prospectus424b3.htm
Registration
No. 333-149239
PROSPECTUS
DOR
BioPharma, Inc.
26,563,613 Shares
of Common Stock
This
prospectus relates to the sale of up to 26,563,613 shares of our common stock by
the selling stockholders named in this prospectus in the section “Selling
Stockholders,” whom we refer to in this document as the “selling stockholders.”
The prices at which the selling stockholders may sell the shares will be
determined by the prevailing market price for the shares or in negotiated
transactions. We will not receive any of the proceeds from the sale of any of
the shares covered by this prospectus. References in this prospectus to the
“Company,” “we,” “our,” and “us” refer to DOR BioPharma,
Inc.
Our
common stock is quoted on the Over-the-Counter Bulletin Board (“OTCBB”) under
the symbol "DORB." On March 26, 2008, the last quoted sale price for our common
stock as reported on the OTCBB was $0.18 per share.
Investing
in our common stock involves certain risks. See "Risk Factors" beginning on page
5 for a discussion of these risks.
One of
the selling stockholders, Fusion Capital Fund II, LLC (“Fusion Capital”), is an
"underwriter" within the meaning of the Securities Act of 1933, as amended. The
other selling stockholders may be "underwriters" within the meaning of the
Securities Act of 1933, as amended.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
DOR
BioPharma, Inc.
850
Bear Tavern Road, Suite 201
Ewing,
New Jersey 08628
(609)
538-8200
The
date of this prospectus is April 11, 2008
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FORWARD-LOOKING
STATEMENTS.........................................................................................................................................................................................................1
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PROSPECTUS
SUMMARY...............................................................................................................................................................................................................................2
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RISK
FACTORS..................................................................................................................................................................................................................................................5
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BUSINESS..........................................................................................................................................................................................................................................................12
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DIRECTORS AND
EXECUTIVE
OFFICERS...............................................................................................................................................................................................32
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EXECUTIVE
COMPENSATION.....................................................................................................................................................................................................................33
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THE FUSION
TRANSACTION.......................................................................................................................................................................................................................38
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SELLLING
STOCKHOLDERS.......................................................................................................................................................................................................................39
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USE OF
PROCEEDS.........................................................................................................................................................................................................................................40
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PLAN OF
DISTRIBUTION..............................................................................................................................................................................................................................41
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DESCRIPTION OF
SECURITIES...................................................................................................................................................................................................................42
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EXPERTS.............................................................................................................................................................................................................................................................44
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LEGAL
MATTERS.............................................................................................................................................................................................................................................44
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INDEX TO FINANCIAL
STATEMENTS........................................................................................................................................................................................................45
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You
should rely only on the information contained or incorporated by reference in
this prospectus and in any accompanying prospectus supplement. We have not
authorized anyone to provide you with different information.
We have
not authorized the selling stockholders to make an offer of these shares of
common stock in any jurisdiction where the offer is not permitted.
You
should not assume that the information in this prospectus or prospectus
supplement is accurate as of any date other than the date on the front of this
prospectus.
The
information contained in this prospectus, including the information incorporated
by reference into this prospectus, includes forward-looking statements as
defined in the Private Securities Reform Act of 1995. These forward-looking
statements are often identified by words such as “may,” “will,” “expect,”
“intend,” “anticipate,” “believe,” “estimate,” “continue,” “plan” and similar
expressions. These statements involve estimates, assumptions and uncertainties
that could cause actual results to differ materially from those expressed for
the reasons described in this prospectus. You should not place undue reliance on
these forward-looking statements.
You
should be aware that our actual results could differ materially from those
contained in the forward-looking statements due to a number of factors,
including:
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significant
uncertainty inherent in developing vaccines against bioterror threats, and
manufacturing and conducting preclinical and clinical trials of
vaccines;
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our
ability to obtain regulatory
approvals;
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uncertainty
as to whether our technologies will be safe and
effective;
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our
ability to make certain that our cash expenditures do not exceed projected
levels;
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our
ability to obtain future financing or funds when
needed;
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that
product development and commercialization efforts will be reduced or
discontinued due to difficulties or delays in clinical trials or a lack of
progress or positive results from research and development
efforts;
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our
ability to successfully obtain further grants and awards from the U.S.
Government and other countries, and maintenance of our existing
grants;
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our
ability to enter into any biodefense procurement contracts with the U.S.
Government or other countries;
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our
ability to patent, register and protect our technology from challenge and
our products from competition;
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maintenance
or expansion of our license agreements with our current
licensors;
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maintenance
of a successful business strategy;
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the
FDA’s issuance of a not approvable letter in response to our NDA for
orBec®
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orBec®
may not show therapeutic effect or an acceptable safety profile in future
clinical trials or could take a significantly longer time to gain
regulatory approval than we expect or may never gain
approval;
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we
are dependent on the expertise, effort, priorities and contractual
obligations of third parties in the clinical trials, manufacturing,
marketing, sales and distribution of our
products;
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orBec®
may not gain market acceptance; and
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others
may develop technologies or products superior to our
products.
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You
should also consider carefully the statements under "Risk Factors" and other
sections of this prospectus, which address additional factors that could cause
our actual results to differ from those set forth in the forward-looking
statements and could materially and adversely affect our business, operating
results and financial condition. All subsequent written and oral forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the applicable cautionary
statements.
The
forward-looking statements speak only as of the date on which they are made,
and, except to the extent required by federal securities laws, we undertake no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which the statement is made or to reflect the
occurrence of unanticipated events. In addition, we cannot assess the impact of
each factor on our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.
The Company
We were
incorporated in Delaware in 1987. We are a late-stage research and development
biopharmaceutical company focused on the development of oral therapeutic
products intended for areas of unmet medical need and biodefense
vaccines.
We
maintain two active segments: BioTherapeutics and BioDefense. Our business
strategy is to: (a) work with the FDA on the design of new clinical trials in
gastrointestinal Graft-versus-Host-Disease (“GI GVHD”); (b) seek a development
and marketing partner for orBec® for
territories both inside and outside of the U.S.; (c) prepare for the potential
marketing approval of orBec® by the
European Central Authority, European Medicines Evaluation Agency (the “EMEA”);
(d) conduct a prophylactic use clinical trial of orBec® for the
prevention of GI GVHD; (e) evaluate and initiate additional clinical trials to
explore the effectiveness of oral BDP in other therapeutic indications involving
inflammatory conditions of the gastrointestinal tract such as radiation
enteritis and Crohn’s disease; (f) reinitiate development including
manufacturing of our other biotherapeutics products namely LPMTM-Leuprolide,
and OraprineTM; (g)
secure additional government funding for each of our biodefense
programs, RiVaxTM and
BT-VACCTM,
through grants, contracts, and procurements; (h) explore acquisition strategies
under which the Company may be acquired by another company with oncologic or
gastrointestinal symmetry; (i) 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 (j) acquire or in-license new clinical-stage compounds for
development.
Our
principal executive offices are located at 850 Bear Tavern Road, Suite 201,
Ewing, New Jersey 08628 and our telephone number
is (609) 538-8200.
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 Prescription Drug User Fee Act (“PDUFA”), the
FDA was to complete its review of all materials related to orBec® by July
21, 2007. Additionally, on May 9, 2007, the Oncologic Drugs Advisory
Committee (“ODAC”) appointed by the FDA voted that the data supporting
orBec® did not
show substantial evidence of efficacy by a margin of 7 to 2 for the treatment of
GI GVHD. The FDA was not bound by ODAC’s recommendations, but it took the
panel’s advice into consideration when reviewing the NDA for orBec®.
On July
18, 2007, we received notification from the FDA that the PDUFA date for the
FDA's review of the NDA for orBec® was
extended to October 21, 2007. The extension was the result of our July 13, 2007
provision of supplemental information to the orBec® NDA.
This information was requested by the FDA at a June 13, 2007 NDA review meeting.
According to FDA policy, the submission of this supplemental information was
classified as a major amendment, extending the new PDUFA date for the orBec® NDA to
October 21, 2007.
On
October 18, 2007, we received a not approvable letter from the FDA in response
to our NDA for orBec® (oral
beclomethasone dipropionate) for the treatment of GI GVHD. In the letter,
the FDA requested additional clinical trial data to demonstrate the safety and
efficacy of orBec®. The
FDA also requested nonclinical and chemistry, manufacturing and controls
information as part of the not approvable letter. On October 19, 2007, we
requested an end of review conference with the FDA to further understand the
letter and gain clarity as to the next steps. On December 7, 2007, we announced
the following guidance from that meeting: (1) a single, confirmatory, Phase 3
clinical trial could provide sufficient evidence of efficacy provided that it is
well-designed, well-executed and provides clinically and statistically
meaningful findings; (2) we anticipate working quickly with the FDA to finalize
the design of the confirmatory trial under the Agency’s special protocol
assessment process; (3) the FDA would be agreeable to reviewing a plan for a
Treatment IND as long as it does not interfere with patient accrual in a
confirmatory trial, such as potentially enrolling patients that would not be
eligible for the Phase 3 study. Once we have agreement on the confirmatory
protocol with the FDA, we expect to begin enrollment in the new confirmatory
Phase 3 clinical program for the treatment of GI GVHD in the second half of
2008.
We also
filed a Marketing Authorization Application (“MAA”) with the EMEA on November 3,
2006, which was validated on November 28, 2006 and is currently under review. We
anticipate receiving the EMEA’s official opinion regarding our MAA in the first
half of 2008. We have assembled an experienced team of consultants and
contractors who worked on all aspects of the NDA and MAA preparation, including
data management, data analysis, and biostatistics medical writing.
We
anticipate the market potential for orBec® for the
treatment of GI GVHD to be approximately 60 percent of the more than 10,000
allogeneic bone marrow and stem cell transplantations 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 are
evaluating partnering opportunities in the U.S. and abroad in an effort to seek
support for future clinical development of orBec® for the
treatment of GI GVHD. We also intend to seek a partner for the other potential
indications of orBec® and oral
BDP.
On July
12, 2007, we announced that patient enrollment had commenced in a randomized,
double blind, placebo-controlled, Phase 2 clinical trial of orBec® for the
prevention of acute GVHD after allogeneic HCT with myeloablative conditioning
regimens. The Phase 2 clinical trial is supported in part by an NIH grant
awarded to the FHCRC. We will not receive any monetary benefit from this grant.
The protocol is entitled “A Phase 2 study to evaluate the efficacy of oral
beclomethasone dipropionate for prevention of acute GVHD after hematopoietic
cell transplantation with myeloablative conditioning regimens.” The study will
enroll a total of 138 patients with 92 subjects in the orBec®
arm and 46 subjects in the placebo arm. The principal investigator of the trial
is Paul Martin, M.D., of the FHCRC and a Professor of Medicine at Washington
University. Patients will be treated with orBec®
or placebo at the start of their conditioning regimen and will continue to be
treated for 75 days after transplantation. The objective of the trial is to test
the hypotheses that prophylactic administration of orBec®
can prevent the incidence and/or reduce the severity of acute GVHD, therefore,
decreasing the need for use of high dose systemic steroid treatment after
allogeneic HCT. Completion of patient enrollment in this trial is targeted for
the first half of 2009.
On
September 12, 2007, we announced that our academic partner, FHCRC, received a $1
million grant from the NIH to conduct preclinical studies of oral beclomethasone
dipropionate (oral BDP, also the active ingredient in orBec®) for the
treatment of gastrointestinal (GI) radiation injury. While we will not receive
any monetary benefit from this grant, we will benefit if this study is
successful and it enhances the value of our orBec®/oral BDP
program. The purpose of the studies funded by the grant, entitled "Improving
Gastrointestinal Recovery after Radiation," is to evaluate the ability of three
clinical-grade drugs including oral BDP, given alone or in combination, that are
likely to significantly mitigate the damage to the gastrointestinal epithelium
caused by exposure to high doses of radiation using a well-established dog
model. The GI tract is highly sensitive to ionizing radiation and the
destruction of epithelial tissue is one of first effects of radiation exposure.
The rapid loss of epithelial cells leads to inflammation and infections that are
often the primary cause of death in acute radiation injury. This type of
therapy, if successful, will benefit cancer patients undergoing radiation,
chemotherapy, or victims of nuclear-terrorism.
In
addition to the preclinical studies in radiation exposure being conducted at
FHCRC, we plan to begin a Phase 1/2 clinical trial in radiation enteritis
patients in the second half of 2008.
We also
plan to initiate a Phase 2 clinical trial in Chronic GVHD in the second half of
2008. Chronic GVHD can begin anytime during or after the third month
post-transplantation. About 60 percent of patients who receive an
allogeneic transplant and are alive at day 100 post-transplantation will develop
chronic GVHD. Chronic GVHD can range from mild to life-threatening. Some
transplantation survivors have problems with chronic GVHD for many
years.
RiVax™
The
development of RiVaxTM, our
ricin toxin vaccine, has progressed significantly. In September 2006, we
received a grant of approximately $5.2 million from the National Institute
of Allergy and Infectious Diseases (“NIAID”), a division of the National
Institute of Health (“NIH”), for the continued development of RiVax™, a
recombinant vaccine against ricin toxin. The RiVax™ grant will provide
approximately $5.2 million over a three year period to 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. A prototype version of
RiVax™ has been evaluated in a Phase 1 clinical trial and was shown to be safe
and effective, while also inducing ricin neutralizing antibodies as confirmed in
subsequent animal studies.
BT-VACC™
Our
botulinum toxin vaccine, called BT-VACC™, stems from the research of Dr. Lance
Simpson at Thomas Jefferson University in Philadelphia, Pennsylvania.
The vaccine is being developed as an oral or intranasal formulation to be given
as a primary immunization series or as oral or nasal booster to individuals who
have been primed with an injected vaccine. Botulinum toxin is the
product of the bacteria Clostridium botulinum.
Botulinum toxin is the most poisonous natural substance known to man. 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.
The
Offering
This
prospectus relates to the offer and sale from time to time of up to 26,563,613
shares of our common stock by the selling stockholders, 881,112 shares of which
were issued to seven of the selling stockholders in a private placement on
February 14, 2008 and 354,722 shares of which were issued to two of the selling
stockholders as compensation for consulting services rendered.
Fusion
Capital, one of the selling stockholders under this prospectus, is offering for
sale up to 25,327,778 shares of our common stock. Fusion Capital is
not an affiliate of, and has no relation to, any of the other selling
stockholders named herein. On February 14, 2008, we entered into a common stock
purchase agreement with Fusion Capital Fund II, LLC, an Illinois limited
liability company. Under the agreement, Fusion Capital is obligated,
under certain conditions, to purchase shares from us in an aggregate amount of
$8.5 million from time to time over a 25-month period. We have sold
2,777,778 shares of common stock to Fusion Capital (together with a four-year
warrant to purchase 1,388,889 shares of our common stock purchase that are not
part of this offering) under the agreement for total proceeds of
$500,000. Under the terms of the common stock purchase agreement,
Fusion Capital has received a commitment fee consisting of 1,275,000 shares of
our common stock. Also, we will issue to Fusion Capital an additional 1,200,000
shares as a commitment fee pro rata as we receive the $8.0 million of future
funding. We issued 75,000 shares as a pro rata commitment fee in connection with
the purchase by Fusion Capital of the $500,000 of our common stock. All
2,550,000 shares issued or to be issued to Fusion Capital as a commitment fee
are being included in the offering pursuant to this prospectus. There are no
negative covenants, restrictions on future fundings, penalties or liquidated
damages in the agreement.
As of
March 26, 2008, there were 100,299,378 shares outstanding (93,639,020 shares
held by non-affiliates), excluding the 20 million shares offered by Fusion
Capital pursuant to this prospectus which it has not yet purchased from
us. If all of such 20 million shares that may be sold to Fusion
Capital and are offered hereby were issued and outstanding as of the date
hereof, the 20 million shares would represent approximately 17% of the total
common stock outstanding, or approximately 18% of the non-affiliates shares
outstanding, as of the date hereof. The number of shares
ultimately offered for sale by Fusion Capital is dependent upon the number of
shares purchased by Fusion Capital under the agreement.
We do not
have the right to commence any additional sales of our shares to Fusion Capital
until the Securities and Exchange Commission (“SEC”) has declared effective the
registration statement of which this prospectus is a part. After the SEC has
declared effective such registration statement, generally we have the right but
not the obligation from time to time to sell our shares to Fusion Capital in
amounts between $80,000 and $1.0 million depending on certain
conditions. The registration statement was declared effective on
April 4, 2008 and the conditions to commence funding were satisfied on April 11,
2008. We have the right to control the timing and amount of any sales of our
shares to Fusion Capital. The purchase price of the shares will be
determined based upon the market price of our shares without any fixed discount
at the time of each sale. Fusion Capital shall neither have the right
nor the obligation to purchase any shares of our common stock on any business
day that the price of our common stock is below $0.10. The agreement
may be terminated by us at any time at our discretion without any cost to
us.
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. Below are the significant risks and uncertainties of which we
are aware. 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 prospectus, 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.
We have
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, 2007, we
had $2,220,128 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
$1,000,000. 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 the 12 months ended December 31,
2007, we had warrant and stock option exercises of approximately $2,200,000.
Based on our projected budgetary needs over the next 12 months, we expect to be
able to maintain the current level of our operations through the first quarter
of 2009. However, we may not have sufficient funds to finance a new Phase 3
clinical trial of orBec® for the
treatment of GI GVHD without utilizing the Fusion Capital facility.
We have
sufficient funds through our existing, biodefense grant facilities from the
NIAID to finance our biodefense projects. 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 preclinical studies or clinical trials, and we
have not yet generated any revenues from sales or licensing of them. Through
December 31, 2007, we had expended approximately $20,500,000 developing our
current product candidates for preclinical research and development and clinical
trials, and we currently expect to spend at least $7 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 lead product candidate, or another one of our product
candidates, we will require additional funding though our existing Fusion
Capital facility or another financing source to meet these commitments, sustain
our research and development efforts, provide for future clinical trials, and
continue our operations. 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 the
price of our stock is less than $0.10 per share, we cannot utilize the Fusion
Capital facility, and, in such event, we may not be able to obtain additional
required funding on terms satisfactory to us, 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
adequate financing is not obtained through our facility with Fusion Capital, we
will require additional financing to sustain our operations and without it we
may not be able to continue operations at present levels.
