The
Company is a late stage biopharmaceutical company incorporated in 1987, focused
on the development of biotherapeutic products and biodefense vaccines intended
for areas of unmet medical need. DOR’s biotherapeutic business segment intends
to develop orBec®, oral
BDP, and other biotherapeutic products namely LPMTM-Leuprolide,
OraprineTM, and
LPETM and
PLPTM Systems
for Delivery of Water-Insoluble Drugs. DOR’s biodefense business
segment intends to convert its ricin toxin and botulinum toxin vaccine programs
from early stage development to advanced development and
manufacturing.
During
the quarter ended March 31, 2008, the Company had one customer, the U.S. Federal
Government. All revenues were generated from two active U.S. Federal Government
Grants. As of March 31, 2008 all outstanding receivables were from the U.S.
Federal Government, National Institute of Health and The Food and Drug
Administration.
2. Summary of Significant Accounting
Policies
Principles of
Consolidation
The
consolidated financial statements include DOR BioPharma Inc., and its wholly
owned subsidiaries (“DOR” or the “Company”). All significant intercompany
accounts and transactions have been eliminated in consolidation.
Segment
Information
Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated on a regular basis by the
chief operating decision maker, or decision making group, in deciding how to
allocate resources to an individual segment and in assessing the performance of
the segment.
Grants
Receivable
Receivables
consist of unbilled amounts due from grants from the U.S. Federal Government and
the National Institute of Health. The amounts were billed in the month
subsequent to year end. The Company considers the grants receivable to be fully
collectible; accordingly, no allowance for doubtful accounts has been
established. If accounts become uncollectible, they are charged to operations
when that determination is made.
Intangible
Assets
One of
the most significant estimates or judgments that the Company makes is whether to
capitalize or expense patent and license costs. The Company makes this judgment
based on whether the technology has alternative future uses, as defined in SFAS
2, "Accounting for Research and Development Costs". Based on this consideration,
all outside legal and filing costs incurred in the procurement and defense of
patents are capitalized.
These
intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected undiscounted cash flows is less than the carrying value of
the related asset or group of assets, a loss is recognized for the difference
between the fair value and the carrying value of the related asset or group of
assets.
The
Company capitalizes and amortizes intangibles over a period of 11 to 16 years.
The Company capitalizes payments made to legal firms that are engaged in filing
and protecting rights to intellectual property and rights for our current
products in both the domestic and international markets. The Company believes
that patent rights are one of its most valuable assets. Patents and patent
applications are a key component of intellectual property, especially in the
early stage of product development, as their purchase and maintenance gives the
Company access to key product development rights from DOR’s academic and
industrial partners. These rights can also be sold or sub-licensed as part of
its strategy to partner its products at each stage of development. The legal
costs incurred for these patents consist of work designed to protect, preserve,
maintain and perhaps extend the lives of the patents. Therefore, DOR capitalizes
these costs and amortizes them over the remaining useful life of the patents.
DOR capitalizes intangible assets based on alternative future use.
Impairment of Long-Lived
Assets
Office
and laboratory equipment and intangible assets are evaluated and reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. The Company recognizes impairment of
long-lived assets in the event the net book value of such assets exceeds the
estimated future undiscounted cash flows attributable to such assets. If the sum
of the expected undiscounted cash flows is less than the carrying value of the
related asset or group of assets, a loss is recognized for the difference
between the fair value and the carrying value of the related asset or group of
assets. Such analyses necessarily involve significant judgment.
The
Company did not record an impairment of intangible assets for the quarters ended
March 31, 2008 and 2007, respectively.
Fair Value of Financial
Instruments
Accounting
principles generally accepted in the United States of America require that fair
values be disclosed for the Company’s financial instruments. The carrying
amounts of the Company’s financial instruments, which include grants receivable
and current liabilities, are considered to be representative of their respective
fair values.
Revenue
Recognition
All of
the Company’s revenues are from government grants which are based upon
subcontractor costs and internal costs covered by the grant, plus a facilities
and administrative rate that provides funding for overhead expenses. Revenues
are recognized when expenses have been incurred by subcontractors or when DOR
incurs internal expenses that are related to the grant.
Research and Development
Costs
Research
and Development costs are charged to expense when incurred. Research and
development includes costs such as clinical trial expenses, contracted research
and license agreement fees with no alternative future use, supplies and
materials, salaries and employee benefits, equipment depreciation and allocation
of various corporate costs. Purchased in-process research and development
expense (IPR&D) represents the value assigned or paid for acquired research
and development for which there is no alternative future use as of the date of
acquisition.
Stock Based
Compensation
The
Company adopted Statement of Financial Accounting Standards (SFAS) No. 123R,
“Share-Based Payment,” effective January 1, 2006, which requires companies to
record compensation expense for stock options issued to employees or
non-employee directors at an amount determined by the fair value of options.
SFAS No. 123R is effective for annual periods beginning after December 15,
2005.
The
Company has adopted SFAS No. 123R using the “modified prospective application”
and therefore, financial statements from periods ending prior to January 1, 2006
have not been restated. The Company’s net loss for the quarter ended March 31,
2008 and 2007 was $76,376 and $131,918, respectively lower than if it had
continued to account for share-based compensation under APB No. 25. For the
period ended March 31, 2008, $39,583 was for Research and Development
personnel and $36,793 was for General and Administrative personnel, for the same
period in 2007, $56,334 was for Research and Development personnel and $75,584
was for General and Administrative personnel. Stock based compensation expense
recognized during the period is based on the value of the portion of share-based
payment awards that is ultimately expected to vest during the period. At March
31, 2008, the total compensation cost for stock options not yet recognized was
approximately $500,000.
The fair
value of each option grant at the quarters ended March 31, 2008 and March 31,
2007 were estimated on the date of each grant using the Black-Scholes option
pricing model and amortized ratably over the option’s vesting periods. The
Company did not award stock options for the quarter ended March 31, 2008
and 300,000 stock options were granted during the quarter ended March 31,
2007.
There
were no options granted during the three months ended March 31, 2008. The
weighted average fair value of options granted with an exercise price equal to
the fair market value of the stock was $0.29 for the three months ended March
31, 2007.
The fair
value of options in accordance with SFAS 123 was estimated using the
Black-Scholes option-pricing model and the following weighted-average
assumptions: dividend yield 0%, expected life of four years, volatility of 121%
and 90% in 2008 and 2007 respectively, and average risk-free interest rates of
3.8% and 4.5% in 2008 and 2007, respectively.
Stock
compensation expense for options granted to non-employees has been determined in
accordance with SFAS 123 and Emerging Issues Task Force (“EITF”) 96-18, and
represents the fair value of the consideration received, or the fair value of
the equity instruments issued, whichever may be more reliably measured. For
options that vest over future periods, the fair value of options granted to
non-employees is amortized as the options vest.
As stock
options are exercised common stock share certificates are issued via electronic
transfer or physical share certificates by the Company’s transfer agent. Shares
are issued from the 1995 or 2005 stock option plan and increase the number of
shares the Company has outstanding.
Shares
repurchased
The
Company from time to time evaluates whether to repurchase existing common stock
shares in the marketplace. This repurchased stock would be reflected as Treasury
Stock. At this time we have no plans to repurchase the Company
stock.
Income
Taxes
The
Company files a consolidated federal income tax return and utilizing asset and
liability method of accounting for income taxes. Under this method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. A valuation
allowance is established when it is more likely than not that all or a portion
of a deferred tax asset will not be realized. A review of all available positive
and negative evidence is considered, including the Company’s current and past
performance, the market environment in which the Company operates, the
utilization of past tax credits, length of carryback and carryforward
periods. Deferred tax assets and liabilities are measured utilizing
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. No current or
deferred income taxes have been provided through March 31, 2008 because of the
net operating losses incurred by the Company since its inception.
Net Loss Per
Share
In
accordance with accounting principles generally accepted in the United States of
America, basic and diluted net loss per share has been computed using the
weighted-average number of shares of common stock outstanding during the
respective periods (excluding shares that are not yet issued). The effect of
stock options and warrants are antidilutive for all periods
presented.
Use of Estimates and
Assumptions
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
3.
Management’s Plan
The
Company has incurred continuing losses since its inception in 1987. At March 31,
2008, the Company had working capital of $922,832, and a net loss of $1,356,171.
In the three months ended March 31, 2008, the Company raised a total of
approximately $658,600, through equity financings. Subsequent to December 31,
2007, the Company closed on an equity financing of $658,600 from Fusion Capital
and other investors. Additionally, in February 2008 the Company initiated a 25
month, $8,000,000 equity line of credit with Fusion Capital. The Company
expects to sustain additional losses over the next twelve months. The Company’s
ability to raise additional funding may be more difficult due to its receipt of
a not approvable letter from the FDA on its NDA for orBec®.
