Item 1. Business
This Annual Report on Form 10-K
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 report that could cause actual results to differ materially from those indicated in any
forward-looking statements, including those set forth in “Risk Factors” in this Annual Report on Form 10-K. See “Cautionary
Note Regarding Forward Looking Statements.”
Our Business Overview
We are a late-stage biopharmaceutical company
focused on developing and commercializing products to treat rare diseases where there is an unmet medical need. We maintain two
active business segments: BioTherapeutics and Vaccines/BioDefense.
Our BioTherapeutics business segment is
developing a novel photodynamic therapy (SGX301) utilizing topical synthetic hypericin activated with safe visible fluorescent
light for the treatment of cutaneous T-cell lymphoma (“CTCL”), our first-in-class innate defense regulator technology,
dusquetide (SGX942) for the treatment of oral mucositis in head and neck cancer, and proprietary formulations of oral beclomethasone
17,21-dipropionate (“BDP”) for the prevention/treatment of gastrointestinal (“GI”) disorders characterized
by severe inflammation, including pediatric Crohn’s disease (SGX203) and acute radiation enteritis (SGX201).
Our Vaccines/BioDefense business segment
includes active development programs for RiVax
®
, our ricin toxin vaccine candidate, OrbeShield
®
,
our GI acute radiation syndrome (“GI ARS”) therapeutic candidate and SGX943, our therapeutic candidate for antibiotic
resistant and emerging infectious disease. The development of our vaccine programs currently is supported by our heat stabilization
technology, known as ThermoVax
®
, under existing and on-going government contract funding. With the government contract
from the National Institute of Allergy and Infectious Diseases (“NIAID”), we will attempt to advance the development
of RiVax
®
to protect against exposure to ricin toxin. We have advanced the development of OrbeShield
®
for the treatment of GI ARS with funds received under our awarded government contracts with the Biomedical Advanced Research and
Development Authority (“BARDA”) and grants from NIAID.
An outline of our business strategy follows:
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Complete enrollment and report preliminary results in our pivotal Phase 3 clinical trial of SGX301 for the treatment of CTCL;
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Continue site initiation and enrollment of the pivotal Phase 3 trial of SGX942 for the treatment of oral mucositis in head
and neck cancer patients;
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Continue development of RiVax
®
in combination with our ThermoVax
®
technology, to develop a new
heat stable vaccine in biodefense with NIAID funding support;
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Advance the preclinical and manufacturing development of OrbeShield
®
as a biodefense medical countermeasure
for the treatment of GI ARS contingent upon government funding support;
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Continue to apply for and secure additional government funding for each of our BioTherapeutics and Vaccines/BioDefense programs
through grants, contracts and/or procurements;
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Pursue business development opportunities for our pipeline programs, as well as explore merger/acquisition strategies; and
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Acquire or in-license new clinical-stage compounds for development.
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Corporate Information
We were incorporated in Delaware in 1987
under the name Biological Therapeutics, Inc. In 1987 we merged with Biological Therapeutics, Inc., a North Dakota corporation,
pursuant to which we changed our name to “Immunotherapeutics, Inc.” We changed our name to “Endorex Corp.”
in 1996, to “Endorex Corporation” in 1998, to “DOR BioPharma, Inc.” in 2001, and finally to “Soligenix,
Inc.” in 2009. Our principal executive offices are located at 29 Emmons Drive, Suite B-10, Princeton, New Jersey 08540 and
our telephone number is (609) 538-8200.
Our Product Candidates in Development
The following tables summarize our product
candidates under development:
BioTherapeutic Product Candidates
Soligenix Product Candidate
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Therapeutic
Indication
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Stage
of Development
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SGX301
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Cutaneous T-Cell Lymphoma
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Phase 2 trial completed; demonstrated significantly
higher response rate compared to placebo;
Phase 3 clinical trial initiated in December
2015, with an interim analysis anticipated in the second half of 2018 and final results expected in the first half of 2019
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SGX942
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Oral Mucositis in Head and Neck Cancer
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Phase 2 trial completed; demonstrated significant
response compared to placebo with positive long-term (12 month) safety also reported; Phase 3 clinical trial initiated July 2017,
with interim analysis anticipated in the first half of 2019 and final results expected in the second half of 2019
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SGX203**
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Pediatric Crohn’s Disease
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Phase 1/2 clinical trial completed; efficacy
data, pharmacokinetic (PK)/pharmacodynamic (PD) profile and safety profile demonstrated;
Phase 3 clinical trial planned for the second half of 2018,
contingent upon additional funding and/or partnership
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SGX201**
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Acute Radiation Enteritis
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Phase 1/2 clinical trial completed;
safety profile and preliminary efficacy
demonstrated
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Vaccine Thermostability Platform**
Soligenix Product
Candidate
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Indication
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Stage
of Development
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ThermoVax
®
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Thermostability of aluminum
adjuvanted vaccines
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Pre-clinical
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BioDefense Products**
Soligenix Product Candidate
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Indication
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Stage
of Development
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RiVax
®
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Vaccine against
Ricin Toxin Poisoning
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Phase 1a and 1b trials completed, safety
and neutralizing antibodies for protection demonstrated;
Phase 1/2 trial planned for the
first half of 2018
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OrbeShield
®
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Therapeutic against GI ARS
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Pre-clinical
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SGX943
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Therapeutic Emerging Infectious Disease
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Pre-clinical
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** Contingent upon continued government
contract/grant funding or other funding source.
BioTherapeutics Overview
SGX301 – for Treating
Cutaneous T-Cell Lymphoma
SGX301 is a novel, first-in-class, photodynamic
therapy that utilizes safe visible light for activation. The active ingredient in SGX301 is synthetic hypericin, a photosensitizer
which is topically applied to skin lesions and then activated by fluorescent light 16 to 24 hours later. Hypericin is also found
in several species of
Hypericum
plants, although the drug used in SGX301 is chemically synthesized by a proprietary manufacturing
process and not extracted from plants. Importantly, hypericin is optimally activated with visible light thereby avoiding the negative
consequences of ultraviolet light. Other light therapies using UVA light result in serious adverse effects including secondary
skin cancers.
Combined with photoactivation, in clinical
trials synthetic hypericin has demonstrated significant anti-proliferative effects on activated normal human lymphoid cells and
inhibited growth of malignant T-cells isolated from CTCL patients. In both settings, it appears that the mode of action is an induction
of cell death in a concentration as well as a light dose-dependent fashion. These effects appear to result, in part, from the generation
of singlet oxygen during photoactivation of hypericin.
Hypericin is one of the most efficient
known generators of singlet oxygen, the key component for phototherapy. The generation of singlet oxygen induces necrosis and apoptosis
in adjacent cells. The use of topical synthetic hypericin coupled with directed visible light results in generation of singlet
oxygen only at the treated site. We believe that the use of visible light (as opposed to cancer-causing ultraviolet light) is a
major advance in photodynamic therapy. In a published Phase 2 clinical study in CTCL, after six weeks of twice weekly therapy,
a majority of patients experienced a statistically significant (p
<
0.04) improvement with SGX301 whereas the placebo was
ineffective: 58.3% compared to 8.3%, respectively.
SGX301 has received Orphan Drug designation
as well as Fast Track designation from the U.S. Food and Drug Administration (“FDA”). The Orphan Drug Act is intended
to assist and encourage companies to develop safe and effective therapies for the treatment of rare diseases and disorders. In
addition to providing a seven-year term of market exclusivity for SGX301 upon final FDA approval, Orphan Drug designation also
positions us to be able to leverage a wide range of financial and regulatory benefits, including government grants for conducting
clinical trials, waiver of FDA user fees for the potential submission of a New Drug Application (“NDA”) for SGX301,
and certain tax credits. In addition, Fast Track is a designation that the FDA reserves for a drug intended to treat a serious
or life-threatening condition and one that demonstrates the potential to address an unmet medical need for the condition. Fast
Track designation is designed to facilitate the development and expedite the review of new drugs. For instance, should events warrant,
we will be eligible to submit a NDA for SGX301 on a rolling basis, permitting the FDA to review sections of the NDA prior to receiving
the complete submission. Additionally, NDAs for Fast Track development programs ordinarily will be eligible for priority review.
SGX301 for the treatment of CTCL also was granted Orphan Drug designation from the European Medicines Agency (“EMA”)
Committee for Orphan Medical Products and Promising Innovative Medicine (“PIM”) designation from the Medicines and
Healthcare Products Regulatory Agency (“MHRA”) in the United Kingdom (“UK”).
We initiated our pivotal Phase 3 clinical
study of SGX301 for the treatment of CTCL during December 2015. This trial, referred to as the “FLASH” study (
F
luorescent
L
ight
A
ctivated
S
ynthetic
H
ypericin), aims to evaluate the response to SGX301 as a skin directed therapy
to treat early stage CTCL. We are actively enrolling patients with approximately thirty CTCL centers across the United States (“U.S.”)
participating in this pivotal trial. The Phase 3 protocol is a highly powered, double-blind, randomized, placebo-controlled, multicenter
trial and will seek to enroll approximately 120 evaluable subjects. The trial will consist of three treatment cycles, each of eight
weeks duration. Treatments will be administered twice weekly for the first six weeks and treatment response will be determined
at the end of the eighth week. In the first treatment cycle, approximately 80 subjects will receive SGX301 and 40 will receive
placebo treatment of their index lesions. In the second cycle, all subjects will receive SGX301 treatment of their index lesions,
and in the third cycle all subjects will receive SGX301 treatment of all of their lesions. The majority of subjects enrolled to
date have elected to continue into the third optional, open-label cycle of the study. We continue to work closely with the Cutaneous
Lymphoma Foundation, as well as the National Organization for Rare Disorders. Subjects will be followed for an additional six months
after their last evaluation visit. The primary efficacy endpoint will be assessed on the percentage of patients in each of the
two treatment groups (i.e., SGX301 and placebo) achieving a partial or complete response of the treated lesions, defined as a ≥
50% reduction in the total Composite Assessment of Index Lesion Disease Severity (“CAILS”) score for three index lesions
at the Cycle 1 evaluation visit (Week 8) compared to the total CAILS score at baseline. Other secondary measures will assess treatment
response including duration, degree of improvement, time to relapse and safety.
During September 2017, the National Cancer
Institute (“NCI”), part of the National Institutes of Health (“NIH”) awarded us a Small Business Innovation
Research (“SBIR”) grant of approximately $1.5 million over two years to support the conduct of our pivotal, Phase 3,
randomized, double-blind, placebo-controlled study evaluating SGX301 (synthetic hypericin) as a treatment for CTCL.
We estimate the potential worldwide market
for SGX301 is in excess of $250 million for all applications, including the treatment of CTCL. This potential market information
is a forward-looking statement, and investors are urged not to place undue reliance on this statement. While we have determined
this potential market size based on assumptions that we believe are reasonable, there are a number of factors that could cause
our expectations to change or not be realized.
Cutaneous T-Cell Lymphoma
CTCL is a class of non-Hodgkin’s
lymphoma (“NHL”), a type of cancer of the white blood cells that are an integral part of the immune system. Unlike
most NHLs, which generally involve B-cell lymphocytes (involved in producing antibodies), CTCL is caused by an expansion of malignant
T-cell lymphocytes (involved in cell-mediated immunity) normally programmed to migrate to the skin. These skin-trafficking malignant
T-cells migrate to the skin, causing various lesions to appear that may change shape as the disease progresses, typically beginning
as a rash and eventually forming plaques and tumors. Mycosis fungoides (“MF”) is the most common form of CTCL. It generally
presents with skin involvement only, manifested as scaly, erythematous patches. Advanced disease with diffuse lymph node and visceral
organ involvement is usually associated with a poorer response rate to standard therapies. A relatively uncommon sub-group of CTCL
patients present with extensive skin involvement and circulating malignant cerebriform T-cells, referred to as Sézary syndrome.
These patients have substantially graver prognoses than those with MF.
CTCL mortality is related to stage of disease,
with median survival generally ranging from about 12 years in the early stages to only 2.5 years when the disease has advanced.
There is currently no FDA-approved drug for front-line treatment of early stage CTCL. Treatment of early-stage disease generally
involves skin-directed therapies. One of the most common unapproved therapies used for early-stage disease is oral 5 or 8-methoxypsoralen
(“Psoralen”) given with ultraviolet A (“UVA”) light, referred to as PUVA, which is approved for dermatological
conditions such as disabling psoriasis not adequately responsive to other forms of therapy, idiopathic vitiligo and skin manifestations
of CTCL in persons who have not been responsive to other forms of treatment. Psoralen is a mutagenic chemical that interferes with
DNA causing mutations and other malignancies. Moreover, UVA is a carcinogenic light source that when combined with the Psoralen,
results in serious adverse effects including secondary skin cancers; therefore, the FDA requires a Black Box warning for PUVA.
CTCL constitutes a rare group of NHLs, occurring in about 4%
of the approximate 500,000 individuals living with NHL. We estimate, based upon review of historic published studies and reports
and an interpolation of data on the incidence of CTCL, that it affects over 20,000 individuals in the U.S., with approximately
2,800 new cases seen annually.
Dusquetide
Dusquetide (research name: SGX94) is an
innate defense regulator (“IDR”) that regulates the innate immune system to simultaneously reduce inflammation, eliminate
infection and enhance tissue healing.
Dusquetide is based on a new class of short,
synthetic peptides known as IDRs. It has a novel mechanism of action in that it modulates the body’s reaction to both injury
and infection and is both simultaneously anti-inflammatory and anti-infective. IDRs have no direct antibiotic activity but modulate
host responses, increasing survival after infections with a broad range of bacterial Gram-negative and Gram-positive pathogens
including both antibiotic sensitive and resistant strains, as well as accelerating resolution of tissue damage following exposure
to a variety of agents including bacterial pathogens, trauma and chemo- or radiation-therapy. IDRs represent a novel approach to
the control of infection and tissue damage via highly selective binding to an intracellular adaptor protein, sequestosome-1, also
known as p62, which has a pivotal function in signal transduction during activation and control of the innate defense system. Preclinical
data indicate that IDRs may be active in models of a wide range of therapeutic indications including life-threatening bacterial
infections as well as the severe side-effects of chemo- and radiation-therapy. Additionally, due to selective binding to p62, dusquetide
may have potential anti-tumor action.
Dusquetide has demonstrated efficacy in
numerous animal disease models including mucositis, colitis, skin infection and other bacterial infections and has been evaluated
in a double-blind, placebo-controlled Phase 1 clinical trial in 84 healthy volunteers with both single ascending dose and multiple
ascending dose components. Dusquetide was shown to have a good safety profile and be well-tolerated in all dose groups when administered
by IV over 7 days and was consistent with safety results seen in pre-clinical studies. We believe that market opportunities for
dusquetide include, but are not limited to, oral and gastrointestinal mucositis, acute Gram-positive bacterial infections (e.g.,
methicillin resistant
Staphylococcus aureus
(MRSA)), acute Gram-negative infections (e.g., acinetobacter, melioidosis),
and acute radiation syndrome.