At
December 31, 2007, we had working capital of $1,243,638, and a net loss of
$6,164,643. Based on the our current rate of cash outflows, cash in
the bank, and expected proceeds from the Fusion Capital facility, we believe
that our cash will be sufficient to meet our anticipated cash needs for working
capital and capital expenditures through the fourth quarter of 2009. If we are
not able to access the Fusion Capital facility, we believe our cash will only be
sufficient to sustain reduced operations into the first quarter of
2009.
We only
have the right to receive $80,000 per every three trading days under the
agreement with Fusion Capital unless our stock price equals or exceeds $0.15, in
which case the amount may be increased under certain conditions as the price of
our common stock increases. We cannot require Fusion Capital to purchase any
shares of our common stock on any trading days that the market price of our
common stock is less than $0.10. Since we initially registered 22,777,778 shares
for sale by Fusion Capital pursuant to this prospectus (excluding the 2,550,000
commitment fee shares), the selling price of our common stock to Fusion Capital
will have to average at least $0.37 per share for us to receive the maximum
proceeds of $8.5 million without registering additional shares of common stock.
Assuming a purchase price of $0.18 per share (the closing sale price of the
common stock on March 26, 2008), proceeds to us would only be $4,100,000, which
includes the $500,000 already received, unless we choose to register more than
22,777,778 shares (excluding the 2,550,000 commitment fee shares), which we have
the right to do. Subject to approval by our board of directors, we have the
right under the common stock purchase agreement to issue more than 22,777,778
(excluding the 2,550,000 commitment fee shares) shares to Fusion Capital. In the
event we elect to issue more than the 22,777,778 (excluding the 2,550,000
commitment fee shares) shares offered hereby, we will be required to file a new
registration statement and have it declared effective by the SEC, although we
currently have no present intention to register additional shares.
The
extent to which we rely on Fusion Capital as a source of funding will depend on
a number of factors including, the prevailing market price of our common stock
and the extent to which we are able to secure working capital from other
sources. If obtaining sufficient financing from Fusion Capital were
to prove unavailable or prohibitively dilutive and if we are unable to
commercialize and sell enough of our products, we will need to secure another
source of funding in order to satisfy our working capital needs. Should the
financing we require to sustain our working capital needs be unavailable or
prohibitively expensive when we require it, the consequences could require us to
reduce our present level of operations and such a reduction could have a
material adverse effect on our business, operating results, financial condition
and prospects.
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:
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we
will not be able to maintain our current research and development
schedules;
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we
may be unsuccessful in our efforts to secure profitable procurement
contracts from the U.S. government or others for our biodefense
products;
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we
will encounter problems in clinical trials;
or
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the
technology or product will be found to be ineffective or
unsafe.
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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:
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it
is uneconomical or the market for the product does not develop or
diminishes;
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we
are not able to enter into arrangements or collaborations to manufacture
and/or market the product;
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the
product is not eligible for third-party reimbursement from government or
private insurers;
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others
hold proprietary rights that preclude us from commercializing the
product;
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others
have brought to market similar or superior products;
or
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the
product has undesirable or unintended side effects that prevent or limit
its commercial use.
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We received a not
approvable letter from the FDA for our lead product candidate orBec®.
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.
On
October 18, 2007, we received a not approvable letter from the FDA for our lead
product candidate, orBec®, for the
treatment of gastrointestinal GI GVHD. In the letter, the FDA
requested data from additional clinical trials to demonstrate the safety and
efficacy of orBec®. The FDA
also has requested nonclinical and chemistry, manufacturing & controls
information as part of the not approvable letter. On October 19, 2007, we
requested an end of review conference with the FDA to further understand the
letter and gain clarity as to the next steps. On December 7, 2007, we announced
the following guidance from that meeting: (1) a single, confirmatory, Phase 3
clinical trial could provide sufficient evidence of efficacy provided that it is
well designed, well executed and provides clinically and statistically
meaningful findings; (2) we anticipate working quickly with the FDA to finalize
the design of the confirmatory trial under the Agency’s special protocol
assessment process; (3) the FDA would be agreeable to reviewing a plan for a
Treatment IND as long as it does not interfere with patient accrual in a
confirmatory trial, such as potentially enrolling patients that would not be
eligible for the Phase 3 study. Once we have agreement on the confirmatory
protocol with the FDA, we expect to begin enrollment in the new confirmatory
Phase 3 clinical program for the treatment of GI GVHD in the second half of
2008.
Although
we intend to obtain FDA approval for orBec®, there
can be no assurances that the FDA will ever approve orBec® for
market.
Our business is subject to extensive
governmental regulation, which can be costly, time consuming and subjects us to
unanticipated delays.
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 not be able 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.
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 our 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 change in health
care practice 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, 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 diseases. 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 six 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, our Chief Executive Officer, was hired in August 2006;
Evan Myrianthopoulos, our Chief Financial Officer, was hired in November 2004,
although he was a member of our Board of Directors 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. In
May 2007, Steve H. Kanzer resigned from the Board of Directors. In
June 2007, Cyrille F. Buhrman was elected to the Board of
Directors. 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:
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announcements
of technological innovations, more important bio-threats or new commercial
therapeutic products by us, our collaborative partners or our present or
potential competitors;
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our
quarterly operating results and
performance;
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announcements
by us or others of results of pre-clinical testing and clinical
trials;
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developments
or disputes concerning patents or other proprietary
rights;
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litigation
and government proceedings;
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changes
in government regulations;
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economic
and other external factors; and
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general
market conditions.
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In
addition, potential dilutive effects of future sales of shares of common stock
by shareholders and
by the Company, including Fusion Capital pursuant to this prospectus and
subsequent sale of common stock by the holders of warrants and options, could
have an adverse effect on the market price of our shares.
Our stock
price has fluctuated between January 1, 2004 through March 26, 2008, the
per share price of our common stock ranged between a high of $1.58 per share to
a low of $0.15 per share. As of March 26, 2008, our common stock traded at
$0.18. 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.
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 Financial Industry Regulatory Authority 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
$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:
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warrants
to purchase a total of approximately 30,900,000 shares of our common stock
at a current weighted average exercise price of approximately
$0.67;
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anti-dilution
rights associated with a small portion of the above warrants which can
permit purchase of additional shares and/or lower exercise prices under
certain circumstances; and
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options
to purchase approximately 10,250,000 shares of our common stock of a
current weighted average exercise price of approximately
$0.44.
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During
2008, outstanding warrants to purchase approximately 10,000,000 shares of our
common stock will expire. By April 2009, outstanding warrants to purchase a
total of approximately 20,000,000 shares of our common stock will
expire.
To the
extent that warrants or options are exercised, our stockholders will experience
dilution and our stock price may decrease.
Shareholders
are also subject to the risk of substantial dilution to their interests as a
result of our issuance of shares under the common stock purchase agreement with
Fusion Capital. Under the agreement, we have the right, but not the
obligation, under certain conditions, to sell shares of common stock to Fusion
Capital in an aggregate amount of $8.5 million from time to time over a 25 month
period. The purchase price of the shares will be determined based
upon the market price of our shares without any fixed discount at the time of
each sale.
We
already have sold 2,777,778 shares of common stock to Fusion Capital (together
with a warrant to purchase 1,388,889 shares of our common stock) under the
agreement for total proceeds of $500,000. In addition to the shares
already sold to Fusion Capital, 20 million shares that may be sold to Fusion
Capital are included in the registration statement of which this prospectus is a
part. We may ultimately sell all, some or none of the 20 million
shares of common stock. If such 20 million shares were issued and
outstanding as of March 26, 2008, the 20 million shares would have represented
approximately 20% of the total outstanding common stock.
The
purchase by Fusion Capital may not be available when we need it, thus limiting
our ability to continue our product development and
commercialization.
We cannot
begin sales of our common stock to Fusion Capital until the effectiveness of the
registration statement of which this prospectus is a part, and the common stock
purchase agreement may be terminated in the event of a default under the
agreement. In addition, we may not require Fusion Capital to purchase any shares
of our common stock if the purchase price is less than $0.10 per share. Thus, we
may be unable to sell shares of our common stock to Fusion Capital when we need
the funds, and that could severely harm our business and financial condition and
our ability to continue to develop and commercialize our products. See "Fusion
Transaction."
The
sale of our common stock to Fusion Capital may cause dilution and the sale of
the shares of common stock acquired by fusion capital could cause the price of
our common stock to decline.
In
connection with entering into the agreement, we authorized the sale to Fusion
Capital of up to 25,327,778 shares of our common stock. The number of
shares ultimately offered for sale by Fusion Capital under this prospectus is
dependent upon the number of shares purchased by Fusion Capital under the
agreement. The purchase price for the common stock to be sold to Fusion Capital
pursuant to the common stock purchase agreement will fluctuate based on the
price of our common stock. All 25,327,778 shares registered for sale by Fusion
Capital in this offering are expected to be freely tradable. It is
anticipated that the 20 million shares offered by Fusion Capital will be sold
over a period of up to 25 months from the date of this
prospectus. Depending upon market liquidity at the time, a sale of
shares under this offering at any given time could cause the trading price of
our common stock to decline. Fusion Capital may ultimately purchase
all, some or none of the 20 million shares of common stock not yet issued but
registered in this offering. After it has acquired such shares, it
may sell all, some or none of such shares. Therefore, sales to Fusion Capital by
us under the agreement may result in substantial dilution to the interests of
other holders of our common stock. The sale of a substantial number of shares of
our common stock under this offering, or anticipation of such sales, could make
it more difficult for us to sell equity or equity-related securities in the
future at a time and at a price that we might otherwise wish to effect
sales. However, we have the right to control the timing and amount of
any sales of our shares to Fusion Capital and the agreement may be terminated by
us at any time at our discretion without any cost to us.
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 become 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.
Fusion
Capital's purchase and sale into the market of our common stock could cause our
common stock price to decline due to the additional shares available in the
market, particularly in light of the relatively thin trading volume of our
common stock. The market price of our common stock could decline given our
minimal average trading volume compared to the number of shares potentially
issuable to Fusion Capital, and the voting power and value of your investment
would be subject to continual dilution if Fusion Capital purchases the shares
and resells those shares into the market, although there is no obligation for
Fusion Capital to sell such shares. Any adverse affect on the market price of
our common stock would increase the number of shares issuable to Fusion Capital
which would increase the potential dilution of your investment.
Overview
We were
incorporated in Delaware in 1987. We are a late-stage research and development
biopharmaceutical company focused on the development of oral therapeutic
products intended for areas of unmet medical need and biodefense vaccines. On
September 21, 2006, we filed a new drug application (“NDA”) for our lead product
orBec®
(oral beclomethasone dipropionate) with the FDA for the treatment
of GI GVHD. On November 3, 2006, we also filed an MAA with the EMEA for
orBec®, which
is currently under review. We anticipate receiving the EMEA’s official opinion
regarding our MAA in the first half of 2008.
On
October 18, 2007, we received a not approvable letter from the U.S. Food and
Drug Administration (the “FDA”) in response to our NDA for orBec® (oral
beclomethasone dipropionate) for the treatment of GI GVHD. In the letter,
the FDA requested additional clinical trial data to demonstrate the safety and
efficacy of orBec®. The
FDA also requested nonclinical and chemistry, manufacturing and controls
information as part of the not approvable letter. On October 19, 2007, we
requested an end of review conference with the FDA to further understand the
letter and gain clarity as to the next steps. On December 7, 2007, we announced
the following guidance from that meeting: (1) a single, confirmatory, Phase 3
clinical trial could provide sufficient evidence of efficacy provided that it is
well designed, well executed and provides clinically and statistically
meaningful findings; (2) we anticipate working quickly with the FDA to finalize
the design of the confirmatory trial under the Agency’s special protocol
assessment process; (3) the FDA would be agreeable to reviewing a plan for a
Treatment IND as long as it does not interfere with patient accrual in a
confirmatory trial, such as potentially enrolling patients that would not be
eligible for the Phase 3 study. Once we have agreement on the confirmatory
protocol with the FDA, we expect to begin enrollment in the new confirmatory
Phase 3 clinical program for the treatment of GI GVHD in the second half of
2008.
We
maintain two active segments: BioTherapeutics and BioDefense. Our business
strategy is to: (a) work with the FDA on the design of new clinical trials in GI
GVHD; (b) seek a development and marketing partner for orBec® for
territories both inside and outside of the U.S.; (c) prepare for the potential
marketing approval of orBec by the EMEA; (d) conduct a prophylactic use clinical
trial of orBec® for the
prevention of GI GVHD; (e) evaluate and initiate additional clinical trials to
explore the effectiveness of oral BDP in other therapeutic indications involving
inflammatory conditions of the gastrointestinal tract such as radiation
enteritis and Crohn’s disease; (f) reinitiate development including
manufacturing of our other biotherapeutics products namely LPMTM-Leuprolide,
and OraprineTM; (g)
secure additional government funding for each of our biodefense
programs, RiVaxTM and
BT-VACCTM,
through grants, contracts, and procurements; (h) explore acquisition strategies
under which the Company may be acquired by another company with oncologic or
gastrointestinal symmetry; (i) 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 (j) acquire or in-license new clinical-stage compounds for
development.
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
hematopoietic cell transplantation (“HCT”). 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, there was a
positive trend observed and it did achieve statistical significance in other key
outcomes such as median time to treatment failure through Day 80 (p-value
0.0226). Most importantly, it demonstrated a statistically significant survival
advantage in comparison to placebo at 200 days post-transplantation (p-value
0.0139) and at one year post-randomization (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. We
also filed an MAA with the EMEA on November 3, 2006, which was validated on
November 28, 2006 and is currently under review. On October 18, 2007,
we received a not approvable letter from the FDA for orBec®. In the
letter, the FDA requested additional clinical trial data to demonstrate the
safety and efficacy of orBec®. The
FDA also requested nonclinical and chemistry, manufacturing & controls
information as part of the not approvable letter. On October 19, 2007, we
requested an end of review conference with the FDA to further understand the
letter and gain clarity as to the next steps. On December 7, 2007, we announced
the following guidance from that meeting; (1) a single, confirmatory, Phase 3
clinical trial could provide sufficient evidence of efficacy provided that it is
well designed, well executed and provides clinically and statistically
meaningful findings; (2) we anticipate working quickly with the FDA to finalize
the design of the confirmatory trial under the Agency’s special protocol
assessment process; (3) the FDA would be agreeable to reviewing a plan for a
Treatment IND as long as it does not interfere with patient accrual in a
confirmatory trial, such as potentially enrolling patients that would not be
eligible for the Phase 3 study. Once we have agreement on the confirmatory
protocol with the FDA, we expect to begin enrollment in the new confirmatory
Phase 3 clinical program for the treatment of GI GVHD in the second half of
2008.
On
February 15, 2008, we announced that we entered into a Letter of Intent with
BL&H Co. Ltd. (“BL&H”), a specialty pharmaceutical company based in
Seoul, Korea, pursuant to which BL&H will act as our Sponsor with regard to
the administration of a Named Patient Program (“NPP”) for orBec® to
patients suffering from acute GI GVHD in South Korea. The NPP is a compassionate
use drug supply program administered by the Korea Orphan Drug Center (the
“KODC”) under which medical practitioners can legally supply investigational
drugs to their patients who qualify. Under this program, investigational drugs
can be administered through the KODC to patients who are suffering from serious
illnesses until the drug is approved by the Korea Food & Drug
Administration. BL&H and our Company will share revenues generated by sales
of orBec® through
the NPP. We will manufacture and supply orBec® to
BL&H, while BL&H will be responsible for all distribution costs in South
Korea. We expect to receive modest revenues from these programs in the second
half of 2008.
On
November 28, 2007, we announced that we entered into a Letter of Intent with
Orphan Australia Pty Ltd. (“Orphan Australia”), a specialty pharmaceutical
company based in Melbourne, Australia, pursuant to which Orphan Australia will
act as our sponsor with regard to the administration of a Named Patient Access
Program (“NPAP”) for orBec® to GI
GVHD patients in Australia, New Zealand and South Africa. The NPAP is a
compassionate use drug supply program administered by Australia’s Therapeutic
Goods Administration (“TGA”), under which medical practitioners can legally
supply investigational drugs to their patients who qualify. The program enables
a medical practitioner to access not yet approved medicines for seriously ill
patients with prior notification to the TGA. Both we and Orphan Australia,
acting as sponsor for the program, will receive revenue for supplying orBec® under
the NPAP. New Zealand and South Africa also have similar access mechanisms for
supply under a "Named Patient" basis. We expect to receive modest
revenues from these programs in the second half of 2008.
On
September 12, 2007 we announced that our academic partner, the Fred Hutchinson
Cancer Research Center (“FHCRC”), received a $1 million grant from the National
Institute of Health (“NIH”) to conduct preclinical studies of oral
beclomethasone dipropionate (oral BDP, also the active ingredient in orBec®) for the
treatment of gastrointestinal (GI) radiation injury. While we will not receive
any monetary benefit from this grant, we will benefit if this work is successful
and it will enhance the value of our orBec®/oral BDP
program. The purpose of the studies funded by the grant, entitled "Improving
Gastrointestinal Recovery after Radiation," is to evaluate the ability of three
promising clinical-grade drugs, including oral BDP, given alone or in
combination, that are likely to significantly mitigate the damage to the
gastrointestinal epithelium caused by exposure to high doses of radiation using
a well-established dog model. The GI tract is highly sensitive to ionizing
radiation and the destruction of epithelial tissue is one of first effects of
radiation exposure. The rapid loss of epithelial cells leads to inflammation and
infection that are often the primary cause of death in acute radiation injury.