If the
Company is unable for whatever reason to utilize its equity facility with Fusion
and there were no other sources of financing, an austerity plan with reductions
or discontinuation of operations of several of the Company’s programs will be
required. Unless a significant amount of cash comes in from Fusion or any
other partnering/financing deal, the Company will have to suspend clinical
trials of orBec®/oral BDP
for the treatment of GI GVHD and radiation enteritis, and reduce headcount and
overhead. If this should occur, the Company believes it could continue to
operate over the next four quarters at a reduced level and continue with its
active programs, namely orBec® for the
prevention of GVHD, its oral BDP radiation injury program, and its biodefense
programs, all of which are supported by existing grants. The Company
is currently operating under a modified austerity plan.
Management’s
plan to generate positive cash flows includes the following:
|
·
|
The
Company secured a new $8,000,000 equity line from Fusion Capital and the
Company expects to utilize it from time to time when it believes that
market conditions are suitable.
|
|
·
|
The
Company will manage its expenditures very closely and proceed with
Clinical programs with the use of the equity facility.
|
|
·
|
The
Company plans to continue seeking grant funds and responding to requests
for proposals from governmental sources.
|
|
·
|
The
Company will utilize Named Patient Sales (Compassionate Use programs)
wherever possible in countries outside the United States to generate
revenues from orBec®.
The Company already has letters of intent for Named Patient programs in
place in South Korea, Australia, New Zealand and South Africa and expects
to receive modest revenues from these programs in the second half of
2008.
|
|
·
|
The
Company is exploring outlicensing opportunities for orBec®,
and for its LPM-Leuprolide and BioDefense programs both in the US and
Europe.
|
|
·
|
The
Company has engaged investment bankers to assist in exploring merger
and acquisition opportunities.
|
The
Company needs to seek additional capital in the private and/or public equity
markets to continue its operations, respond to competitive pressures, and
develop new products and services and to support new strategic
partnerships.
There is
no assurance that the Company will be able to successfully implement its plan or
will be able to generate cash flows from either operations, partnerships, or
from equity financings.
4.
Intangible Assets
The
following is a summary of intangible assets which consists of licenses and
patents:
|
|
Weighted
Average Amortization period (years)
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
Book Value
|
|
March
31, 2008
|
|
|
|
|
|
|
|
|
Licenses
|
12.5
|
|
$
462,234
|
|
$ 122,472
|
|
$
339,762
|
|
Patents
|
9.5
|
|
1,674,971
|
|
683,644
|
|
991,327
|
|
Total
|
10.1
|
|
$ 2,137,205
|
|
$ 806,116
|
|
$ 1,331,089
|
| |
|
|
|
|
|
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
Licenses
|
12.7
|
|
$
462,234
|
|
$ 115,681
|
|
$
346,553
|
|
Patents
|
9.7
|
|
1,633,490
|
|
659,256
|
|
974,234
|
|
Total
|
10.4
|
|
$ 2,095,724
|
|
$ 774,937
|
|
$
1,320,787
|
Amortization
expense was $31,179 and $21,300 for the quarters ended March 31, 2008 and 2007,
respectively.
Based on
the balance of licenses and patents at March 31, 2008, the annual amortization
expense for each of the succeeding five years is estimated to be as
follows:
|
Year
|
|
Amortization
Amount
|
|
2008
|
|
$ 130,000
|
|
2009
|
|
132,000
|
|
2010
|
|
135,000
|
|
2011
|
|
140,000
|
|
2012
|
|
145,000
|
License
fees and royalty payments are expensed annually.
5.
Grants Receivable
In the
first quarter of 2008, the Company recorded grant revenues from the three U.S.
Government Grants in the amount of $677,640. Outstanding receivables at quarter
end were $65,623. This receivable has since been collected.
6. Shareholders’
Equity
During
the three month period ended March 31, 2008, the Company issued 103,025 and
115,917 shares of common stock as payment to vendors for consulting services and
as severance for employees, respectively. An expense of $19,313 and $20,625 was
recorded which approximated the shares’ fair market value on the date of
issuance, respectively. During the three month period ended March 31, 2007, the
Company issued 815,357 shares of common stock as payment to vendors for
consulting services. An expense of $327,000 was recorded which approximated the
shares’ fair market value on the date of issuance. Also during the three
month period ended March 31, 2007, 5,490,347 warrants were exercised to purchase
shares of common stock which provided proceeds of $1,350,625 and
10,000 stock options were exercised to purchase shares of common stock
which provided proceeds of $2,000.
On
February 14, 2008, the Company entered into a common stock purchase agreement
with Fusion Capital Fund II, LLC (“Fusion Capital”). The Fusion Capital facility
allows the Company to require Fusion Capital to purchase between $20,000 and
$1.0 million, depending on certain conditions, of the Company’s common stock up
to an aggregate of $8.0 million over approximately a 25-month period. As part of
the agreement, the Company issued Fusion Capital 1,275,000 shares of common
stock as a commitment fee. In connection with the execution of the common stock
purchase agreement, Fusion Capital purchased 2,777,778 common shares and a four
year warrant to purchase 1,388,889 shares of common stock for $0.22 per share,
for an aggregate price of $500,000. The Company issued an additional 75,000
shares of common stock as a commitment fee in connection with this $500,000
purchase. If the Company’s stock price exceeds $0.15, then the amount
required to be purchased may be increased under certain conditions as the price
of the Company’s common stock increases. The Company cannot require Fusion
Capital to purchase any shares of the Company’s common stock on any trading days
that the market price of the Company’s common stock is less than $0.10 per
share.
On
February 14, 2008, the Company completed the sale of 881,111 shares of its
common stock to institutional and other accredited investors for an aggregate
purchase price of approximately $158,600. The investors received four year
warrants to purchase an aggregate of 440,556 shares of our common stock at an
exercise price of $0.22 per share.
On
February 9, 2007, the Company completed the sale of 11,680,850 shares of DOR’s
common stock to institutional investors and certain of the Company’s officers
and directors for a purchase price of $5,490,000.
On
January 3, 2007, in consideration for entering into an exclusive letter of
intent, Sigma-Tau agreed to purchase $1,000,000 of the Company’s common stock at
the market price of $0.246 per share, representing 4,065,041 shares of common
stock, and contributed an additional $2 million in cash. The $2 million
contribution was to be considered an advance payment to be deducted from future
payments due to the Company by Sigma-Tau pursuant to any future orBec®
commercialization arrangement reached between the two parties. Because of this
transaction’s dilutive nature, all investors in the April 2006 private placement
had their warrants repriced to $0.246. Additionally, certain shareholders in
that placement who still held shares of the Company’s common stock were issued
additional shares as a cost basis adjustment from $0.277 to $0.246 per share of
the Company’s common stock. Neither these investors, nor any others for that
matter, hold any further anti-dilution rights. Because no agreement
was reached by March 1, 2007, DOR was obligated to return the $2 million to
Sigma-Tau by April 30, 2007. On June 1, 2007, the Company returned
the $2 million to Sigma Tau.
7.
Risks and Uncertainties
The
Company is subject to risks common to companies in the biotechnology industry,
including, but not limited to, litigation, product liability, development of new
technological innovations, dependence on key personnel, protections of
proprietary technology, and compliance with FDA
regulations.
On
October 18, 2007, we received a not approvable letter from the U.S. Food and
Drug Administration (the “FDA”) in response to our NDA for orBec® (oral
beclomethasone dipropionate) for the treatment of GI GVHD. In the letter,
the FDA requested additional clinical trial data to demonstrate the safety and
efficacy of orBec®. The
FDA also requested nonclinical and chemistry, manufacturing and controls
information as part of the not approvable letter. On October 19, 2007, we
requested an end of review conference with the FDA to further understand the
letter and gain clarity as to the next steps. On December 7, 2007, we announced
the following guidance from that meeting: (1) a single, confirmatory, Phase 3
clinical trial could provide sufficient evidence of efficacy provided that it is
well designed, well executed and provides clinically and statistically
meaningful findings; (2) we anticipate working quickly with the FDA to finalize
the design of the confirmatory trial under the Agency’s special protocol
assessment process; (3) the FDA would be agreeable to reviewing a plan for a
Treatment IND as long as it does not interfere with patient accrual in a
confirmatory trial, such as potentially enrolling patients that would not be
eligible for the Phase 3 study. Once we have agreement on the confirmatory
protocol with the FDA, we expect to begin enrollment in the new confirmatory
Phase 3 clinical program for the treatment of GI GVHD in the second half of
2008.