SGX942 – for Treating
Oral Mucositis in Head and Neck Cancer
SGX942 is our product candidate containing
our IDR technology, dusquetide, targeting the treatment of oral mucositis in head and neck cancer patients. Oral mucositis in this
patient population is an area of unmet medical need where there are currently no approved drug therapies. Accordingly, we received
Fast Track designation for the treatment of oral mucositis as a result of radiation and/or chemotherapy treatment in head and neck
cancer patients from the FDA. In addition, dusquetide has been granted PIM designation in the UK by the MHRA for the treatment
of severe oral mucositis in head and neck cancer patients receiving chemoradiation therapy. The U.S. Patent and Trademark Office
has granted the patent titled “Novel Peptides and Analogs for Use in the Treatment of Oral Mucositis”. The newly issued
patent claims therapeutic use of dusquetide and related IDR analogs, and adds to composition of matter claims for dusquetide and
related analogs that have been granted in the U.S. and worldwide.
We initiated a Phase 2 clinical study
of SGX942 for the treatment of oral mucositis in head and neck cancer patients in December of 2013. We completed enrollment in
this trial in the second half of 2015, and in December 2015 released positive preliminary results. In this Phase 2 proof-of-concept
clinical study that enrolled 111 patients, SGX942, at a dose of 1.5 mg/kg, successfully reduced the median duration of severe
oral mucositis by 50%, from 18 days to 9 days (p=0.099) in all patients and by 67%, from 30 days to 10 days (p=0.040) in patients
receiving the most aggressive chemoradiation therapy for treatment of their head and neck cancer. The p-values met the prospectively
defined statistical threshold of p<0.1 in the study protocol. In addition to identifying the best dose of 1.5 mg/kg, this study
achieved all objectives, including increased incidence of “complete response” of tumor at the one month follow-up
visit (47% in placebo vs. 63% in SGX942 at 1.5 mg/kg). Decreases in mortality and decreases in infection rate were also observed
with SGX942 treatment, consistent with the preclinical results observed in animal models. SGX942 was found to be generally safe
and well tolerated, consistent with the safety profile observed in the prior Phase 1 study conducted in 84 healthy volunteers.
The long-term (12 month) follow-up data was consistent with the preliminary positive safety and efficacy findings. While the placebo
population experienced the expected 12-month survival rate of approximately 80%, as defined in the Surveillance, Epidemiology,
and End Results statistics 1975-2012 from the National Cancer Institute, the SGX942 1.5 mg/kg treatment group reported a 12-month
survival rate of 93% (7% mortality in the SGX942 1.5 mg/kg group compared to 19% in the placebo group). Similarly, tumor resolution
(complete response) at 12 months was better in the SGX942 1.5 mg/kg treatment group relative to the placebo population (80% in
the 1.5 mg/kg group compared to 74% in the placebo group). The long-term follow-up results from the Phase 2 study are reviewed
in “Dusquetide: Reduction in Oral Mucositis associated with Enduring Ancillary Benefits in Tumor Resolution and Decreased
Mortality in Head and Neck Cancer Patients” published online in Biotechnology Reports and available at the following link:
https://doi.org/10.1016/j.btre.2017.05.002
. In addition to safety, evaluations of other secondary efficacy endpoints, such
as the utilization of opioid pain medication, indicated that the SGX942 1.5mg/kg treatment group had a 40% decrease in the use
of opioids at the later stage of the treatment phase of the trial, when oral mucositis is usually most severe and expected to
increase paid medication use. This was in contrast to the placebo group, which demonstrated a 10% increase in use of opioids over
this same period. Data from this Phase 2 trial was published online in the Journal of Biotechnology. The publication also delineates
the supportive nonclinical data in this indication, demonstrating consistency in the qualitative and quantitative biological response,
including dose response, across the nonclinical and clinical data sets. The results are available at the following link:
http://authors.elservier.com/sd/article/S01681656116315668
.
On September 9, 2016, we and SciClone Pharmaceuticals,
Inc. (“SciClone”) entered into an exclusive license agreement, pursuant to which we granted rights to SciClone to develop,
promote, market, distribute and sell SGX942 in defined territories. Under the terms of the license agreement, SciClone will be
responsible for all aspects of development, product registration and commercialization in the territories, having access to data
generated by us. In exchange for exclusive rights, SciClone will pay us royalties on net sales, and we will supply commercial drug
product to SciClone on a cost-plus basis, while maintaining worldwide manufacturing rights.
We have received clearance from the FDA
to advance the pivotal Phase 3 protocol for SGX942 in the treatment of oral mucositis in patients with head and neck cancer receiving
chemoradiation therapy. Additionally, we have received positive Scientific Advice from the EMA for the development of SGX942 as
a treatment for oral mucositis in patients with head and neck cancer. The Scientific Advice from the EMA indicates that a single,
double-blind, placebo-controlled, multinational, Phase 3 pivotal study, if successful, in conjunction with the Phase 2 dose-ranging
study, is generally considered sufficient to support a marketing authorization application (“MAA”) to the EMA for potential
licensure in Europe. The advice also provided several suggestions to strengthen the study design and data collection that will
be integrated into the final protocol. Scientific Advice is offered by the EMA to stakeholders for clarification of questions arising
during development of medicinal products. The scope of Scientific Advice is limited to scientific issues and focuses on development
strategies rather than pre-evaluation of data to support an MAA. Scientific Advice is legally non-binding and is based on the current
scientific knowledge which may be subject to future changes.
We had been working with leading oncology
centers, a number of which participated in the Phase 2 study, to advance this Phase 3 clinical trial referred to as the “DOM–INNATE”
study (
D
usquetide treatment in
O
ral
M
ucositis – by modulating
INNATE
immunity). Based on the
positive and previously published Phase 2 results (Study IDR-OM-01), the pivotal Phase 3 clinical trial (Study IDR-OM-02) will
be a highly powered, double-blind, randomized, placebo-controlled, multinational trial that will seek to enroll approximately 190
subjects with squamous cell carcinoma of the oral cavity and oropharynx who are scheduled to receive a minimum total cumulative
radiation dose of 55 Gy fractionated as 2.0-2.2 Gy per day with concomitant cisplatin chemotherapy given as a dose of 80-100 mg/m
2
every third week. Subjects will be randomized to receive either 1.5 mg/kg SGX942 or placebo given twice a week during and for two
weeks following completion of chemoradiation therapy (“CRT”). The primary endpoint for the study will be the median
duration of severe oral mucositis, which will be assessed by oral examination at each treatment visit and then through six weeks
following completion of CRT. Oral mucositis will be evaluated using the WHO Grading system. Severe oral mucositis is defined as
a WHO Grade of ≥3. Subjects will be followed for an additional 12 months after the completion of treatment.
During July 2017, we initiated our pivotal
Phase 3 study with a controlled roll-out of U.S. study sites, and will follow with the addition of European centers in 2018. We
anticipate that approximately fifty U.S. and European oncology centers will be participating in this pivotal Phase 3 study.
During September 2017, the National Institute
of Dental and Craniofacial Research (“NIDCR”), part of the NIH, awarded us a SBIR grant of approximately $1.5 million
over two years to support the conduct of our Phase 3, multinational, randomized, double-blind, placebo-controlled study evaluating
SGX942 (dusquetide) as a treatment for severe oral mucositis in patients with head and neck cancer receiving CRT.
We estimate the potential worldwide market
for SGX942 is in excess of $500 million for all applications, including the treatment of oral mucositis. This potential market
information is a forward-looking statement, and investors are urged not to place undue reliance on this statement. While we have
determined this potential market size based on assumptions that we believe are reasonable, there are a number of factors that could
cause our expectations to change or not be realized.
Oral Mucositis
Mucositis is the clinical term for damage
done to the mucosa by anticancer therapies. It can occur in any mucosal region, but is most commonly associated with the mouth,
followed by the small intestine. We estimate, based upon our review of historic studies and reports, and an interpolation of data
on the incidence of mucositis, that mucositis affects approximately 500,000 people in the U.S. per year and occurs in 40% of patients
receiving chemotherapy. Mucositis can be severely debilitating and can lead to infection, sepsis, the need for parenteral nutrition
and narcotic analgesia. The GI damage causes severe diarrhea. These symptoms can limit the doses and duration of cancer treatment,
leading to sub-optimal treatment outcomes.
The mechanisms of mucositis have been extensively
studied and have been recently linked to the interaction of chemotherapy and/or radiation therapy with the innate defense system.
Bacterial infection of the ulcerative lesions is regarded as a secondary consequence of dysregulated local inflammation triggered
by therapy-induced cell death, rather than as the primary cause of the lesions.
We estimate, based upon our review of historic studies and reports,
and an interpolation of data on the incidence of oral mucositis, that oral mucositis is a subpopulation of approximately 90,000
patients in the U.S., with a comparable number in Europe. Oral mucositis almost always occurs in patients with head and
neck cancer treated with radiation therapy (greater than 80% incidence of severe mucositis) and is common in patients undergoing
high dose chemotherapy and hematopoietic cell transplantation, where the incidence and severity of oral mucositis depends greatly
on the nature of the conditioning regimen used for myeloablation.
Oral BDP
Oral BDP (beclomethasone 17,21-dipropionate)
represents a first
-
of
-
its
-
kind oral, locally acting therapy tailored to treat GI inflammation. BDP has been
marketed in the U.S. and worldwide since the early 1970s as the active pharmaceutical ingredient in a nasal spray and in a metered-dose
inhaler for the treatment of patients with allergic rhinitis and asthma. Oral BDP is specifically formulated for oral administration
as a single product consisting of two tablets. One tablet is intended to release BDP in the upper sections of the GI tract and
the other tablet is intended to release BDP in the lower sections of the GI tract.
Based on its pharmacological characteristics,
oral BDP may have utility in treating other conditions of the gastrointestinal tract having an inflammatory component. We are planning
to pursue development programs for the treatment of pediatric Crohn’s disease, acute radiation enteritis and GI ARS pending
further grant funding. We are also exploring the possibility of testing oral BDP for local inflammation associated with ulcerative
colitis, among other indications.
We estimate the potential worldwide market
for oral BDP is in excess of $500 million for all applications, including the treatment of pediatric Crohn’s disease. This
potential market information is a forward-looking statement, and investors are urged not to place undue reliance on this statement.
While we have determined this potential market size based on assumptions that we believe are reasonable, there are a number of
factors that could cause our expectations to change or not be realized.
SGX203 – for Treating
Pediatric Crohn’s Disease
SGX203 is a two tablet delivery system
of BDP specifically designed for oral use that allows for administration of immediate and delayed release BDP throughout the small
bowel and the colon. The FDA has given SGX203 Orphan Drug designation as well as Fast Track designation for the treatment of pediatric
Crohn’s disease. We will pursue a pivotal Phase 3 clinical trial of SGX203 for the treatment of pediatric Crohn’s disease
contingent upon additional funding, such as through partnership funding support.
Pediatric Crohn’s Disease
Crohn’s disease causes inflammation
of the GI tract. Crohn’s disease can affect any area of the GI tract, from the mouth to the anus, but it most commonly affects
the lower part of the small intestine, called the ileum. The swelling caused by the disease extends deep into the lining of the
affected organ. The swelling can induce pain and can make the intestines empty frequently, resulting in diarrhea. Because the symptoms
of Crohn’s disease are similar to other intestinal disorders, such as irritable bowel syndrome and ulcerative colitis, it
can be difficult to diagnose. People of Ashkenazi Jewish heritage have an increased risk of developing Crohn’s disease.
Crohn’s disease can appear at any
age, but it is most often diagnosed in adults in their 20s and 30s. However, approximately 30% of people with Crohn’s disease
develop symptoms before 20 years of age. We estimate, based upon our review of historic published studies and reports, and an interpolation
of data on the incidence of pediatric Crohn’s disease, that pediatric Crohn’s disease is a subpopulation of approximately
80,000 patients in the U.S. with a comparable number in Europe. Crohn’s disease tends to be both severe and extensive in
the pediatric population and a relatively high proportion (approximately 40%) of pediatric Crohn’s patients have involvement
of their upper gastrointestinal tract.
Crohn’s disease presents special
challenges for children and teens. In addition to bothersome and often painful symptoms, the disease can stunt growth, delay puberty,
and weaken bones. Crohn’s disease symptoms may sometimes prevent a child from participating in enjoyable activities. The
emotional and psychological issues of living with a chronic disease can be especially difficult for young people.
SGX201 – for Preventing
Acute Radiation Enteritis
SGX201 is a delayed-release formulation
of BDP specifically designed for oral use. In 2012, we completed a Phase 1/2 clinical trial testing SGX201 in prevention of acute
radiation enteritis. Patients with rectal cancer scheduled to undergo concurrent radiation and chemotherapy prior to surgery were
randomized to one of four dose groups. The objectives of the study were to evaluate the safety and maximal tolerated dose of escalating
doses of SGX201, as well as the preliminary efficacy of SGX201 for prevention of signs and symptoms of acute radiation enteritis.
The study demonstrated that oral administration of SGX201 was safe and well tolerated across all four dose groups. There was also
evidence of a potential dose response with respect to diarrhea, nausea and vomiting and the assessment of enteritis according to
National Cancer Institute Common Terminology Criteria for Adverse Events for selected gastrointestinal events. In addition, the
incidence of diarrhea was lower than that seen in recent published historical control data in this patient population. This program
was supported in part by a $500,000 two-year SBIR grant awarded by the NIH. We continue to work with our Radiation Enteritis medical
advisors to identify additional funding opportunities to support the clinical development program.
We have received Fast Track designation
from the FDA for SGX201 for acute radiation enteritis.
Acute Radiation Enteritis
External radiation therapy is used to treat
most types of cancer, including cancer of the bladder, uterine, cervix, rectum, prostate, and vagina. During delivery of treatment,
some level of radiation will also be delivered to healthy tissue, including the bowel, leading to acute and chronic toxicities.
The large and small bowels are very sensitive to radiation and the larger the dose of radiation the greater the damage to normal
bowel tissue. Radiation enteritis is a condition in which the lining of the bowel becomes swollen and inflamed during or after
radiation therapy to the abdomen, pelvis, or rectum. Most tumors in the abdomen and pelvis need large doses, and almost all patients
receiving radiation to the abdomen, pelvis, or rectum will show signs of acute enteritis.
Patients with acute enteritis may have
nausea, vomiting, abdominal pain and bleeding, among other symptoms. Some patients may develop dehydration and require hospitalization.
With diarrhea, the gastrointestinal tract does not function normally, and nutrients such as fat, lactose, bile salts, and vitamin
B12 are not well absorbed.
Symptoms will usually resolve within two
to six weeks after therapy has ceased. Radiation enteritis is often not a self-limited illness, as over 80% of patients who receive
abdominal radiation therapy complain of a persistent change in bowel habits. Moreover, acute radiation injury increases the risk
of development of chronic radiation enteropathy, and overall 5% to 15% of the patients who receive abdominal or pelvic irradiation
will develop chronic radiation enteritis.
We estimate, based upon our review of historic
published studies and reports, and an interpolation of data on the treatment courses and incidence of cancers occurring in the
abdominal and pelvic regions, there to be over 100,000 patients annually in the U.S., with a comparable number in Europe, who receive
abdominal or pelvic external beam radiation treatment for cancer, and these patients are at risk of developing acute and chronic
radiation enteritis.