This type of therapy, if successful, would benefit cancer patients undergoing
radiation, chemotherapy, or victims of nuclear-terrorism. In most radiation
scenarios, injury to the hematopoietic (blood) system and gastrointestinal tract
are the main determinants of survival. The studies will compare overall survival
and markers of intestinal cell regeneration when the drug regimens are added to
supportive care intended to boost proliferation of blood cells. The principal
investigator of the study is George E. Georges, M.D., Associate Member of the
FHCRC.
On July
12, 2007, we announced that patient enrollment commenced in a randomized, double
blind, placebo-controlled, Phase 2 clinical trial of orBec® for the
prevention of acute GI GVHD after allogeneic HCT with myeloablative conditioning
regimens. The trial is being conducted by Paul Martin, M.D., at the FHCRC in
Seattle, Washington and is being supported, in large part, by an NIH grant. We
will not receive any monetary benefit from this grant. The Phase 2 trial will
seek to enroll up to 138 (92 orBec® and 46
placebo) patients. The primary endpoint of the trial is the proportion of
subjects who develop acute GVHD with severity sufficient to require systemic
immunosuppressive treatment on or before day 90 after transplantation. Patients
in the orBec® group
will begin dosing at the start of the conditioning regimen and continue through
day 75 following HCT. Trial enrollment is expected to be completed in the first
half of 2009.
In April
2007, we initiated our next pipeline development program in the biotherapeutics
area: our LPMÔ (Lipid
Polymer Micelle) drug delivery system to enhance the intestinal absorption of
water-soluble drugs/peptides, which are ordinarily poorly absorbed. We
recommenced preclinical formulation work on LPMÔ in 2007 after a period of
approximately four years. 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. Preclinical animal pharmacokinetic (“PK”) data have
demonstrated high relative bioavailability of the therapeutic peptide drug
leuprolide in the 20-40% range. 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. The mechanism for absorption by
LPMÔ is thought to
involve the passive uptake through the opening of paracellular channels in
intestinal epithelial tissue.
BioDefense
Overview
In
collaboration with the University of Texas Southwest Medical Center and Thomas
Jefferson University, 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 the 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, the National Institute of
Allergy and Infectious Diseases (“NIAID”), Department of Defense (“DOD”) and
Centers for Disease Control and Prevention (“CDC”). In fact, the threat of ricin
toxin as a biological weapon of mass destruction has been highlighted along with
anthrax in a recent Federal Bureau of Investigation Bioterror report
released in November 2007, which says, “Ricin and the bacterial agent anthrax
are emerging as the most prevalent agents involved in WMD investigations.” 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.
The
development of RiVaxTM, our
ricin toxin vaccine, has progressed significantly. In September 2006, we
received a grant of approximately $5.2 million from NIAID, a division of
the NIH, for the continued development of RiVax™, a recombinant vaccine against
ricin toxin. The RiVax™ grant will provide approximately $5.2 million over a
three year period to 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. A prototype version of RiVax™ has
been evaluated in a Phase 1 clinical trial and was shown to be safe and
effective, while also inducing ricin neutralizing antibodies as confirmed in
subsequent animal studies.
On
January 29, 2008, we announced that we have successfully achieved a two-year
milestone in the long-term stability program of the key ingredient of RiVax™, a
recombinant subunit vaccine against ricin toxin. RiVax™ is intended to protect
against exposure to ricin toxin that might result from the purposeful release of
ricin in an aerosolized form or as a poisonous contaminant in food or water. The
results of the two-year analysis, undertaken as part of the formal stability
program, demonstrate that the immunogen component of RiVax™, a recombinant
derivative of the ricin A chain, is stable under storage conditions for at least
two years without loss of its natural configuration or the appearance of any
detectable degradation products. A vaccine is considered by many to be the best
way to prospectively protect populations at risk of exposure against ricin
toxin. As this vaccine would potentially be added to the Strategic National
Stockpile and dispensed in the event of a terrorist attack, the activity of the
vaccine must be maintained over a period of years under stockpile storage
conditions.
Robust
stability is one of the key factors stipulated by the Biomedical Advanced
Research and Development Authority (“BARDA”) for vaccines to be included in the
Strategic National Stockpile. BARDA has placed a priority on stability and a
rapid onset of immunity in no more than two vaccine doses as the stability and
efficacy targets for vaccines under development for both category A and category
B vaccines. BARDA has recently issued a Request for Procurement (“RFP”),
entitled "Biodefense Vaccine Enhancement," to which we have submitted an
application for RiVax™. BARDA is a new agency within the U.S. Department of
Health and Human Services (“HHS”) established to implement acquisition under the
Project BioShield Act and to foster the development of vaccines and
countermeasures such as RiVax™ that have achieved milestone hurdles, and are
candidates for continued development. To this end, BARDA has solicited proposals
in a number of key areas, including development of vaccines for categories A and
B that have enhanced stability properties that address long-term storage and the
benefit of rapid onset of immunity. We have submitted an application for RiVax™
for the BARDA RFP. We regularly
apply for biodefense grants, as well as RFPs, when appropriate, from NIH and
other applicable governmental bodies that support biodefense.
On
November 15, 2007, we announced that we entered into a Cooperative Research and
Development Agreement with the Walter Reed Army Institute of Research (“WRAIR”)
to provide additional means to characterize the immunogenic protein subunit
component of RiVax™, our preventive vaccine against ricin toxin. The agreement
will be carried out at the Division of Biochemistry at WRAIR and will encompass
basic studies to reveal the underlying protein structure that is important in
inducing human immune responses to ricin toxin. Ricin toxin is an easy to
manufacture toxin that poses a serious threat as a bioweapon, primarily by
inhalation. Some of the features that are critical to induce protective immune
responses by vaccination with RiVax™ include structural determinants in the core
and the surface of the protein. The purpose of the agreement is to obtain data
to correlate protein structure with induction of protective immunity and
long-term stability of the protein. These studies will involve comparison to
structures of similar natural and recombinant proteins. RiVax™ induces
antibodies that appear primarily in the blood of animals and humans. Some of
these antibodies recognize determinants on the protein that are dependent on the
conformation of the protein and may be involved in biological activity. Overall,
antibodies in the blood are correlated to protection against exposure when the
toxin enters the circulatory system or when it comes into contact with lung
surfaces, where the major effects lead to severe inflammation, tissue necrosis
and death. RiVax™ induces such antibodies in humans as well as other animal
species. Lieutenant Colonel Charles B. Millard, Ph.D., Director of the Division
of Biochemistry at WRAIR, will lead the studies to be conducted at WRAIR, which
will include X-ray crystal analysis to determine the structural parameters of
the RiVax™ vaccine. We will not receive any monetary benefits from this
agreement. We will take part in evaluating the data that is found by WRAIR’s
studies, which they are funding. If successful, this will enhance the value of
our RiVax™ product and assist with continuing the progression of the
program.
Our
vaccine against botulinum neurotoxin, BT-VACC™, is a mucosally administered
vaccine that protects against exposure to botulinum neurotoxins. Botulinum
neurotoxin is the most toxic natural toxin known to man 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 standalone
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 BT-VACC™ will be poised for rapid distribution
and vaccination for military use or civilian vaccination in response to
bioterrorism. Any vaccine against botulinum toxin 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 Dowpharma, a business unit within the Dow Chemical Company, 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.
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 Prescription Drug User Fee Act (“PDUFA”), the
FDA was to complete its review of all materials related to orBec® by July
21, 2007. Additionally, on May 9, 2007, the Oncologic Drugs Advisory
Committee (“ODAC”) appointed by the FDA voted that the data supporting
orBec® did not
show substantial evidence of efficacy by a margin of 7 to 2 for the treatment of
GI GVHD. The FDA was not bound by ODAC’s recommendations, but it took the
panel’s advice into consideration when reviewing the NDA for orBec®.
On July
18, 2007, we received notification from the FDA that the PDUFA date for the
FDA's review of the NDA for orBec® was
extended to October 21, 2007. The extension was the result of our July 13, 2007
provision of supplemental information to the orBec® NDA.
This information was requested by the FDA at a June 13, 2007 NDA review meeting.
According to FDA policy, the submission of this supplemental information was
classified as a major amendment, extending the new PDUFA date for the orBec® NDA to
October 21, 2007.
On
October 18, 2007, we received a not approvable letter from the FDA in response
to our NDA for orBec® (oral
beclomethasone dipropionate) for the treatment of GI GVHD. In the letter,
the FDA requested additional clinical trial data to demonstrate the safety and
efficacy of orBec®. The
FDA also requested nonclinical and chemistry, manufacturing and controls
information as part of the not approvable letter. On October 19, 2007, we
requested an end of review conference with the FDA to further understand the
letter and gain clarity as to the next steps. On December 7, 2007, we announced
the following guidance from that meeting: (1) a single, confirmatory, Phase 3
clinical trial could provide sufficient evidence of efficacy provided that it is
well-designed, well-executed and provides clinically and statistically
meaningful findings; (2) we anticipate working quickly with the FDA to finalize
the design of the confirmatory trial under the Agency’s special protocol
assessment process; (3) the FDA would be agreeable to reviewing a plan for a
Treatment IND as long as it does not interfere with patient accrual in a
confirmatory trial, such as potentially enrolling patients that would not be
eligible for the Phase 3 study. Once we have agreement on the confirmatory
protocol with the FDA, we expect to begin enrollment in the new confirmatory
Phase 3 clinical program for the treatment of GI GVHD in the second half of
2008.
We also
filed an MAA with the EMEA on November 3, 2006, which was validated on November
28, 2006 and is currently under review. We anticipate receiving the EMEA’s
official opinion regarding our MAA in the first half of 2008. We have assembled
an experienced team of consultants and contractors who worked on all aspects of
the NDA and MAA preparation, including data management, data analysis, and
biostatistics medical writing.
We
anticipate the market potential for orBec® for the
treatment of GI GVHD to be approximately 60 percent of the more than 10,000
allogeneic bone marrow and stem cell transplantations 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 are
evaluating partnering opportunities in the U.S. and abroad in an effort to seek
support for future clinical development of orBec® for the
treatment of GI GVHD. We also intend to seek a partner for the other potential
indications of orBec® and oral
BDP.
On July
12, 2007, we announced that patient enrollment had commenced in a randomized,
double blind, placebo-controlled, Phase 2 clinical trial of orBec® for the
prevention of acute GVHD after allogeneic HCT with myeloablative conditioning
regimens. The Phase 2 clinical trial is supported in part by an NIH grant
awarded to the FHCRC. We will not receive any monetary benefit from this grant.
The protocol is entitled “A Phase 2 study to evaluate the efficacy of oral
beclomethasone dipropionate for prevention of acute GVHD after hematopoietic
cell transplantation with myeloablative conditioning regimens.” The study will
enroll a total of 138 patients with 92 subjects in the orBec®
arm and 46 subjects in the placebo arm. The principal investigator of the trial
is Paul Martin, M.D., of the FHCRC and a Professor of Medicine at Washington
University. Patients will be treated with orBec®
or placebo at the start of their conditioning regimen and will continue to be
treated for 75 days after transplantation. The objective of the trial is to test
the hypotheses that prophylactic administration of orBec®
can prevent the incidence and/or reduce the severity of acute GVHD, therefore,
decreasing the need for use of high dose systemic steroid treatment after
allogeneic HCT. Completion of patient enrollment in this trial is targeted for
the first half of 2009.
On
September 12, 2007, we announced that our academic partner, FHCRC, received a $1
million grant from the NIH to conduct preclinical studies of oral beclomethasone
dipropionate (oral BDP, also the active ingredient in orBec®) for the
treatment of gastrointestinal (GI) radiation injury. While we will not receive
any monetary benefit from this grant, we will benefit if this study is
successful and it enhances the value of our orBec®/oralBDP
program. The purpose of the studies funded by the grant, entitled "Improving
Gastrointestinal Recovery after Radiation," is to evaluate the ability of three
clinical-grade drugs including oral BDP, given alone or in combination, that are
likely to significantly mitigate the damage to the gastrointestinal epithelium
caused by exposure to high doses of radiation using a well-established dog
model. The GI tract is highly sensitive to ionizing radiation and the
destruction of epithelial tissue is one of first effects of radiation exposure.
The rapid loss of epithelial cells leads to inflammation and infections that are
often the primary cause of death in acute radiation injury. This type of
therapy, if successful, will benefit cancer patients undergoing radiation,
chemotherapy, or victims of nuclear-terrorism.
In
addition to the preclinical studies in radiation exposure being conducted at
FHCRC, we plan to begin a Phase 1/2 clinical trial in radiation enteritis
patients in the second half of 2008.
We also
plan to initiate a Phase 2 clinical trial in Chronic GVHD in the second half of
2008. Chronic GVHD can begin anytime during or after the third month
post-transplantation. About 60 percent of patients who receive an
allogeneic transplant and are alive at day 100 post-transplantation will develop
chronic GVHD. Chronic GVHD can range from mild to life-threatening. Some
transplantation survivors have problems with chronic GVHD for many
years.
orBec®
Comprehensive Long-Term Mortality Results
Among the
data reported in the January 2007 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 transplantation. 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 Transplantation 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-transplantation showed a clinically meaningful and statistically
significant result. According to the manuscript, “the risk of mortality during
the 200-day post-transplantation 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 transplantation
day-200 were relapse of the underlying malignancy and infection. Relapse of the
underlying 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-transplantation 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 transplantation 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 were 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
a 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-transplantation.
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 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 60 percent of the more than 10,000
allogeneic bone marrow and stem cell transplantations 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®. When
and if approved, we also are considering the possibility 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. Sigma Tau has both prescription and consumer
products in the metabolic, oncology, and renal markets.
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 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 were obligated to return the $2
million to Sigma-Tau by April 30, 2007. On February 21, 2007, Sigma-Tau
relinquished its exclusive rights under the letter of intent with regard to
acquisition discussions. On June 1, 2007 we returned the $2
million to Sigma Tau without interest.
Cost
and Development of our Programs
Our
research and development expense may vary significantly from quarter to quarter
depending on product development cycles, the timing of clinical studies and
whether we or a third party are funding development. We intend to focus on
long-term growth prospects, and, therefore, may incur higher than expected
research and development expenses in a given period rather than delay clinical
activities. These variations in research and development spending may not be
accurately anticipated and may have a material effect on our results of
operations. Our long-term strategy is dependent upon the successful development
of our products and their successful commercialization. A project can fail or be
delayed at any stage of development, even if each prior stage was completed
successfully, which could jeopardize our ability to recover our investment in
the product. Some of our development projects may not be completed successfully
or on schedule. Many of the factors which may cause a product in development to
fail or be delayed may be beyond our control, such as difficulty in enrolling
patients in clinical trials, the failure of clinical trials, lack of sufficient
supplies or raw materials, inability to supply the subject product or technology
on a commercial scale on an economical basis, and changes in
regulations.
We
estimate our development costs for our BioTherapeutics programs to be
approximately $3.5 million for 2008. These costs are primarily for advancement
and commencement of clinical studies for our BioTherapeutics programs. We
estimate that our development costs for our BioDefense programs to be
approximately $2.7 million for 2008. All costs associated with our biodefense
programs will be funded by our NIH and SBIR grants.
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
$2,288,615 in 2007 and $3,060,778 in 2006.
To build
upon the promising results obtained during development of orBec® for the
treatment of GI GVHD, we are pursuing a development program targeting the
prevention of acute GVHD. This program is a Phase 2 single center trial that is
being conducted at FHCRC. 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 initiated this Phase 2 clinical trial in the third quarter of 2007. If the
data from this clinical trial demonstrate 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 allogeneic bone marrow transplantation in
which tissues of the host, most frequently the gut, liver, and skin, are
attacked by lymphocytes from 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 60% of the more
than 10,000 annual allogeneic transplantation 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 transplantation.
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 used 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 Hematopoietic Cell Transplantation
(HCT)
Allogeneic
hematopoietic cell transplantation (“HCT”) is considered a potentially curative
option for many leukemias as well as other forms of blood cancer. In
an allogeneic HCT 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 HCT is now
partly attributed to the so-called GVL (graft-versus-leukemia) or
graft-versus-tumor effects of the newly transplanted donor cells to recognize
and destroy malignant cells in the recipient patient.
The use
of allogeneic HCT 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, or 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 allogeneic HCT
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
HCT for treatment of some metastatic solid tumors such as breast cancer, renal
cell carcinoma, melanoma and ovarian cancer. Allogeneic transplantation has 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 HCT, 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® and Oral
BDP
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 HCT, as well as GVHD which also occurs following organ
allograft transplantation. We initiated a Phase 2 trial of orBec® in the
prevention of acute GVHD in the third quarter of 2007. In addition, we are
exploring the possibility of testing oral BDP (the active ingredient in
orBec®) for
local inflammation associated with Ulcerative Colitis, Crohn’s Disease,
Lymphocytic Colitis, Irritable Bowel Syndrome, 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, we have re-initiated 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™, LPE™, PLP™, 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 on oral azathioprine 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
In April
2007, we announced the initiation of a development program with our Lipid
Polymer Micelle (“LPM™”) oral drug delivery technology. The LPM™ system is a
platform technology designed to allow for the oral administration of peptide
drugs that are water-soluble but poorly permeable through the gastrointestinal
tract. We have previously demonstrated in preclinical animal models that the
LPM™ technology is adaptable to oral delivery of peptide drugs and that high
systemic levels after intestinal absorption can be achieved with the peptide
hormone drug leuprolide.
In
preclinical studies, our LPM™ delivery technology significantly enhanced the
ability of leuprolide, to pass through the intestinal epithelium in comparison
to leuprolide alone. Leuprolide is a synthetic peptide agonist of gonadotropin
releasing hormone (GnRh), which is used in the treatment of prostate cancer in
men and endometriosis in women. Leuprolide exhibits poor intestinal absorption
from an aqueous solution with the oral bioavailability being less than 5%.