We
maintain two active segments: BioTherapeutics and BioDefense. Our business
strategy is to: (a) work with the FDA on the design of new clinical trials in GI
GVHD; (b) seek a development and marketing partner for orBec® for
territories both inside and outside of the U.S.; (c) prepare for the potential
marketing approval of orBec by the EMEA; (d) conduct a prophylactic use clinical
trial of orBec® for the
prevention of GI GVHD; (e) evaluate and initiate additional clinical trials to
explore the effectiveness of oral BDP in other therapeutic indications involving
inflammatory conditions of the gastrointestinal tract such as radiation
enteritis and Crohn’s disease; (f) reinitiate development including
manufacturing of LPMTM-Leuprolide;
(g) secure additional government funding for each of our biodefense
programs, RiVaxTM,
BT-VACCTM, and
our new anthrax vaccine, through grants, contracts, and procurements; (h)
explore acquisition strategies under which the Company may be acquired by
another company with oncologic or gastrointestinal symmetry; (i) convert our
biodefense vaccine programs from early stage development to advanced development
and manufacturing with the potential to collaborate and/or partner with other
companies in the biodefense area; and (j) acquire or in-license new
clinical-stage compounds for development.
BioTherapeutics
Overview
Through
our BioTherapeutics Division, we are in the process of developing oral
therapeutic products to treat unmet medical needs. Our lead product, orBec®, has
been evaluated in a randomized, multi-center, double-blind, placebo-controlled
pivotal Phase 3 clinical trial for the treatment of GI GVHD, a serious and
life-threatening gastrointestinal inflammation associated with allogeneic
hematopoietic cell transplantation (“HCT”). While orBec® did not
achieve statistical significance in time to treatment failure through Day 50
(p-value 0.1177), the primary endpoint of its pivotal Phase 3 trial, there was a
positive trend observed and it did achieve statistical significance in other key
outcomes such as median time to treatment failure through Day 80 (p-value
0.0226). Most importantly, it demonstrated a statistically significant survival
advantage in comparison to placebo at 200 days post-transplantation (p-value
0.0139) and at one year post-randomization (p-value 0.04).
We filed
an NDA on September 21, 2006 for orBec® with the
FDA for the treatment of GI GVHD. The NDA was accepted on November 21, 2006. We
also filed an MAA with the EMEA on November 3, 2006, which was validated on
November 28, 2006 and is currently under review. On October 18, 2007,
we received a not approvable letter from the FDA for orBec®. In the
letter, the FDA requested additional clinical trial data to demonstrate the
safety and efficacy of orBec®. The
FDA also requested nonclinical and chemistry, manufacturing & controls
information as part of the not approvable letter. On October 19, 2007, we
requested an end of review conference with the FDA to further understand the
letter and gain clarity as to the next steps. On December 7, 2007, we announced
the following guidance from that meeting; (1) a single, confirmatory, Phase 3
clinical trial could provide sufficient evidence of efficacy provided that it is
well designed, well executed and provides clinically and statistically
meaningful findings; (2) we anticipate working quickly with the FDA to finalize
the design of the confirmatory trial under the Agency’s special protocol
assessment process; (3) the FDA would be agreeable to reviewing a plan for a
Treatment IND as long as it does not interfere with patient accrual in a
confirmatory trial, such as potentially enrolling patients that would not be
eligible for the Phase 3 study. Once we have agreement on the confirmatory
protocol with the FDA, we expect to begin enrollment in the new confirmatory
Phase 3 clinical program for the treatment of GI GVHD in the second half of
2008.
On
February 15, 2008, we announced that we entered into a Letter of Intent with
BL&H Co. Ltd. (“BL&H”), a specialty pharmaceutical company based in
Seoul, Korea, pursuant to which BL&H will act as our Sponsor with regard to
the administration of a Named Patient Program (“NPP”) for orBec® to
patients suffering from acute GI GVHD in South Korea. The NPP is a compassionate
use drug supply program administered by the Korea Orphan Drug Center (the
“KODC”) under which medical practitioners can legally supply investigational
drugs to their patients who qualify. Under this program, investigational drugs
can be administered through the KODC to patients who are suffering from serious
illnesses until the drug is approved by the Korea Food & Drug
Administration. BL&H and our Company will share revenues generated by sales
of orBec® through
the NPP. We will manufacture and supply orBec® to
BL&H, while BL&H will be responsible for all distribution costs in South
Korea. We expect to receive modest revenues from these programs in the second
half of 2008.
On
November 28, 2007, we announced that we entered into a Letter of Intent with
Orphan Australia Pty Ltd. (“Orphan Australia”), a specialty pharmaceutical
company based in Melbourne, Australia, pursuant to which Orphan Australia will
act as our sponsor with regard to the administration of a Named Patient Access
Program (“NPAP”) for orBec® to GI
GVHD patients in Australia, New Zealand and South Africa. The NPAP is a
compassionate use drug supply program administered by Australia’s Therapeutic
Goods Administration (“TGA”), under which medical practitioners can legally
supply investigational drugs to their patients who qualify. The program enables
a medical practitioner to access not yet approved medicines for seriously ill
patients with prior notification to the TGA. Both we and Orphan Australia,
acting as sponsor for the program, will receive revenue for supplying orBec® under
the NPAP. New Zealand and South Africa also have similar access mechanisms for
supply under a "Named Patient" basis. We expect to receive modest
revenues from these programs in the second half of 2008.
On
September 12, 2007 we announced that our academic partner, the Fred Hutchinson
Cancer Research Center (“FHCRC”), received a $1 million grant from the National
Institute of Health (“NIH”) to conduct preclinical studies of oral
beclomethasone dipropionate (oral BDP, also the active ingredient in orBec®) for the
treatment of gastrointestinal (GI) radiation injury. While we will not receive
any monetary benefit from this grant, we will benefit if this work is successful
and it will enhance the value of our orBec®/oral BDP
program. The purpose of the studies funded by the grant, entitled "Improving
Gastrointestinal Recovery after Radiation," is to evaluate the ability of three
promising clinical-grade drugs, including oral BDP, given alone or in
combination, that are likely to significantly mitigate the damage to the
gastrointestinal epithelium caused by exposure to high doses of radiation using
a well-established dog model. The GI tract is highly sensitive to ionizing
radiation and the destruction of epithelial tissue is one of first effects of
radiation exposure. The rapid loss of epithelial cells leads to inflammation and
infection that are often the primary cause of death in acute radiation injury.
This type of therapy, if successful, would benefit cancer patients undergoing
radiation, chemotherapy, or victims of nuclear-terrorism. In most radiation
scenarios, injury to the hematopoietic (blood) system and gastrointestinal tract
are the main determinants of survival. The studies will compare overall survival
and markers of intestinal cell regeneration when the drug regimens are added to
supportive care intended to boost proliferation of blood cells. The principal
investigator of the study is George E. Georges, M.D., Associate Member of the
FHCRC.
On July
12, 2007, we announced that patient enrollment commenced in a randomized, double
blind, placebo-controlled, Phase 2 clinical trial of orBec® for the
prevention of acute GI GVHD after allogeneic HCT with myeloablative conditioning
regimens. The trial is being conducted by Paul Martin, M.D., at the FHCRC in
Seattle, Washington and is being supported, in large part, by an NIH grant. We
will not receive any direct monetary benefit from this grant. The Phase 2 trial
will seek to enroll up to 138 (92 orBec® and 46
placebo) patients. The primary endpoint of the trial is the proportion of
subjects who develop acute GVHD with severity sufficient to require systemic
immunosuppressive treatment on or before day 90 after transplantation. Patients
in this studywill begin dosing at the start of the conditioning regimen and
continue through day 75 following HCT. Trial enrollment is expected to be
completed in the first half of 2009.
In April
2007, we initiated our next pipeline development program in the biotherapeutics
area: our LPMÔ
(Lipid Polymer Micelle) drug delivery system to enhance the intestinal
absorption of water-soluble drugs/peptides which are ordinarily poorly absorbed.
We recommenced preclinical formulation work on LPMÔ in 2007 after a
period of approximately four years. This system incorporates biocompatible
lipids and polymers and is potentially useful for a wide variety of molecular
structures of water-soluble drugs, particularly those based on peptides that are
not readily absorbed in the GI tract. Preclinical animal pharmacokinetic (“PK”)
data have demonstrated high relative bioavailability of the therapeutic peptide
drug leuprolide in the 20-40% range. Leuprolide is both a candidate
drug for further development in several indications, such as prostate cancer and
endometriosis as well as a prototype for development of other similar
non-absorbable, but water soluble drugs. The mechanism for absorption by
LPMÔ is thought
to involve passive uptake through the opening of paracellular channels in
intestinal epithelial tissue.
