Indicate by check mark whether the Company
is a larger accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and
large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one)
Indicate by check mark whether the Company
is a shell company (as defined in Rule 12b-2 of the Exchange Act).
The number of shares outstanding of the
Company’s Common Stock as of May 10, 2016 was approximately: 57,973,000
PART I
The following discussion should be read
in conjunction with the information contained in the financial statements of the Company and the notes thereto appearing elsewhere
herein and in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations
set forth in the Company’s Annual Report on Form 10-K for the year ended June 30, 2015. Readers should carefully review the
risk factors disclosed in this Form 10-K and other documents filed by the Company with the SEC.
As used in this report, the terms “Company”,
“we”, “our”, “us” and “NNVC” refer to NanoViricides, Inc., a Nevada corporation.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements
within the meaning of the federal securities laws. All statements other than statements of historical fact made in this report
are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial
position are forward-looking statements. These include statements about our expectations, beliefs, intentions or strategies for
the future, which we indicate by words or phrases such as “anticipate,” “expect,” “intend,”
“plan,” “will,” “we believe,” “Company believes,” “management believes”
and similar language. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,”
“could,” “possibly,” “probably,” “anticipates,” “projects,” “expects,”
“may,” “will,” or “should,” or other variations or similar words. No assurances can be given
that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s
current expectations and are inherently uncertain. The forward-looking statements are based on the current expectations of NanoViricides,
Inc. and are inherently subject to certain risks, uncertainties and assumptions, including those set forth in the discussion under
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report. Actual
results may differ materially from results anticipated in these forward-looking statements.
Investors are also advised to refer to
the information in our previous filings with the Securities and Exchange Commission (SEC), especially on Forms 10-K, 10-Q and 8-K,
in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic
results. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors
to be an exhaustive statement of all risks and uncertainties or potentially inaccurate assumptions.
Although these forward-looking statements
reflect the good faith judgment of our management, such statements can only be based upon facts and factors currently known to
us. Forward-looking statements are inherently subject to risks and uncertainties, many of which are beyond our control. As such,
our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors,
including those set forth below under the caption “Risk Factors.” For these statements, we claim the protection of
the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You should not
unduly rely on these forward-looking statements, which speak only as of the date on which they were made. They give our expectations
regarding the future but are not guarantees. We undertake no obligation to update publicly or revise any forward-looking statements,
whether as a result of new information, future events or otherwise, unless required by law.
ITEM I: BUSINESS
Organization and Nature of Business
Overview
NanoViricides, Inc. is a leading company
in the application of nanomedicine technologies to the complex issues of viral diseases. The nanoviricide® technology enables
direct attacks at multiple points on a virus particle. It is believed that such attacks would lead to the virus particle becoming
ineffective at infecting cells. Antibodies in contrast attack a virus particle at only a maximum of two attachment points per antibody.
In addition, the nanoviricide technology also simultaneously enables attacking the rapid intracellular reproduction of the virus
by incorporating one or more active pharmaceutical ingredients (APIs) within the core of the nanoviricide. The nanoviricide technology
is the only technology in the world, to the best of our knowledge, that is capable of both (a) attacking extracellular virus thereby
breaking the reinfection cycle, and simultaneously (b) disrupting intracellular production of the virus, thereby enabling complete
control of a virus infection.
Our anti-viral therapeutics, that we call
“nanoviricides®”, are designed to look to the virus like the native host cell surface to which it binds. Since these
binding sites for a given virus do not change despite mutations and other changes in the virus, we believe that our drugs will
be broad-spectrum, i.e. effective against most if not all strains, types, or subtypes, of a given virus, provided the virus- binding
portion of the nanoviricide is engineered appropriately.
NanoViricides, Inc. believes it is one
of a few bio-pharma companies that have all the capabilities needed from research and development to marketable drug manufacture
in the small quantities needed for human clinical trials. With the completion of and relocation to our new campus at 1 Controls
Drive, Shelton, CT, we now possess state of the art nanomedicines characterization facilities that enable us to perform IND-enabling
nanomedicine analysis and characterization studies of any of our various drug candidates in-house. In addition, we now have the
ability to scale up production of any of our drug candidates, and implement state of the art in-process controls as well as post-process
analysis controls in order to establish robust c-GMP-capable production methodologies. All of the biological testing and characterization
of our drug candidates continues to be performed by external academic or institutional collaborators and contract research organizations
(CRO).