Utilizing LPM™ in rats and dogs, the bioavailability of leuprolide averaged 30%
compared to 2.2% for the control oral solution. Based on these promising
preclinical data, we anticipate preparing for a Phase 1 study in humans in 2008
to confirm these findings.
The LPM™
system is a proprietary oral delivery platform technology that utilizes a lipid
based delivery system that can incorporate the peptide of interest in a
thermodynamically stable configuration called a “reverse micelle” that, through
oral administration, can promote intestinal absorption. Reverse micelles are
structures that form when certain classes of lipids come in contact with small
amounts of water. This results in a drug delivery system in which a
stable clear dispersion of the water soluble drug can be evenly dispersed within
the lipid phase. LPM™ is thought to promote intestinal absorption due to the
ability of the micelles to open up small channels through the epithelial layer
of the intestines that allow only molecules of a certain dimension to pass
through while excluding extremely large molecules such as bacteria and
viruses. The reverse micelles also structurally prevent the rapid
inactivation of peptides by enzymes in the upper gastrointestinal tract via a
non-specific enzyme inhibition by surfactant(s) in the formulation.
We expect
to validate the LPM platform technology using leuprolide as the target peptide.
We expect to perform a Phase 1 PK study with a version of LPM that prolongs the
absorption of leuprolide and results in high relative bioavailability. An oral
version of leuprolide may also provide a significant advantage over the
currently marketed “depot” formulations. Leuprolide is one of the most widely
used anti-cancer agents for advanced prostate cancer in
men. Injectable forms of leuprolide marketed under trade names such
as Lupron® and
Eligard® had
worldwide sales of approximately $1.8 billion in 2006. Injectable leuprolide is
also widely used in non-cancer indications, such as endometriosis in women (a
common condition in which cells normally found in the uterus become implanted in
other areas of the body), uterine fibroids in women (noncancerous growths in the
uterus) and central precocious puberty in children (a condition causing children
to enter puberty too soon). Leuprolide is currently available only in
injectable, injectable depot and subcutaneous implant routes of delivery which
limits its use and utility.
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
We have
completed proof of concept studies in rats and dogs. We first plan to conduct a
small Phase 1 clinical PK study to compare the absorption of an enteric-coated
gelatin capsule of LPMÔ-Leuprolide with an
injected formulation. We anticipate initiating this trial in the second half of
2008. Being able to move forward with later stage clinical trials is highly
dependent upon the results from the Phase 1 trial interactions with the FDA. 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
approximately $1,300,000. Research and development costs for LPMTM-Leuprolide
totaled $38,254 in 2007 and $5,679 in 2006. These costs are mainly legal costs
in connection with maintenance of our patent positions and for preclinical
formulation work.
OraprineTM
We
anticipate that an orally administered version of the immunosuppressant drug
azathioprine may have a significant role in treating inflammatory diseases of
the oral cavity. Further, an orally administered drug may provide a
niche in the current transplant medicine market for an alternative to solid
dosage forms of azathioprine that would have utility in elderly patients.
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 conducted a Phase 1 bioequivalence trial following a trial conducted by Dr.
Joel Epstein at the University of Washington that established the feasibility of
the oral drug to treat oral ulcerative lesions resulting from GVHD. Oral GVHD
can occur in up to 70% of patients who have undergone bone marrow/stem cell
transplantation despite treatment with other immunosuppressive drugs such as
prednisone, methotrexate, tacrolimus, and cyclosporine. 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.
On
September 25, 2007, we announced a Notice of Allowance of patent claims based on
U.S. Patent Application #09/433,418 entitled “Topical Azathioprine for the
Treatment of Oral Autoimmune Diseases.” Concurrently, the patent has
also been issued by the European Patent Office with the serial number EP 1 212
063 B1. This patent family specifically includes claims for treatment and
prevention of oral GVHD with locally or topically applied
azathioprine.
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. Therefore, we 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.
We plan
to begin development of a stable liquid formulation, which is planned to be
completed before the end of 2008, with concurrent initiation of stability
assessments. A series of bioequivalence studies are to be initiated in adults
and children by 2009, with trials to establish safety and efficacy in pediatric
juvenile rheumatoid arthritis patients. 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 next major milestone is the completion of
formulation development 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 approximately
$400,000. Research and development costs for Oraprine™ totaled $5,100 in 2007
and $6,996 in 2006. These costs are mainly legal costs in connection
with maintenance of our patent positions.
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.
BioDefense
Programs
In
collaboration with the University of Texas Southwest Medical Center and Thomas
Jefferson University, 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
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 has 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.
The
development of RiVaxTM, our
ricin toxin vaccine, has progressed significantly since 2003. In September 2006,
we received a grant of approximately $5.2 million from NIAID, a division of
the NIH, for the continued development of RiVax™, a recombinant vaccine against
ricin toxin. The RiVax™ grant has provided approximately $5.2 million over a
three year period to 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. A prototype version of RiVax™ has
been evaluated in a Phase 1 clinical trial and was shown to be safe and
effective, while also inducing ricin neutralizing antibodies as confirmed in
subsequent animal studies.
We also
announced in January 2008 that we have successfully completed a two year interim
analysis in the long-term stability program of the key ingredient of
RiVax™. The results of interim analysis in the formal stability
program demonstrate that the immunogen component of RiVax™, a recombinant
derivative of the ricin A chain, is stable under storage conditions for at least
two years without loss of its natural configuration or the appearance of any
detectable degradation products. Since there is no therapeutic
available to treat exposure to ricin toxin, a vaccine against ricin is
considered by many to be the best way to prospectively protect certain human
populations who are at risk of exposure. Since this vaccine would
presumably be added to the Strategic National Stockpile and dispensed in the
case of a terrorist attack, the activity of the vaccine must be maintained over
a period of years under potential stockpile storage conditions.
Our
academic partner, the University of Texas Southwestern Medical Center 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 into sensitive mice, which then
survived subsequent exposure to ricin toxin. The outcome of the study was
published in the Proceedings
of the National Academy of Sciences in January 2006. In January 2005, we
entered into a manufacturing and supply agreement for RiVax™ with Cambrex
Corporation. In July 2006, we announced the successful completion of the current
Good Manufacturing Practices (cGMP) milestone for the production of RiVaxTM.
In July
2007, we announced that the Office of Orphan Products Development ("OOPD") of
the FDA has awarded a development grant for the further clinical evaluation of
RiVaxTM. The
grant was awarded to the University of Texas Southwestern Medical Center to
further the development of RiVaxTM. We
will not receive any monetary benefits from this grant; however, the successful
completion of this work will enhance the value of our RiVaxTM program
and continue to move it forward. The principal investigator for the project is
Dr. Vitetta, Director of the Cancer Immunobiology Center at the University of
Texas Southwestern. The award totals approximately $940,000 for three years and
is to be used for the evaluation of an adjuvant for use with the vaccine.
Typically, awards made by the OOPD are to support clinical trials for
development of products that address rare diseases or medicines that would be
used in numerically small populations. We plan on initiating a non-human primate
study and endeavor to begin a human clinical trial with RiVaxTM in the
first half of 2008.
We
believe that RiVaxTM is at a
sufficiently advanced state of development for the awarding of further
development contracts from other agencies and branches of the government. For
example, in 2006, the Department of Health and Human Services created a separate
agency, BioDefense Advanced Research and Development Authority (BARDA), within
the Office of the Assistant Secretary for Preparedness and Response in the
Department of Health and Human Services. BARDA manages
Project BioShield to procure countermeasures and vaccines and is the agency now
responsible for advanced development of medical countermeasures for chemical,
biological, radiological, and nuclear agents. The purpose of BARDA is to take
over where NIH has left off in the transition from research and development to
advanced development and clinical testing. In addition, BARDA is responsible for
establishing priorities for civilian biodefense. BARDA has placed a priority on
stability and a rapid onset of immunity in no more than two vaccine doses as the
stability and efficacy targets for vaccines under development for both category
A and category B vaccines. BARDA has recently issued an RFP, entitled
“Biodefense Vaccine Enhancement,” to which we have submitted an application for
RiVaxTM. We
expect to continue to respond to RFPs that may arise within BARDA and other
branches of the government.
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™
The costs
that we have incurred to develop RiVax™ since 2002 total approximately
$6,600,000. Research and development costs for RiVax™ totaled $1,350,364 in
2007, of which $897,470 was for costs reimbursed under the NIH grant, and
$2,130,516 in 2006, of which $1,128,257 was for costs reimbursed under this
grant.
BT-VACCTM -
Botulinum Toxin Vaccine
Our
botulinum toxin vaccine, called BT-VACC™, stems from the research of Dr. Lance
Simpson at Thomas Jefferson University in Philadelphia, Pennsylvania.
The vaccine is being developed as an oral or intranasal formulation to be given
as a primary immunization series or as oral or nasal booster to individuals who
have been primed with an injected vaccine. Botulinum toxin is the
product of the bacteria Clostridium botulinum.
Botulinum toxin is the most poisonous natural substance known to man. 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.
In the
context of oral and nasal formulations, 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 suggests that a bivalent formulation of
serotypes A and B is 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.
In
September 2006, we were awarded a NIAID Phase 1 SBIR grant totaling
approximately $500,000 to conduct further work to combine antigens from
different serotypes of botulinum toxin for a prototype multivalent vaccine. The
grant funding has supported further work in characterizing antigen formulations
that induce protective immunity to the three most common botulinum toxin types
that may be encountered naturally or in the form of a bioweapon. This work will
continue the research conducted by Dr. Lance Simpson and colleagues who
originally showed that recombinant non-toxic segments of the botulinum toxin can
be given by the oral as well as the intranasal route to induce a strong
protective immune response in animals. This observation forms the basis for
development of an oral or intranasal vaccine for botulinum toxin that can be
used in humans. Currently, the recombinant vaccines under development are given
by intramuscular injections. The alternate route provides a self administration
option, which will bypass the requirement for needles and personnel to
administer the vaccine.
In July
2007, we announced that the first results from testing of a multivalent form of
BT-VACCTM have
been published in the journal Infection and Immunity
(Ravichandran et al., 2007, Infection and Immunity, v.
75, p. 3043). These results are the first that describe the protective immunity
elicited by a multivalent vaccine that is active by the mucosal route. The
vaccine consists of a combination of three non-toxic subunits of botulinum toxin
that induced protection against the corresponding versions of the natural
toxins. The results published in Infection and Immunity show
that non-toxic subunits (protein components of the natural toxin) of three of
the serotypes of botulinum toxin that cause almost all instances of human
disease, namely serotypes A, B, and E, can be combined and delivered via nasal
administration. The combination vaccine induced antibodies in the serum of mice
and protected against subsequent exposure to high doses of a combination of the
natural A, B, and E serotype neurotoxins. Further, the combination vaccine can
induce protection when given mucosally as a booster to animals that have been
given a primary vaccine injection.
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 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 in 2008.
Cost
and Development analysis for BT-VACC™
The costs
that we have incurred to develop BT-VACC™ from 2002 total approximately
$2,100,000. Research and development costs for BT-VACC™ totaled
$360,997 in 2007, of which $45,915 were reimbursed under the SBIR grant, and
$130,381 in 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 billion 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 BARDA bill,
may help provide funding for products at an intermediate state of
development.
BioTherapeutic
Products
|
Product
|
Therapeutic
Indication
|
Stage
of Development
|
|
|
|
|
|
orBec®
|
Treatment
of Acute GI GVHD
|
Phase
3 confirmatory trial to be initiated in 2008. MAA filed and
under review
|
|
orBec®
|
Prevention
of Acute GVHD
|
Phase
2 trial enrolling
|
|
orBec®
|
Treatment
of Chronic GI GVHD
|
Phase
2 to be initiated in 2008
|
|
Oral
BDP
|
Radiation
Enteritis and Radiation Exposure
|
Phase
2 to be initiated in 2008
|
|
LPMTM –
Leuprolide
|
Endometriosis
and Prostate Cancer
|
Phase
1 to be initiated in 2008
|
|
OraprineTM
|
Oral
lesions resulting from Graft-versus-Host Disease
|
Phase
1/2 ro be initiated in 2009
|
|
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
1 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 to
protect the safety of subjects.
Our
products will require regulatory clearance by the FDA and by comparable agencies
in other countries, prior to commercialization. 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
testing 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 smaller trials concerned primarily with metabolism and
pharmacologic actions of the drug and 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
clinical trials intended to gather additional information on safety and
effectiveness needed to clarify the product’s benefit-risk relationship 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 the approval of 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 practice 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
marketing 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 will
likely 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, such as RiVaxTM and
BT-VACCTM, the
FDA has instituted policies that are expected to result in shorter pathways to
market. This potentially 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 and are having 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 the eventual commercialization of orBec®. We are
actively seeking a partner for orBec® for
territories both inside and 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. If and when approved, we
also are considering a strategy of a commercial launch of orBec® by
ourselves in the U.S.
We have
had and are having 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., Dynavax, Emergent Biosolutions
(formerly Bioport Corporation), VaxGen, Inc., Chimerix, Inc., Human Genome
Sciences, Inc., Coley Pharmaceuticals, Inc., Avanir Pharmaceuticals, Inc.,
Dynport Vaccine Company, LLC., Pharmathene, SIGA Pharmaceuticals and
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.
For example, Avecia Biotechnology, Inc. has received NIH contracts to develop a
next generation injectable anthrax vaccine. VaxGen received an approximately
$900 million procurement order from the U.S. government to produce and deliver
75 million doses of Anthrax vaccine. This contract was rescinded in January 2007
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 biodefense products. For example, Coley
Pharmaceuticals, Inc. has received a $6 million Department of Defense grant to
develop vaccine enhancement technology. Dynport Vaccine Company, LLC, a prime
contractor with the DOD, 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. Kiadis Pharma
is also developing products for the treatment of GVHD. In addition,
there are investigator-sponsored clinical trials exploring the use of approved
drugs such as Enbrel®, which
has been approved by the FDA for the treatment of rheumatoid arthritis, in the
treatment of GVHD. 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 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.
We have
sponsored research agreements with UTSW funded by two NIH grants. 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. In 2003, we 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 have provided $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.
Employees
As of
March 26, 2008, we had seven full-time employees, three of whom are
Ph.Ds.
Research and Development
Spending
We spent
approximately $3,100,000 and $4,800,000 in the years ended December 31, 2007 and
2006, respectively, on research and development.
Description of
Property
We
currently lease approximately 3,000 square feet of office space at 850 Bear
Tavern Road, Suite 202, Ewing, New Jersey 08628. The office space currently
serves as our corporate headquarters. We pay rent of approximately $3,621 per
month and CAM charges of approximately $2,200 on a one-year lease, which was
entered into on October 1, 2007 and expires on September 30, 2008. We believe
that our current leased facilities are sufficient to meet our current
needs.
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 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. On January 26, 2006, we advised Gastrotech that we
were not renewing our letter of intent, which had expired in accordance with its
terms on January 15, 2006. 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. 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 we do not owe Gastrotech any
break-up fee pursuant to not renewing the
letter of intent to acquire Gastrotech.
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 prospectus, which could cause actual results to differ materially from
those expressed in, or implied by, any forward-looking statements, including
those set forth in “Risk Factors" in this prospectus. See "Forward-Looking
Statements."
Business Overview and
Strategy
We are a
late-stage research and development biopharmaceutical company focused on the
development of oral therapeutic products intended for areas of unmet medical
need and biodefense vaccines. On September 21, 2006, we 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”). On November 3, 2006, we also filed a Marketing Authorization
Application (“MAA”) with the European Central Authority, European Medicines
Evaluation Agency (“EMEA”) for orBec®, which
is currently under review. We anticipate receiving the EMEA’s official opinion
to our MAA in the first half of 2008.
On
October 18, 2007, we received a not approvable letter from the FDA in response
to our NDA for orBec® (oral
beclomethasone dipropionate) for the treatment of GI GVHD. In the letter,
the FDA requested additional clinical trial data to demonstrate the safety and
efficacy of orBec®. The
FDA also requested nonclinical and chemistry, manufacturing and controls
information as part of the not approvable letter. On October 19, 2007, we
requested an end of review conference with the FDA to further understand the
letter and gain clarity as to the next steps. On December 7, 2007, we announced
the following guidance from that meeting: (1) a single, confirmatory, Phase 3
clinical trial could provide sufficient evidence of efficacy provided that it is
well designed, well executed and provides clinically and statistically
meaningful findings; (2) we anticipate working quickly with the FDA to finalize
the design of the confirmatory trial under the Agency’s special protocol
assessment process; (3) the FDA would be agreeable to reviewing a plan for a
Treatment IND as long as it does not interfere with patient accrual in a
confirmatory trial, such as potentially enrolling patients that would not be
eligible for the Phase 3 study. Once we have agreement on the confirmatory
protocol with the FDA, we expect to begin enrollment in the new confirmatory
Phase 3 clinical program for the treatment of GI GVHD in the second half of
2008.
We
maintain two active segments: BioTherapeutics and BioDefense. Our business
strategy is to: (a) work with the FDA on the design of new clinical trials in GI
GVHD; (b) seek a development and marketing partner for orBec® for
territories both inside and outside of the US; (c) prepare for the potential
marketing approval of orBec® by the
EMEA; (d) conduct a prophylactic use clinical trial of orBec® for the
prevention of GI GVHD; (e) evaluate and initiate additional clinical trials to
explore the effectiveness of oral BDP in other therapeutic indications involving
inflammatory conditions of the gastrointestinal tract such as radiation
enteritis and Crohn’s disease; (f) reinitiate development including
manufacturing of our other biotherapeutics products namely LPMTM-Leuprolide,
and OraprineTM; (g)
secure additional government funding for each of our biodefense
programs, RiVaxTM and
BT-VACCTM,
through grants, contracts, and procurements; (h) explore acquisition strategies
under which the Company may be acquired by another company with oncologic or
gastrointestinal symmetry; (i) 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 (j) acquire or in-license new clinical-stage compounds for
development.