BioDefense
Overview
In
collaboration with the University of Texas Southwest Medical Center and Thomas
Jefferson University, and the President and Fellows of Harvard College we are
developing vaccines to combat the threat posed by two potent biological toxins;
ricin toxin and botulinum toxin. Both vaccines under development are recombinant
products in bacterial hosts and both consist of nontoxic subunits of the native
toxins. These subunits induce antibodies that neutralize the toxins from which
they are derived. Through exclusive licenses with the universities,
we have secured important intellectual property rights related to these
vaccines. Both of these are considered bioterrorism threats by the U.S.
Department of Homeland Security, the National Institute of Allergy and
Infectious Diseases (“NIAID”), Department of Defense (“DOD”) and Centers for
Disease Control and Prevention (“CDC”). In fact, the threat of ricin toxin as a
biological weapon of mass destruction has been highlighted along with anthrax in
a recent Federal Bureau of Investigation Bioterror report released in
November 2007, which says, “Ricin and the bacterial agent anthrax are emerging
as the most prevalent agents involved in WMD investigations.” We are developing
our biodefense countermeasures for potential U.S. government procurement
pursuant to the Project BioShield Act of 2004, which provides incentives to
industry to supply biodefense countermeasures to the Strategic National
Stockpile. To our knowledge, we are now the only company
in the world developing vaccines against the top two Bioterror threats, as
recently identified by the Federal Bureau of Investigation (“FBI”).
The
development of RiVaxTM, our
ricin toxin vaccine, has progressed significantly. In September 2006, we
received a grant of approximately $5.2 million from NIAID, a division of
the NIH, for the continued development of RiVax™, a recombinant vaccine against
ricin toxin. The RiVax™ grant will provide approximately $5.2 million over a
three year period to fund the development of animal models which will be used to
correlate human immune response to the vaccine with protective efficacy in
animals. This is necessary for ultimate licensure by the FDA, when human
efficacy vaccine trials are not possible. This new grant also supports the
further biophysical characterization of the vaccine containing a
well-characterized adjuvant that is needed to enhance the immune response to
recombinant proteins. These studies will be required to assure that the vaccine
is stable and potent over a period of years. A prototype version of RiVax™ has
been evaluated in a Phase 1 clinical trial and was shown to be safe and
effective, while also inducing ricin neutralizing antibodies as confirmed in
subsequent animal studies.
On April
29, 2008, we announced the initiation of a comprehensive program to evaluate the
efficacy of RiVax™, in non-human primates. This study is taking place at the
Tulane University Health Sciences Center and will provide data that will further
aid in the interpretation of immunogenicity data obtained in the human
vaccination trials.
On
January 29, 2008, we announced that we have successfully achieved a two-year
milestone in the long-term stability program of the key ingredient of RiVax™, a
recombinant subunit vaccine against ricin toxin. RiVax™ is intended to protect
against exposure to ricin toxin that might result from the purposeful release of
ricin in an aerosolized form or as a poisonous contaminant in food or water. The
results of the two-year analysis, undertaken as part of the formal stability
program, demonstrate that the immunogen component of RiVax™, a recombinant
derivative of the ricin A chain, is stable under storage conditions for at least
two years without loss of its natural configuration or the appearance of any
detectable degradation products. A vaccine is considered by many to be the best
way to prospectively protect populations at risk of exposure against ricin
toxin. As this vaccine would potentially be added to the Strategic National
Stockpile and dispensed in the event of a terrorist attack, the activity of the
vaccine must be maintained over a period of years under stockpile storage
conditions.
Robust
stability is one of the key factors stipulated by the Biomedical Advanced
Research and Development Authority (“BARDA”) for vaccines to be included in the
Strategic National Stockpile. BARDA has placed a priority on stability and a
rapid onset of immunity in no more than two vaccine doses as the stability and
efficacy targets for vaccines under development for both category A and category
B vaccines. BARDA has recently issued a Request for Procurement (“RFP”),
entitled "Biodefense Vaccine Enhancement," to which we have submitted an
application for RiVax™. BARDA is a new agency within the U.S. Department of
Health and Human Services (“HHS”) established to implement acquisition under the
Project BioShield Act and to foster the development of vaccines and
countermeasures such as RiVax™ that have achieved milestone hurdles, and are
candidates for continued development. To this end, BARDA has solicited proposals
in a number of key areas, including development of vaccines for categories A and
B that have enhanced stability properties that address long-term storage and the
benefit of rapid onset of immunity. We have submitted an application for RiVax™
for the BARDA RFP. We regularly apply for biodefense grants, as well as
RFPs, when appropriate, from NIH and other applicable governmental bodies that
support biodefense.
On
November 15, 2007, we announced that we entered into a Cooperative Research and
Development Agreement with the Walter Reed Army Institute of Research (“WRAIR”)
to provide additional means to characterize the immunogenic protein subunit
component of RiVax™, our preventive vaccine against ricin toxin. The agreement
will be carried out at the Division of Biochemistry at WRAIR and will encompass
basic studies to reveal the underlying protein structure that is important in
inducing human immune responses to ricin toxin. Ricin toxin is an easy to
manufacture toxin that poses a serious threat as a bioweapon, primarily by
inhalation. Some of the features that are critical to induce protective immune
responses by vaccination with RiVax™ include structural determinants in the core
and the surface of the protein. The purpose of the agreement is to obtain data
to correlate protein structure with induction of protective immunity and
long-term stability of the protein. These studies will involve comparison to
structures of similar natural and recombinant proteins. RiVax™ induces
antibodies that appear primarily in the blood of animals and humans. Some of
these antibodies recognize determinants on the protein that are dependent on the
conformation of the protein and may be involved in biological activity. Overall,
antibodies in the blood are correlated to protection against exposure when the
toxin enters the circulatory system or when it comes into contact with lung
surfaces, where the major effects lead to severe inflammation, tissue necrosis
and death. RiVax™ induces such antibodies in humans as well as other animal
species. Lieutenant Colonel Charles B. Millard, Ph.D., Director of the Division
of Biochemistry at WRAIR, will lead the studies to be conducted at WRAIR, which
will include X-ray crystal analysis to determine the structural parameters of
the RiVax™ vaccine. We will not receive any monetary benefits from this
agreement. We will take part in evaluating the data that is found by WRAIR’s
studies, which they are funding. If successful, this will enhance the value of
our RiVax™ product and assist with continuing the progression of the
program.
Our
vaccine against botulinum neurotoxin, BT-VACC™, is a mucosally administered
vaccine that protects against exposure to botulinum neurotoxins. Botulinum
neurotoxin is the most toxic natural toxin known to man and is on the NIAID
Category A list of biothreats. Based on promising preclinical results
that demonstrate induction of protective immune responses via oral or intranasal
vaccination, we anticipate that BT-VACC™ can be developed as either a standalone
vaccine or administered as a booster to the current injected vaccines. We are
developing BT-VACC™ to be administered by the mucosal route since such vaccines
induce more complete protection than injected vaccines and are thought to confer
better protection against aerosol or oral exposure to botulinum neurotoxin.
Since mucosally administered formulations can be given without needles and
trained personnel, we expect that BT-VACC™ will be poised for rapid distribution
and vaccination for military use or civilian vaccination in response to
bioterrorism. Any vaccine against botulinum toxin will have to be composed of
multiple antigens representing several natural serotypes. At this point, we have
demonstrated that combinations of three serotypes can induce protective immune
response in animals. The three serotypes are A, B, and E, which
represent the most common of the botulinum serotypes and the ones most likely to
be used as bioweapons. Our plans are to focus on development of the
oral vaccine concept using formulation technology that permits increased contact
of the antigen with immune inductive sites in the GI tract, and alternatively
develop the A-B-E trivalent vaccine as a nasal spray vaccine. In conjunction
with Dowpharma, a business unit within the Dow Chemical Company, we have
demonstrated that it will be feasible to manufacture the required antigens in a
bacterial host (P. fluorescens), and are anticipating developing purification
processes for each antigen. BT-VACC™ is covered by issued and pending U.S.
patents.
orBec®
Our lead
therapeutic product, orBec®, is an
orally administered corticosteroid that exerts a potent, local anti-inflammatory
effect within the mucosal tissue of the gastrointestinal tract. We filed an NDA
on September 21, 2006 for orBec® with the
FDA for the treatment of GI GVHD. The NDA was accepted on November 21, 2006, and
in accordance with the Prescription Drug User Fee Act (“PDUFA”), the
FDA was to complete its review of all materials related to orBec® by July
21, 2007. Additionally, on May 9, 2007, the Oncologic Drugs Advisory
Committee (“ODAC”) appointed by the FDA voted that the data supporting
orBec® did not
show substantial evidence of efficacy by a margin of 7 to 2 for the treatment of
GI GVHD. The FDA was not bound by ODAC’s recommendations, but it took the
panel’s advice into consideration when reviewing the NDA for orBec®.