Vaccines/BioDefense Overview
ThermoVax
®
– Thermostability Technology
Our thermostability technology, ThermoVax
®
,
is a novel method of rendering aluminum salt, (known colloquially as Alum), adjuvanted vaccines stable at elevated temperatures.
Alum is the most widely employed adjuvant technology in the vaccine industry. The value of ThermoVax
®
lies in its
potential ability to eliminate the need for cold chain production, transportation, and storage for Alum adjuvanted vaccines. This
would relieve companies of the high costs of producing and maintaining vaccines under refrigerated conditions. Based on historical
reports from the World Health Organization and other scientific reports, we believe that a meaningful proportion of vaccine doses
globally are wasted due to excursions from required cold chain temperature ranges. This is due to the fact that most Alum adjuvanted
vaccines need to be maintained at between 2 and 8 degrees Celsius (“C”) and even brief excursions from this temperature
range (especially below freezing) usually necessitates the destruction of the product or the initiation of costly stability programs
specific for the vaccine lots in question. We believe that the savings realized from the elimination of cold chain costs and related
product losses would significantly increase the profitability of vaccine products. We believe that elimination of the cold chain
could further facilitate the use of these vaccines in the lesser developed parts of the world. ThermoVax
®
has the
potential to facilitate easier storage and distribution of strategic national stockpile vaccines in emergency settings.
ThermoVax
®
development
was supported pursuant to our $9.4 million NIAID grant enabling development of thermo-stable ricin (RiVax
®
) and
anthrax (VeloThrax
®
) vaccines. Proof-of-concept preclinical studies with ThermoVax
®
indicate that
it is able to produce stable vaccine formulations using adjuvants, protein immunogens, and other components that ordinarily would
not withstand long temperature variations exceeding customary refrigerated storage conditions. These studies were conducted with
our aluminum-adjuvanted ricin toxin vaccine, RiVax
®
and our aluminum-adjuvanted anthrax vaccine, VeloThrax
®
.
Each vaccine was manufactured under precise lyophilization conditions using excipients that aid in maintaining native protein
structure of the key antigen. When RiVax
®
was kept at 40 degrees C (104 degrees Fahrenheit) for up to one year,
all of the animals vaccinated with the lyophilized RiVax
®
vaccine developed potent and high titer neutralizing
antibodies. In contrast, animals that were vaccinated with the liquid RiVax
®
vaccine kept at 40 degrees C did not
develop neutralizing antibodies and were not protected against ricin exposure. The ricin A chain is extremely sensitive to temperature
and rapidly loses the ability to induce neutralizing antibodies when exposed to temperatures higher than 8 degrees C. When VeloThrax
®
was kept for up to 16 weeks at 70 degrees C, it was able to develop a potent antibody response, unlike the liquid formulation
kept at the same temperature. Moreover, we also have demonstrated the compatibility of our thermostabilization technology with
other secondary adjuvants such as TLR-4 agonists. Additionally, the University of Colorado conducted a study that demonstrated
a heat stable vaccine formulation of a human papillomavirus (“HPV”) vaccine. The work was conducted by Drs. Randolph
and Garcea and demonstrated the successful conversion of a commercial virus-like-particle based vaccine requiring cold chain storage
to a subunit, alum-adjuvanted, vaccine which is stable at ambient temperatures. This work, funded by a University of Colorado
seed grant and the Specialized Program of Research Excellence in cervical cancer, is the first demonstration of the utility of
ThermoVax
®
technology for the development of a subunit based commercial vaccine. The HPV vaccine formulation
was found to be stable for at least 12 weeks at 50 degrees C. In the study, mice immunized with the ThermoVax
®
-stabilized
HPV subunit vaccine were also found to achieve immune responses similar to the commercial HPV vaccine, Cervarix
®
,
as measured by either total antibody levels or neutralizing antibody levels. Moreover, whereas the immune responses to Cervarix
®
were reduced after storage for 12 weeks at 50 degrees C, the ThermoVax
®
formulated vaccine retained its efficacy.
The results were published online in the European Journal of Pharmaceutics and Biopharmaceutics. See
http://www.sciencedirect.com/science/article/pii/S0939641115002416)
.
We also entered into a collaboration agreement
with Axel Lehrer, PhD of the Department of Tropical Medicine, Medical Microbiology and Pharmacology, John A. Burns School of Medicine,
University of Hawai
ʻ
i at Manoa (“UH Manoa”) and Hawaii Biotech,
Inc. (“HBI”) to develop a heat stable subunit Ebola vaccine. Dr. Lehrer, a co-inventor of the Ebola vaccine with HBI,
has shown proof of concept efficacy with subunit Ebola vaccines in non-human primates. The most advanced Ebola vaccines involve
the use of vesicular stomatitis virus and adenovirus vectors – live, viral vectors which complicate the manufacturing, stability
and storage requirements. Dr. Lehrer’s vaccine candidate is based on highly purified recombinant protein antigens, circumventing
many of these manufacturing difficulties. Dr. Lehrer and HBI have developed a robust manufacturing process for the required proteins.
Application of ThermoVax
®
may allow for a product that can avoid the need for cold chain distribution and storage,
yielding a vaccine ideal for use in both the developed and developing world. Although this agreement has expired in accordance
with its terms, we expect to extend the period of the agreement or enter into another agreement with Dr. Lehrer and HBI to replace
this agreement.
During September 2017 we announced we will
be participating in a NIAID Research Project (R01) grant awarded to UH Manoa for the development of a trivalent thermostabilized
Ebola vaccine, with our awarded funding of approximately $700,000 over five years. Previous collaborations demonstrated the feasibility
of developing a heat stable subunit Ebola vaccine. Under the terms of the subaward, we will continue to support vaccine formulation
development with our proprietary vaccine thermostabilization technology, ThermoVax
®
. Ultimately, the objective is
to produce a thermostable trivalent filovirus vaccine for protection against Ebola and related diseases, allowing worldwide distribution
without the need for cold storage.
We intend to seek out potential partnerships
with companies marketing FDA/ex-U.S. health authority approved Alum adjuvanted vaccines and currently developing Alum adjuvanted
vaccines that are interested in eliminating the need for cold chain for their products. We believe that ThermoVax
®
also will enable us to expand our vaccine development expertise beyond biodefense into the infectious disease space and also has
the potential to allow for the development of multivalent vaccines (e.g., combination ricin-anthrax vaccine).
RiVax
®
–
Ricin Toxin Vaccine
RiVax
®
is our proprietary
vaccine candidate being developed to protect against exposure to ricin toxin and if approved, would be the first ricin vaccine.
The immunogen in RiVax
®
induces a protective immune response in animal models of ricin exposure and functionally
active antibodies in humans. The immunogen consists of a genetically inactivated ricin A chain subunit that is enzymatically inactive
and lacks residual toxicity of the holotoxin. RiVax
®
has demonstrated statistically significant (p < 0.0001)
preclinical survival results, providing 100% protection against acute lethality in an aerosol exposure non-human primate model
(Roy et al, 2015, Thermostable ricin vaccine protects rhesus macaques against aerosolized ricin: Epitope-specific neutralizing
antibodies correlate with protection, PNAS USA 112:3782-3787), and has also been shown to be well tolerated and immunogenic in
two Phase 1 clinical trials in healthy volunteers. Results of the first Phase 1 human trial of RiVax
®
established
that the immunogen was safe and induced antibodies that we believe may protect humans from ricin exposure. The antibodies generated
from vaccination, concentrated and purified, were capable of conferring immunity passively to recipient animals, indicating that
the vaccine was capable of inducing functionally active antibodies in humans. The outcome of this study was published in the Proceedings
of the National Academy of Sciences (Vitetta et al., 2006, A Pilot Clinical Trial of a Recombinant Ricin Vaccine in Normal Humans,
PNAS, 103:2268-2273). The second trial which was completed in September 2012 and was sponsored by University of Texas Southwestern
Medical Center (“UTSW”), evaluated a more potent formulation of RiVax
®
that contained an aluminum adjuvant
(Alum). The results of the Phase 1b study indicated that Alum-adjuvanted RiVax
®
was safe and well tolerated, and
induced greater ricin neutralizing antibody levels in humans than adjuvant-free RiVax
®
. The outcomes of this second
study were published in the Clinical and Vaccine Immunology (Vitetta et al., 2012, Recombinant Ricin Vaccine Phase 1b Clinical
Trial, Clin. Vaccine Immunol. 10:1697-1699). We have adapted the original manufacturing process for the immunogen contained in
RiVax
®
for thermostability and large scale manufacturing and recent studies have confirmed that the thermostabilized
RiVax
®
formulation enhances the stability of the RiVax
®
antigen, enabling storage for at least 1
year at temperatures up to 40°C (104 °F). The program will pursue approval via the FDA “Animal Rule” since
it is not possible to test the efficacy of the vaccine in a clinical study which would expose humans to ricin. Uniform, easily
measured and species-neutral immune correlates of protection that can be measured in humans and animals, and are indicative of
animal survival to subsequent ricin challenge, are central to the application of the “Animal Rule”. Recent work has
identified such potential correlates of immune protection in animals and work to qualify and validate these approaches is continuing,
with the goal of utilizing these assays in a planned Phase 1/2 clinical trial with the thermostable RiVax
®
formulation.
We have entered into a collaboration with IDT Biologika GmbH to scale-up the formulation/filling process and continue development
and validation of analytical methods established at IDT to advance the program. We also have initiated a development agreement
with Emergent BioSolutions, Inc. to implement a commercially viable, scalable production technology for the RiVax
®
drug substance protein antigen.
The development of RiVax
®
has been sponsored through a series of overlapping challenge grants, UC1, and cooperative grants, U01, from the NIH, granted to
us and to UTSW where the vaccine originated. The second clinical trial was supported by a grant from the FDA’s Office of
Orphan Products to UTSW. To date, we and UTSW have collectively received approximately $25 million in grant funding from the NIH
for the development of RiVax
®
. In September 2014, we entered into a contract with the NIH for the development of
RiVax
®
that would provide up to an additional $24.7 million of funding in the aggregate if options to extend the
contract are exercised by the NIH. The development agreements with Emergent BioSolutions and IDT are specifically funded under
this NIH contract.
During June 2017 NIAID exercised an option
for the evaluation of RiVax
®
to fund additional animal efficacy studies. The exercised option will provide us with
approximately $2.0 million in additional funding. Additionally, during August 2017 NIAID exercised an option to fund good manufacturing
practices compliant RiVax
®
bulk drug substance and finished drug product manufacturing, which is required for the
conduct of future preclinical and clinical safety and efficacy studies. The exercised option will provide us with approximately
$2.5 million in additional non-dilutive funding, bringing the total amount awarded to date under this contract to $21.2 million,
of which $17.2 million is still available. If all contract options are exercised, the total award of up to $24.7 million will support
the preclinical, manufacturing and clinical development activities necessary to advance heat stable RiVax
®
with
the FDA. In addition to the ongoing funding of up to $24.7 million for the development of RiVax
®
, biomarkers for
RiVax
®
testing have been successfully identified, facilitating potential approval under the FDA Animal Rule.
RiVax
®
has been granted
Orphan Drug designation by the FDA for the prevention of ricin intoxication.
Assuming development efforts are successful
for RiVax
®
, we believe potential government procurement contract(s) could reach as much as $200 million. This
potential procurement contract information is a forward-looking statement, and investors are urged not to place undue reliance
on this statement. While we have determined this potential procurement contract value based on assumptions that we believe are
reasonable, there are a number of factors that could cause our expectations to change or not be realized.
As a new chemical entity, an FDA approved
RiVax
®
vaccine has the potential to qualify for a biodefense Priority Review Voucher (“PRV”). Approved
under the 21st Century Cures Act in late 2016, the biodefense PRV is awarded upon approval as a medical countermeasure when the
active ingredient(s) have not been otherwise approved for use in any context. PRVs are transferable and can be sold, with sales
in recent years of up to $350 million. When redeemed, PRVs entitle the user to an accelerated review period of nine months, saving
a median of seven months review time as calculated in 2009. However, FDA must be advised 90 days in advance of the use of the PRV
and the use of a PRV is associated with an additional user fee ($2.7 million in 2017).
Ricin Toxin
Ricin toxin can be cheaply and easily produced,
is stable over long periods of time, is toxic by several routes of exposure and thus has the potential to be used as a biological
weapon against military and/or civilian targets. As a bioterrorism agent, ricin could be disseminated as an aerosol, by injection,
or as a food supply contaminant. The potential use of ricin toxin as a biological weapon of mass destruction has been highlighted
in a Federal Bureau of Investigation Bioterror report released in November 2007 titled Terrorism 2002-2005, which states that “Ricin
and the bacterial agent anthrax are emerging as the most prevalent agents involved in WMD investigations” (http://www.fbi.gov/stats-services/publications/terrorism-2002-2005/terror02_05.pdf).
In recent years, Al Qaeda in the Arabian Peninsula has threatened the use of ricin toxin to poison food and water supplies and
in connection with explosive devices. Domestically, the threat from ricin remains a concern for security agencies. As recently
as April 2013, letters addressed to the President of the United States, a U.S. Senator and a judge tested positive for ricin.
The Centers for Disease Control and Prevention
has classified ricin toxin 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. The recent ricin threat to government officials has heightened
the awareness of this toxic threat. 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.
OrbeShield
®
– for Treating GI Acute Radiation Syndrome
OrbeShield
®
is an oral immediate
and delayed release formulation of the topically active corticosteroid BDP and is being developed for the treatment of GI ARS.
Corticosteroids are a widely used class of anti-inflammatory drugs. BDP is a corticosteroid with predominantly topical activity
that is approved for use in asthma, psoriasis and allergic rhinitis.
OrbeShield
®
has demonstrated
positive preclinical results in a canine GI ARS model which indicate that dogs treated with OrbeShield
®
demonstrated
statistically significant (p=0.04) improvement in survival with dosing at either two hours or 24 hours after exposure to lethal
doses of total body irradiation (“TBI”) when compared to control dogs. OrbeShield
®
appears to significantly
mitigate the damage to the GI epithelium caused by exposure to high doses of radiation using a well-established canine model of
GI ARS.
The GI tract is highly sensitive to ionizing
radiation and the destruction of epithelial tissue is one of the 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 concept of
GI damage also applies to the clinical setting of oncology, where high doses of radiation cannot be administered effectively to
the abdomen because radiation is very toxic to the intestines. We are seeking to treat the same type of toxicity in our acute radiation
enteritis clinical program with SGX201. As a result, we believe that OrbeShield
®
has the potential to be a “dual
use” compound, a desirable characteristic which is a specific priority for ARS and other medical countermeasure indications.
