sciences from The Union Graduate School.
Evan
Myrianthopoulos,
has
been a director since 2002 and is currently the Chief Financial Officer
after
joining in November of 2004 as President and Acting Chief Executive
Officer.
From
November 2001 to November 2004, he was President and founder of CVL
Advisors,
Group, Inc., a financial consulting firm specializing in the biotechnology
sector. Prior to founding CVL Advisors Group, Inc., Mr. Myrianthopoulos
was a
co-founder of Discovery Laboratories, Inc. During his tenure at Discovery
from
June 1996 to November 2001, Mr. Myrianthopoulos held the positions
of Chief
Financial Officer and Vice President of Finance, where he was responsible
for
raising approximately $55 million in four private placements. He also
negotiated
and managed Discovery’s mergers with Ansan Pharmaceuticals and Acute
Therapeutics, Inc. Prior to co-founding Discovery, Inc., Mr. Myrianthopoulos
was
a Technology Associate at Paramount Capital Investments, L.L.C., a
New York City
based biotechnology venture capital and investment banking firm. Prior
to
joining Paramount Capital, Mr. Myrianthopoulos was a managing partner
of S + M
Capital Management, a hedge fund which specialized in syndicated stock
offerings
and also engaging in arbitrage of municipal and mortgage bonds. Prior
to that,
Mr. Myrianthopoulos held senior positions in the treasury department
at the
National Australia Bank where he was employed as a spot and derivatives
currency
trader. Mr. Myrianthopoulos holds a B.S. in Economics and Psychology
from Emory
University.
James
Clavijo, C.P.A., M.A.
has been
with the Company since October 2004 and is currently our Controller,
Treasurer,
and Corporate Secretary. He brings 15 years of senior financial management
experience, involving
both
domestic and international entities, and participating in over $100
Million in
equity and debt financing. Prior to joining DOR, Mr. Clavijo, held
the position
of Chief Financial Officer for Cigarette Racing Team (Miami, FL), from
July 2003
to October 2004. During his time with Cigarette he was instrumental
in
developing a cost accounting manufacturing tracking system and managed
the
administration and development of an IRB Bond related to a 10 acre,
100,000
square foot facility purchase. Prior to joining Cigarette Racing Team,
Mr.
Clavijo held the position of Chief Financial Officer for Gallery Industries,
from November 2001 to July 2003, a retail and manufacturing garment
company.
Prior to joining, Gallery, he served as Corporate Controller, for A
Novo
Broadband, from December 2000 to November 2001, a repair and manufacturing
telecommunications company where he managed several mergers and acquisitions
and
corporate restructuring. Prior to joining A Novo Broadband, he served
as Chief
Financial Officer of AW Industries, from August 1997 to December 2000,
a
computer parts manufacturer. He also, held the position of Finance
Manager for
Wackenhut Corporation in the U.S. Governmental Services Division. In
addition,
he served in the U.S. Army from 1983 to 1996 in both a reserve and
active duty
capacity for personnel and medical units. Mr. Clavijo holds a Master
in
Accounting degree from Florida International University, a Bachelor
in
Accounting degree from the University of Nebraska, and a Bachelor in
Chemistry
degree from the University of Florida. Mr. Clavijo is a licensed Certified
Public Accountant in the state of Florida.
Section
16(a) Beneficial Ownership Reporting Compliance
We
are
required to identify each person who was an officer, director or beneficial
owner of more than 10% of our registered equity securities during our
most
recent fiscal year and who failed to file on a timely basis reports
required by
Section 16(a) of the Securities Exchange Act of 1934.
To
our
knowledge, based solely on review of these filings and written representations
from the certain reporting persons, we believe that during the fiscal
year ended
December 31, 2006, our officers, directors and significant stockholders
have
timely filed the appropriate form under Section 16(a) of the Exchange
Act,
except a Form 4 for Evan Myrianthopoulos (one filing) and a Form 4
for James
Clavijo (one filing).
Code
of Ethics
We
have
adopted a code of ethics that applies to all of our executive officers
and
senior financial officers (including our chief executive officer, chief
financial officer, chief accounting officer, controller, and any person
performing similar functions). A copy of our code of ethics is publicly
available on our website at http://www.dorbiopharma.com under the caption
"Investors." If we make any substantive amendments to our code of ethics
or
grant any waiver, including any implicit waiver, from a provision of
the code to
our chief executive officer, chief financial officer, chief accounting
officer
or controller, we will disclose the nature of such amendment or waiver
in a
report on Form 8-K.
Item
10. Executive Compensation.
Summary
Compensation
The following table contains information concerning the compensation
paid during
our fiscal years ended December 31, 2006, to the persons who served
as our Chief
Executive Officers, and each of the two other most highly compensated
executive
officers during 2006 (collectively, the “Named Executive Officers”).
Summary
Compensation
|
Name
|
Position
|
Year
|
Salary
|
Bonus
|
Option
Awards
|
All
Other Compensation
|
Total
|
|
Christopher
J. Schaber (1)
|
CEO
& President
|
2006
|
$104,700
|
$33,333
|
$185,403
|
$16,895
|
$340,331
|
|
Michael
Sember (2)
|
CEO
& President
|
2006
|
$192,500
|
-
|
$82,060
|
$229,827
|
$504,387
|
|
Evan
Myrianthopoulos
(3)
|
CFO
|
2006
|
$195,724
|
$55,000
|
$103,064
|
$49,257
|
$398,045
|
|
James
Clavijo (4)
|
Controller,
Treasurer &
Secretary
|
2006
|
$144,999
|
$40,000
|
$42,836
|
-
|
$222,835
|
(1)
Dr.
Schaber began his employment with us on August 29, 2006. Dr. Schaber
deferred
payment of his 2006 prorated annual bonus of $33,333. Option Awards
include the
value of stock option awards of vested shares of common stock as required
by
FASB No. 123R. Other Compensation includes costs for transportation,
travel and
lodging.
(2)
Mr.
Sember’s employment was terminated without “just cause” on August 25, 2006.
Option Awards include the value of stock option awards of vested shares
of
common stock as required by FASB No. 123R. Other Compensation includes
$150,000
in accrued severance payments and $28,383 for accrued vacation time,
as well as
costs for transportation, travel and lodging.
(3)
Mr.
Myrianthopoulos joined in November 2004 as President and Acting Chief
Executive
Officer and then in December 2004 he accepted the position of Chief
Financial
Officer. Mr. Myrianthopoulos deferred payment of his 2006 annual bonus
of
$55,000. Option Awards include the value of stock option awards of
vested shares
of common stock as required by FASB No. 123R. Other Compensation includes
costs
for transportation, travel and lodging.
(4)
Mr.
Clavijo joined in October 2004. Mr. Clavijo deferred payment of his
2006 annual
bonus of $40,000. Option Awards include the value of stock option awards
of
vested shares of common stock as required by FASB No. 123R.
Potential
Issuance of Shares
On
February 28, 2007, our Board of Directors approved the issuance of
2,700,000
shares of our common stock to certain employees and a consultant. Such
shares
will be issued immediately prior to the completion of a transaction,
or series
or combination of related transactions, negotiated by our Board of
Directors
whereby, directly or indirectly, a majority of our capital stock or
a majority
of our assets are transferred from us and/or our stockholders to a
third party
(an “Acquisition Event”). Of the shares of common stock to be issued upon an
Acquisition Event, 1,000,000 shares will be issued to Christopher J.
Schaber, a
director and our Chief Executive Officer and President; 750,000 shares
will be
issued to Evan Myrianthopoulos, a director and our Chief Financial
Officer; and
300,000 shares will be issued to James Clavijo, our Controller, Treasurer,
and
Corporate Secretary. We expect to enter into agreements with Dr. Schaber,
Mr.
Myrianthopoulos and Mr. Clavijo with regard to the arrangement described
above.
We expect that such agreements will include terms and conditions customary
to
agreements of such type.
During August 2006, we entered into a three year employment agreement
with
Christopher J. Schaber, Ph. D. Pursuant to this employment agreement
we agreed
to pay Dr. Schaber a base salary of $300,000 per year and a minimum
annual bonus
of $100,000. We agreed to issue him options to purchase 2,500,000 shares
of our
common stock, with one third immediately vesting and the remainder
vesting over
three years. Upon termination without "Just Cause" as defined by this
agreement,
we would pay Dr. Schaber six months severance, as well as any accrued
bonuses,
accrued vacation, and we would provide health insurance and life insurance
benefits for Dr. Schaber and his dependants. No unvested options shall
vest
beyond the termination date.
During
December 2004, we entered into a three year employment agreement with
Michael T.
Sember, Pursuant to this employment agreement we agreed to pay Mr.
Sember a base
salary of $300,000 per year. After one year of service Mr. Sember would
be
entitled to a minimum annual bonus of $100,000. We agreed to issue
him options
to purchase 2,000,000 shares of our common stock, with one third immediately
vesting and the remainder vesting over three years. This option grant
was
subject to shareholder approval. Upon termination without "Just Cause"
as
defined by this agreement, we would pay Mr. Sember six months severance,
as well
as any unpaid bonuses and accrued vacation. No unvested options shall
vest
beyond the termination date. On August 25, 2006 we terminated the employment
agreement with Mr. Sember without ‘Just Cause.” Mr. Sember remained with us as a
director until he resigned on September 25, 2006. We have paid his
severance and
accrued vacation according to the terms of his employment agreement.
His
employment agreement required us to pay him $150,000 in severance and
$28,383 in
accrued vacation. At the time of Mr. Sember’s termination he had vested options
to purchase 1,340,000 of our common stock. Mr. Sember did not have
any unpaid
bonuses at the time of his termination.
In
December 2004, we entered into a three year employment agreement with
Mr.
Myrianthopoulos. Pursuant to this employment agreement we agreed to
pay Mr.
Myrianthopoulos a base salary of $185,000 per year. After one year
of service
Mr. Myrianthopoulos would be entitled to a minimum annual bonus of
$50,000. We
agreed to issue him options to purchase 500,000 shares of our common
stock, with
the options vesting over three years. This option grant is subject
to
shareholder approval. Upon termination without "Just Cause" as defined
by this
agreement, we would pay Mr. Myrianthopoulos six months severance subject
to
setoff, as well as any unpaid bonuses and accrued vacation would become
payable.
No unvested options shall vest beyond the termination date. Mr. Myrianthopoulos
also received 150,000 options, vested immediately when he was hired
in November
2004, as President and Acting Chief Executive Officer.
During May 2006, we increased Evan Myrianthopoulos’ base salary to $200,000. We
also agreed to issue him 400,000 options of our common stock, with
100,000
options immediately vesting and the remainder vesting over three
years.