On July
18, 2007, we received notification from the FDA that the PDUFA date for the
FDA's review of the NDA for orBec® was
extended to October 21, 2007. The extension was the result of our July 13, 2007
provision of supplemental information to the orBec® NDA.
This information was requested by the FDA at a June 13, 2007 NDA review meeting.
According to FDA policy, the submission of this supplemental information was
classified as a major amendment, extending the new PDUFA date for the orBec® NDA to
October 21, 2007.
On
October 18, 2007, we received a not approvable letter from the FDA in response
to our NDA for orBec® (oral
beclomethasone dipropionate) for the treatment of GI GVHD. In the letter,
the FDA requested additional clinical trial data to demonstrate the safety and
efficacy of orBec®. The
FDA also requested nonclinical and chemistry, manufacturing and controls
information as part of the not approvable letter. On October 19, 2007, we
requested an end of review conference with the FDA to further understand the
letter and gain clarity as to the next steps. On December 7, 2007, we announced
the following guidance from that meeting: (1) a single, confirmatory, Phase 3
clinical trial could provide sufficient evidence of efficacy provided that it is
well-designed, well-executed and provides clinically and statistically
meaningful findings; (2) we anticipate working quickly with the FDA to finalize
the design of the confirmatory trial under the Agency’s special protocol
assessment process; (3) the FDA would be agreeable to reviewing a plan for a
Treatment IND as long as it does not interfere with patient accrual in a
confirmatory trial, such as potentially enrolling patients that would not be
eligible for the Phase 3 study. Once we have agreement on the confirmatory
protocol with the FDA, we expect to begin enrollment in the new confirmatory
Phase 3 clinical program for the treatment of GI GVHD in the second half of
2008.
We also
filed an MAA with the EMEA on November 3, 2006, which was validated on November
28, 2006 and is currently under review. We anticipate receiving the EMEA’s
official opinion regarding our MAA in the first half of 2008. We have assembled
an experienced team of consultants and contractors who worked on all aspects of
the NDA and MAA preparation, including data management, data analysis, and
biostatistics medical writing.
We
anticipate the market potential for orBec® for the
treatment of GI GVHD to be approximately 60 percent of the more than 10,000
allogeneic bone marrow and stem cell transplantations that occur each year in
the U.S.
We have
had strategic discussions with a number of pharmaceutical companies regarding
the partnering or sale of orBec®. We are
evaluating partnering opportunities in the U.S. and abroad in an effort to seek
support for future clinical development of orBec® for the
treatment of GI GVHD. We also intend to seek a partner for the other potential
indications of orBec® and oral
BDP.
On July
12, 2007, we announced that patient enrollment had commenced in a randomized,
double blind, placebo-controlled, Phase 2 clinical trial of orBec® for the
prevention of acute GVHD after allogeneic HCT with myeloablative conditioning
regimens. The Phase 2 clinical trial is supported in part by an NIH grant
awarded to the FHCRC. We will not receive any monetary benefit from this grant.
The protocol is entitled “A Phase 2 study to evaluate the efficacy of oral
beclomethasone dipropionate for prevention of acute GVHD after hematopoietic
cell transplantation with myeloablative conditioning regimens.” The study will
enroll a total of 138 patients with 92 subjects in the orBec®
arm and 46 subjects in the placebo arm. The principal investigator of the trial
is Paul Martin, M.D., of the FHCRC and a Professor of Medicine at Washington
University. Patients will be treated with orBec®
or placebo at the start of their conditioning regimen and will continue to be
treated for 75 days after transplantation. The objective of the trial is to test
the hypotheses that prophylactic administration of orBec®
can prevent the incidence and/or reduce the severity of acute GVHD, therefore,
decreasing the need for use of high dose systemic steroid treatment after
allogeneic HCT. Completion of patient enrollment in this trial is targeted for
the first half of 2009.
On
September 12, 2007, we announced that our academic partner, FHCRC, received a $1
million grant from the NIH to conduct preclinical studies of oral beclomethasone
dipropionate (oral BDP, also the active ingredient in orBec®) for the
treatment of gastrointestinal (GI) radiation injury. While we will not receive
any monetary benefit from this grant, we will benefit if this study is
successful as it would enhance the value of our orBec®/oralBDP
program. The purpose of the studies funded by the grant, entitled "Improving
Gastrointestinal Recovery after Radiation," is to evaluate the ability of three
clinical-grade drugs including oral BDP, given alone or in combination, that are
likely to significantly mitigate the damage to the gastrointestinal epithelium
caused by exposure to high doses of radiation using a well-established dog
model. The GI tract is highly sensitive to ionizing radiation and the
destruction of epithelial tissue is one of first effects of radiation exposure.
The rapid loss of epithelial cells leads to inflammation and infections that are
often the primary cause of death in acute radiation injury. This type of
therapy, if successful, will benefit cancer patients undergoing radiation,
chemotherapy, or victims of nuclear-terrorism.
In
addition to the preclinical studies in radiation exposure being conducted at
FHCRC, we plan to begin a Phase 1/2 clinical trial in radiation enteritis
patients in the second half of 2008.
We also
plan to initiate a Phase 2 clinical trial in Chronic GVHD in the second half of
2008. Chronic GVHD can begin anytime during or after the third month
post-transplantation. About 60 percent of patients who receive an
allogeneic transplant and are alive at day 100 post-transplantation will develop
chronic GVHD. Chronic GVHD can range from mild to life-threatening. Some
transplantation survivors suffer from chronic GVHD for many years.
RiVax™
Ricin
toxin is a heat stable toxin that is easily isolated and purified from the bean
of the castor plant. As a bioterrorism agent, ricin could be disseminated as an
aerosol, by injection, or as a food supply contaminant. The CDC has classified
ricin as a Category B biological agent. Ricin works by first binding to
glycoproteins found on the exterior of a cell, and then entering the cell and
inhibiting protein synthesis leading to cell death. Once exposed to ricin toxin,
there is no effective therapy available to reverse the course of the toxin.
Currently, there is no FDA approved vaccine to protect against the possibility
of ricin toxin being used in a terrorist attack, or its use as a weapon on the
battlefield, nor is there a known antidote for ricin toxin
exposure.
The
development of RiVaxTM, our
ricin toxin vaccine, has progressed significantly since 2003. In September 2006,
we received a grant of approximately $5.2 million from NIAID, a division of
the NIH, for the continued development of RiVax™, a recombinant vaccine against
ricin toxin. The RiVax™ grant has provided approximately $5.2 million over a
three year period to fund the development of animal models which will be used to
correlate human immune response to the vaccine with protective efficacy in
animals. This is necessary for ultimate licensure by the FDA, when human
efficacy vaccine trials are not possible. This new grant also supports the
further biophysical characterization of the vaccine containing a
well-characterized adjuvant that is needed to enhance the immune response to
recombinant proteins. These studies will be required to assure that the vaccine
is stable and potent over a period of years. A prototype version of RiVax™ has
been evaluated in a Phase 1 clinical trial and was shown to be safe and
effective, while also inducing ricin neutralizing antibodies as confirmed in
subsequent animal studies.
We also
announced in January 2008 that we have successfully completed a two year interim
analysis in the long-term stability program of the key ingredient of
RiVax™. The results of interim analysis in the formal stability
program demonstrate that the immunogen component of RiVax™, a recombinant
derivative of the ricin A chain, is stable under storage conditions for at least
two years without loss of its natural configuration or the appearance of any
detectable degradation products. Since there is no therapeutic
available to treat exposure to ricin toxin, a vaccine against ricin is
considered by many to be the best way to prospectively protect certain human
populations who are at risk of exposure. Since this vaccine would
presumably be added to the Strategic National Stockpile and dispensed in the
case of a terrorist attack, the activity of the vaccine must be maintained over
a period of years under potential stockpile storage conditions.
Our
academic partner, the University of Texas Southwestern Medical Center led by Dr.
Ellen Vitetta, completed a Phase 1 safety and immunogenicity trial of RiVaxTM in
human volunteers. The results of the Phase 1 safety and immunogenicity
dose-escalation study indicate that the vaccine is well tolerated and induces
antibodies in humans that neutralize ricin toxin. Despite the absence of an
adjuvant, antibodies were present in the blood of several volunteers for as long
as 127 days after their last vaccination. The functional activity of the
antibodies was confirmed by transferring serum globulins from the vaccinated
individuals along with active ricin toxin into sensitive mice, which then
survived subsequent exposure to ricin toxin. The outcome of the study was
published in the Proceedings
of the National Academy of Sciences in January 2006. In January 2005, we
entered into a manufacturing and supply agreement for RiVax™ with Cambrex
Corporation. In July 2006, we announced the successful completion of the current
Good Manufacturing Practices (cGMP) milestone for the production of RiVaxTM.