The Company develops its drugs, that we
call a nanoviricide®, using a platform technology. This approach enables rapid development of new drugs against a number of
different viruses. A nanoviricide is a “biomimetic” - it is designed to “look like” the cell surface to
the virus. To accomplish this, we have developed a polymeric micelle structure composed of PEG and fatty acids that is designed
to create a surface like the cell membrane, with the fatty acids going inside of the micelle. On this surface, we chemically attach,
at regular intervals, virus-binding ligands. The virus is believed to be attracted to the nanomicelle by these ligands, and thereby
binds to the nanoviricide using the same glycoproteins that it uses for binding to a host cell. Upon such binding, a “lipid
mixing” interaction between the lipid envelope of the virus and the nanomicelle is thought to take place, leading to the
virus attempting to enter the nanomicelle. We believe many different kinds of viruses are likely to get destroyed in the process.
We engineer the ligands to “mimic”
the same site on the cell surface protein to which the virus binds. These sites do not change no matter how much a given virus
mutates. Thus we believe that if a virus so mutates that it is not attacked by our nanoviricide, then it also would not bind to
the human host cell receptor effectively and therefore would be substantially reduced in its pathogenicity. Our success at developing
broad-spectrum nanoviricides depends upon how successfully we can design decoys of the cell surface receptor as ligands, among
other factors.
With the recent success of our anti-HSV
drug development program, the Company has determined that it is in the best interest of its shareholders to re-prioritize our drug
development programs and focus on topical drug development against several indications related to infections by herpes family viruses.
The Company recognized, after consultations with its FDA regulatory advisors, namely Biologics Consulting (of Alexandria, VA),
and several other experts in the field, that the development of these topical drug candidates towards human clinical trials is
likely to be considerably faster than the development of our anti-influenza systemic (injectable) drug candidate.
The Company believes that it will be developing
drugs against four different topical indications in the HerpeCide™ program, namely: (a) skin cream/lotion for the topical
treatment of “cold sores” (typically caused by HSV-1); (b) eye drops/gel for the treatment of ocular herpes keratitis
(mostly caused by HSV-1, sometimes by HSV-2 primarily in neonates); (c) skin cream/lotion for the treatment of “genital lesions”
caused by herpesvirus (typically HSV-2); and (d) skin cream/lotion for the treatment of shingles (caused by HHV-3 also known as
VZV, i.e the chickenpox virus).
Animal model studies of lethal herpesvirus
infection using the highly pathogenic and neurotropic HSV-1 H129 strain in two different sites resulted in 85% to 100% survival
in animals treated with certain anti-HSV nanoviricide drug candidates, while control animals uniformly died. We reported on these
studies as the results became available in April 2015, from Professor Emeritus Ken Rosenthal’s lab at NEOMED, and in August
2015, from TransPharm Preclinical Solutions, LLC, Jackson, MI, a CRO. Previously, we have improved the anti-HSV drug candidates
in cell culture studies and were able to achieve significant effectiveness before engaging into animal studies. We re-designed
the anti-HSV drug candidates so that the solutions would not run off the skin when applied. With this redesign, our drug candidates
demonstrated complete survival of HSV-1 H129 lethally infected animals.
The Company thus has achieved animal studies
efficacy proof of concept for HSV-1 skin topical treatment. The Company believes that the broad-spectrum nature of these drug candidates
should allow effectiveness against related herpesvirus types such as HSV-2 as well as the more distantly related HHV-3 aka VZV
or chickenpox/shingles virus.
The Company has established
additional collaborations towards IND-enabling development of drug candidates against the four indications listed earlier. We
now have collaboration agreements with the CORL at the University of Wisconsin, the Campbell Lab at the University of
Pittsburgh, and the Pflugfelder Lab at the Baylor College of Medicine, for the evaluation of its nanoviricides® drug
candidates in models of ocular herpesvirus and adenovirus infections. TransPharm Preclinical Solutions, a CRO, will continue
to perform testing of our anti-herpes drug candidates in dermal infection models.