During May 2006, we entered into and amendment to the February 2005
employment
agreement with James Clavijo. Pursuant to the amendment we agreed to
pay Mr.
Clavijo a base salary of $150,000 per year and a minimum annual bonus
of
$35,000. Additionally we agreed to issue him options to purchase 200,000
options
of our common stock, with 50,000 options immediately vesting and the
remainder
vesting over three years. In the February 2005 employment agreement,
we agreed
to issue 150,000 shares of our common stock, with one third immediately
vesting
and the remainder vesting over three years. Upon termination without
"Just
Cause" as defined by this agreement, we would pay Mr. Clavijo three
months
severance, as well as any unpaid bonuses and accrued vacation would
become
payable. No unvested options shall vest beyond the termination date.
Mr. Clavijo
also received 100,000 options, vesting over three years when he was
hired in
October 2004, as Controller, Treasurer and Corporate Secretary.
Outstanding
Equity Awards at Fiscal Year-End
The following table contains information concerning unexercised options,
stock
that has not vested, and equity incentive plan awards for the Named
Executive
Officers during the fiscal year ended December 31, 2006. We have never
issued Stock Appreciation Rights.
Outstanding
Equity Awards at Fiscal Year-End
|
Name
|
Number
of Securities
Underlying
Unexercised
Options
(#)
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
Option
Exercise Price (S)
|
Option
Expiration Date
|
|
Exercisable
|
Unexercisable
|
|
Christopher
J. Schaber(1)
|
972,223
|
1,527,777
|
1,527,777
|
$0.27
|
8/28/2016
|
|
Michael
T. Sember(2)
|
1,340,000
|
-
|
-
|
$0.46
|
8/24/2007
|
|
Evan
Myrianthopoulos
|
150,000
|
-
|
-
|
$0.35
|
11/14/2012
|
| |
50,000
|
-
|
-
|
$0.90
|
9/15/2013
|
| |
50,000
|
-
|
-
|
$0.58
|
6/11/2014
|
| |
150,000
|
-
|
-
|
$0.47
|
11/10/2014
|
| |
333,336
|
166,664
|
166,664
|
$0.49
|
12/13/2014
|
| |
150,000
|
250,000
|
250,000
|
$0.35
|
5/10/2016
|
|
James
Clavijo
|
66,666
|
33,334
|
33,334
|
$0.45
|
10/22/2014
|
| |
116,664
|
33,336
|
33,336
|
$0.45
|
2/22/2015
|
| |
87,500
|
112,500
|
112,500
|
$0.33
|
5/10/2016
|
| (1) |
Dr.
Schaber began his employment with us on August 29, 2006.
|
| (2) |
Mr.
Sember’s employment was terminated without “Just Cause” on August 25,
2006.
|
Compensation
of Directors
The following table contains information concerning the compensation
of the
non-employee directors during the fiscal year ended December 31,
2006.
Director
Compensation
|
Name
|
Fees
Earned of Paid in Cash ($) (1)
|
Option
Awards ($) (2)
|
Total
($)
|
|
Steve
H. Kanzer
|
$25,000
|
$11,270
|
$36,270
|
|
James
S. Kuo
|
$25,000
|
$11,270
|
$36,270
|
| (1) |
Directors
who are compensated as full-time employees receive no additional
compensation for service on our Board of Directors or its committees.
Each
director who is not a full-time employee is paid $2,000 for
each board or
committee meeting attended ($1,000 if such meeting was attended
telephonically).
|
| (2) |
We
maintain a stock option grant program pursuant to the nonqualified
stock
option plan, whereby members of our Board of Directors who
are not
full-time employees receive an initial grant of fully vested
options to
purchase 50,000 shares of common stock, and subsequent annual
grants of
fully vested options to purchase 50,000 shares of common stock
after
re-election to our Board of Directors.
|
Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The
table
below provides information regarding the beneficial ownership of the
Common
Stock as of April 11, 2007 of (1)
each
person or entity who owns beneficially 5% or more of the shares of
our
outstanding common stock, (2) each of our directors, (3) each of the
Named
Executive Officers, and (4) our directors and officers as a group.
Except as
otherwise indicated, and subject to applicable community property laws,
we
believe the persons named in the table have sole voting and investment
power
with respect to all shares of common stock held by them. Except as
otherwise
indicated, each stockholder's percentage ownership of our common stock
in the
following table is based on 91,913,336 as of April 5, 2007 shares of
common
stock outstanding.
|
Name
of Beneficial Owner
|
Shares
of Common Stock Beneficially Owned
|
Percent
of Class
|
| |
|
|
|
SouthPointe
Master Fund, LP (1)
|
8,510,638
|
9.3%
|
|
Cyrill
F. Buhrman(2)
|
4,900,020
|
5.2%
|
|
Platinum
Partners Long Term Growth III (3)
|
4,604,306
|
4.9%
|
| Sigma
Tau Pharmaceuticals, Inc. (4) |
4,065,041
|
4.4%
|
| Paolo
Cavazza (4) |
5,611,911
|
6.1% |
| Claudio
Cavazza (4) |
4,065,041
|
4.4% |
|
Christopher
J. Schaber (5)
|
1,542,769
|
1.7%
|
|
Steve
H. Kanzer (6)
|
2,398,401
|
2.6%
|
|
James
S. Kuo (7)
|
205,000
|
*
|
|
Evan
Myrianthopoulos (8)
|
1,406,382
|
1.5%
|
|
James
Clavijo (9)
|
344,865
|
*
|
|
All
directors and executive officers as a group (5 persons)
|
5,897,417
|
6.1%
|
____________
*
Indicates less than 1%.
**
Beneficial
ownership is determined in accordance with the rules of the SEC. Shares
of
common stock subject to options or warrants currently exercisable or exercisable
within 60 days of April 11, 2007 are deemed outstanding for computing the
percentage ownership of the stockholder holding the options or warrants,
but are
not deemed outstanding for computing the percentage ownership of any other
stockholder. Percentage of ownership is based on 91,913,336
shares of common stock outstanding as of April 11, 2007.
(1)
On
February 16, 2007, SouthPointe Master Fund, LP
(the
“master fund”) filed a Schedule 13G with the SEC. Southpoint Capital Advisors
LLC (“Southpoint CA LLC”) is the general partner of Southpoint Capital Advisors
LP (“Southpoint Advisors”). Southpoint GP LLC (“Southpoint GP LLC”) is the
general partner of Southpoint GP, LP (“Southpoint GP”). Southpoint GP is the
general partner of Southpoint Fund LP, (the “Fund”), Southpoint Qualified Fund
LP (the “Qualified Fund”) and the Master Fund. Southpoint Offshore Fund, Ltd.
(the “Offshore Fund”) is also a general partner of the Master Fund. According to
the Schedule 13 G, Southpoint CA LLC, Southpoint GP LLC, Southpoint GP,
Southpoint Advisors, Robert W. Butts and John S. Clark II have the sole
power to
vote and dispose of the 8,510,638 shares of common stock beneficially
owned.
The
address of the master fund is 623 Fifth Avenue, Suite 2503, New York, NY
10022.
(2)
Includes
3,095,617 shares of common stock within 60 days of April 11, 2007. The
address
of Mr. Buhrman is c/o Pacific Healthcare (Thailand) Co., Ltd. 229/1 South
Sathorn Road Bangkok 10120 Thailand.
(3)
Includes 2,439,023 shares of common stock and warrants to purchase 2,165,283
shares of common stock within 60 days of April 11, 2007. The address of
Platinum
Partners Long Term Growth III is 152 West 57th
Street,
54th
Floor,
New York, NY 10019.
(4)
On
January 12, 2007, Sigma-Tau, Paolo Cavazza and Claudio Cavazza filed
a Schedule
13G as a group, within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, with the SEC. According to this Schedule 13G, Paolo
Cavazza and Claudio Cavazza beneficial own of all of the shares held
by
Sigma-Tau and possess shared voting and dispositive power with regard
to these
shares. Paolo Cavazza individually owns 1,546,870 shares of common stock
and
possesses sole voting and dispositive power with regard to these shares.
The
address for Sigma-Tau is 800 South Frederick Avenue, Suite 300, Gaithersburg,
Maryland 20877. The address for Paolo Cavazza is Via Tesserete 10, Lugano,
Switzerland. The address for Claudio Cavazza is Via Sudafrica, 20, Rome,
Italy
00144.
(5)
Includes
292,766 shares of common stock owned by Dr. Schaber, and options to purchase
1,250,003 shares of common stock within 60 days of April 11, 2007. The
address
of Dr. Schaber is c/o DOR BioPharma, 1101 Brickell Avenue, Suite 701-S,
Miami,
Florida 33131.
(6)
Includes
1,282,203 shares of common stock owned by Mr. Kanzer, warrants
to purchase 349,398
shares of common stock and options
to purchase 766,800
shares of common stock within 60 days of April 11, 2007. The address of
Mr.
Kanzer is c/o DOR BioPharma, 1101 Brickell Avenue, Suite 701-S, Miami,
Florida
33131.
(7)
Includes
options
to purchase 200,000
shares of common stock and warrants
to purchase 5,000
shares of common stock within 60 days of April 11, 2007. The address of
Dr. Kuo
is c/o DOR BioPharma, 1101 Brickell Avenue, Suite 701-S, Miami, Florida
33131.
(8)
Includes
154,780
shares of common stock owned by Mr. Myrianthopoulos and his wife, options
to purchase 975,003
shares of common stock and warrants
to purchase 276,562
shares of common stock within 60 days of April 11, 2007. The address of
Mr.
Myrianthopoulos is c/o DOR BioPharma, 1101 Brickell Avenue, Suite 701-S,
Miami,
Florida 33131.
(9)
Includes
53,191
shares of common stock owned by Mr. Clavijo, options
to purchase 291,663
shares of common stock within 60 days of April 11, 2007. The address of
Mr.
Clavijo is c/o DOR BioPharma, 1101 Brickell Avenue, Suite 701-S, Miami,
Florida
33131.