In July
2007, we announced that the Office of Orphan Products Development ("OOPD") of
the FDA has awarded a development grant for the further clinical evaluation of
RiVaxTM. The
grant was awarded to the University of Texas Southwestern Medical Center to
further the development of RiVaxTM. We
will not receive any monetary benefits from this grant; however, the successful
completion of this work will enhance the value of our RiVaxTM program
and continue to move it forward. The principal investigator for the project is
Dr. Vitetta, Director of the Cancer Immunobiology Center at the University of
Texas Southwestern. The award totals approximately $940,000 for three years and
is to be used for the evaluation of an adjuvant for use with the vaccine.
Typically, awards made by the OOPD are to support clinical trials for
development of products that address rare diseases or medicines that would be
used in numerically small populations. We have recently initiated a non-human
primate study and endeavor to begin a human clinical trial with RiVaxTM in the
first half of 2008.
We
believe that RiVaxTM is at a
sufficiently advanced state of development for the awarding of further
development contracts from other agencies and branches of the government. For
example, in 2006, the Department of Health and Human Services created a separate
agency, BioDefense Advanced Research and Development Authority (BARDA), within
the Office of the Assistant Secretary for Preparedness and Response in the
Department of Health and Human Services. BARDA manages
Project BioShield to procure countermeasures and vaccines and is the agency now
responsible for advanced development of medical countermeasures for chemical,
biological, radiological, and nuclear agents. The purpose of BARDA is to take
over where NIH has left off in the transition from research and development to
advanced development and clinical testing. In addition, BARDA is responsible for
establishing priorities for civilian biodefense. BARDA has placed a priority on
stability and a rapid onset of immunity in no more than two vaccine doses as the
stability and efficacy targets for vaccines under development for both category
A and category B vaccines. BARDA has recently issued an RFP, entitled
“Biodefense Vaccine Enhancement,” to which we have submitted an application for
RiVaxTM. We
expect to continue to respond to RFPs that may arise within BARDA and other
branches of the government.
BT-VACC™
Our
botulinum toxin vaccine, called BT-VACC™, stems from the research of Dr. Lance
Simpson at Thomas Jefferson University in Philadelphia, Pennsylvania.
The vaccine is being developed as an oral or intranasal formulation to be given
as a primary immunization series or as oral or nasal booster to individuals who
have been primed with an injected vaccine. Botulinum toxin is the
product of the bacteria Clostridium botulinum.
Botulinum toxin is the most poisonous natural substance known to man. Botulinum
toxin causes acute, symmetric, descending flaccid paralysis due to its action on
peripheral cholinergic nerves. Paralysis typically presents 12 to 72 hours after
exposure. Death results from paralysis of the respiratory muscles. Current
treatments include respiratory support and passive immunization with antibodies
which must be administered before symptoms occur, which leaves little time
post-exposure for effective treatment.
In the
context of oral and nasal formulations, we are developing a multivalent vaccine
against botulinum neurotoxins serotypes A, B and E, which account for almost all
human cases of disease. We have identified lead antigens against Serotypes A, B
and E consisting of the Hc50 fragment of the botulinum toxin. Typically,
vaccines given by mucosal routes are not immunogenic because they do not attach
to immune inductive sites. In the case of the combination BT-VACCTM, both
the A and the B antigens were capable of attaching to cells in the mucosal
epithelium and inducing an immune response with similar magnitude to the
injected vaccine. Our preclinical data suggests that a bivalent formulation of
serotypes A and B is completely effective at low, mid and high doses as an
intranasal vaccine and completely effective at the higher dose level orally in
animal models. The animals were given a small quantity of the bivalent
combination vaccine containing each of the type A and type B antigens (10
micrograms) three times a day at two week intervals. All of the animals
developed equivalent immune responses to A and B types in the serum.
Importantly, they were then protected against exposure to each of the native
toxin molecules given at 1000 fold the dose that causes lethality. The immune
responses were also comparable to the same vaccines when given by intramuscular
injection.
In
September 2006, we were awarded a NIAID Phase 1 SBIR grant totaling
approximately $500,000 to conduct further work to combine antigens from
different serotypes of botulinum toxin for a prototype multivalent vaccine. The
grant funding has supported further work in characterizing antigen formulations
that induce protective immunity to the three most common botulinum toxin types
that may be encountered naturally or in the form of a bioweapon. This work will
continue the research conducted by Dr. Lance Simpson and colleagues who
originally showed that recombinant non-toxic segments of the botulinum toxin can
be given by the oral as well as the intranasal route to induce a strong
protective immune response in animals. This observation forms the basis for
development of an oral or intranasal vaccine for botulinum toxin that can be
used in humans. Currently, the recombinant vaccines under development are given
by intramuscular injections. The alternate route provides a self administration
option, which will bypass the requirement for needles and personnel to
administer the vaccine.
In July
2007, we announced that the first results from testing of a multivalent form of
BT-VACCTM have
been published in the journal Infection and Immunity
(Ravichandran et al., 2007, Infection and Immunity, v.
75, p. 3043). These results are the first that describe the protective immunity
elicited by a multivalent vaccine that is active by the mucosal route. The
vaccine consists of a combination of three non-toxic subunits of botulinum toxin
that induced protection against the corresponding versions of the natural
toxins. The results published in Infection and Immunity show
that non-toxic subunits (protein components of the natural toxin) of three of
the serotypes of botulinum toxin that cause almost all instances of human
disease, namely serotypes A, B, and E, can be combined and delivered via nasal
administration. The combination vaccine induced antibodies in the serum of mice
and protected against subsequent exposure to high doses of a combination of the
natural A, B, and E serotype neurotoxins. Further, the combination vaccine can
induce protection when given mucosally as a booster to animals that have been
given a primary vaccine injection.
LPMTM -
Leuprolide
In April
2007, we announced the initiation of a development program with our Lipid
Polymer Micelle (“LPM™”) oral drug delivery technology. The LPM™ system is a
platform technology designed to allow for the oral administration of peptide
drugs that are water-soluble but poorly permeable through the gastrointestinal
tract. We have previously demonstrated in preclinical animal models that the
LPM™ technology is adaptable to oral delivery of peptide drugs and that high
systemic levels after intestinal absorption can be achieved with the peptide
hormone drug leuprolide.
In
preclinical studies, our LPM™ delivery technology significantly enhanced the
ability of leuprolide, to pass through the intestinal epithelium in comparison
to leuprolide alone. Leuprolide is a synthetic peptide agonist of gonadotropin
releasing hormone (GnRh), which is used in the treatment of prostate cancer in
men and endometriosis in women. Leuprolide exhibits poor intestinal absorption
from an aqueous solution with the oral bioavailability being less than 5%.
Utilizing LPM™ in rats and dogs, the bioavailability of leuprolide averaged 30%
compared to 2.2% for the control oral solution. Based on these promising
preclinical data, we anticipate preparing for a Phase 1 study in humans in 2008
to confirm these findings.
The LPM™
system is a proprietary oral delivery platform technology that utilizes a lipid
based delivery system that can incorporate the peptide of interest in a
thermodynamically stable configuration called a “reverse micelle” that, through
oral administration, can promote intestinal absorption. Reverse micelles are
structures that form when certain classes of lipids come in contact with small
amounts of water. This results in a drug delivery system in which a
stable clear dispersion of the water soluble drug can be evenly dispersed within
the lipid phase. LPM™ is thought to promote intestinal absorption due to the
ability of the micelles to open up small channels through the epithelial layer
of the intestines that allow only molecules of a certain dimension to pass
through while excluding extremely large molecules such as bacteria and
viruses. The reverse micelles also structurally prevent the rapid
inactivation of peptides by enzymes in the upper gastrointestinal tract via a
non-specific enzyme inhibition by surfactant(s) in the formulation.
We expect
to validate the LPM platform technology using leuprolide as the target peptide.
We intend to perform a Phase 1 PK study with a version of LPM that prolongs the
absorption of leuprolide and results in high relative bioavailability. An oral
version of leuprolide may also provide a significant advantage over the
currently marketed “depot” formulations. Leuprolide is one of the most widely
used anti-cancer agents for advanced prostate cancer in
men. Injectable forms of leuprolide marketed under trade names such
as Lupron® and
Eligard® had
worldwide sales of approximately $1.8 billion in 2006. Injectable leuprolide is
also widely used in non-cancer indications, such as endometriosis in women (a
common condition in which cells normally found in the uterus become implanted in
other areas of the body), uterine fibroids in women (noncancerous growths in the
uterus) and central precocious puberty in children (a condition causing children
to enter puberty too soon). Leuprolide is currently available only in
injectable, injectable depot and subcutaneous implant routes of delivery which
limits its use and utility.