The Company has previously reported the
successes of its nanoviricides drug candidates in pre-clinical studies of dermal herpes virus infections in mouse models. The studies
in Dr. Brandt’s laboratory will be critical in optimizing its anti-herpes drug candidates against ocular herpes virus infections.
The goal of these studies will be to identify a drug development candidate as a treatment for ocular keratitis in humans caused
by herpes simplex virus infections.
The Company intends to test several drug
candidates with different formulation consistencies in multiple animal studies in order to select a clinical development candidate
for ocular herpes keratitis. Following identification of the clinical development candidate, the Company will engage into scaled
up production of said drug candidate at our Scale-Up Lab in the new campus. The Scale-up Lab has been in operation since June 2015,
and we have scaled most production operations to 200g scale.
The Company believes that a 200g batch
production scale is sufficient for the quantities needed for further IND-enabling studies of the clinical drug candidate. These
studies include formulation optimization studies, dose-response efficacy studies, efficacy studies with different viral strains,
and preliminary safety/tox in small and medium size animals, followed by cGLP safety/tox in larger animals, and PK/PD studies (pharmacokinetics
and pharmacodynamics studies) in standard animal models.
The Company believes that all of these
IND-enabling studies for each of the topical drug indications will be of a limited nature, and of short durations.
The Company is evaluating the possibility
of performing Phase I and Phase II human clinical studies internationally. It is widely believed that Phase I studies can be performed
in Australia more quickly than in the USA due to differences in regulatory procedures and guidelines.
Ocular infections with HSV-1 have been
reported to be the leading cause of infectious blindness in the developed world, with recurrent episodes of viral reactivation
leading to progressive scarring and opacity of the cornea. HSV epithelial keratitis afflicts the epithelium of the cornea. In some
cases, the disease progresses to HSV stromal keratitis, which is a serious condition. HSV stromal keratitis involves the stroma,
the layer of tissue in the cornea, which is deeper in the eye than the epithelium. Its pathology disease involves the HSV infection
of stromal cells, and also involves the inflammatory response to this infection. It can lead to permanent scarring of the cornea
resulting in diminished vision. More serious cases require corneal replacement surgery. About 75% of corneal replacements are known
to fail in a 20 year time frame, due to graft versus host disease (i.e. rejection of the foreign implant by the body), requiring
a new procedures, or resulting in blindness.
Ocular herpes keratitis incidence rates
in the USA alone are reported to be in the range of 65,000 to 150,000 patients per year. Of these approximately 10,000 per year
may be estimated as requiring corneal transplants. The incidence estimates vary widely based on source, and are also assumed to
be underreported. A corneal transplant costs about $15,000 to $25,000 for the surgery, with additional costs for follow on drugs
and treatments.
This scenario exists in spite of available
drugs, namely the acyclovir class of drugs, trifluridine, and others, that are used for treatment of herpes keratitis. The failure
of these drugs is primarily due to limited safety resulting in insufficient drug availability at the site of infection.
Thus, an effective drug with a good safety
profile could have a dramatic impact on this disease. Merit-based compensation for the drug treatment would enable strong financial
incentive and could result in potential revenues in the $50 million to several hundreds of millions range, depending upon how good
the drug is.
The Company believes that it has sufficient
production capacity at its current site to supply the US requirement of the drug for treatment of (ocular) herpes keratitis upon
drug licensure.
The Company believes that its anti-herpes
drug candidate for the treatment of cold sores and for genital lesions should lead to effective control of the cold sores rapidly,
and may also lead to a long lag time before a new recurrence episode occurs. This is because it is believed that recurrence rates
increase by virtue of further infection of new nerve endings from the site of the herpesvirus outbreak which result in additional
nerve cells harboring the virus. If this in situ infection is limited, which we believe is the primary mechanism of nanoviricide
drugs, then it is expected that the number of HSV harboring reservoir cells should decrease, and recurrence rate should go down.
In the United States, approximately 1 million
cases of shingles (i.e. zoster) occur annually. The risk of zoster increases with age, and with decreased immune system function.
Zoster is characterized by pain and rash. Discrete cutaneous lesions occur in groups on the skin. The Company believes that this
presentation enables topical therapy for control of the viral outbreak.