In September 2013, we received two government
contracts from BARDA and NIAID for the advanced preclinical and manufacturing development of OrbeShield
®
leading
to FDA approval to treat GI ARS. The BARDA contract contained a two year base period with two contract options, exercisable by
BARDA, for a total of five years and up to $26.3 million. The NIAID contract consisted of a one year base period and two contract
options, exercisable by NIAID, for a total of three years and up to $6.4 million. We received a combined approximate $18 million
in contract funding from both BARDA and NIAID which includes combined supplemental funding of $634,000, extending the programs
through the first quarter of 2017. The NIAID contract was completed during the first quarter of 2017 along with the expiration
of the base period of the BARDA contract for the development of OrbeShield
®
, with BARDA electing not to extend the
current contract beyond the base period. We will continue to apply for additional government funding. Previously, development of
OrbeShield
®
had been largely supported by a $1 million NIH grant to our academic partner, the Fred Hutchinson Cancer
Research Center. In July 2012, we received an SBIR grant from NIAID of approximately $600,000 to support further preclinical development
of OrbeShield
®
for the treatment of acute GI ARS. The FDA has given OrbeShield
®
Orphan Drug designation
and Fast Track designation for the prevention of death following a potentially lethal dose of total body irradiation during or
after a radiation disaster.
Assuming development efforts are successful
for OrbeShield
®
, we believe potential government procurement contracts could reach as much as $450 million. This
potential procurement contract information is a forward-looking statement, and investors are urged not to place undue reliance
on this statement. While we have determined this potential procurement contract value based on assumptions that we believe are
reasonable, there are a number of factors that could cause our expectations to change or not be realized.
GI Acute Radiation Syndrome
ARS
occurs after toxic radiation exposure and involves several organ systems, notably the bone marrow, the GI tract and later the lungs.
In the event of a nuclear disaster or terrorist detonation of a nuclear bomb, casualties exposed to greater than 2 grays (“Gy”)
of absorbed radiation are at high risk for development of clinically significant ARS. Exposure to high doses of radiation exceeding
10-12 Gy causes acute GI injury which can result in death. The GI tract is highly sensitive due to the continuous need for crypt
stem cells and production of mucosal epithelium. The extent of injury to the bone marrow and the GI tract are the principal determinants
of survival after exposure to TBI. Although the hematopoietic syndrome can be rescued by bone marrow transplantation or growth
factor administration, there is no established treatment or preventive measure for the GI damage that occurs after high-dose radiation.
As a result, we believe there is an urgent medical need for specific medical counter measures against the lethal pathophysiological
manifestations of radiation-induced GI injury.
SGX943 – for Treating
Emerging and/or Antibiotic-Resistant Infectious Diseases
SGX943 is an IDR, containing the same active
ingredient as SGX942. Dusquetide is a fully synthetic, 5-amino acid peptide with high aqueous solubility and stability. Extensive
in vivo
preclinical studies have demonstrated enhanced clearance of bacterial infection with SGX943 administration. SGX943
has shown efficacy against both Gram-negative and Gram-positive bacterial infections in preclinical models, independent of whether
the bacteria is antibiotic-resistant or antibiotic-sensitive.
The innate immune system is responsible
for rapid and non-specific responses to combat bacterial infection. Augmenting these responses represents an alternative approach
to treating bacterial infections. In animal models, IDRs are efficacious against both antibiotic-sensitive and antibiotic-resistant
infections, both Gram-positive and Gram-negative bacteria, and are active irrespective of whether the bacteria occupies a primarily
extracellular or intracellular niche. IDRs are also effective as stand-alone agents or in conjunction with antibiotics. An IDR
for the treatment of serious bacterial infections encompasses a number of clinical advantages including:
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Treatment when antibiotics are contraindicated, such as:
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before the infectious organism and/or its antibiotic susceptibility is known; or
|
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in at-risk populations prior to infection.
|
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An ability to be used as an additive, complementary treatment with antibiotics, thereby:
|
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o
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enhancing efficacy of sub-optimal antibiotic regimens (e.g., partially antibiotic-resistant infections);
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enhancing clearance of infection, thereby minimizing the generation of antibiotic resistance (e.g., in treating melioidosis);
and
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reducing the required antibiotic dose, again potentially minimizing the generation of antibiotic resistance.
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An ability to modulate the deleterious consequences of inflammation in response to the infection, including the inflammation
caused by antibiotic-driven bacterial lysis; and
|
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Being unlikely to generate bacterial resistance since the IDR acts on the host, and not the pathogen.
|
Importantly, systemic inflammation and
multi-organ failure is the ultimate common outcome of not only emerging and/or antibiotic-resistant infectious diseases, but also
of most biothreat agents (e.g.,
Burkholderia pseudomallei
), indicating that dusquetide would be applicable not only to antibiotic-resistant
infection, but also to biothreat agents, especially where the pathogen is not known and/or has been engineered for enhanced antibiotic
resistance.
The Drug Approval Process
The FDA and comparable regulatory agencies
in state, local and foreign jurisdictions impose substantial requirements on the clinical development, manufacture and marketing
of new drug and biologic products. The FDA, through regulations that implement the Federal Food, Drug, and Cosmetic Act, as amended
(“FDCA”), and other laws and comparable regulations for other agencies, regulate research and development activities
and the testing, manufacture, labeling, storage, shipping, approval, recordkeeping, advertising, promotion, sale, export, import
and distribution of such products. The regulatory approval process is generally lengthy, expensive and uncertain. Failure to comply
with applicable FDA and other regulatory requirements can result in sanctions being imposed on us or the manufacturers of our products,
including holds on clinical research, civil or criminal fines or other penalties, product recalls, or seizures, or total or partial
suspension of production or injunctions, refusals to permit products to be imported into or exported out of the United States,
refusals of the FDA to grant approval of drugs or to allow us to enter into government supply contracts, withdrawals of previously
approved marketing applications and criminal prosecutions.
Before human clinical testing in the U.S.
of a new drug compound or biological product can commence, an Investigational New Drug (“IND”), application is required
to be submitted to the FDA. The IND application 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 a New Drug Application (“NDA”), for approval of a drug, or a
Biologic License Application (“BLA”), for biologics such as vaccines, which will be reviewed, and if successful, approved
by the FDA, allowing the product to be marketed. 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 or BLA, 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. For certain drugs intended to treat serious, life-threatening conditions
that show great promise in earlier testing, the FDA can also grant conditional approval. However, drug developers are required
to study the drug further and verify clinical benefit as part of the conditional approval provision, and the FDA can revoke approval
if later testing does not reproduce previous findings. The FDA may also condition approval of a product on the sponsor agreeing
to certain mitigation strategies that can limit the unfettered marketing of a drug. 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 product. 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 U.S., the FDCA, 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 FDCA involving medical devices.
For biodefense development, such as with
RiVax
®
and OrbeShield
®
, the FDA has instituted policies that are expected to result in shorter pathways
to market. This potentially includes approval for commercial use utilizing 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 benefit-risk 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 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 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.
Vaccines are approved under the BLA process
that exists under the Public Health Service Act. In addition to the greater technical challenges associated with developing biologics,
the potential for generic competition is lower for a BLA product than a small molecule product subject to an NDA under the Federal
Food, Drug and Cosmetic Act. Under the Patient Protection and Affordable Care Act enacted in 2010, a “generic” version
of a biologic is known as a biosimilar and the barriers to entry – whether legal, scientific, or logistical – for a
biosimilar version of a biologic approved under a BLA are higher.
Orphan Drug Designation
Under the Orphan Drug Act, the FDA may
grant orphan drug designation to drugs or biologics intended to treat a rare disease or condition – generally a disease or
condition that affects fewer than 200,000 individuals in the United States. Orphan drug designation must be requested before submitting
an NDA or BLA. After the FDA grants orphan drug designation, the generic identity of the drug or biologic and its potential orphan
use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the
regulatory review and approval process. The first NDA or BLA applicant to receive FDA approval for a particular active ingredient
to treat a particular disease with FDA orphan drug designation is entitled to a seven-year exclusive marketing period in the United
States for that product, for that indication. During the seven-year exclusivity period, the FDA may not approve any other applications
to market the same drug or biologic for the same disease, except in limited circumstances, such as a showing of clinical superiority
to the product with orphan drug exclusivity. Orphan drug exclusivity does not prevent the FDA from approving a different drug or
biologic for the same disease or condition, or the same drug or biologic for a different disease or condition. Among the other
benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA or BLA application user fee.
Fast Track Designation and Accelerated Approval
The FDA is required to facilitate the development,
and expedite the review, of drugs or biologics that are intended for the treatment of a serious or life-threatening disease or
condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs for the
condition. Under the fast track program, the sponsor of a new drug or biologic candidate may request that the FDA designate the
candidate for a specific indication as a fast track drug or biologic concurrent with, or after, the filing of the IND for the candidate.
The FDA must determine if the drug or biologic candidate qualifies for fast track designation within 60 days of receipt of the
sponsor’s request. Unique to a fast track product, the FDA may initiate review of sections of a fast track product’s
NDA or BLA before the application is complete. This rolling review is available if the applicant provides, and the FDA approves,
a schedule for the submission of the remaining information and the applicant pays applicable user fees. However, the FDA’s
time period goal for reviewing an application does not begin until the last section of the NDA or BLA is submitted. Additionally,
the fast track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data
emerging in the clinical trial process.
Any product submitted to the FDA for marketing,
including under a fast track program, may be eligible for other types of FDA programs intended to expedite development and review,
such as accelerated approval. Drug or biological products studied for their safety and effectiveness in treating serious or life-threatening
illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval, which means
the FDA may approve the product based upon a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a
clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an
effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence
of the condition and the availability or lack of alternative treatments.
In clinical trials, a surrogate endpoint is a measurement of
laboratory or clinical signs of a disease or condition that substitutes for a direct measurement of how a patient feels, functions,
or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. A drug or biologic
candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase
4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies,
or confirm a clinical benefit during post-marketing studies, will allow the FDA to withdraw the drug or biologic from the market
on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations are subject to prior
review by the FDA.
Pediatric Information
Under the Pediatric Research Equity Act
(“PREA”), NDAs or BLAs or supplements to NDAs or BLAs must contain data to assess the safety and effectiveness of the
drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric
subpopulation for which the drug is safe and effective. The FDA may grant full or partial waivers, or deferrals, for submission
of data. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan designation
has been granted.
Early Access to Medicines Scheme
Launched in April 2014 in the United Kingdom
by the MHRA, the Early Access to Medicines Scheme (“EAMS”) offers severely ill patients with life-threatening and seriously
debilitating conditions the lifeline of trying ground-breaking new medicines earlier than they would normally be accessible. PIM
designation is the first phase of EAMS and is awarded following an assessment of early nonclinical and clinical data by the MHRA.
The criteria product candidates must meet to obtain PIM designation are:
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Criterion 1 – The condition should be life-threatening or seriously debilitating with a high unmet medical need (i.e., there is no method of treatment, diagnosis or prevention available or existing methods have serious limitations).
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Criterion 2 – The medicinal product is likely to offer major advantage over methods currently used in the UK.
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Criterion 3 – The potential adverse effects of the medicinal product are likely to be outweighed by the benefits, allowing for the reasonable expectation of a positive benefit risk balance. A positive benefit risk balance should be based on preliminary scientific evidence that the safety profile of the medicinal product is likely to be manageable and acceptable in relation to the estimated benefits.
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False Claims Laws
The federal False Claims Act prohibits, among other things,
any person or entity from knowingly presenting, or causing to be presented, a false claim for payment to, or approval by, the federal
government or knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent
claim to the federal government. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim
includes “any request or demand” for money or property presented to the U.S. government.
Anti-Kickback Laws
The federal Anti-Kickback Statute prohibits,
among other things, any person or entity, from knowingly and willfully offering, paying, soliciting or receiving any remuneration,
directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging
for the purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs.
The term remuneration has been interpreted broadly to include anything of value. The Anti-Kickback Statute has been interpreted
to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and formulary managers on
the other.
United States Healthcare Reform
Federal Physician Payments Sunshine Act
and its implementing regulations require that certain manufacturers of drugs, devices, biological and medical supplies for which
payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report
information related to certain payments or other transfers of value made or distributed to physicians and teaching hospitals, or
to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report annually
certain ownership and investment interests held by physicians and their immediate family members.
In addition, we may be subject to data
privacy and security regulation by both the federal government and the states in which we conduct our business. The Health Insurance
Portability and Accountability Act (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical
Health Act (“HITECH”), and its implementing regulations, imposes certain requirements relating to the privacy, security
and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security
standards directly applicable to “business associates” – independent contractors or agents of covered entities
that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH
also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable
to business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages
or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing
federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances,
many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Third-Party Suppliers and Manufacturers
Drug substance and drug product manufacturing
is outsourced to qualified suppliers. We do not have manufacturing capabilities/infrastructure and do not intend to develop the
capacity to manufacture drug products substances. We have agreements with third-party manufacturers to supply bulk drug substances
for our product candidates and with third parties to formulate, package and distribute our product candidates. Our employees include
professionals with expertise in pharmaceutical manufacturing development, quality assurance and third party supplier management
who oversee work conducted by third-party companies. We believe that we have on hand or can easily obtain sufficient amounts of
product candidates to complete our currently contemplated clinical trials. All of the drug substances used in our product candidates
currently are manufactured by single suppliers. While we have not experienced any supply disruptions, the number of manufacturers
of the drug substances is limited. In the event it is necessary or advisable to acquire supplies from alternative suppliers, assuming
commercially reasonable terms could be reached, the challenge would be the efficient transfer of technology and know-how from current
manufactures to the new supplier. Formulation and distribution of our finished product candidates also currently are conducted
by single suppliers but we believe that alternative sources for these services are readily available on commercially reasonable
terms, subject to the efficient transfer of technology and know-how from current suppliers to the new supplier.
All of the current agreements for the supply
of bulk drug substances for our product candidates and for the formulation or distribution of our product candidates relate solely
to the development (including preclinical and clinical) of our product candidates. Under these contracts, our product candidates
are manufactured upon our order of a specific quantity. In the event that we obtain marketing approval for a product candidate,
we will qualify secondary suppliers for all key manufacturing activities supporting the marketing application.
Marketing and Collaboration
We do not currently have any sales and
marketing capability, other than to potentially market our biodefense vaccine products directly to government agencies. With respect
to other commercialization efforts, we currently intend to seek distribution and other collaboration arrangements for the sales
and marketing of any product candidate that is approved, while also evaluating the potential to commercialize on our own in orphan
disease indications. From time to time, we have had and are having strategic discussions with potential collaboration partners
for our biodefense vaccine product candidates, although no assurance can be given that we will be able to enter into one or more
collaboration agreements for our product candidate on acceptable terms, if at all. We believe that both military and civilian health
authorities of the U.S. 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.
On December 20, 2012, we re-acquired the
North American and European commercial rights to oral BDP through an amendment of our collaboration and supply agreement with Sigma-Tau
Pharmaceuticals, Inc., which is now known as Leadiant Biosciences, Inc. (“Leadiant”). The amendment requires us to
make certain approval and commercialization milestone payments to Leadiant which could reach up to $6 million. In addition, we
have agreed to pay Leadiant: (a) a royalty amount equal to 3% of all net sales of oral BDP made directly by us, and any third-party
partner and/or their respective affiliates in the U.S., Canada, Mexico and in each country in the European Territory for the later
to occur of: (i) a period of ten years from the first commercial sale of oral BDP in each country, or (ii) the expiration of our
patents and patent applications relating to oral BDP in such country (the “Payment Period”); and (b) 15% of all up-front
payments, milestone payments and any other consideration (exclusive of equity payments) received by us and/or a potential partner
from us and/or potential partner’s licensees, distributors and agents for oral BDP in each relevant country in the territory,
which amount will be paid on a product-by-product and a country-by-country basis for the Payment Period.