Equity
Compensation Plan Information
In
December 2005 our Board of Directors approved the 2005 Equity Incentive
Plan,
which was approved by stockholders on December 29, 2005. The following
table
provides information, as of December 31, 2006, with respect to options
outstanding under our 1995 Amended and Restated Omnibus Incentive Plan
and our
2005 Equity Incentive Plan
|
Plan
Category
|
Number
of Securities to be issued upon exercise of outstanding options,
warrants
and rights
|
Weighted-Average
Exercise Price Outstanding options, warrants and
rights
|
Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans (excluding securities reflected in the first
column)
|
|
Equity
compensation plans approved by security holders (1)
|
11,639,339
|
$
0.50
|
2,936,032
|
|
Equity
compensation plans not approved by security holders
|
-
|
-
|
-
|
|
TOTAL
|
11,639,339
|
$0.50
|
2,936,032
|
(1) Includes our 1995 Amended and Restated Omnibus Incentive Plan and our
2005
Equity Incentive Plan. Our 1995 Plan expired in 2005 and thus no securities
remain available for future issuance under that plan. Under the 2005 equity
incentive plan, we issued 728,968 shares to individuals as payment for
services
in the amount of $232,533 as allowed in the plan.
SELLING
STOCKHOLDERS
The
following
table presents information as of April 11, 2007 and sets forth the number
of
shares of common stock beneficially owned by each of the Selling Stockholders.
We are not able to estimate the amount of shares that will be held by each
Selling Stockholder after the completion of this offering because: (1) the
Selling Stockholders may sell less than all of the shares registered under
this
prospectus; (2) the Selling Stockholders may exercise less than all of their
warrants; and (3) to our knowledge, the Selling Stockholders currently have
no
agreements, arrangements or understandings with respect to the sale of any
of
their shares. The following table assumes that all of the shares being
registered pursuant to this prospectus will be sold. The Selling Stockholders
are not making any representation that any shares covered by this prospectus
will be offered for sale. Except as otherwise indicated, based on information
provided to us by each Selling Stockholder, the Selling Stockholders have
sole
voting and investment power with respect to their shares of common stock.
Except
as otherwise noted, none of the Selling Stockholders nor any of their affiliates
have held a position or office, or had any other material relationship, with
us.
|
Name
of
Selling
Stockholder
|
Number
of Shares of Common Stock Owned Before the Offering
(1)
|
Percent
of
Common
Stock Owned Before
the
Offering
|
Shares
Available for Sale Under This Prospectus (1)
|
Number
of Shares of Common Stock To Be Owned After Completion
of
the Offering
|
Percent
of Common Stock to be Owned After Completion
of
the Offering
|
| |
|
|
|
|
|
|
|
Sigma-Tau
Pharmaceuticals, Inc. (2)
|
4,065,041
|
4.4%
|
|
4,065,041
|
-
|
*
|
|
Alpha
Capital AG (3)
|
3,743,587
|
4.1%
|
|
134,781
|
-
|
*
|
|
Platinum
Partners Long Term Growth III (4)
|
4,604,306
|
4.9%
|
|
272,861
|
-
|
*
|
|
Iroquois
Master Fund LTD (5)
|
256,873
|
*
|
|
204,545
|
-
|
*
|
|
Little
Gem Life Sciences Fund, LLC (6)
|
1,429,139
|
1.6%
|
|
45,477
|
-
|
*
|
|
Ed
Burke
|
478,431
|
*
|
|
72,073
|
-
|
*
|
|
Steven
Mark
|
91,369
|
*
|
|
11,369
|
-
|
*
|
|
Michael
Sember
|
1,532,741
|
1.7%
|
|
6,301
|
-
|
*
|
|
Kim
Alberstadt
|
76,724
|
*
|
|
4,548
|
-
|
*
|
|
Emmanuelle
M. Voisin
|
312,500
|
*
|
|
312,500
|
-
|
*
|
|
Adam
Rumage
|
60,000
|
*
|
|
60,000
|
-
|
*
|
|
BMC
Communications Group LLC (7)
|
142,857
|
*
|
|
142,857
|
-
|
*
|
|
Bristol
Investment Partners LPI (8)
|
62,500
|
*
|
|
62,500
|
-
|
*
|
|
Arthur
B. Whitcomb
|
37,500
|
*
|
|
37,500
|
-
|
*
|
|
Crystal
Research, Inc.
(9)
|
150,000
|
*
|
|
150,000
|
-
|
*
|
|
Keith
Lippert
|
85,000
|
*
|
|
85,000
|
-
|
*
|
|
John
Heilshorn
|
85,000
|
*
|
|
85,000
|
-
|
*
|
|
Jeffrey
Kraws
|
40,000
|
*
|
|
40,000
|
-
|
*
|
|
Karen
Goldfarb
|
40,000
|
*
|
|
40,000
|
-
|
*
|
|
Southpoint
Master Fund LP (10)
|
8,510,638
|
9.3%
|
|
8,510,638
|
-
|
*
|
|
Christopher
J. Schaber and Cathleen Schaber
|
1,542,769
|
1.7%
|
|
212,766
|
-
|
*
|
|
Evan
Myrianthopoulos & Konstantina Myrianthopoulos JTWROS
|
1,406,382
|
1.5%
|
|
64,560
|
-
|
*
|
|
Vasili
Myrianthopoulos and Elizabeth Myrianthopoulos JTWROS
|
197,543
|
*
|
|
62,286
|
-
|
*
|
|
James
Clavijo
|
344,865
|
*
|
|
53,191
|
-
|
*
|
|
Steve
H. Kanzer
|
2,398,401
|
2.6%
|
|
212,766
|
-
|
*
|
|
Cyrille
F. Buhrman
|
4900,020
|
5.2%
|
|
1,291,214
|
-
|
*
|
|
Firebird
Global Master Fund II, Ltd. (11)
|
1,063,830
|
1.2%
|
|
1,063,830
|
-
|
*
|
|
Victor
P. Thompson
|
479,743
|
*
|
|
106,383
|
-
|
*
|
|
David
Gentile
|
251,804
|
*
|
|
131,516
|
-
|
*
|
|
Bernard
Pismeny
|
234,251
|
*
|
|
113,963
|
-
|
*
|
|
Kyle
Brengel
|
234,251
|
*
|
|
113,963
|
-
|
*
|
|
Anthony
G. Bianchi
|
31,915
|
*
|
|
31,915
|
-
|
*
|
|
Windward
Capital Advisors, LLC (12)
|
1,466,556
|
1.6%
|
|
257,979
|
|
*
|
|
HefCap
Holdings, LLC (13)
|
1,466,554
|
1.6%
|
|
257,978
|
|
*
|
|
Jeffrey
Benison
|
100,000
|
*
|
|
100,000
|
|
*
|
|
George
McDonald
|
150,000
|
*
|
|
150,000
|
|
*
|
|
Timothy
Rodell
|
100,000
|
*
|
|
100,000
|
|
*
|
|
Scott
Cruickshank
|
50,000
|
*
|
|
50,000
|
|
*
|
* Less
than
1%.
**Beneficial
ownership is determined in accordance with the rules of the SEC. Shares
of
common stock subject to options or warrants currently exercisable or exercisable
within 60 days of April 11, 2007, are deemed outstanding for computing
the
percentage ownership of the stockholder holding the options or warrants,
but are
not deemed outstanding for computing the percentage ownership of any other
stockholder. Percentage of ownership is based on 91,913,336 shares of common
stock outstanding as of April 11, 2007.
(1) The
shares of common stock issuable upon the exercise of warrants are as follows:
Bristol Investment Partners LPI, 62,500 shares; Arthur B. Whitcomb, 37,500
shares; Crystal Research, 150,000 shares; Keith Lippert, 85,000 shares;
John
Heilshorn, 85,000 shares; Jeffrey Kraws, 40,000 shares; Karen Goldfarb,
40,000
shares; Michael Sember, 180,440 shares, Evan Myrianthopoulos, 276,562 shares;
Steven H. Kanzer, 349,398 shares; David Gentile, 17,553 shares; Ed Burke,
26,596
shares; Cyrille F. Buhrman, 1,804,403 shares; Steven Mark, 60,000 shares;
Windward Capital Advisors, LLC, 1,466,556 shares; HefCap Holdings, LLC,
1,466,554 shares; Jeffrey Benison, 100,000 shares. The number of shares
issuable
upon the exercise of options are as follows: Michael Sember 1,340,000 shares;
Christopher J. Schaber, 1,111,113 shares; Evan Myrianthopoulos, 950,003
shares;
Steven H. Kanzer, 766,800 shares; James Clavijo, 270,830 shares; Cyrille
F.
Buhrman, 3,095,617 shares.
(2) Gregg
Lapointe, Paolo Cavazza and Claudio Cavazza are the natural person who
exercise
voting or dispositive power with respect to the shares held of record by
Sigma-Tau Pharmaceuticals, Inc. Sigma-Tau Pharmaceuticals, Inc. is not
a
broker-dealer, nor is it affiliated with one. The amount does not include
1,546,870 shares of common stock held by Paolo Cavazza.
(3)
Konrad
Ackerman is the natural person who exercises sole voting or dispositive
power
with respect to the shares held of record by Alpha Capital AG. Alpha Capital
AG
is not a broker-dealer, nor is it affiliated with one.
(4)
Mark
Norducht is the natural person who exercises sole voting or dispositive
power
with respect to the shares held of record by Platinum Partners Long Term
Growth
III. Platinum Partners Long Term Growth III is not a broker-dealer, nor
is it
affiliated with one.
(5) Joshua
Silverman is the natural person who exercises sole voting or dispositive
power
with respect to the shares held of record by Iroquois Master Fund LTD.
Iroquois
Master Fund LTD is not a broker dealer, nor is it affiliated with
one.
(6) Jeffrey
Benison is the natural person who exercises sole voting or dispositive
power
with respect to the shares held of record by Little Gem Life Sciences Fund,
LLC.
Little Gem Life Sciences Fund, LLC is not a broker dealer, nor is it affiliated
with one.
(7) Brad
Miles is the natural person who exercises sole voting or dispositive power
with
respect to the shares held of record by BMC Communications Group LLC. BMC
Communications Group LLC is not a broker-dealer, nor is it affiliated with
one.
(8) Alan
P.
Donenfeld is the natural person who exercises sole voting or dispositive
power
with respect to the shares held of record by Bristol
Investment Partners LPI.
Bristol
Investment Partners LPI
is not a
broker-dealer, nor is it affiliated with one.
(9) Jeff
Kraws the natural person who exercises sole voting or dispositive power
with
respect to the shares held of record by Crystal Research, Inc. Crystal
Research,
Inc. is not a broker-dealer, nor is it affiliated with one.
(10) Robert
W.
Butts and John S. Clark II are the natural person who exercises voting
or
dispositive power with respect to the shares held of record by Southpoint
Master
Fund LP. Southpoint Master Fund LP is not a broker-dealer, nor is it affiliated
with one.
(11) Harvery
Sawikin and James Passin are the natural persons who exercise voting or
dispositive power with respect to the shares held of record by Firebird
Global Master Fund II, Ltd. Firebird
Global Master Fund II, Ltd. is
not a
broker-dealer, nor is it affiliated with one.