One in four patients develop zoster-related
pain that lasts more than 30 days. If it persists more than 3 months, it is called post-herpetic neuralgia (PHN), and may persist
for years. It is thought that zoster-associated pain and PHN is a result of chronic ganglionitis, i.e. continued low-grade production
of the virus in the infected ganglia and related immune response. The Company believes that effective control of the virus production
would minimize or eliminate PHN, a debilitating morbidity of zoster.
Zoster occurs mostly in the abdominal region.
However, in 20% of cases, it occurs in the head area, with reactivation involving trigeminal distribution. These cases of zoster
can lead to serious complications including hemorrhagic stroke (VZV vasculopathy), VZV encephalitis, ophthalmic complications,
and may result in fatalities.
Currently available anti-herpes drugs have
had limited impact on zoster. Thus, an effective drug with a good safety profile could have a dramatic impact on zoster as well
as possibly PHN.
The Company believes that it will be able
to expand its anti-herpes portfolio in the future to include many other herpesviruses such as cytomegalovirus (CMV), KSHV, and
Epstein-Barr virus (EBV, cause of mononucleosis).
The Company thus continues to expand its
portfolio of opportunities, while also making progress towards the clinical trials stage.
The Company continues to work on its anti-influenza
drug candidates in parallel to its HerpeCide program. We are currently developing Injectable FluCide™ for hospitalized patients
with severe influenza as our first, broad-spectrum anti-influenza drug candidate. We have demonstrated the very first effective
orally available nanomedicine, namely oral FluCide™ for out-patients with influenza. The development of Oral FluCide is expected
to follow behind Injectable FluCide.
Because of our limited resources, we have
assigned lower development priorities to our other drug candidates in our pipeline such as DengueCide™ (a broad spectrum
nanoviricide designed to attack all types of dengue viruses and expected to be effective in the Severe Dengue Disease syndromes
including Dengue Hemorrhagic Fever (DHS) and Dengue Shock Syndrome (DSS)) and HIVCide™ (a potential “Functional Cure”
for HIV/AIDS).
In addition, the Company has research programs
to develop drugs against Rabies virus, Ebola and Marburg viruses, MERS Coronavirus (Middle-East Respiratory Syndrome), among others.
The Company also has a technology that we call “ADIF” or “Accurate-Drug-In-Field” technology with which
an effective drug can be developed against a novel virus right in the field using stockpiled nanoviricides® precursors. The
estimated market size for the current drug candidates is well in excess of $40 Billion worldwide, and in the range of $100 Billion
by some estimates.
Of these, our Injectable FluCide anti-influenza
drug candidate for hospitalized patients and our anti-HSV-1 drug candidate for dermal herpes infections or “cold sores”
are in advanced pre-clinical stage. Our remaining drug development programs are presently at pre-clinical stage. We continue to
test several drug candidates under each program even though we may achieve extremely strong results with some of the candidates.
Both of our anti-influenza therapeutic
candidates are designed to be “broad-spectrum”, i.e. they are expected to be effective against most if not all types
of influenzas including the recently discovered novel strain of H7N9, Bird Flu H5N1, other Highly Pathogenic Influenzas (HPI/HPAI),
Epidemic Influenzas such as the 2009 “swine flu” H1N1/A/2009, and Seasonal Influenzas including the recent H3N2 influenza.
The Company has already demonstrated that our anti-influenza drugs have significantly superior activity when compared to oseltamivir
(Tamiflu®) against two unrelated influenza A subtypes, namely, H1N1 and H3N2 in a highly lethal animal model.
Our position that an injectable drug against
influenza is a viable option is now affirmed by the US FDA licensure of the very first injectable drug for influenza in December
2014, namely peramivir (Rapivab, by BioCryst). Interestingly, peramivir as an injection was approved even though it did not appear
to provide significant additional benefits over other drugs in its class. Overall, patients who received 600 mg of peramivir had
symptom relief 21 hours sooner, on average, than those who received the placebo, which is consistent with other drugs in the same
class. Additionally, peramivir injection was found to be not effective for hospitalized patients with severe influenza.
Thus, an effective therapy for patients
hospitalized with severe influenza continues to be an unmet need. In addition, a single injection treatment of non-hospitalized
patients would be a viable drug if it provides superior benefits to existing therapies.