On August 25, 2013, we entered into an
agreement with SciClone Pharmaceuticals, Inc. (“SciClone”), pursuant to which SciClone provided us with access to its
oral mucositis clinical and regulatory data library in exchange for exclusive commercialization rights for SGX942 in the People’s
Republic of China, including Hong Kong and Macau, subject to the negotiation of economic terms. SciClone’s data library was
generated from two sequential Phase 2 clinical studies conducted in 2010 and 2012 evaluating SciClone’s compound, SCV-07,
for the treatment of oral mucositis caused by chemoradiation therapy in head and neck cancer patients, before SciClone terminated
its program. By analyzing data available from the placebo subjects in the SciClone trials, we acquired valuable insight into disease
progression, along with quantitative understanding of its incidence and severity in the head and neck cancer patient population.
This information assisted us with the design of the SGX942 Phase 2 clinical trial, in which positive preliminary results were announced
in December 2015.
On September 9, 2016, we and SciClone entered
into an exclusive license agreement, pursuant to which we granted rights to SciClone to develop, promote, market, distribute and
sell SGX942 in the People’s Republic of China, including Hong Kong and Macau, as well as Taiwan, South Korea and Vietnam.
Under the terms of the license agreement, SciClone will be responsible for all aspects of development, product registration and
commercialization in the territory, having access to data generated by us. In exchange for exclusive rights, SciClone will pay
us royalties on net sales, and we will supply commercial drug product to SciClone on a cost-plus basis, while maintaining worldwide
manufacturing rights. We also entered into a common stock purchase agreement with SciClone pursuant to which we sold 352,942 shares
of our common stock to SciClone for approximately $8.50 per share, for an aggregate price of $3,000,000.
Competition
Our competitors are pharmaceutical and
biotechnology companies, most of whom have considerably greater financial, technical, and marketing resources than we do. Universities
and other research institutions, including the U.S. Army Medical Research Institute of Infectious Diseases, also compete in the
development of treatment technologies, and we face competition from other companies to acquire rights to those technologies.
SGX301 Competition
The FDA has approved several treatments
for later stages (IIB-IV) of CTCL and/or in conditions that are unresponsive to prior treatment. Three are targeted therapies (Targretin
®
-caps,
Ontak
®
and Adcetris
®
), two are histone deacetylases inhibitors (Zolina
®
and Istodax
®
)
and the remaining two are topical therapies (Valchor
®
and Targretin
®
-gel). There are currently no
FDA approved therapies for the treatment of front-line, early stage (I-IIA) CTCL; however certain topical chemotherapies and topical,
radiation, photo and other therapies which are approved for indications other than CTCL are prescribed off-label for the treatment
of early stage CTCL. These include psoralen combined with ultraviolet A (UVA) light therapy (“PUVA”); however, PUVA
treatments are usually limited to three times per week and 200 times in total due to the potentially carcinogenic side effect.
There are other drugs currently in development that may have the potential to be used in early stage (I-IIA) CTCL – one in
phase 2 (vorinostat) and others in phase 1. Vorinostat has been approved by the FDA to treat CTCL patients who have conditions
that are unresponsive to other therapies. It currently is being studied in a phase 2 trial for the treatment of all stages of CTCL.
SGX94/942 Competition
Because SGX94 (dusquetide) uses a novel
mechanism of action in combating bacterial infections, there are no direct competitors at this time. Bacterial infections are routinely
treated with antibiotics and SGX94 treatment is anticipated to be utilized primarily where antibiotics are insufficient (e.g.,
due to antibiotic resistance) or contra-indicated (e.g., in situations where the development of antibiotic resistance is a significant
concern). Many groups are working on the antibiotic resistance problem and research into the innate immune system is intensifying,
making emerging competition likely (from companies such as Celtaxsys Inc., Innaxon Therapeutics and Innate Pharma SA).
There is currently one drug approved for
the treatment of oral mucositis in hematological cancer (palifermin). There are currently no approved drugs for treatment of oral
mucositis in cancers with solid tumors (e.g., head and neck cancer). There are several drugs in clinical development for oral mucositis
– two in Phase 3 (an epidermal growth factor under development by Daewoong Pharmaceutical Co. Ltd. and a protease inhibitor
under investigation at a Chinese hospital), five in Phase 2 (under development by Cellceutix Corporation, Intrexon Corporation,
Monopar Therapeutics LLC, Galera Therapeutics Inc., Moberg Pharma, and Alder Biopharmaceuticals Inc.) and various natural products
in small and/or open label studies (including sage, turmeric, honey and olive oil). In addition, there are medical devices approved
for the treatment of oral mucositis including MuGard, GelClair, Episil and Caphosol. These devices attempt to create a protective
barrier around the oral ulceration with no biologic activity in treating the underlying disease.
Oral BDP Competition
There are a number of approved treatments
for Crohn’s disease and additional compounds are in late-stage development.
Remicade (infliximab) and Humira (adalimumab) are currently
approved for the treatment of pediatric Crohn’s disease; however, both carry significant Black Box warnings in their labeling
for increased risk of serious infection and malignancy, and therefore are approved for treatment of moderate to severe patients.
Entocort (enteric-coated budesonide) is currently approved for the treatment of mild to moderate active Crohn’s disease involving
the lower GI tract (ileum and/or the ascending colon) in patients 8 years of age and older who weigh more than 25 kilograms. There
is one other marketed biologic, Tysabri (natalizumab), in a Phase 2 study for pediatric Crohn’s.
ThermoVax
®
Competition
Multiple groups and companies are working
to address the unmet need of vaccine thermostability using a variety of technologies. In addition, other organizations, such as
the Bill and Melinda Gates Foundation and PATH, have programs designed to advance technologies to address this need.
Several stabilization technologies currently
being developed involve mixing vaccine antigen +/- adjuvant with various proprietary excipients or co-factors that either serve
to stabilize the vaccine or biological product in a liquid or dried (lyophilized) form. Examples of these approaches include
the use of various plant-derived sugars and macromolecules being developed by companies such as Stabilitech Ltd. Variation Biotechnologies,
Inc. (“VBI”) is developing a lipid system (resembling liposomes) to stabilize viral antigens, including virus-like
particles (VLPs), and for potential application to a conventional influenza vaccine among others.
Other approaches involve process variations
to freeze-dry live virus vaccines. For example, PaxVax, Inc. is seeking to employ a spray drying technology in concert with
enteric coating to achieve formulations for room temperature stability of live virus vaccines using adenovirus vectors. VBI
is seeking to utilize their proprietary stabilization technology for a number of vaccines (as a co-development service, similar
to the business model being developed by Stabilitech Ltd.), whereas PaxVax is applying the technology to their own proprietary
vaccine development programs. Stabilitech uses combinations of excipients, which include glassifying sugars similar to the ThermoVax
®
technology, and variations in drying cycles during lyophilization, as does the ThermoVax
®
technology.
Additionally, companies like Pharmathene,
Inc., Panacea Biotec Ltd., and Compass Biotech Inc. are developing proprietary vaccines with the application of some form of stabilization
technology.
Vaccines/BioDefense Competition
We face competition in the area of biodefense
product development 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 our technologies.
The U.S. Army Medical Research Institute
of Infectious Diseases, the DoD’s lead laboratory for medical research to counter biological threats is also developing a
ricin vaccine candidate, RVEc™. RVEc™ has been shown to be fully protective in mice exposed to lethal doses of ricin
toxin by the aerosol route. Further studies, in both rabbits and nonhuman primates, were conducted to evaluate RVEc™’s
safety as well as its immunogenicity, with positive results observed.
In the area of radiation-protective antidotes
such as OrbeShield
®
, various companies, such as Cleveland Biolabs, Inc., Pluristem Therapeutics, Inc., Aeolus Pharmaceuticals,
Inc. Boulder Biotechnology, Inc., RxBio, Inc., Avaxia Biologics, Inc., Exponential Biotherapies, Inc., Osiris Therapeutics, Inc.,
ImmuneRegen BioSciences, Inc., Neumedicines, Inc., Cellerant Therapeutics, Inc., Onconova Therapeutics, Inc., Araim Pharmaceuticals,
Inc., EVA Pharmaceuticals, LLC, Terapio Corporation, Cangene Corporation, Humanetics Corporation and the University of Arkansas
Medical Sciences Center are developing biopharmaceutical products that may directly compete with OrbeShield
®
, even
though their approaches to such treatment are different.
RxBio, Avaxia Biologics and the University
of Arkansas have programs specifically for GI ARS. RxBio’s Rx100 is a stem cell protectant designed as a single dose (oral
or injection) which has shown promise in nonhuman primate studies. Avaxia is developing an orally delivered anti-TNF antibody as
a treatment agent for exposure to radiation following a nuclear accident, attack or explosion. Pasireotide, a drug in development
by Novartis for Cushing’s disease, is being developed at the University of Arkansas to protect the intestine by reducing
pancreatic secretions that exacerbate intestinal inflammation.
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 U.S. 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.
In 2014, we acquired a novel photodynamic
therapy that utilizes safe visible light for activation, which we refer to as SGX301. The active ingredient in SGX301 is synthetic
hypericin, a photosensitizer which is topically applied to skin lesions and then activated by fluorescent light 16 to 24 hours
later. As part of the acquisition, we acquired a license agreement relating to the use of photo-activated hypericin, composition
of matter patent for SGX301 (U.S. patent 8,629,302) and additional issued and pending applications, both in the US and abroad.
U.S. patent 8,629,302 is expected to expire in June 2032. Our proprietary formulation of synthetic hypericin has been granted a
European patent for the treatment of psoriasis, EP 2571507, and complements the method of treatment claims covered by the previously
issued US patent 6001882, Photoactivated hypericin and the use thereof.
In addition to issued and pending patents,
we also have “Orphan Drug” designations for SGX301 in the U.S. and the EU for CTCL, SGX203 in the U.S. for pediatric
Crohn’s disease, and OrbeShield
®
in the U.S. for GI ARS, as well as for RiVax
®
in the U.S.
Our Orphan Drug designations provide for seven years of post-approval marketing exclusivity in the U.S. and ten years exclusivity
in Europe. We have pending patent applications for this indication that, if granted, may extend our anticipated marketing exclusivity
beyond the U.S. seven year or E.U. ten year post-approval exclusivity provided by Orphan Drug legislation.
In 2013, we expanded our patent portfolio
to include innate defense regulation through the acquisition of the novel drug technology, known as SGX94. By binding to the pivotal
regulatory protein p62, also known as sequestosome-1, SGX94 regulates the innate immune system to reduce inflammation, eliminate
infection and enhance healing. As part of the acquisition, we acquired all rights, including composition of matter patents for
SGX94 as well as other analogs and crystal structures of SGX94 with its protein target p62, including U.S. patent 8,124,721 and
additional pending applications, both in the U.S. and abroad. SGX94 was developed pursuant to discoveries made by Professors B.
Brett Finlay and Robert Hancock of University of British Columbia (“UBC”). U.S. patent 8,124,721 is expected to expire
in April 2028. The U.S. Patent Office has granted the patent entitled “Novel Peptides and Analogs for Use in the Treatment
of Oral Mucositis”. The newly issued patent claims therapeutic use of dusquetide and related IDR analogs, and adds to composition
of matter claims for dusquetide and related analogs that have been granted in the U.S. and worldwide.
We have issued U.S. patents 8,263,582 and
6,096,731 that cover the use of oral BDP for treating inflammatory disorders of the gastrointestinal tract and the prevention and
treatment of GI GVHD, respectively. U.S. patent numbers 8,263,582 and 6,096,731 are expected to expire in March 2022 and June 2018,
respectively. We also have European patent EP 1392321 claiming the use of topically active corticosteroids in orally administered
dosage forms that act concurrently to treat inflammation in the upper and lower gastrointestinal tract, as well as European patent
EP 2242477 claiming the use of orally ingested BDP for treatment of interstitial lung disease. European patents EP 1392321 and
EP 2242477 are expected to expire in March 2022 and January 2029.
The subject of U.S. patent application
number 12/633,631 filed December 8, 2009 and corresponding European patent application number 09836727.9 is the use of topically
active BDP in radiation and chemotherapeutics injury. Additionally, we have numerous patent filings currently issued or pending
in foreign jurisdictions covering this subject matter, including Australia, Canada, China, Hong Kong, Israel, India, Japan, South
Korea and New Zealand.
ThermoVax
®
is the subject
of U.S. patent 8,444,991 issued on May 21, 2013 titled “Method of Preparing an Immunologically-Active Adjuvant-Bound Dried
Vaccine Composition” and also U.S. patent application number 13/474,661 filed May 17, 2012 titled “Thermostable Vaccine
Compositions and Methods of Preparing Same.” The patent application and the corresponding foreign filings for both patents
are pending and licensed to us by the University of Colorado (“UC”) and they address the use of adjuvants in conjunction
with vaccines that are formulated to resist thermal inactivation. The license agreement covers thermostable vaccines for biodefense
as well as other potential vaccine indications. U.S. patent 8,444,991 is expected to expire in December 2031.
RiVax
®
is the subject of three issued U.S. patent
numbers 6,566,500, 6,960,652, and 7,829,668, all titled “Compositions and methods for modifying toxic effects of proteinaceous
compounds.” This patent family includes composition of matter claims for the modified ricin toxin A chain which is the immunogen
contained in RiVax
®
, and issued in 2003, 2005 and 2010 respectively. The initial filing date of these patents is
March 2000 and they are expected to expire in March 2020. The issued patents contain claims that describe alteration of sequences
within the ricin A chain that affect vascular leak, one of the deadly toxicities caused by ricin toxin. Another U.S. patent number
7,175,848 titled “Ricin A chain mutants lacking enzymatic activity as vaccines to protect against aerosolized ricin,”
was filed in October of 2000 and is expected to expire in October 2020.
SGX301 License Agreement
In September 2014, we acquired a worldwide
exclusive license agreement with New York University and Yeda Research and Development Company Ltd. for the rights to a novel photodynamic
therapy that utilizes safe visible light for activation, which we refer to as SGX301. To maintain this license we are obligated
to pay $25,000 in annual license fees. In addition, we will pay the licensors: (a) a royalty amount equal to 3% of all net sales
of SGX301 made directly by us and/or any affiliates; (b) a royalty amount equal to 2.5% of all net sales of SGX301 made by our
sublicensees, subject to stated maximums and (c) 20% of all payments, not based on net sales, received by us from our sublicensees.
This license may be terminated by either party upon notice of a material breach by the other party that is not cured within the
applicable cure period. The exclusive license includes rights to several issued U.S. patents, including U.S. patent numbers 6,867,235
and 7,122,518, among other domestic and foreign patent applications. U.S. Patent numbers 6,867,235 and 7,122,518 are expected to
expire in January 2020 and November 2023, respectively.
We acquired the license agreement for SGX301
and related intangible assets, including U.S. patent 8,629,302, properties and rights pursuant to an asset purchase agreement with
Hy Biopharma Inc. (“Hy Biopharma”). As consideration for the assets acquired, we paid $275,000 in cash and issued 184,912
shares of common stock with a market value of $3,750,000. Provided all future success-orientated milestones are attained, we will
be required to make payments of up to $10.0 million, if and when achieved, payable in common stock of the Company.