OraprineTM
We
anticipate that an orally administered version of the immunosuppressant drug
azathioprine may have a significant role in treating inflammatory diseases of
the oral cavity. Further, an orally administered drug may provide a
niche in the current transplant medicine market for an alternative to solid
dosage forms of azathioprine that would have utility in elderly patients.
OraprineTM
is an oral suspension of azathioprine, which we believe may be
bioequivalent to the oral azathioprine tablet currently marketed in the United
States as Imuran®.
We conducted a Phase 1 bioequivalence trial following a trial conducted by Dr.
Joel Epstein at the University of Washington that established the feasibility of
the oral drug to treat oral ulcerative lesions resulting from GVHD. Oral GVHD
can occur in up to 70% of patients who have undergone bone marrow/stem cell
transplantation despite treatment with other immunosuppressive drugs such as
prednisone, methotrexate, tacrolimus, and cyclosporine. Azathioprine is one of
the most widely used immunosuppressive medications in clinical
medicine. Azathioprine is commonly prescribed to organ transplant patients
to decrease their natural defense mechanisms to foreign bodies (such as the
transplanted organ). The decrease in the patient’s immune system increases
the chances of preventing rejection of the transplanted organ in the
patient.
On
September 25, 2007, we announced a Notice of Allowance of patent claims based on
U.S. Patent Application #09/433,418 entitled “Topical Azathioprine for the
Treatment of Oral Autoimmune Diseases.” Concurrently, the patent has
also been issued by the European Patent Office with the serial number EP 1 212
063 B1. This patent family specifically includes claims for treatment and
prevention of oral GVHD with locally or topically applied
azathioprine.
LPETM and
PLPTM Systems
for Delivery of Water-Insoluble Drugs
We may
develop two lipid-based systems, LPETM and
PLPTM, to
support the oral delivery of small molecules of water insoluble drugs. Such
drugs include most kinds of cancer chemotherapeutics currently delivered
intravenously. The LPETM system
is in the form of an emulsion or an emulsion pre-concentrate incorporating
lipids, polymers and co-solvents. We have filed for patent applications on the
use of perillyl alcohol as a solvent, surfactant and absorption enhancer for
lipophilic compounds. The polymers used in these formulations can either be
commercially available or proprietary polymerized lipids and lipid
analogs.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities and expenses,
and related disclosure of contingent assets and liabilities. We evaluate these
estimates and judgments on an on-going basis.
Intangible
Assets
One of
the most significant estimates or judgments that we make is whether to
capitalize or expense patent and license costs. We make this judgment based on
whether the technology has alternative future uses, as defined in SFAS 2,
"Accounting for Research and Development Costs". Based on this consideration, we
capitalized all outside legal and filing costs incurred in the procurement and
defense of patents.
These
intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
sum of the expected undiscounted cash flows is less than the carrying value of
the related asset or group of assets, a loss is recognized for the difference
between the fair value and the carrying value of the related asset or group of
assets.
We
capitalize and amortize intangibles over a period of 11 to 16 years. We
capitalize payments made to legal firms that are engaged in filing and
protecting our rights to our intellectual property and rights for our current
products in both the domestic and international markets.
We
capitalize intangible assets that have alternative future uses. This is common
practice in the pharmaceutical development industry. Of our intangible asset
balance, our purchase of the RiVaxTM vaccine
license from the University of Texas Southwestern Medical Center for $462,234
was for up-front license costs. We capitalize license costs because they have
alternative future use as referred to in paragraph 11 c. of SFAS No.2. We
believe that both of these intangible assets purchased have alternative future
uses.
We
capitalize legal costs associated with the protection and maintenance of our
patents. As a development stage company with drug and vaccine products in an
often lengthy basic and clinical research process, we believe that patent rights
are one of our most valuable assets. Patents and patent applications are a key
currency of intellectual property, especially in the early stage of product
development, as their purchase and maintenance gives us access to key product
development rights from our academic and industrial partners. These rights can
also be sold or sub-licensed as part of our strategy to partner our products at
each stage of development. The legal costs incurred for these patents consist of
work designed to protect, preserve, maintain and perhaps extend the lives of the
patents. Therefore, our policy is to capitalize these costs and amortize them
over the remaining useful life of the patents. We capitalize intangible assets
alternative future use as referred to in SFAS No.142 and in paragraph 11 c. of
SFAS No. 2.
We
capitalized $41,481 in patent related costs during the quarter ended March 31,
2008. This amount is represented in the cash flow statements, in the
section for investing activities presented in the financial statements. On the
balance sheet as of March 31, 2008 and December 31, 2007, these amounts are
presented on the line intangible assets, net in the amount of $1,331,089 and
$1,320,787, respectively.
Research
and Development Costs
Research
and Development costs are charged to expense when incurred. Research and
development includes costs such as clinical trial expenses, contracted research
and license agreement fees with no alternative future use, supplies and
materials, salaries and employee benefits, equipment depreciation and allocation
of various corporate costs. Purchased in-process research and development
expense (“IPR&D”) represents the value assigned or paid for acquired
research and development for which there is no alternative future use as of the
date of acquisition.
Revenue
Recognition
All of
our revenues are from government grants which are based upon subcontractor costs
and internal costs covered by the grant, plus a facilities and administrative
rate that provides funding for overhead expenses. Revenues are recognized when
expenses have been incurred by subcontractors or when we incur internal expenses
that are related to the grant.
Material Changes in Results of
Operations
We are a
research and development company. The first quarter 2008 revenues and associated
expenses were from NIH Grants awarded in September 2004 and September 2006. The
NIH grants are associated with our ricin and botulinum vaccines.
For the
three months ended March 31, 2008, we had grant revenues of
$677,640 as compared to $235,171 in the three months ended March 31, 2007, an
increase of $442,469, or 188%. During the first quarter of 2008 we executed
certain milestones with our subcontractors and made drawdowns from our NIH
grants. We also incurred expenses related to that revenue in the three months
ended March 31, 2008 and 2007 of $529,179 and $78,071, respectively, an increase
of $451,108, or 578%. These costs relate to payments made to
subcontractors and universities in connection with the grants.
Although
we have a gross profit, it is a result of the increase in the NIH award for a
more comprehensive facilities and administrative rate or overhead rate (“F&A
rate”) and the FDA grant. The gross profit for the three months ended March 31,
2008 was $148,461 as compared to $157,100 in the three months ended March 31,
2007 a decrease of $8,639, or 5%. This was due to the decreased grant revenues
in the quarter ended 2007 that were eligible for the F&A rate.
Research
and development spending decreased by $442,757, or 42%, to $600,001, for the
quarter ended March 31, 2008 as compared to $1,042,758 for the corresponding
period ended March 31, 2007. During the first quarter of 2008, we incurred
expenses for FDA and European regulatory matters as well as for clinical
preparation for orBec®, and
LPM formulation work. The majority of research and development expenses in 2007
were related to preparation of FDA and European regulatory matters.
General
and administrative expenses decreased $360,347, or 30%, to $848,111 for the
three months ended March 31, 2008, as compared to $1,042,758 for the
corresponding period ended March 31, 2007. The decrease was primarily due to the
dilution expense taken in the first quarter of 2007 for stock issued to
investors from the April 2006 PIPE in the amount of $308,743. Also the decrease
was due to a reduction in employee expenses and expenses for public and investor
relations of approximately, $200,000. During the first quarter of 2008,
commitment shares were issued and an expense of $270,000 was recorded as a
result of the Fusion Capital equity transaction.
Stock
based compensation expenses for research and development decreased $16,751, or
30%, to $39,583 for the three months ended March 31, 2008, as compared to
$56,334 for the corresponding period ended March 31, 2007.
Stock
based compensation expenses for general and administrative decreased $38,791, or
51%, to $36,793 for the three months ended March 31, 2008, as compared to
$75,584 for the corresponding period ended March 31, 2007.
Interest
income for the three months ended March 31, 2008 was $20,036 as compared to
$62,247 for the three months ended March 31, 2007, representing a decrease of
$42,211 or 68%. This decrease is due to lower cash balance in 2008 as
compared to 2007.
Interest
expense for the three months ended March 31, 2008 was $180 as compared to $413
for the three months ended March 31, 2007, a decrease of $233 or 56%. This
decrease was the result of lower balances that were short-term financed for
insurance premiums due and therefore less interest was accrued and
paid.