Both of our anti-influenza drug candidates
can be used as prophylactics to protect at-risk personnel such as health-care workers and immediate family members and caretakers
of a patient.
We are developing our anti-herpes drug
candidates and the injectable FluCide for severely ill patients towards IND applications in parallel. We have engaged Biologics
Consulting Group, a well-known group of regulatory consultants, to advise us on the regulatory pathways, and the studies required
for the IND applications for the various indications.
In addition, the Company is developing
broad-spectrum eye drops that are expected to be effective against a majority of the viral infections of the external eye. Most
of these viral infections are from adenoviruses or from herpesviruses. The Company has shown excellent efficacy of its drug candidates
against EKC (adenoviral epidemic kerato-conjunctivitis) in an animal model. In addition, ouranti-HSV drug candidates have shown
excellent efficacy in cell culture studies, as well as in a lethal skin infection animal model.
Topical treatment of herpesvirus infection
is important because of the disfiguring nature of herpesvirus breakouts, the associated local pain, and the fact that the virus
grows in these breakouts to expand its domain within the human host further. Topical treatment can deliver much higher local levels
of drugs than a systemic treatment can, and thus can be more effective and safer at the same time. Systemic drug treatment results
in side effects because of the high systemic drug concentrations that need to be achieved and the large drug quantities that must
be administered. Since the virus remains mostly localized in the area of the rash and connected nerve apparatus, using high concentrations
of drugs delivered in small quantities topically would allow maximizing the effectiveness while minimizing the side effects.
The Company is also developing an anti-HIV
drug. The drug candidates in this HIVCide™ program were found to have effectiveness equal to that of a triple drug HAART
cocktail therapy in the standard humanized SCID-hu Thy/Liv mouse model. Moreover, the nanoviricides were long acting. Viral load
suppression continued to hold for more than four weeks after stopping HIVCide treatment. The Company believes that this strong
effect and sustained effect together indicate that HIVCide can be developed as a single agent that would provide “Functional
Cure” from HIV/AIDS. The Company believes that substantially all HIV virus can be cleared upon HIVCide treatment, except
the integrated viral genome in latent cells. This would enable discontinuation of treatment until HIV reemerges from the latent
reservoir, which may be several months without any drugs. Moreover, the Company believes that this therapy would also minimize
the chances of HIV transmission. The Company is currently optimizing the anti-HIV drug candidates. These drug candidates are effective
against both the R5 and X4 subtypes of HIV-1 in cell cultures. The Company believes that these drug candidates are “broad-spectrum”,
i.e. they are expected to be effective against most strains and mutants of HIV, and therefore escape of mutants from our drugs
is expected to be minimal.
Further, the Company is developing a broad-spectrum
drug against Dengue viruses that is expected to be useful for the treatment of any of the four major serotypes of dengue viruses,
including in severe cases of dengue (DSS) and dengue hemorrhagic fever (DHF). It is thought that DSS and DHF caused by prior antibodies
against dengue that a patient’s body creates to fight a second unrelated dengue infection, and the second virus uses these
antibodies effectively to hitch a ride into human cells, thereby causing a more severe infection than in naive patients. The Company
has received an “Orphan Drug Designation” for our DengueCideTM drug from the USFDA as well as the European Medicines
Agency (EMA). This orphan drug designation carries significant economic benefits for the Company.
In addition to these drugs in development,
the Company also has research programs against Rabies virus, Ebola and Marburg viruses, the recently emerged Middle East Respiratory
Syndrome coronavirus (MERS-CoV), and others. To date, the Company does not have any commercialized products. The Company continues
to add to our existing portfolio of products through our internal discovery and clinical development programs and also seeks to
do so through an in-licensing strategy.
We believe we have demonstrated that we
can rapidly develop different types of formulations for different routes of administration, such as injectable, skin cream, lotion,
gel, and even oral, because of the inherent strength of the nanoviricide platform tailorable technology. The technology also enables
us to develop nasal sprays and bronchial aerosols. We plan to develop the appropriate formulations as necessary.