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
One of
the most significant estimates or judgments 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
practice in the pharmaceutical development industry. Of the intangible asset
balance as of December 31, 2006 and December 31, 2007, $1,025,000 and $425,000,
respectively, are for up-front license costs. We purchased the RiVaxTM vaccine
license from the University of Texas Southwestern Medical Center for $425,000.
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. For a development stage company with drug and vaccine products in an
often lengthy basic and clinical research process, we believe that patent rights
are 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.
We
capitalized $356,192 and $206,004 in patent related costs during the years ended
December 31, 2007 and 2006, respectively. These amounts are
represented in the cash flow statements, in the section for investing activities
presented in the financial statements included in this prospectus. On the
balance sheet as of December 31, 2007 and 2006, these amounts are presented on
the line intangible assets, net in the amount of $1,320,787 and $1,073,239,
respectively.
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 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 partial funding of our 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 2007 revenues and associated expenses were
from NIH Grants awarded in September 2004 and September 2006. The NIH grants are
associated with our ricin and botulinum vaccines. In addition, we were awarded a
one year FDA Orphan Products grant on September 23, 2005 for “Oral BDP for the
Treatment of GI GVHD.”
For the
year ended December 31, 2007, we had grant revenues of $1,258,017 as compared to
$2,313,020 in the 12 months ended December 31, 2006, a decrease of $1,055,003,
or 46%. In 2006 compared to 2007, our progress on the grant had exceeded the
original schedule, which accelerated the milestone revenues that were recorded
in the first quarter of 2006. We also incurred expenses correlated to the
revenue in 2007 and 2006 of $943,385 and $1,965,074, respectively, a decrease of
$1,021,689, or 52%. These costs relate to payments made to subcontractors and
universities in connection with the grants.
The gross
profit for the 12 months ended December 31, 2007 was $314,632 as compared to
$347,946 in the 12 months ended December 31, 2006, a decrease of $33,314, or
10%. This was due to the decreased grant revenues in the first quarter ended
2007 that were eligible for the F&A rate as well as the expected decrease in
the final F&A rate.
Research
and development spending decreased $538,549, or 15%, to $3,099,944, for the 12
months ended December 31, 2007 as compared to $3,638,493 for the corresponding
period ended December 31, 2006. In the third quarter of 2007, a
majority of expenses were related to preparation of FDA and European regulatory
matters. During the fourth quarter of 2007, our research and development
expenses were greatly reduced as a result of the end of FDA’s review of our NDA
for orBec®.
In-process
research and development expenditures were $0 for the 12 months ended December
31, 2007, a decrease of 100% as compared to $981,819 for the same period ended
December 31, 2006. This decrease was due to the purchase acquisition in 2006 of
all of the outstanding common stock of Enteron that the Company did not already
own.
Impairment
expense for intangibles was $0 for the 12 months ended December 31, 2007, a
decrease of 100% as compared to $816,300 for the same period ended December 31,
2006. This was due to the impairment of the Southern Research
Institute/Brookwood Pharmaceuticals license of microsphere
technology.
Stock
based compensation expenses for research and development increased $10,733, or
5%, to $230,668 for the 12 months ended December 31, 2007, as compared to
$219,895 for the corresponding period ended December 31, 2006.
Stock
based compensation expenses for general and administrative increased $109,486,
or 32%, to $446,773 for the 12 months ended December 31, 2007, as compared to
$337,287 for the corresponding period ended December 31, 2006.
General
and administrative expenses increased $310,670, or 12%, to $2,864,370 for the 12
months ended December 31, 2007, as compared to $2,553,700 for the corresponding
period ended December 31, 2006. The increase was primarily due to the dilution
expense taken for stock issued to investors from the April 2006 PIPE in the
amount of $308,743. In addition, we had expenses for public and investor
relations which increased by approximately $125,000.
Interest
income for the 12 months ended December 31, 2007 was $164,847 as compared to
$41,510 for the 12 months ended December 31, 2006, representing an increase of
$123,337, or 297%. This increase is due to a higher cash balance in 2007 as
compared to 2006.
Interest
expense for the 12 months ended December 31, 2007 was $1,020 as compared to
$5,308 for the 12 months ended December 31, 2006, a decrease of $4,288, or 81%.
This decrease was the result of lower balances that were short-term financed for
insurance premiums due and therefore less interest was accrued and
paid.
For the
12 months ended December 31, 2007, we had a net loss of $6,164,643 as compared
to a $8,163,346 net loss for the 12 months ended December 31, 2006, a decrease
of $1,998,703, or 24%. This decrease in the net loss is primarily attributed to
higher costs in 2006 for: regulatory and filing consultant 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 that the Company did not already own, the
impairment expense for intangibles of $816,300, and the dilution expense taken
for stock issued to investors from the April 2006 private placement in the
amount of $308,743.
Financial
Condition
Cash
and Working Capital
As of
December 31, 2007, we had cash of $2,220,128, as compared to $119,636 as of
December 31, 2006. As of March 26, 2008, we had cash of approximately
$2,000,000. As of December 31, 2007, we had working capital of $1,243,638, as
compared to negative working capital of $2,211,387 as of December 31, 2006,
representing an increase of $3,455,025. For the 12 months ended
December 31, 2007, our cash used in operating activities was approximately
$6,000,000, compared to $4,100,000 for the corresponding period ended December
31, 2006.
Based on
our current rate of cash outflows, cash in the bank, and expected proceeds from
the Fusion Capital facility, we believe that our cash will be sufficient to meet
our anticipated cash needs for working capital and capital expenditures through
the fourth quarter of 2009. If we are not able to access the Fusion Capital
facility, we believe our cash will only be sufficient to sustain reduced
operations into the first quarter of 2009.
We
believe that utilizing the Fusion Capital facility will allow us to begin the
phase 3 clinical trial of for orBec®. It is
possible that 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.
The
extent to which we rely on the Fusion Capital facility as a source of funding
will depend on a number of factors including, the prevailing market price of our
common stock and the extent to which we are able to secure working capital from
other sources. If obtaining sufficient financing from Fusion
Capital were to prove unavailable or prohibitively dilutive and if we are
unable to commercialize and sell enough of our products, we will need to secure
another source of funding in order to satisfy our working capital
needs. Even if we are able to access the full $8.5 million under the
Fusion Capital facility, we may still need additional capital to fully implement
our business, operating and development plans. Should the financing
we require to sustain our working capital needs be unavailable or prohibitively
expensive when we require it, the consequences could cause a material adverse
effect on our business, operating results, financial condition and
prospects.
Expenditures
Under
existing product development agreements and license agreements pursuant to
letters of intent and option agreements, we expect our expenditures for the next
12 months to be approximately $3,500,000, not inclusive of BioDefense programs,
nor programs covered under existing NIH or orphan grants, and not including
a new Phase 3 clinical trial for orBec® for the
treatment of GI GVHD. We anticipate grant revenues in the next 12
months to offset research and development expenses for the development of our
ricin toxin vaccine and botulinum toxin vaccine in the amount of approximately
$2,900,000, with $950,000 contributing towards our overhead
expenses.
The table
below details our costs for the 12 months ended December 31, 2007 and December
31, 2006 by program.
|
|
2007
|
2006
|
|
Program
- Research & Development Expenses
|
|
|
|
orBec®
|
$ 2,288,615
|
$ 3,060,778
|
|
RiVax™
|
452,894
|
274,635
|
|
BT-VACC™
|
315,082
|
290,405
|
|
Oraprine™
|
5,100
|
6,996
|
|
LPMTM-Leuprolide
|
38,254
|
5,679
|
|
Research
& Development Expense
|
$ 3,099,945
|
$ 3,638,493
|
|
|
|
|
|
Program
- Reimbursed under Grants
|
|
|
|
orBec®
|
$
-
|
$ -
|
|
RiVax™
|
897,470
|
1,961,074
|
|
BT-VACC™
|
45,915
|
4,000
|
|
Oraprine™
|
-
|
-
|
|
LPMTM-Leuprolide
|
-
|
-
|
|
Reimbursed
under Grant
|
$ 943,385
|
$ 1,965,074
|
|
|
|
|
|
TOTAL
|
$
4,043,330
|
$ 5,603,567
|
Debt
We had no
notes payable at December 31, 2007 or at December 31, 2006. 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, 2007, and
the effect those obligations are expected to have on our liquidity and cash flow
in future periods.
|
Contractual
Obligation
|
Year
2008
|
Year
2009
|
|
Non-cancelable
obligation (1)
|
$ 54,000
|
$ -
|
|
TOTALS
|
$
54,000
|
$ -
|
____________
(1) On
October 1, 2007, we signed a one year lease to occupy office space in Ewing, New
Jersey.
Equity
Transactions
On
February 14, 2008, we entered into a common stock purchase agreement with Fusion
Capital Fund II, LLC (“Fusion Capital”). The Fusion Capital facility allows us
to require Fusion Capital to purchase between $80,000 and $1.0 million depending
on certain conditions of our common stock up to an aggregate of $8.5 million
over approximately a 25-month period. As part of that agreement, we issued
Fusion Capital 1,275,000 shares of common stock as a commitment fee. In
connection with the execution of the common stock purchase agreement, Fusion
Capital purchased 2,777,778 common shares and a four year warrant to purchase
1,388,889 shares of common stock for $0.22 per share, for an aggregate price of
$500,000. We issued an additional 75,000 shares of common stock as a commitment
fee in connection with the purchase of $500,000 of our common stock. If our
stock price exceeds $0.15, then the amount required to be purchased may be
increased under certain conditions as the price of our common stock increases.
We cannot require Fusion Capital to purchase any shares of our common stock on
any trading days that the market price of our common stock is less than $0.10
per share.
On
February 14, 2008, we completed the sale of 881,111 shares of our common stock
to institutional and other accredited investors for an aggregate purchase price
of approximately $158,600. The investors also received four year warrants to
purchase an aggregate of 440,556 shares of our common stock at an exercise price
of $22 per share.
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. These shares have been registered.
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 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 from that placement were issued
additional shares as a cost basis adjustment from $0.277 to $0.246 per share of
the Company’s common stock. Neither these investors, nor any other investors,
hold any further anti-dilution rights. Because no agreement was reached by March
1, 2007, we were obligated to return the $2 million to Sigma-Tau by April 30,
2007. On June 1, 2007, we returned the $2 million to Sigma
Tau.
On April
10, 2006, we completed the sale of 13,099,964 shares of our common stock to
institutional and other accredited investors, including members of our
management team, for a purchase price 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. The Fusion Capital facility allowed it to purchase on each trading day
$20,000 of our common stock up to an aggregate of $6 million over approximately
a 15-month period. As part of that agreement we issued Fusion Capital 512,500
shares of common stock as a commitment fee. During 2006, Fusion purchased
329,540 common shares for $124,968.
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 required 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 instruments 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).
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 or the quarter ended September 30,
2007.
The
following table contains information regarding the current members of the Board
of Directors and executive officers:
|
|
|
|
|
James
S. Kuo, M.D., M.B.A.
|
43
|
Chairman
of the Board
|
|
Cyrille
F. Buhrman
|
35
|
Director
|
|
Christopher J. Schaber,
Ph.D.
|
41
|
Chief
Executive Officer, President, and Director
|
|
Evan
Myrianthopoulos
|
43
|
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. He has served as Chairman of the Board of Directors of
Duska Therapeutics, Inc., a public biopharmaceutical company, since June 2007
and has been Chief Executive Officer since September 2007. From 2006 to
September 2007, he served as Chairman 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. 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 further has been a founder and a
Board Director of Monarch Labs, LLC, a private medical device company. Dr. Kuo
is the former Managing Director of Venture Analysis for HealthCare Ventures,
LLC, which managed $378 million in venture funds. He has also been a senior
licensing and business development executive at Pfizer, Inc., where he was
directly responsible for cardiovascular licensing and development. After
studying molecular biology and receiving his B.A. at Haverford College, Dr.
Kuo simultaneously received his M.D. from The University of Pennsylvania School
of Medicine and his MBA from The Wharton School of Business at the University of
Pennsylvania. Dr. Kuo is also a director of Pipex Pharmaceuticals,
Inc., a public company.
Cyrille F. Buhrman has been a
director since June 2007. Mr. Buhrman is Chairman and President of the Pacific
Healthcare Group of Companies, a full-service marketing, sales, distribution and
regulatory affairs company based in Thailand where he has served for
approximately ten years. Mr. Buhrman is also a Director of International
Pharmaceuticals Ltd., a company focused on marketing niche pharmaceuticals and
other medical products in Thailand, Vision Care (Thailand) Co., Ltd., and Canyon
Pharmaceuticals, Inc., a private biotechnology company focused on the
commercialization of therapeutics to prevent and treat thrombosis and related
conditions. Mr. Buhrman is owner of Markle Holdings Ltd., an investment fund
specializing in biotech and pharmaceutical investments. Mr. Buhrman is also one
of our largest shareholders.
Christopher J. Schaber, Ph.D.,
has been our President and Chief Executive Officer and a director since August
2006. Prior to joining us, Dr. Schaber served from 1998 to 2006 as Executive
Vice President and Chief Operating Officer of Discovery Laboratories, Inc.,
where he was responsible for overall pipeline development and key areas of
commercial operations, including regulatory affairs, quality control and
assurance, manufacturing and distribution, preclinical and clinical research,
and medical affairs, as well as coordination of commercial launch preparation
activities. During his tenure at Discovery Laboratories, Inc., Dr. Schaber
played a significant role in raising in excess of $150 million through both
public offerings and private placements. From 1996 to 1998, Dr. Schaber was a
co-founder of Acute Therapeutics, Inc., and served as its 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, his M.S. in Pharmaceutics from Temple
University School of Pharmacy and his Ph.D. in Pharmaceutical Sciences from The
Union Graduate School.
Evan Myrianthopoulos has been
a director since 2002 and is currently our Chief Financial Officer, after
joining us 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 Laboratories, Inc. 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 helped negotiate and manage Discovery
Laboratories, Inc.’s mergers with Ansan Pharmaceuticals and Acute Therapeutics,
Inc. Prior to co-founding Discovery Laboratories, Inc., Mr. Myrianthopoulos was
a Technology Associate at Paramount Capital Investments, LLC, a New York City
based biotechnology venture capital and investment banking firm. Prior to
joining Paramount Capital Investments, LLC, Mr. Myrianthopoulos was a managing
partner at a hedge fund and also 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 us, 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
positions as Chief Financial Officer for Gallery Industries, from November 2001
to July 2003, a retail and manufacturing garment company. Prior to
Gallery Industries, as corporate controller for A Novo Broadband, he managed
several mergers and acquisitions and corporate restructuring. 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 an M.A. in Accounting from
Florida International University, a B.A. in Accounting from the
University of Nebraska, and a B.S. in Chemistry from the University of
Florida. Mr. Clavijo is a licensed Certified Public Accountant in the
state of Florida.
The
following table contains information concerning the compensation paid during our
fiscal years ended December 31, 2006 and 2007 to the persons who served as our
Chief Executive Officers, and each of the two other most highly compensated
executive officers during 2007 (collectively, the “Named Executive
Officers”).
Summary
Compensation Table
|
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
|
|
|
|
2007
|
$300,000
|
$100,000
|
$155,409
|
$28,798
|
$584,207
|
|
Evan
Myrianthopoulos (2)
|
CFO
|
2006
|
$195,724
|
$ 55,000
|
$103,064
|
$49,257
|
$398,045
|
|
|
|
2007
|
$200,000
|
$ 50,000
|
$146,938
|
$27,786
|
$324,724
|
|
James
Clavijo (3)
|
Controller,
Treasurer & Secretary
|
2006
|
$144,999
|
$ 40,000
|
$ 42,836
|
$
-
|
$222,835
|
|
|
|
2007
|
$155,000
|
$ 35,000
|
$ 53,115
|
$
-
|
$243,115
|
(1) Dr.
Schaber deferred payment of his 2007 annual bonus of $100,000. Option Awards
include the value of stock option awards of vested shares of common stock as
required by FASB No. 123R. Other Compensation for 2007 includes $2,301 for
transportation costs, $7,263 for travel expenses and $19,234 for lodging costs.
Other Compensation for 2006 includes $1,430 for transportation costs, $6,458 for
travel expenses and $9,007 for lodging costs.
(2) Mr.
Myrianthopoulos deferred payment of his 2007 annual bonus of $50,000. Option
Awards include the value of stock option awards of vested shares of common stock
as required by FASB No. 123R. Other Compensation for 2007 includes $2,895 for
transportation costs, $6,787 for travel expenses and $18,104 for lodging costs.
Other Compensation for 2006 includes $4,088 for transportation costs, $12,485
for travel expenses and $32,684 for lodging costs.
(3) Mr.
Clavijo deferred payment of his 2007 annual bonus of $35,000. 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.
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 nine 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.
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 set
off, 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 entered into an 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.
On
December 27, 2007, we entered into a new three-year employment agreement with
Dr. Schaber, Mr. Myrianthopoulos and Mr. Clavijo, which replaced their existing
employment agreements. The primary changes to the terms of the original
agreements are as follows:
In
February 2007, our Board of Directors authorized the issuance of the following
number of shares to each of Dr. Schaber and Messrs. Myrianthopoulos and Clavijo
immediately prior to the completion of a transaction, or series or a 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 the Company and/or our stockholders to a third
party: 1,000,000 common shares to Dr. Schaber; 750,000 common shares to Mr.
Myrianthopoulos; and 300,000 common shares to Mr. Clavijo. The
amended agreements include our obligation to issue such shares to the executives
if such event occurs.
Dr.
Schaber’s monetary compensation (base salary and bonus) remained unchanged from
2006. He will be paid nine months severance upon termination of
employment. Upon a change in control of the Company due to merger or
acquisition, all of Dr. Schaber’s options shall become fully vested, and be
exercisable for a period of five years after such change in control (unless they
would have expired sooner pursuant to their terms). In the event of
his death during term of the agreement, all of his unvested options shall
immediately vest and remain exercisable for the rest of their term and become
the property of Dr. Schaber’s immediate family.