SGX94 License Agreements
On December 18, 2012, we announced the
acquisition of a first in class drug technology, known as SGX94 (dusquetide), representing a novel approach to modulation of the
innate immune system. SGX94 is an IDR that regulates the innate immune system to reduce inflammation, eliminate infection and enhance
tissue healing by binding to the pivotal regulatory protein p62, also known as sequestosome-1. As part of the acquisition, we acquired
all rights, including composition of matter patents, preclinical and Phase 1 clinical study datasets for SGX94. We also assumed
a license agreement with UBC to advance the research and development of the SGX94 technology. The license agreement with UBC provides
us with exclusive worldwide rights to manufacture, distribute, market sell and/or license or sublicense products derived or developed
from this technology. Under the license agreement we are obligated to pay UBC (i) an annual license maintenance fee of CAN $1,000,
and (ii) milestone payments which could reach up to CAN $1.2 million. This license agreement (a) will automatically terminate if
we file, or become subject to an involuntary filing, for bankruptcy, and (b) may be terminated by UBC in the event of, among other
things, our insolvency, dissolution, grant of a security interest in the technology licensed to us pursuant to the license agreement,
or material breach of or failure to perform material obligations under the license agreement or other research agreements between
us and UBC.
Oral BDP License Agreement
On November 24, 1998, the Company, known
at the time as Enteron Pharmaceuticals, Inc. (“Enteron”) and George B. McDonald (“Dr. McDonald”) entered
into an exclusive license agreement for the rights to intellectual property, including know-how, relating to oral BDP. The Company
has an exclusive license to commercially exploit the covered products worldwide, subject to Dr. McDonald’s right to make
and use the technology for research purposes and the U.S. Government’s right to use the technology for government purposes.
Pursuant to the license agreement, as amended, the Company is required to (i) reimburse Dr. McDonald for certain out-of-pocket
expenses incurred by Dr. McDonald in connection with the patent applications and issued patents, (ii) pay Dr. McDonald
$300,000 upon approval by the FDA of the Company’s first NDA incorporating oral BDP; (iii) pay Dr. McDonald royalty
payments equal to 3% of net sales of the covered products and (iv) pay Dr. McDonald $400,000 in cash upon an approval of oral BDP
by the European Medicines Agency.
Additionally, in the event that the Company
sublicenses its rights under the license agreement, the Company will be required to pay Dr. McDonald 10% of any sublicense fees
and royalty payments paid by the sublicense to the Company.
The term of the license agreement expires
upon the expiration of the licensed patent applications or patents. Dr. McDonald has the right to terminate the license agreement
in its entirety or to terminate exclusivity under the agreement if the Company or its sublicense has not commercialized or are
not actively attempting to commercialize a covered product.
Additionally, the agreement terminates:
(i) automatically upon the Company becoming insolvent; (ii) upon 30 days’ notice, if the Company breaches any obligation
under the agreement without curing such breach during the notice period; and (iii) upon 90 days’ notice by the Company. After
any termination, the Company will have the right to sell its inventory for a period not to exceed three months following the date
of termination, subject to the payment of the amounts owed under the agreement.
ThermoVax
®
License
Agreement
On December 21, 2010, we executed a worldwide
exclusive license agreement with the UC for ThermoVax®, which is the subject of U.S. patent number 8,444,991 issued on May
21, 2013 titled “Method of Preparing an Immunologically-Active Adjuvant-Bound Dried Vaccine Composition.” This patent
and its corresponding foreign filings are licensed to us by the UC and they address the use of adjuvants in conjunction with vaccines
that are formulated to resist thermal inactivation. U.S. Patent 8,444,991 is expected to expire in December 2031. The license agreement
also covers thermostable vaccines for biodefense as well as other potential vaccine indications. In addition, we, in conjunction
with UC, filed domestic and foreign patent applications claiming priority back to a provisional application filed on May 17, 2011
titled: “Thermostable Vaccine Compositions and Methods of Preparing Same.” To maintain this license we are obligated
to pay minimum annual license fees of $15,000 until the initiation of clinical trials, $20,000 following the initiation of a Phase
1 clinical trial, and $50,000 following the first commercial sale of a product incorporating ThermoVax
®
. Under the
license agreement we are obligated to pay the UC (i) royalty payments equal to 2% of net sales of the covered products, (ii) 15%
of all income from sublicenses and (iii) milestone payments which could reach up to $1.25 million.
RiVax
®
License
Agreement
In June 2003, we executed a worldwide exclusive
option to license patent applications with 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 and, in October 2004, we negotiated
the remaining oral rights to the ricin vaccine. To maintain this license we are obligated to pay $50,000 in annual license fees.
Through this license, we have rights to the issued patent number 7,175,848 titled “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
®
.
Research and Development Expenditures
We spent approximately $5.5 million and
$4.3 million in the years ended December 31, 2017 and 2016, respectively, on research and development. The amounts we spent on
research and development per product during the years ended December 31, 2017, and 2016 are set forth in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.
Employees
As of December 31, 2017, we had 18 full-time
employees, 7 of whom are MDs/PhDs.
Available Investor Information
We file electronically with the Securities
and Exchange Commission (“SEC”) our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of 15(d) of the Securities Exchange Act
of 1934, as amended. We make available through our website, free of charge, copies of these reports as soon as reasonably practicable
after we electronically file or furnish them to the SEC. Our website is located at http://www.soligenix.com. You can also request
copies of such documents by contacting the company at (609) 538-8200 or sending an email to info@soligenix.com.
Item
1A. Risk factors
An investment in our securities
involves a high degree of risk. You should carefully consider the following information about these risks, together with the other
information about these risks contained in this Annual Report, as well as the other information contained in this Annual Report
generally, before deciding to buy our securities. Any of the risks we describe below could adversely affect our business, financial
condition, operating results or prospects. The market prices for our securities could decline if one or more of these risks and
uncertainties develop into actual events and you could lose all or part of your investment. 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 this Annual Report, including our financial statements and the related notes.
Risks Related to our Business
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, at December 31, 2017, had an accumulated deficit of approximately $157 million. We expect to incur additional
operating losses in the future and expect our cumulative losses to increase. As of December 31, 2017, we had approximately $7.8
million in cash and cash equivalents available. Based on our projected budgetary needs, funding from existing contracts and grants
over the next two years and sales to the purchasers under our existing equity line, we expect to be able to maintain the current
level of our operations through at least March 31, 2019.
In September 2014, we entered into a contract
with the National Institutes of Health (“NIH”) for the development of RiVax
®
to protect against exposure
to ricin toxin that would provide up to $24.7 million of funding in the aggregate over six years if options to extend the contract
are exercised by the NIH. In September 2013, we entered into contracts with NIAID and BARDA for the development of OrbeShield
®
that would provide up to $32.7 million of funding in the aggregate if options to extend the contracts are exercised by BARDA and
the NIH. We have received approximately $18 million in combined BARDA and NIH contract funding for the development of OrbeShield
®
.
We have completed the contract with NIAID and the BARDA contract base period, with BARDA electing not to extend the contract. In
addition, in 2017, we were awarded two separate grants from the NIH of approximately $1.5 million each to support our pivotal
Phase 3 trials of SGX301 for the treatment of CTCL and SGX942 for the treatment of oral mucositis in head and neck cancer. Our
biodefense grants have an overhead component that allows us an agency-approved percentage over our incurred costs. We estimate
that the overhead component associated with our existing contracts and grants will fund some fixed costs for direct employees working
on these contracts and grants as well as other administrative costs. We have approximately $19.6 million in awarded contract and
grant funding, assuming the NIAID options are exercised for the development of RiVax
®
. BARDA has elected not to
fund the additional options remaining under the contract.
Our product candidates are positioned for
or are currently in clinical trials, and we have not yet generated any significant revenues from sales or licensing of these product
candidates. From inception through December 31, 2017, we have expended approximately $76.0 million developing our current product
candidates for pre-clinical research and development and clinical trials, and we currently expect to spend approximately $10.7
million over the 12 month period from December 31, 2017 in connection with the development of our therapeutic and vaccine products,
licenses, employment agreements, and consulting agreements, of which approximately $5.2 million is expected to be reimbursed through
our existing government contracts and grants.
We have no control over the resources and
funding NIH, BARDA and NIAID may devote to our programs, which may be subject to periodic renewal and which generally may be terminated
by the government at any time for convenience. Any significant reductions in the funding of U.S. government agencies or in the
funding areas targeted by our business could materially and adversely affect our biodefense program and our results of operations
and financial condition. If we fail to satisfy our obligations under the government contracts, the applicable Federal Acquisition
Regulations allow the government to terminate the agreement in whole or in part, and we may be required to perform corrective actions,
including but not limited to delivering to the government any incomplete work. If NIH, BARDA or NIAID do not exercise future funding
options under the contracts or grants, terminate the funding or fail to perform their responsibilities under the agreements or
grants, it could materially impact our biodefense program and our financial results.
Unless and until we are able to generate
sales or licensing revenue from one of our product candidates, we will require additional funding to meet these commitments, sustain
our research and development efforts, provide for future clinical trials, and continue our operations. There can be no assurance
we can raise such funds. If additional funds are raised through the issuance of equity securities, stockholders may experience
dilution of their ownership interests, and the newly issued securities may have rights superior to those of the common stock. If
additional funds are raised by the issuance of debt, we may be subject to limitations on our operations. If we cannot raise such
additional funds, we may have to delay or stop some or all of our drug development programs.
If we are unable to develop
our product candidates, our ability to generate revenues and viability as a company will be significantly impaired.
In order to generate revenues and profits,
our organization must, along with corporate partners and collaborators, positively research, develop and commercialize our technologies
or product candidates. Our current product candidates are in various stages of early clinical and pre-clinical development and
will require significant further funding, research, development, pre-clinical 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 product candidates:
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we may not be able to maintain our current research and development schedules;
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we may be unable to secure procurement contracts on beneficial economic terms or at all from the U.S. government or others for our biodefense products;
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we may encounter problems in clinical trials; or
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the technology or
product may be found to be ineffective or unsafe, or may fail to obtain marketing approval.
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If any of the risks set forth above occur,
or if we are unable to obtain the necessary regulatory approvals as discussed below, we may be unable to 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 not economical 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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we are not able to manufacture the product reliably;
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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 expect a number of factors
to cause our operating results to fluctuate on a quarterly and annual basis, which may make it difficult to predict our future
performance.
We are a late-stage biopharmaceutical company.
Our operations to date have been primarily limited to developing our technology and undertaking pre-clinical studies and clinical
trials of our product candidates in our two active business segments, BioTherapeutics and Vaccines/BioDefense. We have not yet
obtained regulatory approvals for any of our product candidates. Consequently, any predictions made about our future success or
viability may not be as accurate as they could be if we had commercialized products. Our financial condition has varied significantly
in the past and will continue to fluctuate from quarter-to-quarter or year-to-year due to a variety of factors, many of which are
beyond our control. Factors relating to our business that may contribute to these fluctuations include other factors described
elsewhere in this Annual Report and also include:
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our ability to obtain additional funding to develop our product candidates;
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delays in the commencement, enrollment and timing of clinical trials;
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the success of our product candidates through all phases of clinical development;
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any delays in regulatory review and approval of product candidates in clinical development;
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our ability to obtain and maintain regulatory approval for our product candidates in the United States and foreign jurisdictions;
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potential side effects of our product candidates that could delay or prevent commercialization, limit the indications for any approved drug, require the establishment of risk evaluation and mitigation strategies, or cause an approved drug to be taken off the market;
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our dependence on third-party contract manufacturing organizations to supply or manufacture our products;
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our dependence on contract research organizations to conduct our clinical trials;
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our ability to establish or maintain collaborations, licensing or other arrangements;
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market acceptance of our product candidates;
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our ability to establish and maintain an effective sales and marketing infrastructure, either through the creation of a commercial infrastructure or through strategic collaborations;
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competition from existing products or new products that may emerge;
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the ability of patients or healthcare providers to obtain coverage of or sufficient reimbursement for our products;
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our ability to discover and develop additional product candidates;
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our ability and our licensors’ abilities to successfully obtain, maintain, defend and enforce intellectual property rights important to our business;
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our ability to attract and retain key personnel to manage our business effectively;
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our ability to build our finance infrastructure and improve our accounting systems and controls;
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potential product liability claims;
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potential liabilities associated with hazardous materials; and
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our ability to obtain and maintain adequate insurance policies.
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Accordingly, the results of any quarterly
or annual periods should not be relied upon as indications of future operating performance.
We have no approved products
on the market and therefore do not expect to generate any revenues from product sales in the foreseeable future, if at all.
To date, we have no approved product on
the market and have not generated any significant product revenues. We have funded our operations primarily from sales of our securities
and from government contracts and grants. We have not received, and do not expect to receive for at least the next several years,
if at all, any revenues from the commercialization of our product candidates. To obtain revenues from sales of our product candidates,
we must succeed, either alone or with third parties, in developing, obtaining regulatory approval for, manufacturing and marketing
drugs with commercial potential or successfully obtain government procurement or stockpiling agreements. We may never succeed in
these activities, and we may not generate sufficient revenues to continue our business operations or achieve profitability.
Our business is subject to
extensive governmental regulation, which can be costly, time consuming and subjects us to unanticipated delays.
Our business is subject to very stringent
federal, foreign, state and local government laws and regulations, including the Federal Food, Drug and Cosmetic Act, the Environmental
Protection Act, the Occupational Safety and Health Act, and state and local counterparts to these acts. These laws and regulations
may be amended, additional laws and regulations may be enacted, and the policies of the FDA and other regulatory agencies may change.
The regulatory process applicable to our
products requires pre-clinical and clinical testing of any product to establish its safety and efficacy. This testing can take
many years, is uncertain as to outcome, and requires the expenditure of substantial capital and other resources. We estimate that
the clinical trials of our product candidates that we have planned will take at least several years to complete. Furthermore, failure
can occur at any stage of the trials, and we could encounter problems that cause us to abandon or repeat clinical trials. Favorable
results in early studies or trials, if any, may not be repeated in later studies or trials. Even if our clinical trials are initiated
and completed as planned, we cannot be certain that the results will support our product candidate claims. Success in preclinical
testing, Phase 1 and Phase 2 clinical trials does not ensure that later Phase 2 or Phase 3 clinical trials will be successful.
In addition, we, the FDA or other regulatory authorities may suspend clinical trials at any time if it appears that we are exposing
participants to unacceptable health risks or the FDA or other regulatory authorities find deficiencies in our submissions or conduct
of our trials.
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 product recalls and suspension or 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 U.S. 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, referred to as the Animal Rule.
However, we will still have to establish that the vaccines we are 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 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 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. The government’s biodefense priorities can change, which
could adversely affect the commercial opportunity for the products we are developing. Further, other countries have not, at this
time, established criteria for review and approval of these types of products outside their normal review process, i.e., there
is no Animal Rule equivalent, and consequently there can be no assurance that we will be able to make a submission for marketing
approval in foreign countries based on such animal data.