We have recently completed the development
of a c-GMP capable facility in Shelton, Connecticut where we can manufacture multi-kilogram quantities of the c-GMP-like and c-GMP-compliant
batches of drug substances as well as drug products (cGMP = “current Good Manufacturing Practices”). This multi-purpose
facility can produce any of our nanoviricide drug candidates. Moreover, it can produce our drugs in any of the different formulations
we have been working on including injectables, skin creams and lotions, eye drops and ocular gels, as well as oral syrups. This
facility has the capability of production scales from several grams to a few kilograms per batch, depending upon the product. These
quantities are more than sufficient for pre-IND studies, IND-enabling studies, and human clinical trials of all of the drug candidates
we are currently focusing on towards IND.
We have recently engaged a new Senior Virologist,
namely Brian Friedrich, PhD. He has worked on drug development and drug screening for highly pathogenic viruses including alphaviruses,
bunyaviruses, and filoviruses, at United States Army Medical Research Institute for Infectious Diseases (USAMRIID). He has also
worked on HIV-1 and on flaviviruses such as West Nile Virus. Brian is trained in up to BSL-4 laboratory protocols in virology.
We are now able to perform the earliest
drug candidates screening step in cell culture assays for some of the viruses in our own BSL-2 Cell Culture Virology laboratories
at our new campus in Shelton, CT. Simple non-lethal viruses such as several normal Influenza strains, HSV, VZV, as well as Dengue
viruses can be used in cell culture screening assays at low levels in our BSL-2 virology facility.
We believe that performing the initial
drug screening as well as drug candidates screening during optimization studies in cell culture assays in our own facility will
significantly improve our drug development capabilities. We have previously identified that our total dependence on external facilities
even for cell culture-based screening has been causing significant delays in our drug development and drug candidate optimization
efforts.
We will continue to employ external facilities
for additional cell-culture screening of our drug candidates for different viruses. This will enable both confirmation of our in-house
studies, and expansion of the studies to virus strains or virus types that we do not handle in house. In addition, all of our pre-clinical
animal testing will continue to be performed by third parties.
We have thus significantly expanded our
drug development capabilities with the addition of virological research capabilities.
With our new campus and c-GMP capable facility,
we are now in a position to advance our drug candidates into clinical trials, produce the pre-clinical “tox package”
batches, the clinical batches, as well as initial quantities of marketed drugs. This makes NanoViricides, Inc. one of very few
drug developer companies that have the internal capability to support market entry. Until last year, we were limited to performing
R&D to develop drug candidates capable of further clinical development, but did not have the capability to produce the drug
candidates in a suitable manner and quantities required for the studies to advance them into an IND stage and human clinical trials.
In addition, our new facility is expected
to enable initial commercial manufacture of our drugs under cGMP guidelines, once licensed, in order to gain market entry. Any
of our drugs, once introduced to the market, is estimated to generate revenues of several tens of millions of dollars. The market
sizes of many of our drugs are in several billion dollars. Thus, we anticipate developing additional manufacturing capability for
each of our drugs as they mature towards clinical products. We believe that we may be able to license the drugs to bigger pharmaceutical
companies that can manufacture the drugs, or license the manufacture of the drugs to other commercial scale cGMP manufacturing
facilities. The Company has kept its capital expenditures to a minimum in the past, and we intend to continue to do the same, in
order to conserve our cash for drug development purposes, and in order to minimize additional capital requirements.
This versatile, customizable facility is
designed to support the production of kilogram-scale quantities of any of our nanoviricides drugs. In addition, it is designed
to support the production of the drug in any formulation such as injectable, oral, skin cream, eye drops, lotions, etc. The production
scale is designed so that clinical batches for Phase I, Phase II, and Phase III can be made in this facility. The clean room suite
contains areas suitable for the production of sterile injectable drug formulations, which require special considerations.
We have moved our existing equipment and
have installed a substantial amount of additional equipment at the Shelton facility. We need to test and validate each piece of
equipment. We will need to validate, test and verify that all the systems are functioning as needed for being able to make cGMP
drug substance batches. Then we will need to run several batches, analyze the resulting products, and establish that our manufacturing
processes are performing satisfactorily to produce the desired drug substance. A minimum of two reproducible batches are generally
required to be made before submitting an Investigational New Drug application (IND) to the US FDA. In addition, we will also need
to seek and obtain US FDA registration as a cGMP facility, after we successfully commission c- GMP-like production of at least
one drug substance at this facility.