Mr.
Myrianthopoulos’ monetary compensation (base salary and bonus) remained
unchanged from 2006. He will be paid six months severance upon
termination of employment. Upon a change in control of the Company due to merger
or acquisition, all of Mr. Myrianthopoulos’ options shall become fully vested,
and be exercisable for a period of three years after such change in control
(unless they would have expired sooner pursuant to their terms). In
the event of his death during term of contract, all of his unvested options
shall immediately vest and remain exercisable for the rest of their term and
become property of Mr. Myrianthopoulos’ immediate family.
Mr.
Clavijo’s monetary compensation (base salary and bonus) remained unchanged from
2006. He will be paid six months severance (subject to set off) upon
termination of employment. Upon a change in control of the Company due to merger
or acquisition, all of Mr. Clavijo’s options shall become fully vested, and be
exercisable for a period of three years after such change in
control (unless they would have expired sooner pursuant to their
terms). In the event of his death during term of contract, all of his
unvested options shall immediately vest and remain exercisable for the rest of
their term and become property of Mr. Clavijo’s immediate
family.
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, 2007. 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 ($)
|
Option
Expiration Date
|
|
Exercisable
|
Unexercisable
|
|
Christopher
J. Schaber(1)
|
1,527,783
|
972,217
|
972,217
|
$0.27
|
8/28/2016
|
|
|
281,250
|
618,750
|
618,750
|
$0.47
|
8/29/2017
|
|
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
|
|
|
500,000
|
-
|
-
|
$0.49
|
12/13/2014
|
|
|
275,000
|
125,000
|
125,000
|
$0.35
|
5/10/2016
|
|
|
171,875
|
378,125
|
378,125
|
$0.47
|
8/29/2017
|
|
James
Clavijo
|
100,000
|
-
|
-
|
$0.45
|
10/22/2014
|
|
|
141,663
|
8,337
|
8,337
|
$0.45
|
2/22/2015
|
|
|
125,000
|
75,000
|
75,000
|
$0.33
|
5/10/2016
|
|
|
93,750
|
206,250
|
206,250
|
$0.47
|
8/29/2017
|
Compensation
of Directors
The
following table contains information concerning the compensation of the
non-employee directors during the fiscal year ended December 31,
2007.
Director
Compensation
|
Name
|
Fees
Earned of Paid in Cash ($) (1)
|
Option
Awards ($) (2)
|
Total
($)
|
|
Steve
H. Kanzer (3)
|
$23,000
|
$14,200
|
$37,200
|
|
James
S. Kuo
|
$34,000
|
$94,630
|
$128,630
|
|
Cyrille
F. Buhrman
|
$8,000
|
$54,050
|
$62,050
|
_______________
|
(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 150,000 shares of common stock, and subsequent annual grants of
fully vested options to purchase 75,000 shares of common stock after
re-election to our Board of Directors. Option Awards include
the value of stock option awards of vested shares of Common Stock as
required by FASB No. 123R.
|
|
(3)
|
Mr.
Kanzer resigned from our Board of Directors on May 28,
2007.
|
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 March 24, 2008 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.
|
Name
of Beneficial Owner
|
Shares
of Common Stock Beneficially Owned
|
Percent
of Class
|
|
Cyrille
F. Buhrman (1)
|
5,125,020
|
5.2%
|
|
Christopher
J. Schaber (2)
|
2,453,189
|
2.4%
|
|
Evan
Myrianthopoulos (3)
|
1,780,625
|
1.7%
|
|
James
S. Kuo (4)
|
630,000
|
*
|
|
James
Clavijo (5)
|
619,441
|
*
|
|
All
directors and executive officers as a group (5 persons)
|
10,608,275
|
10.1%
|
____________
*
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 March 24, 2008 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
100,299,378 shares of common stock outstanding as of March 24,
2008.
(1) Includes 4,900,020 shares of
common stock and options to purchase 225,000 shares of common stock within 60
days of March 24, 2008. The address of Mr. Buhrman is c/o DOR BioPharma,
850 Bear Tavern Road, Suite 201, Ewing, New Jersey 08628.
(2) Includes
392,766 shares of common stock owned by Dr. Schaber and options to purchase
2,060,423 shares of common stock within 60 days of March 24, 2008. The
address of Dr. Schaber is c/o DOR BioPharma, 850 Bear Tavern Road, Suite 201,
Ewing, New Jersey 08628.
(3) Includes
224,780 shares of common stock owned by Mr. Myrianthopoulos and his wife,
options to purchase 1,465,625 shares of common stock and warrants to purchase
90,220 shares of common stock within 60 days of March 24, 2008. The address
of Mr. Myrianthopoulos is c/o DOR BioPharma, 850 Bear Tavern Road, Suite 201,
Ewing, New Jersey 08628.
(4) Includes
options to purchase 625,000 shares of common stock and warrants to purchase
5,000 shares of common stock within 60 days of March 24, 2008. The address
of Dr. Kuo is c/o DOR BioPharma, 850 Bear Tavern Road, Suite 201, Ewing, New
Jersey 08628.
(5) Includes
88,191 shares of common stock owned by Mr. Clavijo and options to purchase
531,250 shares of common stock within 60 days of March 24, 2008. The
address of Mr. Clavijo is c/o DOR BioPharma, 850 Bear Tavern Road, Suite 201,
Ewing, New Jersey 08628.
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. In September 2007, our
stockholders approved an amendment to the 2005 Equity Incentive Plan to increase
the maximum number of shares of our common stock available for issuance under
the plan by 10,000,000 shares, bringing the total shares reserved for issuance
under the plan to 20,000,000 shares. The following table provides information,
as of December 31, 2007, 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)
|
10,349,839
|
$
0.44
|
10,612,961
|
|
Equity
compensation plans not approved by security holders
|
-
|
-
|
-
|
|
|
|
|
|
|
TOTAL
|
10,349,839
|
$0.44
|
10,612,961
|
(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
amended 2005 equity incentive plan, we have issued 1,117,039 shares to
individuals as payment for services in the amount of $321,166 as allowed in the
plan.
General
On
February 14, 2008, we entered into a common stock purchase agreement with Fusion
Capital Fund II, LLC, an Illinois limited liability company. Under
the agreement, Fusion Capital is obligated, under certain conditions, to
purchase shares from us in an aggregate amount of $8.5 million from time to time
over a 25 month period. We have sold 2,777,778 shares of common stock
to Fusion Capital (together with a warrant to purchase 1,388,889 shares of our
common stock purchase that are not part of this offering) under the agreement
for total proceeds of $500,000. Under the terms of the common stock
purchase agreement, Fusion Capital has received a commitment fee consisting of
1,275,000 shares of our common stock. Also, we will issue to Fusion Capital an
additional 1,200,000 shares as a commitment fee pro rata as we receive the $8.0
million of future funding. We issued 75,000 shares as a pro rata
commitment fee in connection with the purchase by Fusion Capital of $500,000 of
our common stock. All 2,550,000 shares issued or to be issued to Fusion
Capital as a commitment fee are being included in the offering pursuant to this
prospectus. There are no negative covenants, restrictions on future fundings,
penalties or liquidated damages in the agreement.
As of
March 26, 2008, there were 100,299,378 shares outstanding (93,639,020 shares
held by non-affiliates), excluding the 20 million shares offered by Fusion
Capital pursuant to this prospectus which it has not yet purchased from us and
the 1,200,000 shares that we will issue to Fusion Capital as a commitment fee as
we receive the $8.0 million of future funding. If all of such 20 million shares
that may be sold to Fusion Capital and that are offered hereby were issued and
outstanding as of the date hereof, the 20 million shares would represent
approximately 17% of the total common stock outstanding, or 18% of the
non-affiliates shares outstanding, as of the date hereof. The number of shares
ultimately offered for sale by Fusion Capital is dependent upon the number of
shares purchased by Fusion Capital under the agreement.
We do not
have the right to commence any additional sales of our shares to Fusion Capital
until the SEC has declared effective the registration statement of which this
prospectus is a part of. After the SEC has declared effective such registration
statement, generally we have the right but not the obligation from time to time
to sell our shares to Fusion Capital in amounts between $80,000 and $1.0 million
depending on certain conditions. The registration statement was
declared effective on April 4, 2008 and the conditions to commence funding were
satisfied on April 11, 2008. We have the right to control the timing and amount
of any sales of our shares to Fusion Capital. The purchase price of
the shares will be determined based upon the market price of our shares without
any fixed discount at the time of each sale. Fusion Capital shall
neither have the right nor the obligation to purchase any shares of our common
stock on any business day that the price of our common stock is below
$0.10. The agreement may be terminated by us at any time at our
discretion without any cost to us.
Purchase
of Shares Under the Common Stock Purchase Agreement
Under the
common stock purchase agreement, on any trading day selected by us, we may
direct Fusion Capital to purchase up to $80,000 of our common
stock. The purchase price per share is equal to the lesser
of:
|
|
•
|
the
lowest sale price of our common stock on the purchase date;
or
|
|
|
•
|
the
average of the three lowest closing sale prices of our common stock during
the 12 consecutive trading days prior to the date of a purchase by Fusion
Capital.
|
The
purchase price will be equitably adjusted for any reorganization,
recapitalization, non-cash dividend, stock split, or other similar transaction
occurring during the trading days used to compute the purchase price. We may
direct Fusion Capital to make multiple purchases from time to time in our sole
discretion; no sooner then every third business day.
Minimum
Purchase Price
Under the
common stock purchase agreement, we have set a minimum purchase price (“floor
price”) of $0.10. However, Fusion Capital shall have neither the
right nor the obligation to purchase any shares of our common stock in the event
that the purchase price would be less the floor price.
Our
Right to Increase the Amount to be Purchased
In
addition to purchases of up to $80,000 from time to time, we may also from time
to time elect on any single business day selected by us to require Fusion
Capital to purchase our shares in an amount up to $100,000 provided that our
share price is not below $0.15 during the three business days prior to and on
the purchase date. We may increase this amount to up to $250,000 if our share
price is not below $0.25 during the three business days prior to and on the
purchase date. This amount may also be increased to up to $500,000 if our share
price is not below $0.50 during the three business days prior to and on the
purchase date. This amount may also be increased to up to $1.0 million if our
share price is not below $1.00 during the three business days prior to and on
the purchase date. We may direct Fusion Capital to make multiple large purchases
from time to time in our sole discretion; however, at least two business days
must have passed since the most recent large purchase was completed. The price
at which our common stock would be purchased in this type of larger purchases
will be the lesser of (i) the lowest sale price of our common stock on the
purchase date and (ii) the lowest purchase price (as described above) during the
previous ten business days prior to the purchase date.
Events
of Default
Generally,
Fusion Capital may terminate the common stock purchase agreement without any
liability or payment to the Company upon the occurrence of any of the following
events of default:
|
|
•
|
the
effectiveness of the registration statement of which this prospectus is a
part of lapses for any reason (including, without limitation, the issuance
of a stop order) or is unavailable to Fusion Capital for sale of our
common stock offered hereby and such lapse or unavailability continues for
a period of ten consecutive business days or for more than an aggregate of
30 business days in any 365-day
period;
|
|
|
•
|
suspension
by our principal market of our common stock from trading for a period of
three consecutive business days;
|
|
|
•
|
the
de-listing of our common stock from our principal market provided our
common stock is not immediately thereafter trading on the Nasdaq Global
Market, the Nasdaq Capital Market, the New York Stock Exchange or the
American Stock Exchange;
|
|
|
•
|
the
transfer agent’s failure for five business days to issue to Fusion Capital
shares of our common stock which Fusion Capital is entitled to under the
common stock purchase agreement;
|
|
|
•
|
any
material breach of the representations or warranties or covenants
contained in the common stock purchase agreement or any related agreements
which has or which could have a material adverse effect on us subject to a
cure period of five business days;
or
|
|
|
•
|
any
participation or threatened participation in insolvency or bankruptcy
proceedings by or against us.
|
Our
Termination Rights
We have
the unconditional right at any time for any reason to give notice to Fusion
Capital terminating the common stock purchase agreement. Such notice shall be
effective one trading day after Fusion Capital receives such
notice.
No
Short-Selling or Hedging by Fusion Capital
Fusion
Capital has agreed that neither it nor any of its affiliates shall engage in any
direct or indirect short-selling or hedging of our common stock during any time
prior to the termination of the common stock purchase agreement.
Effect
of Performance of the Common Stock Purchase Agreement on Our
Stockholders
All
25,327,778 shares registered in connection with the Fusion Capital transaction
are expected to be freely tradable. It is anticipated that shares
registered in connection with the Fusion Capital transaction will be sold over a
period of up to 25 months from the date of this prospectus. The sale
by Fusion Capital of a significant amount of shares registered in this offering
at any given time could cause the market price of our common stock to decline
and to be highly volatile. Fusion Capital may ultimately purchase
all, some or none of the 20 million shares of common stock not yet issued but
registered in this offering. After it has acquired such shares, it
may sell all, some or none of such shares. Therefore, sales to Fusion Capital by
us under the agreement may result in substantial dilution to the interests of
other holders of our common stock. However, we have the right to control the
timing and amount of any sales of our shares to Fusion Capital and the agreement
may be terminated by us at any time at our discretion without any cost to
us.
In
connection with entering into the agreement, we authorized the sale to Fusion
Capital of up to 20 million shares of our common stock (excluding the 2,777,778
shares issued to Fusion Capital upon execution of the common stock purchase
agreement, the 1,388,889 shares underlying the warrant, and the 2,550,000
commitment fee shares). The number of
shares ultimately offered for sale by Fusion Capital under this prospectus is
dependent upon the number of shares purchased by Fusion Capital under the
agreement. The following table sets forth the amount of proceeds we
would receive from Fusion Capital from the sale of shares at varying purchase
prices, not including the $500,000 we already received for the sale of 2,777,778
shares:
Assumed
Average Purchase Price
|
Number
of Shares to be Issued if Full Purchase
|
Percentage
of Outstanding Shares After Giving Effect to the Issuance to Fusion
Capital (1)
|
Proceeds
from the Sale of Up to 20 Million Shares to Fusion Capital Under the
Common Stock Purchase Agreement
|
|
$0.10
|
20,000,000
|
17%
|
$2,000,000
|
|
$0.18(2)
|
20,000,000
|
17%
|
$3,600,000
|
|
$0.25
|
20,000,000
|
17%
|
$5,000,000
|
|
$0.40
|
20,000,000
|
17%
|
$8,000,000
|
|
$0.50
|
16,000,000
|
14%
|
$8,000,000
|
|
$0.60
|
13,333,333
|
12%
|
$8,000,000
|
____________________
(1) The
denominator is based on 100,299,378 shares outstanding as of March 26, 2008,
which includes the 4,052,778 shares previously issued to Fusion Capital and the
number of shares set forth in the adjacent column. The numerator is based on the
number of shares issuable under the common stock purchase agreement at the
corresponding assumed purchase price set forth in the adjacent
column.
(2) Closing
sale price of our shares on March 26, 2008.
Commitment
Shares Issued to Fusion Capital
Unless an
event of default occurs, the commitment shares must be held by Fusion Capital
until the earlier of (i) 25 months from the date of the common stock purchase
agreement or (ii) the date the common stock purchase agreement is terminated;
however this restriction does not apply in the event that we do not commence
sales of stock to Fusion Capital prior to June 1, 2008.
The
following table presents information as of March 26, 2008 and sets forth the
number of shares of common stock owned by the selling stockholders. 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.
Neither
the selling stockholder nor any of its affiliates has held a position
or office, or had any other material relationship, with us except that, on
January 17, 2006, we entered into a common stock purchase agreement with Fusion
Capital for the purchase of up to $6 million of our common stock over a 15 month
period. Under that agreement we sold 329,540 of our common shares to
Fusion Capital over an approximately 15 month period for proceeds of
approximately $125,000. That agreement expired pursuant to its terms
and we cannot sell any additional shares to Fusion Capital under that
agreement.
|
Name of
Selling
Stockholders
|
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
|
|
|
|
|
|
|
|
|
|
Fusion
Capital II, LLC (2)
|
4,127,778 |
4.1 |
% |
25,327,778 |
- |
0% |
|
Bernard
D. Noble
|
377,778 |
* |
|
277,778 |
100,000 |
* |
|
Bear
Stearns Corp. Custodian For Lloyd R. Brokaw IRA
|
182,000 |
* |
|
125,000 |
57,000 |
* |
|
Little
Gem Life Sciences Fund LLC (3)
|
120,000 |
* |
|
120,000 |
- |
0% |
|
Vasili
Myrianthopoulos
|
144,611 |
* |
|
111,111 |
33,500 |
* |
|
Steven
Mark
|
225,000 |
* |
|
125,000 |
100,000 |
* |
|
Robin
Mirianthopoulos
|
66,667 |
* |
|
66,667 |
- |
0% |
|
Joan
Orwen
|
55,556 |
* |
|
55,556 |
- |
0% |
|
IBIS
Consulting (4)
|
7,500 |
* |
|
7,500 |
- |
0% |
|
Numoda
Corporation (5)
|
347,222 |
* |
|
347,222 |
- |
0% |
*
Less than 1%
**
Percentage of ownership is based on 100,299,378 shares of common stock
outstanding as of March 26, 2008.
(1) As
of the date hereof, we have issued 2,777,778 shares of our common stock to
Fusion Capital under the common stock purchase agreement and 1,350,000 shares of
our common stock as a commitment fee. Fusion Capital may acquire up
to an additional 20 million shares from purchases under the common stock
purchase agreement and an additional 1,200,000 shares as a commitment fee pro
rata as we receive the $8.0 million of future funding, all of which are included
in the offering pursuant to this prospectus.