Additionally, few facilities in the United
States and internationally have the capability to test animals with ricin, or otherwise assist us in qualifying the requisite animal
models. We have to compete with other biodefense companies for access to this limited pool of highly specialized resources. We
therefore may not be able to secure contracts to conduct the testing in a predictable timeframe or at all.
We
are 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. Our receipt of government funding is also dependent on our ability
to adhere to the terms and provisions of the original grant and contract documents and other regulations. We can provide no assurance
that we will receive or continue to receive funding for grants and contracts we have been awarded. The loss of government funds
could have a material adverse effect on our ability to progress our biodefense business.
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 do
not have or anticipate having internal manufacturing capabilities.
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, which material will be used 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 be able
to develop, produce, secure regulatory approval of 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
rely on third parties for pre-clinical and clinical trials of our product candidates and, in some cases, to maintain regulatory
files for our product candidates. If we are not able to maintain or secure agreements with such third parties on acceptable terms,
if these third parties do not perform their services as required, or if these third parties fail to timely transfer any regulatory
information held by them to us, we may not be able to obtain regulatory approval for, or commercialize, our product candidates.
We
rely on academic institutions, hospitals, clinics and other third-party collaborators for preclinical and clinical trials of our
product candidates. Although we monitor, support, and/or oversee our pre-clinical and clinical trials, because we do not conduct
these trials ourselves, we have less control over the timing and cost of these studies and the ability to recruit trial subjects
than if we conducted these trials wholly by ourselves. If we are unable to maintain or enter into agreements with these third
parties on acceptable terms, or if any such engagement is terminated, we may be unable to enroll patients on a timely basis or
otherwise conduct our trials in the manner we anticipate. In addition, there is no guarantee that these third parties will devote
adequate time and resources to our studies or perform as required by a contract or in accordance with regulatory requirements,
including maintenance of clinical trial information regarding our product candidates. If these third parties fail to meet expected
deadlines, fail to timely transfer to us any regulatory information, fail to adhere to protocols or fail to act in accordance
with regulatory requirements or our agreements with them, or if they otherwise perform in a substandard manner or in a way that
compromises the quality or accuracy of their activities or the data they obtain, then preclinical and/or clinical trials of our
product candidates may be extended, delayed or terminated, or our data may be rejected by the FDA or regulatory agencies.
The
manufacturing 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 current Good Manufacturing Practice (“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.
We
may use our financial and human resources to pursue a particular research program or product candidate and fail to capitalize
on programs or product candidates that may be more profitable or for which there is a greater likelihood of success.
Because
we have limited financial and human resources, we are currently focusing on the regulatory approval of certain product candidates.
As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later
prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial
products or profitable market opportunities. Our spending on existing and future product candidates for specific indications may
not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular
product candidate, we may relinquish valuable rights to that product candidate through strategic alliance, licensing or other
royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization
rights to such product candidate, or we may allocate internal resources to a product candidate in an area in which it would have
been more advantageous to enter into a partnering arrangement.
Even
if approved, our products will be subject to extensive post-approval regulation.
Once
a product is approved, numerous post-approval requirements apply. Among other things, the holder of an approved New Drug Application
(“NDA”) is subject to periodic and other FDA monitoring and reporting obligations, including obligations to monitor
and report adverse events and instances of the failure of a product to meet the specifications in the NDA. Application holders
must submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling,
or manufacturing process. Application holders must also submit advertising and other promotional material to the FDA and report
on ongoing clinical trials.
Depending
on the circumstances, failure to meet these post-approval requirements can result in criminal prosecution, fines, injunctions,
recall or seizure of products, total or partial suspension of production, denial or withdrawal of pre-marketing product approvals,
or refusal to allow us to enter into supply contracts, including government contracts. In addition, even if we comply with FDA
and other requirements, new information regarding the safety or effectiveness of a product could lead the FDA to modify or withdraw
product approval.
Even
if we obtain regulatory approval to market our product candidates, our product candidates may not be accepted by the market.
Even
if the FDA approves one or more of our product candidates, physicians and patients may not accept it or use it. Even if physicians
and patients would like to use our products, our products may not gain market acceptance among healthcare payors such as managed
care formularies, insurance companies or government programs such as Medicare or Medicaid. Acceptance and use of our products
will depend upon a number of factors including: perceptions by members of the health care community, including physicians, about
the safety and effectiveness of our drug or device product; cost-effectiveness of our product relative to competing products;
availability of reimbursement for our product from government or other healthcare payers; and effectiveness of marketing and distribution
efforts by us and our licensees and distributors, if any.
The
degree of market acceptance of any product that we develop will depend on a number of factors, including:
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the
safety and effectiveness of our products, including any significant potential side effects, as compared to alternative products
or treatment methods;
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the
timing of market entry as compared to competitive products;
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the
rate of adoption of our products by doctors and nurses;
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product
labeling or product insert required by the FDA for each of our products;
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reimbursement
policies of government and third-party payors;
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effectiveness
of our sales, marketing and distribution capabilities and the effectiveness of such capabilities of our collaborative partners,
if any; and
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unfavorable
publicity concerning our products or any similar products.
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Our
product candidates, if successfully developed, will compete with a number of products manufactured and marketed by major pharmaceutical
companies, biotechnology companies and manufacturers of generic drugs. Our products may also compete with new products currently
under development by others. Physicians, patients, third-party payors and the medical community may not accept and utilize any
of our product candidates. If our products do not achieve market acceptance, we will not be able to generate significant revenues
or become profitable.
Because
we expect sales of our current product candidates, if approved, to generate substantially all of our product revenues for the
foreseeable future, the failure of these products to find market acceptance would harm our business and could require us to seek
additional financing.
We
do not have extensive sales and marketing experience and our lack of experience may restrict our success in commercializing some
of our product candidates.
We
do not have extensive experience in marketing or selling pharmaceutical products whether in the U.S. or internationally. To obtain
the expertise necessary to successfully market and sell any of our products, the development of our own commercial infrastructure
and/or collaborative commercial arrangements and partnerships will be required. 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.
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.
Our
product candidates may cause serious adverse events or undesirable side effects which may delay or prevent marketing approval,
or, if approval is received, require them to be taken off the market, require them to include safety warnings or otherwise limit
their sales.
Serious
adverse events or undesirable side effects from any of our product candidates could arise either during clinical development or,
if approved, after the approved product has been marketed. The results of future clinical trials may show that our product candidates
cause serious adverse events or undesirable side effects, which could interrupt, delay or halt clinical trials, resulting in delay
of, or failure to obtain, marketing approval from the FDA and other regulatory authorities.
If
any of our product candidates cause serious adverse events or undesirable side effects:
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regulatory
authorities may impose a clinical hold which could result in substantial delays and adversely impact our ability to continue
development of the product;
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regulatory
authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians
and pharmacies;
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we
may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of
the product;
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we
may be required to implement a risk minimization action plan, which could result in substantial cost increases and have a
negative impact on our ability to commercialize the product;
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we
may be required to limit the patients who can receive the product;
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we
may be subject to limitations on how we promote the product;
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sales
of the product may decrease significantly;
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regulatory
authorities may require us to take our approved product off the market;
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we
may be subject to litigation or product liability claims; and
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our
reputation may suffer.
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Any
of these events could prevent us from achieving or maintaining market acceptance of the affected product or could substantially
increase commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenues from
the sale of our products.
If
we fail to obtain or maintain orphan drug exclusivity for our product candidates, our competitors may sell products to treat the
same conditions and our revenue will be reduced.
Under
the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is intended to treat a rare disease or condition,
defined as a patient population of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the
United States where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the
United States. In the European Union, the European Medicines Agency’s Committee for Orphan Medicinal Products grants orphan
drug designation to promote the development of products that are intended for the diagnosis, prevention, or treatment of a life-threatening
or chronically debilitating condition affecting not more than five in 10,000 persons in the European Union. Additionally, designation
is granted for products intended for the diagnosis, prevention, or treatment of a life-threatening, seriously debilitating or
serious and chronic condition when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient
to justify the necessary investment in developing the drug or biological product or where there is no satisfactory method of diagnosis,
prevention, or treatment, or, if such a method exists, the medicine must be of significant benefit to those affected by the condition.
In
the United States, orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards
clinical trial costs, tax advantages, and user-fee waivers. In addition, if a product receives the first FDA approval for the
indication for which it has orphan designation, the product is entitled to orphan drug exclusivity, which means the FDA may not
approve any other application to market the same drug for the same indication for a period of seven years, except in limited circumstances,
such as a showing of clinical superiority over the product with orphan exclusivity or where the manufacturer is unable to assure
sufficient product quantity. In the European Union, orphan drug designation entitles a party to financial incentives such as reduction
of fees or fee waivers and ten years of market exclusivity following drug or biological product approval. This period may be reduced
to six years if the orphan drug designation criteria are no longer met, including where it is shown that the product is sufficiently
profitable not to justify maintenance of market exclusivity.
Even
though we have orphan drug designation for SGX301 in the United States and Europe, and SGX203, RiVax
®
and OrbeShield
®
in the United States, we may not be the first to obtain marketing approval for any particular orphan indication due to the
uncertainties associated with developing drugs or biologic products. Further, even if we obtain orphan drug exclusivity for a
product, that exclusivity may not effectively protect the product from competition because different drugs with different active
moieties can be approved for the same condition. Absent patent or other intellectual property protection, even after an orphan
drug is approved, the FDA or European Medicines Agency may subsequently approve the same drug with the same active moiety for
the same condition if the FDA or European Medicines Agency concludes that the later drug is safer, more effective, or makes a
major contribution to patient care.
Federal
and/or state health care reform initiatives could negatively affect our business.
The
availability of reimbursement by governmental and other third-party payers affects the market for any pharmaceutical product.
These third-party payers continually attempt to contain or reduce the costs of healthcare. There have been a number of legislative
and regulatory proposals to change the healthcare system and further proposals are likely. Medicare’s policies may decrease
the market for our products. Significant uncertainty exists with respect to the reimbursement status of newly approved healthcare
products.
In
addition, third-party payers are increasingly challenging the price and cost-effectiveness of medical products and services. Once
approved, we might not be able to sell our products profitably or recoup the value of our investment in product development if
reimbursement is unavailable or limited in scope, particularly for product candidates addressing small patient populations. On
July 15, 2008, the Medicare Improvements for Patients and Providers Act of 2008 became law with a number of Medicare and Medicaid
reforms to establish a bundled Medicare payment rate that includes services and drug/labs that were separately billed at that
time. Bundling initiatives that have been implemented in other healthcare settings have occasionally resulted in lower utilization
of services that had not previously been a part of the bundled payment.
In
addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The
requirements governing drug pricing vary widely from country to country. We expect that there will continue to be a number of
U.S. federal and state proposals to implement governmental pricing controls. While we cannot predict whether such legislative
or regulatory proposals will be adopted, the adoption of such proposals could have a material adverse effect on our business,
financial condition and profitability.
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 New York University, Yeda Research and Development Company Ltd., the University of Texas
Southwestern Medical Center, the University of British Columbia, Harvard University, the University of Colorado, and George B.
McDonald, MD 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, if at all. Our existing license agreements impose, and we expect
that future license agreements will impose, various diligence, milestone payment, royalty, and other obligations on us. If we
fail to comply with our obligations under these agreements, or we are subject to a bankruptcy, we may be required to make certain
payments to the licensor, we may lose the exclusivity of our license, or the licensor may have the right to terminate the license,
in which event we would not be able to develop or market products covered by the license. Additionally, the milestone and other
payments associated with these licenses will make it less profitable for us to develop our drug candidates. See “Business
- Patents and Other Proprietary Rights” for a description of our license agreements.
Licensing
of intellectual property is of critical importance to our business and involves complex legal, business, and scientific issues.
Disputes may arise regarding intellectual property subject to a licensing agreement, including but not limited to:
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the
scope of rights granted under the license agreement and other interpretation-related issues;
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the
extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the
licensing agreement;
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the
sublicensing of patent and other rights;
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our
diligence obligations under the license agreement and what activities satisfy those diligence obligations;
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the
ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and
us and our collaborators; and
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the
priority of invention of patented technology.
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If
disputes over intellectual property and other rights that we have licensed prevent or impair our ability to maintain our current
licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.
Additionally,
the research resulting in certain of our licensed patent rights and technology was funded by the U.S. government. As a result,
the government may have certain rights, or march-in rights, to such patent rights and technology. When new technologies are developed
with government funding, the government generally obtains certain rights in any resulting patents, including a non-exclusive license
authorizing the government to use the invention for non-commercial purposes. The government can exercise its march-in rights if
it determines that action is necessary because we fail to achieve practical application of the government-funded technology, because
action is necessary to alleviate health or safety needs, to meet requirements of federal regulations or to give preference to
U.S. industry. In addition, our rights in such inventions may be subject to certain requirements to manufacture products embodying
such inventions in the United States. Any exercise by the government of such rights could harm our competitive position, business,
financial condition, results of operations and prospects.
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 additional 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 additional 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 or enter into commercialization agreements with other
companies. Development of an effective sales force in any part of the world 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 $10 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 use hazardous chemicals in our business. Potential claims relating to improper handling, storage or disposal of these chemicals
could affect us and be time consuming and costly.
Our
research and development processes and/or those of our third party contractors involve the controlled use of hazardous materials
and chemicals. These hazardous chemicals are reagents and solvents typically found in a chemistry laboratory. Our operations also
may produce hazardous waste products. Federal, state and local laws and regulations govern the use, manufacture, storage, handling
and disposal of hazardous materials. While we attempt to comply with all environmental laws and regulations, including those relating
to the outsourcing of the disposal of all hazardous chemicals and waste products, we cannot eliminate the risk of contamination
from or discharge of hazardous materials and any resultant injury. In the event of such an accident, we could be held liable for
any resulting damages and any liability could materially adversely affect our business, financial condition and results of operations.
Compliance
with environmental laws and regulations may be expensive. Current or future environmental regulations may impair our research,
development or production efforts. We might have to pay civil damages in the event of an improper or unauthorized release of,
or exposure of individuals to, hazardous materials. We are not insured against these environmental risks.
We
may agree to indemnify our collaborators in some circumstances against damages and other liabilities arising out of development
activities or products produced in connection with these collaborations.
In
addition, the federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of
hazardous or radioactive materials and waste products may require us to incur substantial compliance costs that could materially
adversely affect our business, financial condition and results of operations.
We
may not be able to compete with our larger and better financed 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 biodefense area 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 with our existing and future competitors, which could lead to the failure of our business.
Additionally,
if a competitor receives FDA approval before we do for a drug that is similar to one of our product candidates, FDA approval for
our product candidate may be precluded or delayed due to periods of non-patent exclusivity and/or the listing with the FDA by
the competitor of patents covering its newly-approved drug product. Periods of non-patent exclusivity for new versions of existing
drugs such as our current product candidates can extend up to three and one-half years. See “Business - The Drug Approval
Process.”
These
competitive factors could require us to conduct substantial new research and development activities to establish new product targets,
which would be costly and time consuming. These activities would adversely affect our ability to commercialize products and achieve
revenue and profits.
Competition
and technological change may make our product candidates and technologies less attractive or obsolete.