(12) David
Cowherd is the natural person who exercises sole voting or dispositive
power
with respect to the shares held of record by Windward Capital Advisors,
LLC.
Windward Capital Advisors, LLC is a broker-dealer, or is it affiliated
with
one.
(13) Robert
L.
Rosenstein is the natural person who exercises sole voting or dispositive
power
with respect to the shares held of record by HefCap Holdings, LLC. HefCap
Holdings, LLC is not a broker-dealer, nor is it affiliated with
one.
USE
OF PROCEEDS
This
prospectus relates to shares of our common stock that may be offered and
sold
from time to time by the Selling Stockholders. We will receive no proceeds
from
the sale of shares of common stock in this offering. However, we may receive
up
to approximately $24,000,000 in proceeds from the exercise of the Warrants
to
purchase our common stock. We intend to use the net proceeds from the exercise
of the Warrants as working capital to cover costs associated with the completion
of the NDA and MAA for orBec®, other research and development expenses, and
general overhead costs including salaries until such time, if ever, as
we are
able to generate a positive cash flow from operation.
PLAN
OF DISTRIBUTION
The
selling stockholders and any of their pledgees, donees, transferees, assignees
and successors-in-interest may, from time to time, sell any or all of their
shares of common stock on any stock exchange, market or trading facility
on
which the shares are traded or in private transactions. These sales may
be at
fixed or negotiated prices. The selling stockholders may use any one or
more of
the following methods when selling shares:
| · |
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits investors;
|
| · |
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal
to
facilitate the transaction;
|
| · |
purchases
by a broker-dealer as principal and resale by the broker-dealer
for its
account;
|
| · |
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
| · |
privately
negotiated transactions;
|
| · |
to
cover short sales and other hedging transactions made after the
date that
the registration statement of which this prospectus is a part is
declared
effective by the Securities and Exchange
Commission;
|
| · |
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per share;
|
| · |
a
combination of any such methods of sale;
and
|
| · |
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers
to
participate in sales. Broker-dealers may receive commissions or discounts
from
the selling stockholders (or, if any broker-dealer acts as agent for the
investor of shares, from the purchaser) in amounts to be negotiated. The
selling
stockholders do not expect these commissions and discounts to exceed what
is
customary in the types of transactions involved.
The
selling stockholders may from time to time pledge or grant a security interest
in some or all of the Shares owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties
may
offer and sell shares of common stock from time to time under this prospectus,
or under an amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933 amending the list of
selling
stockholders to include the pledgee, transferee or other successors in
interest
as selling stockholders under this prospectus.
Upon
our
being notified in writing by a selling stockholder that any material arrangement
has been entered into with a broker-dealer for the sale of common stock
through
a block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker or dealer, a supplement to this prospectus will
be
filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing
(i) the name of each such selling stockholder and of the participating
broker-dealer(s), (ii) the number of shares involved, (iii) the price at
which
such shares of common stock were sold, (iv) the commissions paid or discounts
or
concessions allowed to such broker-dealer(s), where applicable, (v) that
such
broker-dealer(s) did not conduct any investigation to verify the information
set
out or incorporated by reference in this prospectus, and (vi) other facts
material to the transaction. In addition, upon our being notified in writing
by
a selling stockholder that a donee or pledge intends to sell more than
500
shares of common stock, a supplement to this prospectus will be filed if
then
required in accordance with applicable securities law.
The
selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors
in
interest will be the selling beneficial owners for purposes of this
prospectus.
The
selling stockholders and any broker-dealers or agents that are involved
in
selling the shares may be deemed to be "underwriters" within the meaning
of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale
of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Discounts, concessions, commissions
and
similar selling expenses, if any, that can be attributed to the sale of
securities will be paid by the selling stockholders and/or the purchasers
of the
securities.
Each
selling stockholder that is affiliated with a registered broker-dealer
has
confirmed to us that, at the time it acquired the securities subject to
the
registration statement of which this prospectus is a part, it did not have
any
agreement or understanding, directly or indirectly, with any person to
distribute any of such securities. The Company has advised each selling
stockholder that it may not use shares registered on the registration statement
of which this prospectus is a part to cover short sales of our common stock
made
prior to the date on which such registration statement was declared effective
by
the SEC.
We
are
required to pay certain fees and expenses incident to the registration
of the
shares. We have agreed to indemnify the selling stockholders against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act. We agreed to keep this prospectus effective until the earlier
of
(i) the date on which the shares may be resold by the selling stockholders
without registration and without regard to any volume limitations by reason
of
Rule 144(e) under the Securities Act or any other rule of similar effect
and
(ii) such time as all of the shares have been publicly sold.
DESCRIPTION
OF SECURITIES
Our
authorized capital stock consists of 255,000,000 shares of capital stock,
of
which 250,000,000 shares are common stock, par value $.001 per share,
4,600,000
shares are preferred stock, par value $0.001 per share, 200,000 are Series
B
Convertible Preferred Stock, par value $.05 per share, and 200,000 shares
are
Series C Convertible Preferred Stock, par value $0.05 per share. As of
April 11,
2007, there were issued and outstanding
91,913,336 shares
of
common stock, options to purchase approximately
11,900,000 shares of common stock and warrants to purchase approximately
34,400,000 shares of common stock. The amount outstanding includes
the
17,557,195 shares of common stock issued to the Selling
Stockholders.
Common
Stock
Holders
of our common stock are entitled to one vote for each share held in the
election
of directors and in all other matters to be voted on by the stockholders.
There
is
no cumulative voting in the election of directors. Holders
of common stock are entitled to receive dividends as may be declared from
time
to time by our board of directors out of funds legally available therefor.
In
the
event of liquidation, dissolution or winding up of the corporation, holders
of
common stock are to share in all assets remaining after the payment of
liabilities. Holders
of common stock have no pre-emptive or conversion rights and are not subject
to
further calls or assessments. There
are
no redemption or sinking fund provisions applicable to the common stock.
The
rights of the holders of the common stock are subject to any rights that
may be
fixed for holders of preferred stock. All
of
the outstanding shares of common stock are fully paid and non-assessable.
Preferred
Stock
Our
Certificate of Incorporation authorizes the issuance of 4,600,000 shares
of
preferred stock with designations, rights, and preferences as may be determined
from time to time by the board of directors. The
board
of directors is empowered, without stockholder approval, to designate and
issue
additional series of preferred stock with dividend, liquidation, conversion,
voting or other rights, including the right to issue convertible securities
with
no limitations on conversion, which could adversely affect the voting power
or
other rights of the holders of our common stock, substantially dilute a
common
stockholder’s interest and depress the price of our common stock.
No
shares
of the Series B Convertible Preferred Stock or the Series C Convertible
Preferred Stock are outstanding.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our
common stock is presently quoted on the Over-the-Counter Bulletin Board
(“OTCBB”) under the symbol "DORB.”
The
table below sets forth the high and low sales prices, as provided by the
American Stock Exchange, in each quarter for the period from January 1,
2004
through March 31, 2006.
Until
April 18, 2006, our common stock was listed on the American Stock
Exchange.
The
amounts represent inter-dealer quotations without adjustment for retail
markup,
markdowns or commissions and do not represent the prices of actual transactions.
|
Period
|
Price
Range
|
|
High
|
Low
|
|
Fiscal
Year Ended December 31, 2005:
|
|
|
|
First
Quarter
|
$0.67
|
$0.35
|
|
Second
Quarter
|
$0.42
|
$0.29
|
|
Third
Quarter
|
$0.45
|
$0.32
|
|
Fourth
Quarter
|
$0.36
|
$0.22
|
|
Fiscal
Year Ended December 31, 2006:
|
|
|
|
First
Quarter
|
$0.69
|
$0.26
|
|
Second
Quarter
|
$0.40
|
$0.23
|
|
Third
Quarter
|
$0.33
|
$0.20
|
|
Fourth
Quarter
|
$0.30
|
$0.21
|
On
April
18, 2006, our common stock was delisted from the American Stock Exchange
and
began to be quoted on the OTCBB. As
of
April 11,
2007,
the last reported price of our common stock quoted on the OTCBB was $0.62
per
share. The
OTCBB
price quoted reflects inter-dealer prices, without retail mark-up, mark-down
or
commission, and may not represent actual transactions. We
have
approximately 1,089 registered
holders of record.
Dividend
Policy
We
have
never declared nor paid any cash dividends, and currently intend to retain
all
our cash and any earnings for use in our business and, therefore, do not
anticipate paying any cash dividends in the foreseeable future. Any
future determination to pay cash dividends will be at the discretion of
the
Board of Directors and will be dependant upon our consolidated financial
condition, results of operations, capital requirements and such other factors
as
the Board of Directors deems relevant.
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
ACT
LIABILITIES
Section
102(b)(7) of the Delaware General Corporation Law allows companies to limit
the
personal liability of its directors to the company or its stockholders
for
monetary damages for breach of a fiduciary duty.
Article
IX of the Company’s Certificate of Incorporation, as amended, provides for the
limitation of personal liability of the directors of the Company as follows:
“A
Director of the Corporation shall have no personal liability to the Corporation
or its stockholders for monetary damages for breach of his fiduciary duty
as a
Director; provided, however, this Article shall not eliminate or limit
the
liability of a Director (I) for any breach of the Director’s duty of loyalty to
the Corporation or its stockholders; (ii) for acts or omissions not in
good
faith or which involve intentional misconduct or a knowing violation of
law;
(iii) for the unlawful payment of dividends or unlawful stock repurchases
under
Section 174 of the General Corporation Law of the State of Delaware; or
(iv) for
any transaction from which the Director derived an improper personal benefit.
If
the General Corporation Law is amended after approval by the stockholders
of
this Article to authorize corporate action further eliminating or limiting
the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted
by
the General Corporation Law of the State of Delaware, as so amended.”
Article
VIII of the Company’s Bylaws, as amended and restated, provide for
indemnification of directors and officers to the fullest extent permitted
by the
Delaware General Corporation Law.
Insofar
as indemnification for liabilities arising under the Securities Act of
1933 may
be permitted to directors, officers or persons controlling the registrant
pursuant to the foregoing provisions, the registrant has been informed
that in
the opinion of the Securities and Exchange Commission such indemnification
is
against public policy as expressed in the Act and is therefore unenforceable.
EXPERTS
The
audited consolidated financial statements of DOR BioPharma, Inc. and
subsidiaries included herein in the Registration Statement have been audited
by
Sweeney, Gates & Co., an independent registered public accounting firm, for
the years ended December 31, 2006 and 2005 as set forth in their report
appearing herein and elsewhere in the Registration Statement.