For the
three months ended March 31, 2008, we had a net loss of $1,356,171 as compared
to a net loss of $2,164,200 for the three months ended March 31, 2007, a
decrease of $808,029, or 37%. This decrease is primarily attributed to lower
research and development costs, lower public and investor relation expenses, a
reduction in employee expenses, and the dilution expense taken for stock
issued to investors from the April 2006 PIPE in the amount of $308,743 in
2007.
Financial
Condition
Cash
and Working Capital
As of
March 31, 2008, we had cash of $1,880,860 as compared to $2,220,128 as of
December 31, 2007. As of May 1, 2008 we had cash of approximately $1,700,000. As
of March 31, 2008, we had working capital of $922,832 as compared to working
capital of $1,243,638 as of December 31, 2007, representing a decrease of
$320,806. For the three months ended March 31, 2008, our cash used in
operating activities was approximately $1,000,000, compared to $2,400,000 for
the corresponding period ended March 31, 2007.
If we are
not able to access the Fusion Capital facility, we believe our cash will only be
sufficient to sustain reduced operations into the first quarter of 2009. Unless
a significant amount of cash comes in from Fusion or any other
partnering/financing we may be unable to begin the Phase 3 clinical trial
for orBec® for the
treatment of GI GVHD. We need to seek additional capital. We will seek
additional capital in the private and/or public equity markets to continue our
operations, to respond to competitive pressures, to develop new products and
services and to support new strategic partnerships. We may obtain
capital pursuant to one or more corporate partnerships relating to orBec®. If we
obtain additional funds through the issuance of equity or equity-linked
securities, shareholders may experience significant dilution and these equity
securities may have rights, preferences or privileges senior to those of our
common stock. The terms of any debt financing may contain restrictive covenants
which may limit our ability to pursue certain courses of action. We may not be
able to obtain such financing on acceptable terms or at all. If we are unable to
obtain such financing when needed, or to do so on acceptable terms, we may be
unable to develop our products, take advantage of business opportunities,
respond to competitive pressures or continue our operations.
The
extent to which we rely on Fusion Capital as a source of funding will
depend on a number of factors including, the prevailing market price of our
common stock and the extent to which we are able to secure working capital from
other sources. If obtaining sufficient financing from Fusion Capital
were to prove unavailable or prohibitively dilutive and if we are unable to
commercialize and sell enough of our products, we will need to secure another
source of funding in order to satisfy our working capital needs. Even
if we are able to access the full $8.0 million under the common stock purchase
agreement with Fusion Capital, we may still need additional capital to fully
implement our business, operating and development plans. Should the
financing we require to sustain our working capital needs be unavailable or
prohibitively expensive when we require it, the consequences could be a material
adverse effect on our business, operating results, financial condition and
prospects.
Expenditures
Under
existing product development agreements and license agreements pursuant to
letters of intent and option agreements, we expect our expenditures for the next
12 months to be approximately $3,300,000, not inclusive of BioDefense programs,
or programs covered under existing NIH or orphan grants, and not including
a new confirmatory Phase 3 clinical trial for orBec® for the
treatment of GI GVHD. We anticipate grant revenues in the next 12
months to offset research and development expenses for the development of our
ricin toxin vaccine and botulinum toxin vaccine in the amount of approximately
$2,800,000 with $800,000 contributing towards our overhead
expenses.
The table
below details our costs by program for the three months ended March 31:
|
|
2008
|
|
2007
|
|
Program
- Research & Development Expenses
|
|
|
|
|
orBec®
|
$ 351,675
|
|
$ 730,144
|
|
RiVax™
|
120,287
|
|
158,323
|
|
BT-VACC™
|
60,261
|
|
141,491
|
|
Oraprine™
|
3,000
|
|
1,700
|
|
LPMTM-Leuprolide
|
64,778
|
|
11,100
|
|
Research
& Development Expense
|
$ 600,001
|
|
$ 1,042,758
|
|
|
|
|
|
|
Program
- Reimbursed under Grants
|
|
|
|
|
RiVax™
|
515,190
|
|
66,168
|
|
BT-VACC™
|
13,989
|
|
11,903
|
|
Reimbursed
under Grant
|
$ 529,179
|
|
$ 78,071
|
|
|
|
|
|
|
TOTAL
|
$
1,129,180
|
|
$ 1,120,829
|
Income
Taxes
Deferred
tax assets:
|
|
March 31, 2008
|
|
|
|
December
31, 2007
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
|
Net
operating loss carry forwards
|
$
25,000,000
|
|
$25,000,000
|
|
|
|
|
Orphan
drug and research and development credit carry forwards
|
1,800,000
|
|
2,000,000
|
|
|
|
|
Other
|
3,000,000
|
|
3,000,000
|
|
|
|
|
Total
|
29,800,000
|
|
30,000,000
|
|
|
|
|
Valuation
allowance
|
( 29,800,000
|
)
|
( 30,000,000
|
)
|
|
|
|
Net
deferred tax assets
|
$
-
|
|
$ -
|
|
|
|
At
December 31, 2007, the Company had net operating loss carry forwards of
approximately $73,000,000 for Federal and state tax purposes, which are
currently expiring each year until 2026.
The
following is the approximate amount of the Company’s tax credits and net
operating losses that expire over the next five years:
|
2008
|
$ 910,000
|
|
2009
|
1,330,000
|
|
2010
|
1,410,000
|
|
2011
|
870,000
|
|
2012
|
3,870,000
|
Reconciliations
of the difference between income tax benefit computed at the federal and state
statutory tax rates and the provision for income tax benefit for the years ended
March 31, 2008 and December 31, 2007 was as follows:
|
|
2008
|
|
2007
|
|
|
|
|
|
|
Income
tax loss at federal statutory rate
|
(34.00)%
|
|
(34.00)%
|
|
State
taxes, net of federal benefit
|
(4.00)
|
|
(4.29)
|
|
Permanent
differences, principally purchased
in-process
research and development
|
-
|
|
-
|
|
Valuation
allowance
|
38.00
|
|
38.29
|
|
Provision
for income taxes (benefit)
|
-
%
|
|
-
%
|
Due to
the move of the corporate offices to New Jersey, the Florida net operating loss
is suspended.
The
Company and one or more of its subsidiaries files income tax returns in the U.S.
Federal jurisdiction, and various state and local jurisdictions. The Company is
no longer subject to income tax assessment for years before 2004. However, since
the Company has incurred net operating losses in every tax year since inception,
all its income tax returns are subject to examination by the Internal Revenue
Service (“IRS”) and state authorities for purposes of determining the amount of
net operating losses to reduce taxable income generated in a given tax
year.
Leases
The
following summarizes our contractual obligations at March 31, 2008, and the
effect those obligations are expected to have on our liquidity and cash flow in
future periods.
|
Contractual
Obligation
|
Year
2008
|
Year
2009
|
Year
2010
|
|
Non-cancelable
obligation (1)(2)
|
$ 41,000
|
$ 4,500
|
4,500
|
|
TOTALS
|
$ 41,000
|
$
4,500
|
$ 4,500
|
|
(1)
|
On
October 1, 2007, we signed a one year lease to occupy office space in
Ewing, New Jersey.
|
|
(2)
|
On
April 24, 2008, we signed a three year lease for a
copier.
|
ITEM 3
-_QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our
primary exposure to market risk is interest income sensitivity, which is
affected by changes in the general level of U.S. interest rates, particularly
because the majority of our investments are in short-term marketable securities.
Due to the nature of our short-term investments, we believe that we are not
subject to any material market risk exposure. We do not have any foreign
currency or other derivative financial instruments.
ITEM 4 -_CONTROLS AND
PROCEDURES
Evaluation of Disclosure
Controls and Procedures
Our
management, with the participation of our principal executive officer and principal
financial officer, has evaluated the effectiveness of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as
of the end of the period covered by this quarterly report (the "Evaluation
Date"). Based on such evaluation, our principal executive officer and principal
financial officer have concluded that, as of the Evaluation Date, our disclosure
controls and procedures are effective.
Changes in Internal
Controls
There was
no change in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with
the evaluation of our internal controls that occurred during our last fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, such controls.
PART II - OTHER
INFORMATION.
ITEM 2 –
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During
the quarter ended March 31, 2008, we issued 218,942 shares of our common stock
to four persons for consulting services and two employees as severance
payments. The issuance of the shares was exempt from registration
under Section 4(2) of the Securities Act of 1933 because the consultants and
employees have knowledge of all material information relating to our
company.
ITEM 5 -
EXHIBITS
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Exchange Act rule 13(a)-14(a)
(under Section 302 of the Sarbanes-Oxley Act of 2002).
|
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Exchange Act rule 13(a)-14(a)
(under Section 302 of the Sarbanes-Oxley Act of 2002).
|
|
|
32.1
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
| |
32.2 |
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
______________
SIGNATURES
In
accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DOR BIOPHARMA,
INC.