We
compete with established pharmaceutical and biotechnology companies that are pursuing other forms of treatment for the same indications
we are pursuing and that have greater financial and other resources. Other companies may succeed in developing products earlier
than us, obtaining FDA approval for products more rapidly, or developing products that are more effective than our product candidates.
Research and development by others may render our technology or product candidates obsolete or noncompetitive, or result in treatments
or cures superior to any therapy we develop. We face competition from companies that internally develop competing technology or
acquire competing technology from universities and other research institutions. As these companies develop their technologies,
they may develop competitive positions that may prevent, make futile, or limit our product commercialization efforts, which would
result in a decrease in the revenue we would be able to derive from the sale of any products.
There
can be no assurance that any of our product candidates will be accepted by the marketplace as readily as these or other competing
treatments. Furthermore, if our competitors’ products are approved before ours, it could be more difficult for us to obtain
approval from the FDA. Even if our products are successfully developed and approved for use by all governing regulatory bodies,
there can be no assurance that physicians and patients will accept our product(s) as a treatment of choice.
Furthermore,
the pharmaceutical research industry is diverse, complex, and rapidly changing. By its nature, the business risks associated therewith
are numerous and significant. The effects of competition, intellectual property disputes, market acceptance, and FDA regulations
preclude us from forecasting revenues or income with certainty or even confidence.
Our
business could be harmed if we fail to retain our current personnel or if they are unable to effectively run our business.
We
currently have 15 employees and we depend upon these employees, in particular Dr. Christopher Schaber, our President and Chief
Executive Officer, 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. We may be unable to effectively manage and operate our business, and our business may suffer, if we lose the
services of our employees.
Instability
and volatility in the financial markets could have a negative impact on our business, financial condition, results of operations,
and cash flows.
During
recent years, there has been substantial volatility in financial markets due at least in part to the uncertainty with regard to
the global economic environment. In addition, there has been substantial uncertainty in the capital markets and access to additional
financing is uncertain. Moreover, customer spending habits may be adversely affected by current and future economic conditions.
These conditions could have an adverse effect on our industry and business, including our financial condition, results of operations,
and cash flows.
To
the extent that we do not generate sufficient cash from operations, we may need to issue stock or incur indebtedness to finance
our plans for growth. Recent turmoil in the credit markets and the potential impact on the liquidity of major financial institutions
may have an adverse effect on our ability to fund our business strategy through borrowings, under either existing or newly created
instruments in the public or private markets on terms we believe to be reasonable, if at all.
We
may not be able to utilize all of our net operating loss carryforwards.
The
State of New Jersey’s Technology Business Tax Certificate Program allows certain high technology and biotechnology companies
to sell unused net operating loss (“NOL”) carryforwards to other New Jersey-based corporate taxpayers. In accordance
with this program, during the year ended December 31, 2017, we sold New Jersey NOL carryforwards, resulting in the recognition
of $416,810 of income tax benefit. If there is an unfavorable change in the State of New Jersey’s Technology Business Tax
Certificate Program (whether as a result of a change in law, policy or otherwise) that terminates the program or eliminates or
reduces our ability to use or sell our NOL carryforwards, our cash taxes may increase which may have an adverse effect on our
financial condition.
Risks
Related to our Intellectual Property
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
near and long term prospects depend 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 own or license, now or in the future, may be challenged, invalidated or circumvented.
To date, no consistent policy has been developed in the U.S. Patent and Trademark Office (the “PTO”) regarding the
breadth of claims allowed in biotechnology patents.
In
addition, because patent applications in the U.S. are maintained in secrecy until patent applications publish or 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 PTO 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 owned and licensed technologies may infringe on patents or other rights owned by others, and licenses
to which may not be available to us. We may be unable 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.
We
may be involved in lawsuits to protect or enforce our patents, which could be expensive and time consuming.
The
pharmaceutical industry has been characterized by extensive litigation regarding patents and other intellectual property rights,
and companies have employed intellectual property litigation to gain a competitive advantage. We may become subject to infringement
claims or litigation arising out of patents and pending applications of our competitors, or additional interference proceedings
declared by the PTO to determine the priority of inventions. The defense and prosecution of intellectual property suits, PTO proceedings,
and related legal and administrative proceedings are costly and time-consuming to pursue, and their outcome is uncertain. Litigation
may be necessary to enforce our issued patents, to protect our trade secrets and know-how, or to determine the enforceability,
scope, and validity of the proprietary rights of others. An adverse determination in litigation or interference proceedings to
which we may become a party could subject us to significant liabilities, require us to obtain licenses from third parties, or
restrict or prevent us from selling our products in certain markets. Although patent and intellectual property disputes might
be settled through licensing or similar arrangements, the costs associated with such arrangements may be substantial and could
include our paying large fixed payments and ongoing royalties. Furthermore, the necessary licenses may not be available on satisfactory
terms or at all.
Competitors
may infringe our patents, and we may file infringement claims to counter infringement or unauthorized use. This can be expensive,
particularly for a company of our size, and time-consuming. In addition, in an infringement proceeding, a court may decide that
a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on
the grounds that our patents do not cover its technology. An adverse determination of any litigation or defense proceedings could
put one or more of our patents at risk of being invalidated or interpreted narrowly.
Also,
a third party may assert that our patents are invalid and/or unenforceable. There are no unresolved communications, allegations,
complaints or threats of litigation related to the possibility that our patents are invalid or unenforceable. Any litigation or
claims against us, whether or not merited, may result in substantial costs, place a significant strain on our financial resources,
divert the attention of management and harm our reputation. An adverse decision in litigation could result in inadequate protection
for our product candidates and/or reduce the value of any license agreements we have with third parties.
Interference
proceedings brought before the PTO may be necessary to determine priority of invention with respect to our patents or patent applications.
During an interference proceeding, it may be determined that we do not have priority of invention for one or more aspects in our
patents or patent applications and could result in the invalidation in part or whole of a patent or could put a patent application
at risk of not issuing. Even if successful, an interference proceeding may result in substantial costs and distraction to our
management.
Furthermore,
because of the substantial amount of discovery required in connection with intellectual property litigation or interference proceedings,
there is a risk that some of our confidential information could be compromised by disclosure. In addition, there could be public
announcements of the results of hearings, motions or other interim proceedings or developments. If investors perceive these results
to be negative, the price of our common stock could be adversely affected.
If
we infringe the rights of third parties we could be prevented from selling products, forced to pay damages, and defend against
litigation.
If
our products, methods, processes and other technologies infringe the proprietary rights of other parties, we could incur substantial
costs and we may have to: obtain licenses, which may not be available on commercially reasonable terms, if at all; abandon an
infringing product candidate; redesign our products or processes to avoid infringement; stop using the subject matter claimed
in the patents held by others; pay damages; and/or defend litigation or administrative proceedings which may be costly whether
we win or lose, and which could result in a substantial diversion of our financial and management resources.
Risks
Related to our Securities
The
price of our common stock and warrants may be highly volatile.
The
market price of our securities, like that of many other research and development public pharmaceutical and biotechnology companies,
has been highly volatile and the price of our common stock and warrants may be volatile in the future due to a wide variety of
factors, including:
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announcements
by us or others of results of pre-clinical testing and clinical trials;
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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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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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our
available working capital;
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economic
and other external factors;
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general
market conditions.
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Since
January 1, 2017, the closing stock price (split adjusted) of our common stock has fluctuated between a high of $5.08 per share
to a low of $1.74 per share. On March 9, 2018 the last reported closing sales price of our common stock on The Nasdaq Capital
Market was $2.04 per share. Since January 1, 2017, the closing price of our common stock warrants has fluctuated between a high
of $1.31 per warrant to a low of $0.21 per warrant. The fluctuation in the price of our common stock and warrants has sometimes
been unrelated or disproportionate to our operating performance. In addition, potential dilutive effects of future sales of shares
of common stock and warrants by us, as well as potential sale of common stock by the holders of warrants and options, could have
an adverse effect on the market price of our shares.
The
warrants do not confer any rights of common stock ownership on their holders, such as voting rights or the right to receive dividends,
but rather merely represent the right to acquire shares of common stock at a fixed price for a limited period of time. Specifically,
commencing on the date of issuance, the holders of the warrants may exercise their right to acquire the common stock and pay $3.95
per share, prior to five years from the date of issuance, after which date any unexercised warrants will expire and have no further
value.
The
warrants may not have any value
Each
warrant has an exercise price of $3.95 per share and will expire on the fifth anniversary of December 13, 2016. In the event our
common stock does not exceed the exercise price of the warrants during the period when the warrants are exercisable, the warrants
may not have any value.
Shareholders
may suffer substantial dilution related to issued stock warrants and options.
As
of December 31, 2017, we had 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 2,577,238 shares of our common stock at a current weighted average exercise price of
approximately $4.38; and
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options
to purchase approximately 785,655 shares of our common stock at a current weighted average exercise price of approximately
$7.15.
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We
also have an incentive compensation plan for our management, employees and consultants. We have granted, and expect to grant in
the future, options to purchase shares of our common stock to our directors, employees and consultants. To the extent that warrants
or options are exercised, our stockholders will experience dilution and our stock price may decrease.
Additionally,
the sale, or even the possibility of the sale, of the shares of common stock underlying these warrants and options could have
an adverse effect on the market price for our securities or on our ability to obtain future financing.
Our
shares of common stock and warrants are thinly traded, so stockholders may be unable to sell at or near ask prices or at all if
they need to sell shares or warrants to raise money or otherwise desire to liquidate their shares.
Our
common stock and warrants have from time to time been “thinly-traded,” meaning that the number of persons interested
in purchasing our common stock or warrants 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 and warrants will develop or be sustained, or that current trading levels will be sustained.
We
do not currently intend to pay dividends on our common stock in the foreseeable future, and consequently, our stockholders’
ability to achieve a return on their investment will depend on appreciation in the price of our common stock.
We
have never declared or paid cash dividends on our common stock and do not anticipate paying any cash dividends to holders of our
common stock in the foreseeable future. Consequently, our stockholders must rely on sales of their common stock and warrants after
price appreciation, which may never occur, as the only way to realize any future gains on their investments. There is no guarantee
that shares of our common stock or warrants will appreciate in value or even maintain the price at which our stockholders have
purchased their shares.
Upon
dissolution of the Company, our stockholders may not recoup all or any portion of their investment.
In
the event of a liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the proceeds and/or assets
of the Company remaining after giving effect to such transaction, and the payment of all of our debts and liabilities will be
distributed to the holders of common stock on a pro rata basis. There can be no assurance that we will have available assets to
pay to the holders of common stock, or any amounts, upon such a liquidation, dissolution or winding-up of the Company. In this
event, our stockholders could lose some or all of their investment.
The
sale or issuance of our common stock to Lincoln Park may cause dilution and the sale of the shares of common stock acquired by
Lincoln Park, or the perception that such sales may occur, could cause the price of our common stock to fall.
On
March 22, 2016, we entered into a purchase agreement (the “2016 Purchase Agreement”) with Lincoln Park Capital Fund,
LLC (“Lincoln Park”). Pursuant to the 2016 Purchase Agreement, Lincoln Park has committed to purchase up to $12 million
of our common stock, of which approximately $10.2 million worth of our common stock remains issuable as of December 31, 2017.
Concurrently with the execution of the 2016 Purchase Agreement, we issued 10,000 shares of our common stock to Lincoln Park as
a partial fee for its commitment to purchase shares of our common stock under the 2016 Purchase Agreement. From March 22, 2016
through December 31, 2017, we sold 310,000 shares to Lincoln Park and issued 7,618 additional shares to Lincoln Park as additional
commitment shares under the 2016 Purchase Agreement and received proceeds of $1,828,250. The shares that may be sold pursuant
to the 2016 Purchase Agreement may be sold by us to Lincoln Park at our sole discretion from time to time over the remaining term
of approximately 15 months from December 31, 2017, provided the registration statement registering the resale of shares sold to
Lincoln Park under the 2016 Purchase Agreement remains effective. The purchase price for the shares that we may sell to Lincoln
Park under the 2016 Purchase Agreement will fluctuate based on the price of our common stock. We have the right to control the
timing and amount of any sales of our shares to Lincoln Park, except that, pursuant to the terms of our agreements with Lincoln
Park, we would be unable to sell shares to Lincoln Park that would cause Lincoln Park to beneficially own more than 4.99% of our
issued and outstanding common stock.
Depending
on market liquidity at the time, sales of shares under the 2016 Purchase Agreement may cause the trading price of our common stock
to fall. Additionally, further sales of our common stock, if any, to Lincoln Park under the 2016 Purchase Agreement will depend
upon market conditions and other factors to be determined by us. Lincoln Park may ultimately purchase all, some or none of the
shares of our common stock that may be sold pursuant to the 2016 Purchase Agreement and, after it has acquired shares, Lincoln
Park may sell all, some or none of those shares. Therefore, sales to Lincoln Park by us could result in substantial dilution to
the interests of other holders of our common stock. Additionally, the sale of a substantial number of shares of our common stock
to Lincoln Park, or the 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.
The
issuance of our common stock pursuant to the terms of the asset purchase agreement with Hy Biopharma Inc. may cause dilution and
the issuance of such shares of common stock, or the perception that such issuances may occur, could cause the price of our common
stock to fall.
On
April 1, 2014, we entered into an option agreement pursuant to which Hy Biopharma granted us an option to purchase certain assets,
properties and rights (the “Hypericin Assets”) related to the development of Hy Biopharma’s synthetic hypericin
product candidate for the treatment of CTCL, which we refer to as SGX301, from Hy Biopharma. In exchange for the option, we paid
$50,000 in cash and issued 4,307 shares of common stock in the aggregate to Hy Biopharma and its assignees. We subsequently exercised
the option, and on September 3, 2014, we entered into an asset purchase agreement with Hy Biopharma, pursuant to which we purchased
the Hypericin Assets. Pursuant to the purchase agreement, we paid $275,000 in cash and issued 184,912 shares of common stock in
the aggregate to Hy Biopharma and its assignees, and the licensors of the license agreement acquired from Hy Biopharma, and may
issue up to an aggregate of $10 million worth of our common stock (subject to a cap equal to 19.99% of our issued and outstanding
common stock) in the aggregate upon attainment of specified milestones. The next milestone payment will be payable if the Phase
3 clinical trial of SGX301 is successful in demonstrating efficacy and safety in the CTCL patient population. Also on September
3, 2014, we entered into a Registration Rights Agreement with Hy Biopharma, pursuant to which we have filed a registration statement
with the SEC.
The
number of shares that we may issue under the purchase agreement will fluctuate based on the market price of our common stock.
Depending on market liquidity at the time, the issuance of such shares may cause the trading price of our common stock to fall.
We
may ultimately issue all, some or none of the additional shares of our common stock that may be issued pursuant to the purchase
agreement. We are required to register any shares issued pursuant to the purchase agreement for resale under the Securities Act
of 1933, as amended. After any such shares are registered, the holders will be able to sell all, some or none of those shares.
Therefore, issuances by us under the purchase agreement could result in substantial dilution to the interests of other holders
of our common stock. Additionally, the issuance of a substantial number of shares of our common stock pursuant to the purchase
agreement, or the anticipation of such issuances, 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.