Such
financial statements have been so included in reliance upon the reports
of such
firm given upon their authority as experts in accounting and auditing.
LEGAL
MATTERS
The
validity of the shares of our common stock offered by the Selling Stockholder
will be passed upon by the law firm of Edwards Angell Palmer & Dodge LLP,
Fort Lauderdale, Florida.
future
issuance under that plan. Under the 2005 equity incentive plan, we issued
728,968 shares to individuals as payment for services in the amount of $232,533
as allowed in the plan.
DOR
BIOPHARMA, Inc. AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Table
of Contents
|
|
Page
|
| |
|
|
Report
of Independent Registered Public Accounting Firm
|
71
|
| |
|
|
Consolidated
Financial Statements:
|
|
| |
|
|
Balance
Sheets as of December 31, 2006
|
72
|
| |
|
|
Statements
of Operations for the years ended December 31, 2006 and
2005
|
73
|
| |
|
|
Statements
of Changes in Shareholders’ Equity for the years ended
|
|
|
December 31, 2006 and 2005
|
74
|
| |
|
|
Statements
of Cash Flows for the years ended December 31, 2006 and
2005
|
75
|
| |
|
|
Notes
to Financial Statements
|
76
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors of DOR BioPharma, Inc.,
We
have
audited the accompanying consolidated balance sheet of DOR BioPharma,
Inc. and
subsidiaries at December 31, 2006 and the related consolidated statements
of
operations, changes in shareholders' deficiency and cash flows for the
years
ended December 31, 2006 and 2005. These consolidated financial statements
are
the responsibility of the Company's management. Our responsibility is
to express
an opinion on these consolidated financial statements based on our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement.
An audit
includes examining, on a test basis, evidence supporting the amounts
and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the financial position of the Company, as of
December
31, 2006 and the results of its operations and its cash flows for the
years
ended December 31, 2006 and 2005, in conformity with United States generally
accepted accounting principals.
/s/
Sweeney, Gates & Co.
Fort
Lauderdale, Florida
March
1,
2007
DOR
BioPharma, Inc.
Consolidated
Balance Sheet
December
31, 2006
|
Assets
Current
assets:
|
|
|
|
|
|
Cash
|
|
$
|
119,636
|
|
|
Grants
receivable
|
|
|
89,933
|
|
|
Prepaid
expenses
|
|
|
94,470
|
|
|
Total
current assets
|
|
|
304,039
|
|
| |
|
|
|
|
|
Office
and laboratory equipment, net
|
|
|
29,692
|
|
|
Intangible
assets, net
|
|
|
1,073,239
|
|
|
Total
assets
|
|
$
|
1,406,970
|
|
|
Liabilities
and shareholders’ (deficiency)
|
|
|
|
|
| Current
liabilities: |
|
|
|
|
|
Accounts
payable
|
|
$
|
2,112,479
|
|
|
Accrued
compensation
|
|
|
402,947
|
|
|
Total
current liabilities
|
|
|
2,515,426
|
|
|
Shareholders’
(deficiency):
|
|
|
|
|
|
Common
stock, $.001 par value. Authorized 250,000,000
|
|
|
|
|
|
shares;
68,855,794 issued and outstanding
|
|
|
68,855
|
|
|
Additional
paid-in capital
|
|
|
91,553,766
|
|
|
Accumulated
deficit
|
|
|
(
92,731,077
|
)
|
| |
|
|
|
|
|
Total
shareholders’ (deficiency)
|
|
|
(1,108,456
|
) |
|
Total
liabilities and shareholders’ deficiency
|
|
$
|
1,406,970
|
|
The
accompanying notes are an integral part of these financial
statements
DOR
BioPharma, Inc.
Consolidated
Statements of Operations
For
the years ended December 31,
| |
|
2006
|
|
2005
|
|
|
Revenues
|
|
$
|
2,313,020
|
|
$
|
3,075,736
|
|
|
Cost
of revenues
|
|
|
(
1,965,074
|
)
|
|
(
2,067,034
|
)
|
|
Gross
profit
|
|
|
347,946
|
|
|
1,008,702
|
|
| |
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
3,638,493
|
|
|
3,516,791
|
|
|
In-process research and development |
|
|
981,819 |
|
|
- |
|
|
Impairment of intangible assets |
|
|
816,300 |
|
|
164,346 |
|
|
General
and administrative
|
|
|
3,110,882
|
|
|
2,162,616
|
|
|
Total
operating expenses
|
|
|
8,547,494
|
|
|
5,843,753
|
|
| |
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(
8,199,548
|
)
|
|
(
4,835,051
|
)
|
| |
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
41,510
|
|
|
78,242
|
|
|
Interest
(expense) reversal
|
|
|
(5,308
|
) |
|
36,549
|
|
|
Total
other income (expense)
|
|
|
36,202
|
|
|
114,791
|
|
| |
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(
8,163,346
|
)
|
$ |
(
4,720,260
|
)
|
| |
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share
|
|
$
|
(
0.13
|
)
|
$
|
(
0.09
|
)
|
| |
|
|
|
|
|
|
|
|
Basic
and diluted weighted average common shares outstanding
|
|
|
63,759,092
|
|
|
49,726,249
|
|
The
accompanying notes are an integral part of these financial
statements
DOR
BioPharma, Inc.
Consolidated
Statements of Changes in Shareholders’ (Deficiency)
For
the years ended December 31, 2006 and 2005
| |
|
Common
Stock
|
Additional
Paid-In capital
|
AccumulatedDeficit
|
Treasury
Stock
|
| |
|
|
Shares
|
|
|
Par
Value
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Cost
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January
1, 2005
|
|
|
42,218,404
|
|
|
$42,218
|
|
|
$83,216,533
|
|
|
($79,847,471
|
)
|
|
120,642
|
|
|
($427,697
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
8,396,100
|
|
|
8,396
|
|
|
3,539,897
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
stock retired
|
|
|
(2,000
|
)
|
|
(2
|
)
|
|
(426,383
|
)
|
|
-
|
|
|
(120,642
|
)
|
|
427,697
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal
of non-cash compensation
|
|
|
-
|
|
|
-
|
|
|
(284,855
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,720,260
|
)
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December
31, 2005
|
|
|
50,612,504
|
|
|
50,612
|
|
|
86,045,192
|
|
|
($84,567,731
|
)
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
13,429,504
|
|
|
13,430
|
|
|
3,521,570
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for exercise of options
|
|
|
504,100
|
|
|
504
|
|
|
112,816
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock to vendors
|
|
|
506,942
|
|
|
507
|
|
|
134,171
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants to vendors
|
|
|
-
|
|
|
-
|
|
|
121,965
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for an equity commitment fee
|
|
|
512,500
|
|
|
512
|
|
(
|
512
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock to employees
|
|
|
222,061
|
|
|
222
|
|
|
82,632
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock to minority shareholders
|
|
|
3,068,183
|
|
|
3,068
|
|
|
978,750
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
option expense
|
|
|
-
|
|
|
-
|
|
|
557,182
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(8,163,346
|
)
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December
31, 2006
|
|
|
68,855,794
|
|
|
$68,855
|
|
|
$91,553,766
|
|
|
($92,731,077
|
)
|
|
-
|
|
|
$
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements
DOR
BioPharma, Inc.
Consolidated
Statements of Cash Flows
For
the years ending December 31,
| |
|
2006
|
|
2005
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(
8,163,346
|
)
|
$
|
(
4,720,260
|
)
|
| |
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
|
|
|
|
|
|
|
|
Amortization
and depreciation
|
|
|
137,044
|
|
|
194,284
|
|
|
Non-cash stock compensation |
|
|
896,680 |
|
|
(
284,855 |
) |
|
Non-cash stock purchase of in-process research and developent |
|
|
981,819 |
|
|
- |
|
|
Impairment expense for intangibles
|
|
|
816,300
|
|
|
164,346
|
|
| |
|
|
|
|
|
|
|
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Grants receivable
|
|
|
474,397
|
|
|
178,657
|
|
|
Prepaid expenses
|
|
|
44,324
|
|
|
(71.191
|
) |
|
Accounts payable
|
|
|
476,605
|
|
|
(
167,039
|
) |
|
Accrued compensation
|
|
|
254,347
|
|
|
83,356
|
|
|
Accrued royalties
|
|
|
(
60,000
|
) |
|
(
40,000
|
) |
|
Total
adjustments
|
|
|
4,021,516
|
|
|
49,558
|
|
| |
|
|
|
|
|
|
|
|
Net
cash used by operating activities
|
|
|
(
4,141,830
|
)
|
|
(
4,670,702
|
)
|
| |
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
Purchases
of office and laboratory equipment
|
|
|
(
2,552
|
)
|
|
(
21,561
|
)
|
|
Acquisition
of intangible assets
|
|
|
(
206,004
|
)
|
|
(
250,570
|
)
|
|
Net cash used by investing activities
|
|
|
(
208,556
|
)
|
|
(
272,131
|
)
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
Net
proceeds from issuance of common stock
|
|
|
3,535,000
|
|
|
3,548,293
|
|
|
Repayments
of note payable
|
|
|
-
|
|
|
(
115,948
|
) |
|
Proceeds
from exercise of options
|
|
|
113,320
|
|
|
-
|
|
|
Net cash provided by financing activities
|
|
|
3,648,320
|
|
|
3,432,345
|
|
| |
|
|
|
|
|
|
|
|
Net
(decrease) in cash and cash equivalents
|
|
|
(
702,066
|
)
|
|
(
1,510,488
|
)
|
|
Cash and cash equivalents at beginning of period
|
|
|
821,702
|
|
|
2,332,190
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
119,636
|
|
$
|
821,702
|
|
| |
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
3,170
|
|
$
|
41,865
|
|
|
Non-cash
transactions:
|
|
|
|
|
|
|
|
|
Non-cash stock option expense (reversal)
|
|
$
|
-
|
|
$
|
(
284,855
|
) |
|
Non-cash payment to an institutional investor
|
|
|
220,374
|
|
$ |
-
|
|
The
accompanying notes are an integral part of these financial
statements
DOR
BioPharma, Inc.
Notes
to Consolidated Financial Statements
1. Nature
of Business
Nature
of Business
The Company is a biopharmaceutical company incorporated in 1987, focused
on the
development of biodefense vaccines and biotherapeutic products intended
for
areas of unmet medical need. DOR’s biodefense business segment consists of
converting biodefense vaccine programs from early stage development to
advanced
development and manufacturing. DOR’s biotherapeutic business segment consists of
development of orBec®
and
other biotherapeutics products namely OraprineTM,
LPMTM-Leuprolide,
and LPETM
and
PLPTM
Systems
for Delivery of Water-Insoluble Drugs.