We expect the Company will be able to produce
“cGMP-like” material in the new facility once the facility is validated, all of the protocols are finalized, standardized,
and the standard protocols are documented in the manner needed for cGMP operation. A “cGMP-like” drug substance can
be loosely defined as drug substance made using the same processes as c-GMP material but prior to undergoing the FDA registration
process for the c-GMP facility. Such c-GMP-like product can be used for clinical batches for human clinical studies in most countries
around the world. The Company is currently investigating all such options in order to expedite the timeline to entering human clinical
trials. The Company intends to contract out clinical batch fulfillments to outside contract manufacturers.
Our timelines depend upon several assumptions,
many of which are outside the control of the Company, and thus are subject to delays.
Patents, Intellectual Property, and
Licenses
The nanomedicine technologies
licensed from TheraCour Pharma, Inc. (“TheraCour”) serve as the foundation for our intellectual property. The
Company holds a worldwide exclusive perpetual license to this technology for several drugs with specific targeting mechanisms
in perpetuity for the treatment of the following human viral diseases: Human Immunodeficiency Virus (HIV/AIDS), Hepatitis B
Virus (HBV), Hepatitis C Virus (HCV), Rabies, Herpes Simplex Virus (HSV), Influenza and Asian Bird Flu Virus. The Company has
entered into an Additional License Agreement with TheraCour granting the Company the exclusive licenses in perpetuity for
technologies developed by TheraCour for the additional virus types: Dengue viruses, Japanese Encephalitis virus, West Nile
Virus, Viruses causing viral Conjunctivitis (a disease of the eye) and Ocular Herpes, and Ebola/Marburg viruses. The Company
may want to add further virus types to its drug pipeline. The Company would then need to negotiate with TheraCour an
amendment to the existing Licensing Agreement to include those of such additional viruses that the Company determines it
wants to follow for further development. We are seeking to add to our existing portfolio of products through our internal
discovery pre-clinical development programs and through an in-licensing strategy.
NanoViricides, Inc. holds exclusive, worldwide,
perpetual, licenses from TheraCour Pharma, Inc. to these technologies and patents for a broad range of antiviral applications and
diseases that include all Influenzas including Asian Bird Flu Virus, Human Immunodeficiency Virus (HIV/AIDS), Hepatitis B Virus
(HBV), Hepatitis C Virus (HCV), Herpes Simplex Virus (HSV), Dengue viruses, West Nile Virus, Rabies virus, Ebola/Marburg viruses,
Japanese Encephalitis virus, as well as viruses causing viral Conjunctivitis (a disease of the eye) and ocular herpes. NanoViricides
currently holds two licenses in perpetuity to develop and sell drugs for the treatment of these viral diseases.
These licenses are provided for all the
intellectual property held by TheraCour Pharma, Inc. that relates to our antiviral licensed products. These licenses are not limited
to underlying patents, but also include the know-how, trade secrets, and other important knowledge-base that is utilized for developing
the drugs and making them successful.
In addition, these extremely broad
licenses are not limited to some specific chemical structures, but comprise all possible structures that we could deploy
against the particular virus, based on these technologies. In addition, the licenses are held in perpetuity by NanoViricides
for world-wide use. The licenses are also exclusively provided only to NanoViricides for the licensed products so
NanoViricides is the only party that can further sublicense the resulting drugs to another party, if it so desires. TheraCour
cannot further license anything in our licensed products areas because of the breadth of the license. The licenses can revert
only in the case of a default by NanoViricides. The terms of default are such that, effectively, TheraCour would be able to
take the licenses back only in the event that NanoViricides files bankruptcy or otherwise declares insolvency and the
inability to conduct its business. This structure is standard in the licensing world as it saves the IP from being blocked
from commercialization in lengthy and potentially fragmentary bankruptcy proceedings.