(2) Steven
G. Martin and Joshua B. Scheinfeld, the principals of Fusion Capital, are deemed
to be beneficial owners of all of the shares of common stock owned by Fusion
Capital. Messrs. Martin and Scheinfeld have shared voting and
disposition power over the shares being offered by Fusion Capital under this
prospectus.
(3) Jeffrey
Benison is the principal of Little Gem Life Sciences Fund LLC, and is deemed to
be beneficial owner of all of the shares of common stock owned by Little Gem
Life Sciences Fund LLC. Mr. Benison has sole voting and sole
disposition power over the shares being offered by Little Gem Life Sciences Fund
LLC under this prospectus.
(4) Dina
Lyaskovets is the principal of IBIS Consulting, and is deemed to be beneficial
owner of all of the shares of common stock owned by IBIS
Consulting. Ms. Lyaskovets has sole voting and sole disposition power
over the shares being offered by IBIS Consulting under this
prospectus.
(5) Mary
Schaheen is the principal of Numoda Corporation, and is deemed to be beneficial
owner of all of the shares of common stock owned by Numoda Corporation. Mrs.
Schaheen has sole voting and sole disposition power over the shares being
offered by Numoda Corporation under this prospectus.
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 $8.0 million in proceeds from the sale of our common stock to Fusion Capital
under the common stock purchase agreement, excluding the $500,000 we already
received. We plan to use the proceeds from this financing to: (a) design new
clinical trials in GI GVHD; (b) seek a development and marketing partner for
orBec® for
territories both inside and outside of the U.S.; (c) prepare for the potential
marketing approval of orBec® by the
EMEA; (d) conduct a prophylactic use clinical trial of orBec® for the
prevention of GI GVHD; (e) evaluate and initiate additional clinical trials to
explore the effectiveness of oral BDP in other therapeutic indications involving
inflammatory conditions of the gastrointestinal tract such as radiation
enteritis and Crohn’s disease; (f) reinitiate development including
manufacturing of our other biotherapeutics products namely LPMTM-Leuprolide,
and OraprineTM; (g)
secure additional government funding for each of our biodefense
programs, RiVaxTM and
BT-VACCTM,
through grants, contracts, and procurements; (h) explore acquisition strategies
under which we may be acquired by another company with oncologic or
gastrointestinal symmetry; (i) 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 (j) acquire or in-license new clinical-stage compounds for
development.
Based on
the our current rate of cash outflows, cash in the bank, and expected proceeds
from the Fusion Capital facility, we believe that our cash will be sufficient to
meet our anticipated needs for working capital and capital expenditures through
the fourth quarter of 2009. If we are not able to access the Fusion Capital
facility, we believe our cash will only be sufficient to sustain reduced
operations into the first quarter of 2009.
The
common stock offered by this prospectus is being offered by the selling
stockholders. The common stock may be sold or distributed from time
to time by the selling stockholders directly to one or more purchasers or
through brokers, dealers, or underwriters who may act solely as agents at market
prices prevailing at the time of sale, at prices related to the prevailing
market prices, at negotiated prices, or at fixed prices, which may be
changed. The sale of the common stock offered by this prospectus may
be effected in one or more of the following methods:
|
|
•
|
ordinary
brokers’ transactions;
|
|
|
•
|
transactions
involving cross or block trades;
|
|
|
•
|
through
brokers, dealers, or underwriters who may act solely as
agents
|
|
|
•
|
“at
the market” into an existing market for the common
stock;
|
|
|
•
|
in
other ways not involving market makers or established business markets,
including direct sales to purchasers or sales effected through
agents;
|
|
|
•
|
in
privately negotiated transactions;
or
|
|
|
•
|
any
combination of the foregoing.
|
In order
to comply with the securities laws of certain states, if applicable, the shares
may be sold only through registered or licensed brokers or
dealers. In addition, in certain states, the shares may not be sold
unless they have been registered or qualified for sale in the state or an
exemption from the registration or qualification requirement is available and
complied with.
Brokers,
dealers, underwriters, or agents participating in the distribution of the shares
as agents may receive compensation in the form of commissions, discounts, or
concessions from the selling stockholders and/or purchasers of the common stock
for whom the broker-dealers may act as agent. The compensation paid
to a particular broker-dealer may be less than or in excess of customary
commissions.
One of
the selling stockholders, Fusion Capital, is an “underwriter” within the meaning
of the Securities Act. The other selling stockholders may be deemed
"underwriters" within the meaning of the Securities Act.
Neither
we nor the selling stockholders can presently estimate the amount of
compensation that any agent will receive. We know of no existing
arrangements between the selling stockholders, any other stockholder, broker,
dealer, underwriter, or agent relating to the sale or distribution of the shares
offered by this prospectus. At the time a particular offer of shares
is made, a prospectus supplement, if required, will be distributed that will set
forth the names of any agents, underwriters, or dealers and any compensation
from the selling stockholders, and any other required information.
We will
pay all of the expenses incident to the registration, offering, and sale of the
shares to the public other than commissions or discounts of underwriters,
broker-dealers, or agents. We have also agreed to indemnify the
selling stockholders and related persons against specified liabilities,
including liabilities under the Securities Act.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers, and controlling persons, we have been
advised that in the opinion of the SEC this indemnification is against public
policy as expressed in the Securities Act and is, therefore,
unenforceable.
After the
effective date of the registration statement, the selling stockholders, other
than Fusion Capital, may engage in short sales against the box, puts and calls
and other transactions in our securities or derivatives of our securities and
may sell or deliver shares in connection with these trades. Fusion Capital and
its affiliates have agreed not to engage in any direct or indirect short selling
or hedging of our common stock during the term of the common stock purchase
agreement.
We have
advised the selling stockholders that while they are engaged in a distribution
of the shares included in this prospectus they are required to comply with
Regulation M promulgated under the Securities Exchange Act of 1934, as
amended. With certain exceptions, Regulation M precludes the selling
stockholders, any affiliated purchasers, and any broker-dealer or other person
who participates in the distribution from bidding for or purchasing, or
attempting to induce any person to bid for or purchase any security which is the
subject of the distribution until the entire distribution is
complete. Regulation M also prohibits any bids or purchases made in
order to stabilize the price of a security in connection with the distribution
of that security. All of the foregoing may affect the marketability of the
shares offered hereby this prospectus.
This
offering will terminate on the date that all shares offered by this prospectus
have been sold by the selling stockholders.
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 $0.05 per share, and 200,000 shares are
Series C Convertible Preferred Stock, par value $0.05 per share. As of March 26,
2008, there were issued and outstanding 100,299,378 shares of common stock,
options to purchase approximately 10,349,839 shares of common stock and warrants
to purchase approximately 30,598,230 shares of common stock.
The amount outstanding excludes the $8.5 million of common stock that may be
issued to Fusion Capital.
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 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 and as quoted on the website of the
OTCBB, for the period from January 1, 2006 through December 31, 2007. 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, 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
|
|
|
|
|
|
Fiscal
Year Ended December 31, 2007:
|
|
|
|
First
Quarter
|
$0.71
|
$0.23
|
|
Second
Quarter
|
$0.95
|
$0.20
|
|
Third
Quarter
|
$0.40
|
$0.26
|
|
Fourth
Quarter
|
$0.61
|
$0.15
|
On April
18, 2006, our common stock was delisted from the American Stock Exchange and
began to be quoted on the OTCBB. As of March 26, 2008, the last reported price
of our common stock was $0.18 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 1,071 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 dependent 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 in the Registration Statement have been audited by
Sweeney, Gates & Co., an independent registered public accounting firm, for
the years ended December 31, 2007 and 2006, as set forth in their report
appearing herein. 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 stockholders
will be passed upon by the law firm of Edwards Angell Palmer & Dodge LLP,
West Palm Beach, Florida.
INDEX TO FINANCIAL STATEMENTS
DOR
BIOPHARMA, INC. AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Table
of Contents
Report of
Independent Registered Public Accounting Firm……………………………….
F-1
Balance
Sheets as of December 31, 2007and
2006……………………..…………………..... F-2
Statements
of Operations for the years ended December 31, 2007and
2006 ………....... F-3
Statements
of Changes in Shareholders’ Equity (Deficiency) for the years ended
December
31, 2007 and
2006…………………………………………………………….…..... F-4
Statements
of Cash Flows for the years ended December 31, 2007 and
2006…………..… F-5
Notes to
Financial
Statements…………………..……………………………………………... F-6
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors of DOR BioPharma, Inc.,
We have
audited the accompanying consolidated balance sheets of DOR BioPharma, Inc. and
subsidiaries as of December 31, 2007 and 2006 and the related consolidated
statements of operations, changes in shareholders' equity (deficiency) and cash
flows for the years ended December 31, 2007 and 2006. 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 consolidated financial position of the Company at
December 31, 2007 and 2006, and the results of its operations and its cash flows
for each of the years ended December 31, 2007, in conformity with United States
generally accepted accounting principals.
/s/
Sweeney, Gates & Co.
Fort
Lauderdale, Florida
March 8,
2008
Consolidated
Balance Sheets
December
31,
|
|
|
|
2007
|
|
|
|
|
|
2006
|
|
|
Assets
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,220,128
|
|
|
|
|
$
|
119,636
|
|
|
Grants
receivable
|
|
|
97,845
|
|
|
|
|
|
89,933
|
|
|
Prepaid
expenses
|
|
|
119,178
|
|
|
|
|
|
94,470
|
|
|
Total
current assets
|
|
|
2,437,151
|
|
|
|
|
|
304,039
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
and laboratory equipment, net
|
|
|
25,941
|
|
|
|
|
|
29,692
|
|
|
Intangible
assets, net
|
|
|
1,320,787
|
|
|
|
|
|
1,073,239
|
|
|
Total
assets
|
|
$
|
3,783,879
|
|
|
|
|
$
|
1,406,970
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders’ equity
(deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
847,610
|
|
|
|
|
$
|
2,112,479
|
|
|
Accrued
compensation
|
|
|
345,903
|
|
|
|
|
|
402,947
|
|
|
Total
current liabilities
|
|
|
1,193,513
|
|
|
|
|
|
2,515,426
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
equity (deficiency):
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, $.001 par value. Authorized 250,000,000
|
|
|
|
|
|
|
|
|
|
|
|
shares;
94,996,547 and 68,855,794, respectively issued and
outstanding
|
|
|
94,996
|
|
|
|
|
|
68,855
|
|
|
Additional
paid-in capital
|
|
|
101,391,090
|
|
|
|
|
|
91,553,766
|
|
|
Accumulated
deficit
|
|
|
(
98,895,720
|
) |
|
|
|
|
(
92,731,077
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity (deficiency)
|
|
|
2,590,366
|
|
|
|
|
|
(
1,108,456
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders’ equity (deficiency)
|
|
$
|
3,783,879
|
|
|
|
|
|
1,406,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
Consolidated
Statements of Operations
For
the years ended December 31,
| |
|
|
2007
|
|
|
2006
|
|
| |
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,258,017
|
|
$
|
2,313,020
|
|
|
Cost
of revenues
|
|
|
(
943,385
|
)
|
|
(
1,965,074
|
)
|
|
Gross profit
|
|
|
314,632
|
|
|
347,946
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
3,099,944
|
|
|
3,638,493
|
|
|
General and administrative |
|
|
2,864,370 |
|
|
2,553,700 |
|
|
Stock based compensation research and development |
|
|
230,668 |
|
|
219,895 |
|
|
Stock based compensation general and administrative |
|
|
446,733 |
|
|
337,287 |
|
|
In-process research and development
|
|
|
-
|
|
|
981,819
|
|
|
Impairment of intangible assets
|
|
|
-
|
|
|
816,300
|
|
|
Total operating expenses
|
|
|
6,641,715
|
|
|
8,547,494
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(
6,327,083
|
)
|
|
(
8,199,548
|
)
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
164,847
|
|
|
41,510
|
|
|
Interest (expense) |
|
|
(
1,020 |
) |
|
(
5,308 |
) |
|
Other (expense)
|
|
|
(
1,387
|
)
|
|
-
|
|
|
Total other income (expense)
|
|
|
162,440
|
|
|
36,202
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(
6,164,643
|
)
|
$
|
(
8,163,346
|
)
|
|
|
|
|
|
|
|
|
|
|
BasicnBasic
and diluted net loss per share
|
|
$
|
(
0.07
|
)
|
$
|
(
0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
Basic Basic
and diluted weighted average common shares outstanding
|
|
|
90,687,677
|
|
|
63,759,092
|
|
The
accompanying notes are an integral part of these financial
statements.
Consolidated
Statements of Changes in Shareholders’ (Deficiency)
For
the years ended December 31, 2007 and 2006
|
|
|
Common
Stock
|
Additional
Paid-In capital
|
AccumulatedDeficit
|
|
|
|
|
Shares
|
|
|
Par
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January
1, 2006
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
15,745,891
|
|
|
15,746
|
|
|
6,219,658
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for exercise of options and warrants
|
|
|
8,195,487
|
|
|
8,195
|
|
|
2,128,088
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock to vendors
|
|
|
829,821
|
|
|
830
|
|
|
329,670
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock to investors by contract as dilution protection
|
|
|
995,947
|
|
|
996
|
|
|
307,747
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock to employees
|
|
|
373,607
|
|
|
374
|
|
|
84,759
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
option expense
|
|
|
-
|
|
|
-
|
|
|
677,401
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(
6,164,643
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December
31, 2007
|
|
|
94,996,547
|
|
|
$94,996
|
|
|
$101,391,090
|
|
|
(
$98,895,720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial statements.
Consolidated
Statements of Cash Flows
For
the years ending December 31,
|
|
|
2007
|
|
2006
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(
6,164,643
|
)
|
$
|
(
8,163,346
|
)
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
|
|
|
|
|
|
|
|
Amortization and depreciation
|
|
|
119,565
|
|
|
137,044
|
|
|
Non-cash stock compensation
|
|
|
1,401,777
|
|
|
896,680
|
|
|
Non-cash stock purchase of in-process research and
development
|
|
|
-
|
|
|
981,819
|
|
|
Impairment expense for intangibles
|
|
|
-
|
|
|
816,300
|
|
|
|
|
|
|
|
|
|
|
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Grants receivable
|
|
|
(
7,912
|
) |
|
474,397
|
|
|
Prepaid expenses
|
|
|
(
24,708
|
) |
|
44,324
|
|
|
Accounts payable
|
|
|
(
1,264,868
|
) |
|
476,605
|
|
|
Accrued compensation
|
|
|
(57,044
|
) |
|
254,347
|
|
|
Accrued royalties
|
|
|
-
|
|
|
(
60,000
|
)
|
|
Total
adjustments
|
|
|
166,810
|
|
|
4,021,516
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by operating activities
|
|
|
(
5,997,833
|
)
|
|
(
4,141,830
|
)
|
|
|
|
|
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
|
|
Purchases
of office and laboratory equipment
|
|
|
(
7,170
|
)
|
|
(
2,552
|
)
|
|
Acquisition
of intangible assets
|
|
|
(
356,192
|
)
|
|
(
206,004
|
)
|
|
Net cash used by investing activities
|
|
|
(
363,362
|
)
|
|
(
208,556
|
)
|
| |
|
|
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
|
|
Net
proceeds from issuance of common stock
|
|
|
6,235,404
|
|
|
3,535,000
|
|
|
Proceeds
from exercise of warrants
|
|
|
1,592,263
|
|
|
-
|
|
|
Proceeds
from exercise of stock options
|
|
|
634,020
|
|
|
113,320
|
|
|
Net cash provided by financing activities
|
|
|
8,461,687
|
|
|
3,648,320
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
2,100,492
|
|
|
(
702,066
|
)
|
|
Cash and cash equivalents at beginning of period
|
|
|
119,636
|
|
|
821,702
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
2,220,128
|
|
$
|
119,636
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
1,020
|
|
$
|
3,170
|
|
|
Non-cash
transactions:
|
|
|
|
|
|
|
|
|
Non-cash payment to an institutional investor
|
|
$ |
-
|
|
$
|
220,374
|
|
The
accompanying notes are an integral part of these financial
statements.
Notes
to Consolidated Financial Statements
1. Nature of
Business
Nature of
Business
The
Company is a late stage 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®, oral
BDP, 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, 2007, the Company had one customer, the U.S.
Federal Government. All revenues were generated from two active U.S. Federal
Government Grants. As of December 31, 2007 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
One of
the most significant estimates or judgments that we make is whether to
capitalize or expense patent and license costs. The Company makes 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,
all outside legal and filing costs incurred in the procurement and defense of
patents are capitalized.
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 are 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 $0 and $816,300 for the
years ended December 31, 2007 and 2006, 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, 2007 was $677,401 and for December 31, 2006
was $557,182 higher than if it had continued to account for share-based
compensation under APB No. 25. Of these amounts, $230,668 was for research and
development and $446,733 was for general and administrative in 2007, and
$219,895 was for research and development and $337,287 was for general and
administrative in 2006. Stock based compensation expense recognized during the
period is based on the value of the portion of share-based payment awards that
is ultimately expected to vest during the period. At December 31, 2007, the
total compensation cost for stock options not yet recognized was approximately
$600,000.
The fair
value of each option grant at the years ended December 31, 2007 and December 31,
2006 are estimated on the date of each grant using the Black-Scholes option
pricing model and amortized ratably over the option’s vesting periods. Stock
options to purchase 3,375,000 shares of common stock were granted for the year
ended December 31, 2007 and stock options to purchase 4,360,000 shares of common
stock were granted for the year ended December 31, 2006.
The
weighted average fair value of options granted with an exercise price equal to
the fair market value of the stock was $0.27 and $0.30 for 2007 and 2006
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 100%
and 105% in 2007 and 2006, respectively, and average risk-free interest rates of
4.5% and 4.76% in 2007 and 2006, 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.
As stock
options are exercised, common stock share certificates are issued via electronic
transfer or physical share certificates by the Company’s transfer agent. Shares
are issued from the 1995 or 2005 stock option plan and increase the number of
shares the Company has outstanding.