During the year ending December 31, 2006, the Company had one customer,
the U.S.
Federal Government. All revenues were generated from two U.S. Federal
Government
Grants. As of December 31, 2006 all outstanding receivables were from
the U.S.
Federal Government, National Institute of Health and The Food and Drug
Administration.
2. Summary
of Significant Accounting Policies
Principles
of Consolidation
The
consolidated financial statements include DOR BioPharma Inc., and its
wholly
owned subsidiaries (“DOR” or the “Company”). All significant intercompany
accounts and transactions have been eliminated in consolidation.
Segment
Information
Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated on a regular basis
by the
chief operating decision maker, or decision making group, in deciding
how to
allocate resources to an individual segment and in assessing the performance
of
the segment.
Grants
Receivable
Receivables
consist of unbilled amounts due from grants from the U.S. Federal Government,
National Institute of Health and The Food and Drug Administration. The
amounts
were billed in the month subsequent to year end. The Company considers
the
grants receivable to be fully collectible; accordingly, no allowance
for
doubtful accounts has been established. If accounts become uncollectible,
they
are charged to operations when that determination is made.
Intangible
Assets
Currently,
the most significant estimate or judgment that we make is whether to
capitalize
or expense patent and license costs. We make this judgment based on whether
the
technology has alternative future uses, as defined in SFAS 2, "Accounting
for
Research and Development Costs". Based on this consideration, we capitalized
all
outside legal and filing costs incurred in the procurement and
defense of patents.
These
intangible assets are reviewed for impairment whenever events or changes
in
circumstances indicate that the carrying amount may not be recoverable.
If the
sum of the expected undiscounted cash flows is less than the carrying
value of
the related asset or group of assets, a loss is recognized for the difference
between the fair value and the carrying value of the related asset or
group of
assets.
The
Company capitalizes and amortizes intangibles over a period of 11 to
16 years.
The Company capitalizes payments made to legal firms that are engaged
in filing
and protecting rights to intellectual property and rights for our current
products in both the domestic and international markets. The Company
believes
that patent rights form one of its most valuable assets. Patents and
patent
applications are a key currency of intellectual property, especially
in the
early stage of product development, as their purchase and maintenance
gives the
Company access to key product development rights from DOR’s academic and
industrial partners. These rights can also be sold or sub-licensed as
part of
its strategy to partner its products at each stage of development. The
legal
costs incurred for these patents consist of work designed to protect,
preserve,
maintain and perhaps extend the lives of the patents. Therefore, DOR
capitalizes
these costs and amortizes them over the remaining useful life of the
patents.
DOR capitalizes intangible assets based on alternative future use.
.
Impairment
of Long-Lived Assets
Office
and laboratory equipment and intangible assets are evaluated and reviewed
for
impairment whenever events or changes in circumstances indicate that
the
carrying amount may not be recoverable. The Company recognizes impairment
of
long-lived assets in the event the net book value of such assets exceeds
the
estimated future undiscounted cash flows attributable to such assets.
If the sum
of the expected undiscounted cash flows is less than the carrying value
of the
related asset or group of assets, a loss is recognized for the difference
between the fair value and the carrying value of the related asset or
group of
assets. Such analyses necessarily involve significant judgment.
The
Company recorded impairment of intangible assets of $816,300 and $164,346
for
the years ended December 31, 2006 and 2005, respectively.
Fair
Value of Financial Instruments
Accounting
principles generally accepted in the United States of America require
that fair
values be disclosed for the Company’s financial instruments. The carrying
amounts of the Company’s financial instruments, which include grants receivable
and current liabilities are considered to be representative of their
respective
fair values.
Revenue
Recognition
All of the Company’s revenues are from government grants which are based upon
subcontractor costs and internal costs covered by the grant, plus a facilities
and administrative rate that provides funding for overhead expenses.
Revenues
are recognized when expenses have been incurred by subcontractors or
when DOR
incurs internal expenses that are related to the grant.
Research
and Development Costs
Research
and Development costs are charged to expense when incurred. Research
and
development includes costs such as clinical trial expenses, contracted
research
and license agreement fees with no alternative future use, supplies and
materials, salaries and employee benefits, equipment depreciation and
allocation
of various corporate costs. Purchased in-process research and development
expense (IPR&D) represents the value assigned or paid for acquired research
and development for which there is no alternative future use as of the
date of
acquisition.
Stock
Based Compensation
The
Company adopted Statement of Financial Accounting Standards (SFAS) No.
123R,
“Share-Based Payment,” effective January 1, 2006, which requires companies to
record compensation expense for stock options issued to employees or
non-employee directors at an amount determined by the fair value of options.
SFAS No. 123R is effective for annual periods beginning after December
15,
2005.
The
Company has adopted SFAS No. 123R using the “modified prospective application”
and therefore, financial statements from periods ending prior to January
1, 2006
have not been restated. As a result of adopting SFAS No. 123R, the Company’s net
loss for the year ended December 31, 2006 was $557,182,
higher
than
if it
had continued to account for share-based compensation under APB No. 25.
Basic
and diluted earnings per share for the year ended December 31, 2006 would
have
changed by $0.01 if the Company had not adopted SFAS No. 123R.
The
fair
value of each option grant at the year ended December 31, 2006 is estimated
on
the date of each grant using the Black-Scholes option pricing model and
amortized ratably over the option’s vesting periods. 4,360,000 stock options
were granted for the year ended December 31, 2006.
Pro
forma
information, assuming the Company had accounted for its employee and
director
stock options granted under the fair value method prescribed by SFAS
No. 123R
for the year ended December 31, 2005 is presented below:
| |
|
|
|
|
|
Net
loss as reported
|
|
|
$
(
4,720,260
|
)
|
|
Add
stock-based employee compensation expense related to stock
options
determined under fair value method
|
|
|
(
393,226
|
)
|
|
Amounts
(credited) charged to income
|
|
|
(
284,855
|
)
|
|
Pro
forma net loss according to SFAS 123
|
|
|
$
( 5,398,341
|
)
|
|
Net
loss per share:
|
|
|
|
|
|
As
reported, basic and diluted
|
|
|
$
(
0 .09
|
)
|
|
Pro
forma, basic and diluted
|
|
|
$
(
0 .11
|
)
|
The
weighted average fair value of options granted with an exercise price
equal to
the fair market value of the stock was $0.30 and $0.48 for 2006 and 2005,
respectively.
The
fair
value of options in accordance with SFAS 123 was estimated using the
Black-Scholes option-pricing model and the following weighted-average
assumptions: dividend yield 0%, expected life of four years, volatility
of 105%
and 121% in 2006 and 2005, respectively and average risk-free interest
rates of
4.76% and 3.75% in 2006 and 2005, respectively.
Stock
compensation expense for options granted to non-employees has been determined
in
accordance with SFAS 123 and Emerging Issues Task Force (“EITF”) 96-18, and
represents the fair value of the consideration received, or the fair
value of
the equity instruments issued, whichever may be more reliably measured.
For
options that vest over future periods, the fair value of options granted
to
non-employees is amortized as the options vest.
Income
Taxes
The
Company files a consolidated federal income tax return and utilizes the
asset
and liability method of accounting for income taxes. Under this method,
deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of
existing assets and liabilities and their respective tax bases. A valuation
allowance is established when it is more likely than not that all or
a portion
of a deferred tax asset will not be realized. A review of all available
positive
and negative evidence is considered, including the Company’s current and past
performance, the market environment in which the Company operates, the
utilization of past tax credits, length of carryback and carryforward
periods.
Deferred tax assets and liabilities are measured utilizing tax rates
expected to
apply to taxable income in the years in which those temporary differences
are
expected to be recovered or settled. No current or deferred income taxes
have
been provided through December 31, 2006 because of the net operating
losses
incurred by the Company since its inception.
Net
Loss Per Share
In
accordance with accounting principles generally accepted in the United
States of
America, basic and diluted net loss per share has been computed using
the
weighted-average number of shares of common stock outstanding during
the
respective periods (excluding shares that are not yet issued). The effect
of
stock options, and warrants are antidilutive for all periods presented.
Use
of Estimates and Assumptions
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts in the financial statements
and
accompanying notes. Actual results could differ from those estimates.
New
Accounting Pronouncements
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”
which provides guidance on the accounting for and reporting of accounting
changes and correction of errors. This statement changes the requirements
for
the accounting for and reporting of a change in accounting principle
and applies
to all voluntary changes in accounting principle. It also applies to
changes
required by an accounting pronouncement in the unusual instance that
the
pronouncement does not include specific transition provisions.
In September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements” (“SFAS No. 157”) which defines fair value, establishes a
framework for measuring fair value and expands disclosure about fair
value
measurements. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007. The Company will adopt SFAS No. 157 on
January 1, 2008, as required, and is currently evaluating the impact of
such adoption on its financial statements.
In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes” (“FIN 48”), which is an interpretation of SFAS No.
109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold
and a measurement attribute for the financial statement recognition and
measurement of tax positions taken or expected to be taken in a tax return.
For
those benefits to be recognized, a tax position must be more-likely-than-not
to
be sustained upon examination by taxing authorities. The amount recognized
is
measured as the largest amount of benefit that is greater than 50 percent
likely
of being realized upon ultimate settlement. The Company will adopt the
provisions of FIN 48 effective January 1, 2007, and is currently evaluating
the
impact of such adoption on its financial statements.
In February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to
choose to measure many financial assets and financial liabilities at
fair value.
Unrealized gains and losses on items for which the fair value option
has been
elected are reported in earnings. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. The Company is currently assessing
the impact
of SFAS 159 on its consolidated financial position and results of
operations.
3. Management’s
Plan
The Company has incurred continuing losses since its inception in 1987.
At
December 31, 2006, the Company had negative working capital of $ 2,211,387,
and
a net loss of $ 8,163,346. Subsequent to year end the Company has raised
approximately $ 6,500,000 through equity financing. The Company expects
to
sustain additional losses over the next 12 months. The Company’s ability to
raise additional funding may be compromised should the Food and Drug
Administration deny approval of orBec® for sale in the United States.
Management’s plan to generate positive cash flows either from operations or
financing includes the following:
| · |
The
Company is exploring outlicensing opportunities for orBec® both in the US
and Europe and for its BioDefense
programs.
|
| · |
The
Company plans to continue seeking grant funds from governmental
sources.
In September 2006, the Company received two grants totaling approximately
$5,300,000 to support the development of its BioDefense vaccine
programs.
|
| · |
The
Company believes that its current cash position will allow it
to operate
over the next 12 months. However, several factors could affect
this with
the outcome of the NDA and MAA filings. Therefore, if there were
no other
sources of financing and it is not able to utilize the funding
from the
investment banking organization, reductions or discontinued operations
of
several of the Company’s programs may be required. If this should occur,
the Company believes it could continue to operate over the next
eight
quarters at a reduced level and only continue with the existing
grant
projects.
|
There is no assurance that the Company will be able to successfully implement
its plan or will be able to generate cash flows from either operations,
partnerships, or from equity financings.
4.
Office and Laboratory Equipment
Office
and laboratory equipment are stated at cost. Depreciation is computed
on a
straight-line basis over five years. Office and laboratory equipment
consisted
of the following at December 31, 2006:
|
|
|
|
|
|
Office
equipment
|
$
117,660
|
|
|
|
Laboratory
equipment
|
23,212
|
|
|
|
Total
|
140,872
|
|
|
|
Accumulated
depreciation
|
(
111,180
|
)
|
|
| |
$
29,692
|
|
|
Depreciation
expense was $17,593 and $25,443 for the years ended December 31, 2006
and 2005.
5.
Intangible Assets
The
following is a summary of intangible assets which consists of licenses
and
patents:
| |
Weighted
Average Amortization period
(years)
|
Cost
|
Accumulated
Amortization
|
Net
Book Value
|
|
December
31, 2006
|
10.1
|
$
1,739,391
|
$
666,152
|
$
1,073,239
|
|
December
31, 2005
|
10.2
|
$
2,605,472
|
$
802,452
|
$
1,803,020
|
Amortization
expense was $119,451 in 2006 compared to $168,841 for 2005.
Based
on
the balance of licenses and patents at December 31, 2006, the annual
amortization expense for each of the succeeding five years is estimated
to be as
follows:
| |
Amortization
Amount
|
|
2007
|
$
106,000
|
|
2008
|
106,000
|
|
2009
|
106,000
|
|
2010
|
106,000
|
|
2011
|
106,000
|
License
fees and royalty payments in connection with the below agreements are
expensed
annually.
In
July
2003, the Company entered into an exclusive license agreement with University
of
Texas South Western (UTSW) for administering the ricin vaccine via the
intramuscular route for initial license fees of 250,000 shares valued
at
$200,000 of DOR common stock and $200,000 in cash. Subsequently, the
Company
negotiated the remaining intranasal and oral rights to the ricin vaccine
for
$50,000 in annual license fees in subsequent years. On March 1, 2005,
the
Company signed a sponsored research agreement with UTSW extending through
March
31, 2007 for $190,000 which will grant the Company certain rights to
intellectual property.
In
October 2003, the Company executed an exclusive license agreement with
the
University of Texas System (UTMB) for the use of luminally-active steroids,
including beclomethasone dipropionate (BDP) in the treatment of irritable
bowel
syndrome. Pursuant to this agreement, the Company paid UTMB a license
fee of
$10,000 and also agreed to pay an additional $10,000 license fee expense
each
year. The Company also agreed to pay past and future patent maintenance
costs.
The cost for 2006 and 2005 were $14,012 and $12,728, respectively. The
Company
acquired a sublicense agreement and may receive payments on this sublicense
in
the event of the sublicensee reaching certain milestones.
In
July
2006, the Company signed a sponsored research agreement for $37,500 with
Thomas
Jefferson University (TJU). In 2005, the Company signed a sponsored research
agreement for $150,000. In May 2003, the Company signed a license agreement
with
TJU for the licensure of detoxified botulinum toxin for use as a vaccine.
The
Company paid TJU $30,000 in cash and issued 141,305 shares of common
stock
valued at $130,000. The Company also agreed to reimburse TJU for past
and future
patent maintenance. The patent maintenance expense for 2006 and 2005
was $35,665
and $157,293, respectively. The patent costs are capitalized. The Company
is
also responsible for a license maintenance fee of $10,000 in 2005 and
$15,000 in
2006 and each year thereafter. These costs are expensed as incurred.
The Company
must also pay TJU $200,000, upon the first filing of any New Drug Application
(“NDA”) with the United States Food and Drug Administration (“FDA”) and $400,000
upon first approval of an NDA relating to the first licensed product
by
FDA.
6.
Shareholders’ Equity
Preferred
Stock
The Company has 5 million authorized shares of preferred stock, none
are issued
or outstanding.
Common
Stock
On
May
10, 2006, the Company completed a merger pursuant to which Enteron
Pharmaceutical, Inc. (“Enteron”), the common stock of which the Company held
88.13% prior to the merger, was merged into a wholly-owned subsidiary
of the
Company. Pursuant to this transaction, the Company issued 3,068,183 shares
of
common stock to the Enteron minority shareholders in exchange for all
of the
outstanding common stock of Enteron that the Company did not already
own. This
transaction was accounted for as a purchase, and accordingly the Company
recorded an in-process research and development expense of $981,819.
The common
stock was recorded at the shares’ fair market value on the date of the
merger.
On
April
10, 2006, the Company completed the sale of 13,099,964 shares of common
stock to
institutional and other accredited investors for a purchase price, net
of
expenses, of $3,410,032. The investors also received warrants to purchase
13,099,964 shares of common stock at an exercise price of $0.45 per share.
The
warrants are exercisable for a period of three years commencing on April
10,
2006. The Company filed a registration statement with the Securities
and
Exchange Commission and it was declared effective on May 25, 2006.
On
January 17, 2006, the
Company entered into a common stock purchase agreement with Fusion Capital
Fund
II, LLC. The Fusion facility allowed them to purchase on each trading
day
$20,000 of DOR common stock up to an aggregate of $6,000,000 million
over
approximately a 15-month period. As part of this agreement DOR issued
Fusion
512,500 shares of common stock as a commitment fee, the non-cash payment
for
this was $220,374 valued at the shares’ fair market value. During 2006 Fusion
purchased 329,540 common shares for $ 124,968. The Company does not intend
to
use the Fusion facility.
In
February 2005, the Company sold 8,396,100 shares of common stock at $0.45
per
share for proceeds, net of expenses, of $3,548,293 in a private placement
to
institutional investors. Investors also received warrants to purchase
6,297,075
shares of common stock at an exercise price of $0.505 per share. These
warrants
expire on August 8, 2010 and are callable when the price reaches $1.52
for 20
consecutive days. The placement agent was paid cash of $188,912, and
warrants to
purchase 629,708 shares of the Company’s common stock exercisable by August 8,
2010 at $0.625. The warrants are callable when the price reaches $1.88
for 20
consecutive days.
In
2005,
the Company retired 120,640 shares of treasury stock.
Stock
Compensation to Employees and Non-employees
During
the year ended December 31, 2006, the Company issued 506,942 shares of
common
stock as payment to vendors for consulting services. An expense of $134,679
was
recorded which approximated the shares’ fair market value on the date of
issuance. Additionally, the Company issued 193,413 shares of common stock
as
part of severance payments to terminated employees and 28,648 shares
of common
stock to employees. An expense of $75,979 and $6,875, respectively was
recorded,
which approximated the shares’ fair market value on the date of issuance. These
shares of common stock issued were covered by the Company’s Form S-8
Registration Statement filed with the SEC on December 30, 2005. Also,
504,100
stock options 1995 Omnibus Option Plan were exercised to purchase shares
of
common stock which provided proceeds of $113,320.
7.
Stock Option Plans and Warrants
The 2005 Equity Incentive Plan is divided into four separate equity programs:
1)
the Discretionary Option Grant Program, under which eligible persons
may, at the
discretion of the Plan Administrator, be granted options to purchase
shares of
common stock, 2) the Salary Investment Option Grant Program, under which
eligible employees may elect to have a portion of their base salary invested
each year in options to purchase shares of common stock, 3) the Automatic
Option
Grant Program, under which eligible nonemployee Board members will automatically
receive options at periodic intervals to purchase shares of common stock,
and 4)
the Director Fee Option Grant Program, under which non-employee Board
members
may elect to have all, or any portion, of their annual retainer fee otherwise
payable in cash applied to a special option grant. In addition under
the plan
the Board may elect to pay certain consultants, directors, and employees
in
common stock. The 2006 column in the table below only accounts for transactions
occurring as part of the 2005 Equity Incentive Plan.
December
31,
| |
2006
|
2005
|
|
| |
|
|
|
|
|
|
Shares
available for grant at beginning of year
|
7,000,000
|
|
|
(
1,979,339
|
)
|
|
Increase
in shares available
|
-
|
|
|
10,000,000
|
|
|
Options
granted
|
(
4,360,000
|
)
|
|
(
3,500,000
|
)
|
|
Options
forfeited or expired
|
1,325,000
|
|
|
2,479,339
|
|
|
Common
stock payment for services
|
(
728,968
|
)
|
|
- |
|
|
Shares
available for grant at end of year
|
3,236,032
|
|
|
7,000,000
|
|
In 2006, 504,100 options were exercised that were covered under the 1995
plan.
In 2004, the Company granted options to employees and directors that
were
conditional upon stockholder approval of an amendment to the 1995 Omnibus
Option
Plan. Accordingly, a measurement date did not exist at the approval date.
The
Company recorded an expense of approximately $285,000. This expense was
reversed
in 2005.
Option activity for the years ended December 31, 2006 and 2005 was as
follows:
| |
Options
|
Weighted
Average
Options
Exercise Price
|
|
|
Balance
at January 1, 2005
|
11,979,339
|
|
|
$
0.64
|
|
Granted
|
500,000
|
|
|
0.41
|
|
Forfeited
|
(
2,465,000
|
)
|
|
0.83
|
|
Balance
at December 31, 2005
|
10,014,339
|
|
|
0.59
|
|
Granted
|
4,360,000
|
|
|
0.30
|
|
Forfeited
|
(
2,230,900
|
)
|
|
0.83
|
|
Exercised
|
(
504,100
|
)
|
|
|
|
Balance
at December 31, 2006
|
11,639,339
|
|
|
$
0.59
|
The
weighted-average exercise price, by price range, for outstanding options
at
December 31, 2006 was:
|
Price
Range
|
|
Weighted
Average Remaining
Contractual
Life in Years
|
|
Outstanding
Options
|
|
Exercisable
Options
|
|
|
$0.20-$0.50
|
|
7.99
|
|
9,335,000
|
|
6,565,763
|
|
|
$0.51-$1.00
|
|
6.47
|
|
1,662,839
|
|
1,662,839
|
|
|
$1.01-$6.00
|
|
3.59
|
|
641,500
|
|
641,500
|
|
|
Total
|
|
7.53
|
|
11,639,339
|
|
8,870,102
|
|
From time to time, the Company grants warrants to consultants and grants
warrants to purchase common stock in connection with private placements.