Shares
repurchased
The
Company from time to time evaluates whether to repurchase existing common stock
shares in the marketplace. This repurchased stock would be reflected as Treasury
Stock. At this time we have no plans to repurchase the Company
stock.
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, 2007 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
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 has adopted 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 has adopted the provisions of FIN
48 effective January 1, 2007.
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.
In
December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations” (“SFAS 141(R)”). This statement provides greater consistency
in the accounting and financial reporting of business combinations. It requires
the acquiring entity in a business combination to recognize all assets acquired
and liabilities assumed in the transaction, establishes the acquisition-date
fair value as the measurement objective for all assets acquired and liabilities
assumed, and requires the acquirer to disclose the nature and financial effect
of the business combination. The Company is currently assessing the impact to
the Company’s consolidated financial position, cash flows or results of
operations upon adoption of SFAS 141(R).
In
December 2007, the FASB issued SFAS No. 160, “Non-controlling
Interests in Consolidated Financial Statements” (“SFAS 160”). This
statement amends Accounting Research Bulletin No. 51, Consolidated
Financial Statements, to establish accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS 141(R) and SFAS 160 are required to be adopted
simultaneously and are effective for the first annual reporting period beginning
on or after December 15, 2008, with earlier adoption prohibited. The
Company is currently assessing the impact to the Company’s consolidated
financial position, cash flows or results of operations upon adoption of
SFAS 160.
3. Management’s Plan
The
Company has incurred continuing losses since its inception in 1987. At December
31, 2007, the Company had working capital of $1,243,638 and a net loss of
$6,164,643. In the 12 months ended December 31, 2007, the Company raised a total
of approximately $8,726,000, $6,500,000 of which was raised through equity
financings and approximately $2,226,000 of which was raised from warrant and
stock option exercises. Subsequent to December 31, 2007, the Company closed on
an equity financing of $658,000 from Fusion Capital and other investors.
Additionally, in February 2008 the Company initiated a 25 month, $8,000,000
equity line of credit with Fusion Capital. The Company expects to sustain
additional losses over the next 12 months. The Company’s ability to raise
additional funding may be more difficult due to its receipt of a not approvable
letter from the FDA on its NDA for orBec®.
If the Company is unable for whatever
reason to utilize its equity facility with Fusion Capital and there were no
other sources of financing, an austerity plan with reductions or discontinuation
of operations of several of the Company’s programs will be required. In an
austerity plan, the Company would have to suspend clinical trials of
orBec®/oral BDP for the treatment of GI GVHD
and radiation enteritis, and reduce headcount and overhead. If this should
occur, the Company believes it could continue to operate over the next four
quarters at a reduced level and continue with its active programs, namely
orBec® for the prevention of GVHD, its oral
BDP radiation injury program, and its biodefense programs, all of which are
supported by existing grants.
Management’s
plan to generate positive cash flows includes the following:
|
·
|
The
Company secured a new $8,000,000 equity line from Fusion Capital and the
Company expects that the registration statement supporting this facility
will become effective by April
2008.
|
|
·
|
The
Company will manage its expenditures very closely and proceed with
Clinical programs with the use of the equity
facility.
|
|
·
|
The
Company plans to continue seeking grant funds and responding to requests
for proposals from governmental
sources.
|
|
·
|
The
Company will utilize Named Patient Sales (Compassionate Use programs)
wherever possible in countries outside the United States to generate
revenues from orBec®.
The Company already has letters of intent for Named Patient programs in
place in South Korea, Australia, New Zealand and South Africa and expects
to receive modest revenues from these programs in the second half of
2008.
|
|
·
|
The
Company is exploring outlicensing opportunities for orBec®
and for its BioDefense programs both in the U.S. and
Europe.
|
|
·
|
The
Company has engaged investment bankers to assist in exploring
mergers and acquisitions
opportunities.
|
It is
possible that the Company will seek additional capital in the private and/or
public equity markets to continue its operations, respond to competitive
pressures, and develop new products and services and to support new strategic
partnerships.
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:
|
|
2007
|
|
|
|
2006
|
|
| |
|
|
|
|
|
|
Office
equipment
|
$ 125,328
|
|
|
$ 117,660
|
|
|
Laboratory
equipment
|
23,212
|
|
|
23,212
|
|
|
Total
|
148,540
|
|
|
140,872
|
|
|
Accumulated
depreciation
|
( 122,599
|
)
|
|
( 111,180
|
)
|
|
|
$
25,941
|
|
|
$
29,692
|
|
Depreciation
expense was $10,781 and $17,593 for the years ended December 31, 2007 and 2006,
respectively.
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, 2007
|
|
|
|
|
|
|
|
Licenses
|
12.7
|
$
462,234
|
|
$ 115,681
|
|
$
346,553
|
|
Patents
|
9.7
|
1,633,490
|
|
659,256
|
|
974,234
|
|
Total
|
10.4
|
$
2,095,724
|
|
$
774,937
|
|
$
1,320,787
|
|
December
31, 2006
|
|
|
|
|
|
|
|
Licenses
|
13.7
|
$
462,234
|
|
$
88,443
|
|
$ 373,791
|
|
Patents
|
8.8
|
1,277,157
|
|
577,709
|
|
699,448
|
|
Total
|
10.1
|
$
1,739,391
|
|
$
666,152
|
|
$
1,073,239
|
Amortization
expense was $108,784 in 2007 compared to $119,451 for 2006.
Based on
the balance of licenses and patents at December 31, 2007, the annual
amortization expense for each of the succeeding five years is estimated to be as
follows:
| Year |
Amortization Amount
|
|
2008
|
$ 125,000
|
|
2009
|
126,000
|
|
2010
|
127,000
|
|
2011
|
128,000
|
|
2012
|
129,000
|
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. The license agreement's
term is over the life of the patent.
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 2007 and 2006 were $3,575 and $14,012, 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 $74,260
and $35,665 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
February 9, 2007, the Company completed the sale of 11,680,850 shares of the Company’s common
stock to institutional investors and certain of the Company’s officers
and directors for a purchase price of $5,490,000.
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 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 in
that placement 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. Neither these investors, nor
any other
investors, hold any further anti-dilution rights. Because no
agreement was reached by March 1, 2007, the Company was obligated to
return the $2 million to Sigma-Tau by April 30, 2007. On June 1,
2007, the Company returned the $2 million to Sigma Tau.
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 Capital facility allowed
them to purchase on each trading day $20,000 of the Company’s common stock
up to an aggregate of $6,000,000 million over approximately a 15-month period.
As part of that agreement, the Company issued Fusion
Capital 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 Capital purchased 329,540
common shares for $ 124,968. The 2006 Fusion Capital facility terminated
after the 15 -month
term of the contract expired.
Stock
Compensation to Employees and Non-employees
During
the years ended December 31, 2007 and 2006, the Company issued 829,821 and
506,942 shares of common stock, respectively, as payment
to vendors for consulting services. An expense of $330,500 and $134,679, respectively, was recorded, which
approximated the shares’ fair market value on the date of issuance.
Additionally, in 2007,
the Company issued 373,607 shares of common stock as part of severance
payments. In 2006, the Company issued 207,896 shares of common stock
as part of severance payments to terminated employees and 165,711 shares of
common stock to employees. An expense of $35,133 and $50,000, respectively, was recorded, which
approximated the shares’ fair market value on the date of issuance. In 2006, 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 and amended
in September 2007.
The
dilutive nature of the Sigma-Tau transaction on January 3, 2007 required that
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 995,947 shares of the Company’s common
stock and the Company recorded an expense of $308,743. Neither these investors, nor
any other
investors, hold any further anti-dilution rights.
For the 12 months ended December 31,
2007, stock options were exercised to purchase 1,737,200 shares of common
stock which provided $633,895
to the Company. For the corresponding period in 2006, stock
options were exercised to purchase 504,100 shares of common
stock which provided proceeds of $113,320 to the
Company.
7. Stock Option Plans and Warrants to
Purchase Common Stock
Stock
Options
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 Plan was amended in September 2007 to increase the number of
shares of common stock
available under the plan to 20,000,000. The table below only accounts for
transactions occurring as part of the amended 2005 Equity Incentive
Plan.
December 31,
|
|
2007
|
2006
|
|
|
|
|
|
|
|
|
|
Shares
available for grant at beginning of year
|
3,236,032
|
|
|
7,000,000
|
|
|
Increase
in shares available
|
10,000,000
|
|
|
-
|
|
|
Options
granted
|
( 3,375,000
|
)
|
|
( 4,360,000
|
)
|
|
Options
forfeited or expired
|
1,140,000
|
|
|
1,325,000
|
|
|
Common
stock payment for services
|
( 388,071
|
)
|
|
( 728,968
|
)
|
|
Shares
available for grant at end of year
|
10,612,961
|
|
|
3,236,032
|
|
In 2007
and 2006, options were exercised to purchase 1,487,200 and 504,100 shares of
common stock, respectively, that were covered under the 1995
plan.
The total
option activity for the 1995 plan and the amended 2005 plan for the years ended
December 31, 2007 and 2006 was as follows:
|
|
Options
|
Weighted
Average
Options Exercise Price
|
|
|
Balance
at January 1, 2006
|
10,014,339
|
|
|
$ 0.59
|
|
|
|
Granted
|
4,360,000
|
|
|
0.30
|
|
|
|
Forfeited
|
( 2,230,900
|
)
|
|
0.83
|
|
|
|
Exercised
|
( 504,100
|
)
|
|
0.22
|
|
|
|
Balance
at December 31, 2006
|
11,639,339
|
|
|
0.59
|
|
|
|
Granted
|
3,375,000
|
|
|
0.46
|
|
|
|
Forfeited
|
( 2,927,300
|
)
|
|
0.73
|
|
|
|
Exercised
|
( 1,737,200
|
)
|
|
0.36
|
|
|
|
Balance
at December 31, 2007
|
10,349,839
|
|
|
$ 0.44
|
|
|
The
weighted-average exercise price, by price range, for outstanding options at
December 31, 2007 was:
|
Price
Range
|
|
Weighted
Average Remaining
Contractual Life in Years
|
|
Outstanding
Options
|
|
Exercisable
Options
|
|
|
$0.20-$0.50
|
|
8.12
|
|
9,020,000
|
|
5,884,756
|
|
|
$0.51-$1.00
|
|
2.69
|
|
962,839
|
|
962,839
|
|
|
$1.01-$6.00
|
|
3.17
|
|
367,000
|
|
367,000
|
|
|
Total
|
|
7.53
|
|
10,349,839
|
|
7,214,595
|
|
Stock
options are issued at the market price on the date of issuance. Stock options
issued to directors fully vest upon issuance. Stock options issued to employees
generally vest 25% upfront, then quarterly in equal installments over a period
of three years. These options have a ten year life for as long as the
individuals are employees or directors. In general, when an employee or director
terminates their relationship with the Company, the options will expire within
three months.
From time
to time, the Company grants warrants to consultants and grants warrants to
purchase common stock in connection with private placements.
Warrants to Purchase Common
Stock
Warrant
activity for the years ended December 31, 2007 and 2006 was as
follows:
|
|
Warrants
|
Weighted
Average
Warrant Exercise Price
|
|
|
Balance
at January 1, 2006
|
22,167,118
|
|
|
$ 0.92
|
|
|
|
Granted
|
14,961,672
|
|
|
0.25
|
|
|
|
Balance
at December 31, 2006
|
37,128,790
|
|
|
0.65
|
|
|
|
Granted
|
560,106
|
|
|
0.59
|
|
|
|
Expired
|
(
2,178,909
|
)
|
|
1.90
|
|
|
|
Exercised
|
(
6,458,287
|
)
|
|
0.25
|
|
|
|
Balance
at December 31, 2007
|
29,051,700
|
|
|
$ 0.70
|
|
|
During
2006, warrants to purchase 500,000 shares of common stock were issued to
vendors and an expense in the amount of $121,965 was recorded.
During
2008, existing warrants to purchase approximately 10,000,000 of the Company’s
common stock will expire. By April 2009, warrants to purchase a total
of approximately 20,000,000 shares of the Company’s common stock will
expire.
The
weighted-average exercise price, by price range, for outstanding warrants at
December 31, 2007 was:
|
Price
Range
|
|
Weighted
Average Remaining
Contractual Life in Years
|
|
Outstanding
Warrants
|
|
Exercisable
Warrants
|
|
|
$0.24-$0.50
|
|
1.23
|
|
8,503,386
|
|
8,503,386
|
|
|
$0.505-$1.00
|
|
1.67
|
|
18,328,622
|
|
18,328,622
|
|
|
$1.01-$2.00
|
|
0.29
|
|
2,012,622
|
|
2,012,622
|
|
|
$8.11
|
|
0.86
|
|
207,070
|
|
207,070
|
|
|
Total
|
|
1.44
|
|
29,051,700
|
|
29,051,700
|
|
8. Income Taxes
Deferred
tax assets as of December 31:
|
|
2007 |
|
|
|
2006 |
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
| Net
operating loss carry forwards |
$
25,000,000 |
|
$25,000,000 |
|
|
|
|
Orphan
drug and research and development credit carry forwards
|
2,000,000
|
|
3,000,000
|
|
|
|
|
Other
|
3,000,000
|
|
3,000,000
|
|
|
|
|
Total
|
30,000,000
|
|
31,000,000
|
|
|
|
|
Valuation
allowance
|
( 30,000,000
|
) |
( 31,000,000
|
)
|
|
|
|
Net
deferred tax assets
|
$
-
|
|
$ -
|
|
|
|
At
December 31, 2007, the Company had net operating loss carry forwards of
approximately $73,000,000 for Federal and state tax purposes, which are
currently expiring each year until 2026.
The net
change in the valuation allowance for the year ended December 31, 2007 and
December 31, 2006 was an increase of approximately $6,000,000 and $5,000,000
respectively, resulting primarily from net operating losses generated. Based on
ownership changes that have and may occur, future utilization of the net
operating loss carry forwards may be limited.
The
following is the approximate amount of the Company’s tax credits and net
operating losses that expire over the next five years:
|
2008
|
$ 910,000
|
|
2009
|
1,330,000
|
|
2010
|
1,410,000
|
|
2011
|
870,000
|
|
2012
|
3,870,000
|
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, 2007 and 2006 was as follows:
|
|
2007
|
|
2006
|
|
|
|
|
|
|
Income
tax loss at federal statutory rate
|
(34.00)%
|
|
(34.00)%
|
|
State
taxes, net of federal benefit
|
(4.29)
|
|
(3.63)
|
|
Permanent
differences, principally purchased
in-process
research and development
|
-
|
|
3.30
|
|
Valuation
allowance
|
38.29
|
|
34.33
|
|
Provision
for income taxes (benefit)
|
-
%
|
|
-
%
|
Due to
the move of the corporate offices to New Jersey, the Florida net operating
loss is suspended.
The
Company and one or more of its subsidiaries files income tax returns in the U.S.
Federal jurisdiction, and various state and local jurisdictions. The Company is
no longer subject to income tax assessment for years before 2004. However, since
the Company has incurred net operating losses in every tax year since inception,
all its income tax returns are subject to examination by the Internal Revenue
Service (“IRS”) and state authorities for purposes of determining the amount of
net operating losses to reduce taxable income generated in a given tax
year.
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.
10.
Concentrations
During
the year ended December 31, 2007, the Company had one vendor that constituted
approximately 12% of the outstanding payables.
At
December 31, 2007 and 2006, the Company had deposits in financial institutions
that exceeded the amount covered by the Federal Deposit Insurance Company. The
excess amounts at December 31, 2007 and December 31, 2006 were $2,020,128 and
$19,636, respectively. These funds are held at a major banking
institution.
11. Subsequent Events
On
February 14, 2008, the Company entered into a common stock purchase agreement
with Fusion Capital Fund II, LLC (“Fusion Capital”). The Fusion Capital facility
allows the Company to require Fusion Capital to purchase between $80,000 and
$1.0 million, depending on certain conditions, of the Company’s common stock up
to an aggregate of $8.5 million over approximately a 25-month period. As part of
the agreement, the Company issued Fusion Capital 1,275,000 shares of common
stock as a commitment fee. In connection with the execution of the common stock
purchase agreement, Fusion Capital purchased 2,777,778 common shares and a four
year warrant to purchase 1,388,889 shares of common stock for $0.22 per share,
for an aggregate price of $500,000. The Company issued an additional 75,000
shares of common stock as a commitment fee in connection with this
purchase. If the Company’s stock price exceeds $0.15, then the amount
required to be purchased may be increased under certain conditions as the price
of the Company’s common stock increases. The Company cannot require Fusion
Capital to purchase any shares of the Company’s common stock on any trading days
that the market price of the Company’s common stock is less than $0.10 per
share.
On
February 14, 2008, the Company completed the sale of 881,111 shares of our
common stock to institutional and other accredited investors for an aggregate
purchase price of approximately $158,600. The investors received four year
warrants to purchase an aggregate of 440,556 shares of our common stock at an
exercise price of $0.22 per share.
12.
Business Segments
The
Company had two active segments for the year ended December 31, 2007 and
December 31, 2006: BioDefense and BioTherapeutics. Summary
data:
|
|
|
December
31,
|
|
|
|
|
2007
|
|
2006
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
| Interest
Income |
|
|
|
|
|
|
|
| Corporate |
|
$ |
164,847 |
|
$ |
41,510 |
|
|
Total |
|
$ |
164,847 |
|
$ |
41,510 |
|
| |
|
|
|
|
|
|
|
| Stock
Option Compensation |
|
|
|
|
|
|
|
| BioDefense |
|
$ |
69,591 |
|
$ |
98,937 |
|
| BioTherapeutic |
|
|
161,077 |
|
|
120,958 |
|
| Corporate |
|
|
446,733 |
|
|
337,287 |
|
|
Total |
|
$ |
677,401 |
|
$ |
557,182 |
|
| |
|
|
|
|
|
|
|