Warrant activity for the years ended December 31, 2006 and 2005 was as
follows:
| |
Warrants
|
Weighted
Average
Warrant
Exercise Price
|
|
|
Balance
at January 1, 2005
|
15,692,718
|
|
|
$
1.24
|
|
Granted
|
6,926,783
|
|
|
0.52
|
|
Expired
|
(
452,383
|
)
|
|
5.91
|
|
Balance
at December 31, 2005
|
22,167,118
|
|
|
0.92
|
|
Granted
|
14,961,672
|
|
|
0.25
|
|
Balance
at December 31, 2006
|
37,128,790
|
|
|
$
0.65
|
500,000
warrants to purchase common stock were issued to vendors in the amount
of
$121,965.
The
weighted-average exercise price, by price range, for outstanding warrants
at
December 31, 2006 was:
|
Price
Range
|
|
Weighted
Average Remaining
Contractual
Life in Years
|
|
Outstanding
Warrants
|
|
Exercisable
Warrants
|
|
|
$0.24-$0.75
|
|
2.54
|
|
24,541,175
|
|
24,541,175
|
|
|
$0.76-$1.50
|
|
1.81
|
|
10,141,733
|
|
10,141,733
|
|
|
$1.51-$8.50
|
|
1.29
|
|
2,445,882
|
|
2,445,882
|
|
|
Total
|
|
2.26
|
|
37,128,790
|
|
37,128,790
|
|
8.
Income Taxes
Deferred tax assets as of December 31, 2006 were as follows:
| |
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
Net
operating loss carryforwards
|
$25,000,000
|
|
|
|
Orphan
drug and research and development credit carryforwards
|
3,000,000
|
|
|
|
Other
|
3,000,000
|
|
|
|
Total
|
31,000,000
|
|
|
|
Valuation
allowance
|
(
31,000,000
|
)
|
|
|
Net
deferred tax assets
|
$
-
|
|
|
At
December 31, 2006, the Company had net operating loss carryforwards of
approximately $67,000,000 for Federal and state tax purposes, which are
currently expiring each year until 2025.
The net change in the valuation allowance for the year ended December
31, 2006
and 2005, was an increase of approximately $5,000,000 and $2,000,000,
respectively, resulting primarily from net operating losses generated.
Based on
ownership changes that have and may occur, future utilization of the
net
operating loss carryforwards may be limited.
The following is the approximate amount of the Company’s net operating losses
that expire over the next five years:
| |
|
|
2007
|
$
981,000
|
|
2008
|
910,000
|
|
2009
|
1,328,000
|
|
2010
|
1,711,000
|
|
2011
|
870,000
|
Reconciliations of the difference between income tax benefit computed
at the
federal and state statutory tax rates and the provision for income tax
benefit
for the years ended December 31, 2006 and 2005 was as follows:
| |
2006
|
2005
|
|
Income
tax loss at federal stautory rate
|
(34.00)%
|
(34.00)%
|
|
State
taxes, net of federal benefit
|
(3.63)
|
(3.63)
|
|
Permanent
differences, principally purchased in-process
research and developmnet
|
3.30
|
-
|
|
Valuation
allowance
|
34.33
|
37.63
|
| |
|
|
|
Provision
for income taxes (benefit)
|
-
%
|
-
%
|
9.
Risks and Uncertainties
The
Company is subject to risks common to companies in the biotechnology
industry,
including, but not limited to, litigation, product liability, development
of new
technological innovations, dependence on key personnel, protections of
proprietary technology, and compliance with FDA regulations.
During the year ended December 31, 2006, the Company had one vendor that
constituted approximately 28% of the outstanding payables.
At
December 31, 2006 and 2005, the Company had deposits in financial institutions
that exceeded the amount covered by the Federal Deposit Insurance Company.
The
excess amounts at December 31, 2006 and 2005 were $19,636 and $721,702,
respectively.
10.
Contingencies
On October 26, 2006, the Company received a summons in a civil case from
Michael
T. Sember, the Company’s former Chief Executive Officer. The complaint claims
that the Company breached the employment agreement entered into with
Mr. Sember
on December 7, 2004, specifically in the payment of his bonus. The Company
has
paid his severance and accrued vacation according to the terms of his
employment
agreement. Under the terms of this agreement, and as of August 2006,
the Company
began paying Mr. Sember $150,000 in severance and $28,383 in vacation
over the
subsequent six months from the date of his termination in the normal
payroll
cycles. The Company denies the merit of the claim as it is contrary to
what is
specifically stated in the agreement. On August 25, 2006, Mr. Sember
was
terminated without Just Cause (as such term is defined in the agreement).
The
Company’s position is that, upon termination of Mr. Sember without Just Cause,
he was to be paid six months severance, any unpaid bonuses, and any vacation
accrued but not taken. The complaint contends that a minimum annual bonus
of
$100,000 was due. In addition, Mr. Sember is also seeking costs and attorney’s
fees incurred for this action. The Company denies that it owes Mr. Sember
any
bonus and will vigorously defend against Mr. Sember’s claim that he is entitled
to a bonus of $100,000. The Company has not recorded this contingency.
The October 28, 2005 letter of intent with Gastrotech, as amended on
December
29, 2005, expired in accordance with its terms on January 15, 2005 without
being
extended or renewed. Additionally, on January 15, 2006 the Company notified
Gastrotech Pharma that it would not be renewing the letter of intent.
The
breakup fee of $1,000,000 is only payable if a party breaches the terms
of the
letter of intent or terminates the letter of intent. In accordance with
SFAS No.
5, the Company disclosed a potential liability in that Gastrotech advised
the
Company that if it were not willing to comply with the terms of the letter
of
intent, DOR would be in material breach of its obligations and would
be
obligated to pay Gastrotech the break up fee of $1,000,000. However,
pursuant to
SFAS No. 5, paragraph 33b, the Company has not recorded a loss provision
because
it does not believe there will be any monetary damages since there is
no pending
litigation, the Company cannot reasonably determine the amount of loss,
and does
not believe it has any liability to Gastrotech for allowing the letter
of intent
to expire. In addition, the Company has not recorded an accrual for the
potential loss, because it does not believe as described in item 8(a)
and 8(b)
of SFAS No. 5 that any loss has not been confirmed, nor has any outcome
or
judgment occurred. Moreover, the Company does not feel that it is probable
that
a liability has been incurred. Perhaps more importantly, Gastrotech has
not
brought any legal action against the Compmay. No potential loss is estimatable
at this time. As of the date of this report, no claim or complaint has
been
filed by Gastrotech Pharma A/S (“Gastrotech”) as to the obligation to pay a
break-up fee of $1,000,000. The Company’s position is that it does not owe
Gastrotech any break-up fee pursuant to not renewing its letter of intent
to
acquire Gastrotech.
11.
Subsequent Events
On February 21, 2007, Sigma-Tau Pharmaceuticals, Inc. (“Sigma-Tau”) relinquished
its exclusive rights granted to it on January 3, 2007, under a letter
of intent
with regard to acquisition discussions. However, all other terms of the
letter
of intent remained in effect, and the Company and Sigma-Tau are engaged
in
discussions for a European collaboration relating to orBec®. In
consideration for entering into an exclusive letter of intent, Sigma-Tau
agreed
to purchase $1,000,000 of the Company’s common stock at the market price of
$0.246 per share, representing 4,065,041 shares of common stock, and
has paid an
additional $2,000,000 in cash. The $2,000,000 payment was to be considered
an
advance payment to be deducted from future payments due to the Company
by
Sigma-Tau pursuant to any future orBec® commercialization arrangement reached
between the two parties. Because of this transaction’s dilutive nature, all
prior investors in the April 2006 private placement had their warrants
repriced
to $0.246. Additionally, certain shareholders who still held shares of
the
Company’s common stock were issued additional shares of the Company’s common
stock.
Because
no agreement was reached by March 1, 2007, the Company is obligated to
return
the $2 million to Sigma-Tau by April 30, 2007. If the Company does not
repay
Sigma Tau by May 31, 2007, interest will accrue at a rate of 6% compounded
annually and Sigma Tau will have the option, at its sole discretion of
converting the accrued amount into common stock at a price per share
equal to
80% of the market price at the time the payment is made.
On
February 9, 2007, the Company completed the sale of 11,680,850
shares
of
DOR common stock to institutional and other accredited investors for
a purchase
price of $5,490,000.
12.
Business Segments
The
Company had two active segments for the year ended December 31, 2006 and
2005:
BioDefense and BioTherapeutics. Summary data:
|
|
|
December
31,
|
|
|
|
|
2006
|
|
2005
|
|
|
Net
Revenues
|
|
|
|
|
|
|
|
|
BioDefense
|
|
$
|
2,173,128
|
|
$
|
2,896,878
|
|
|
BioTherapeutics
|
|
|
139,892
|
|
|
178,858
|
|
|
Total
|
|
$
|
2,313,020
|
|
$
|
3,075,736
|
|
| |
|
|
|
|
|
|
|
|
Loss
from Operations
|
|
|
|
|
|
|
|
|
BioDefense
|
|
$
|
(
1,943,732
|
)
|
$
|
(
847,830
|
)
|
|
BioTherapeutics
|
|
|
(
5,061,664
|
)
|
|
(
1,665,812
|
)
|
|
Corporate
|
|
|
(
1,164,152
|
)
|
|
(
2,321,409
|
)
|
|
Total
|
|
$
|
(
8,199,548
|
)
|
$
|
(
4,835,051
|
)
|
| |
|
|
|
|
|
|
|
|
Identifiable
Assets
|
|
|
|
|
|
|
|
|
BioDefense
|
|
$
|
849,295
|
|
$
|
2,189,216
|
|
|
BioTherapeutics
|
|
|
343,876
|
|
|
420,250
|
|
|
Corporate
|
|
|
213,799
|
|
|
763,108
|
|
|
Total
|
|
$
|
1,406,970
|
|
$
|
3,372,574
|
|
| |
|
|
|
|
|
|
|
|
Amortization
and Depreciation Expense
|
|
|
|
|
|
|
|
|
BioDefense
|
|
$
|
103,855
|
|
$
|
63,212
|
|
|
BioTherapeutics
|
|
|
24,395
|
|
|
118,351
|
|
|
Corporate
|
|
|
8,794
|
|
|
12,721
|
|
|
Total
|
|
$
|
137,044
|
|
$
|
194,284
|
|
| |
|
|
|
|
|
|
|