A fundamental Patent Cooperation Treaty
(“PCT”) patent application, on which the nanoviricides® technology is based, has resulted in additional issued
patents in Europe and Korea. As with issuances in other countries including the United States, these patents have been allowed
with a very broad range of claims to a large number of families of chemical structure compositions, pharmaceutical compositions,
methods of making the same, and uses of the same. The corresponding original “pi-polymer” international application,
namely, PCT/US06/01820, was filed under the Patent Cooperation Treaty (PCT) system in 2006. Several other patents have already
been granted previously in this patent family in various countries and regions, including Australia, ARIPO, Canada, China, Hong
Kong, Indonesia, Israel, Japan, Mexico, New Zealand, OAPI, Philippines, Singapore, Vietnam and South Africa, and the USA. Prosecution
in several other countries continues. In May 2012, the US Patent (No. 8,173,764) was granted for “Solubilization and Targeted
Delivery of Drugs with Self-Assembling Amphiphilic Polymers.” The US patent term is expected to last through October 1, 2028,
including anticipated extensions in compensation for time spent in clinical trials. This US Patent has been allowed with a very
broad range of claims to a large number of families of chemical structure compositions, pharmaceutical compositions, methods of
making the same, and uses of the same. The disclosed structures enable self-assembling, biomimetic nanomedicines. Estimated expiry
dates for these patents range nominally from 2027 to 2029 with various extensions accounting for delays in clinical trials. Additional
issuances are expected in Europe, and in several other countries around the world.
In addition to this basic PCT application
that covers the “pi-polymer” structure itself, another PCT application, PCT/US2007/001607, that discloses making antiviral
agents from the TheraCour family of polymers and such structures is in various stages of prosecution in several countries, and
has already issued in at least seven countries and regions. The counterparts of the international PCT application have issued as
a granted patent in Australia, Japan, China, ARIPO, Mexico, New Zealand, OAPI, Pakistan, and, South Africa to date. Additional
issuances are expected in Europe, USA, and in several other countries around the world. This patent application teaches antivirals
based on the TheraCour polymeric micelle technologies, their broad structures and compositions of matter, pharmaceutical compositions,
methods of making the same, and their uses. The nominal expiry dates are expected to range from 2027 to 2029.
The patents are being issued to the inventors
Anil R. Diwan, PhD, Jayant G. Tatake, PhD, and Ann L. Onton, all of whom are among the founders of NanoViricides, Inc. The patents
have been assigned to AllExcel, Inc., the Company at which the ground-breaking work was performed. AllExcel, Inc. has contractually
transferred this intellectual property to TheraCour Pharma, Inc.
Presentations, Conferences, Recognition,
and Investor Outreach
In April 2016, subsequent to the reporting
period, NanoViricides, Inc. announced that it has been recognized as one of the “Most Innovative Business Leaders of 2016”
by AI Global Media, publisher of
Acquisition International
Magazine and Website (“AI”) (
http://www.acquisition-intl.com
).
A focus article on NanoViricides was
published in AI Magazine, February 2016 issue. In this article, Dr. Diwan, explained the positioning of NanoViricides in the
pharma space, saying, “NanoViricides, Inc. is a unique company in the bio/pharma field with the potential to become a
stand-alone pharmaceutical company. We now have a fully customizable c-GMP-capable pilot manufacturing plant where we can
produce multi-kilogram quantities of any nanoviricide, including injectables. This enables rapid translation of our drug
candidates into human clinical trials. Early revenues upon drug approval will also be possible with our own manufacturing
capability
.”
AI is a monthly magazine that seeks to
inform, entertain, influence, and shape the global corporate conversation through a combination of high quality editorial, rigorous
research and an experienced and dedicated worldwide network of advisors, experts and contributors. Launched over five years ago,
AI has rapidly risen to become the publication of choice for more than 108,000 subscribers in over 170 countries and regularly
attracts editorial submissions from some of the biggest players on the global corporate landscape, including KPMG, EY,
PwC and Deloitte. Alongside the monthly publication, AI Global Media also produces a website that is updated daily with
the latest news, features, opinion and comment, again in conjunction with a host of top-level advisors, experts and businesspeople.
The site is also home to the popular Deal Diary, which publishes, every day, more than 100 deals in a wide variety of sectors and
industries, and a dedicated weekly deal round-up, giving the people behind the most significant M&A activity a global platform
to shout about their most recent successes.
The entire AI article on NanoViricides
is now available on the NanoViricides website (
www.nanoviricides.com
).
On March 21, 2016, the Company announced
that its CEO, Dr. Eugene Seymour, was interviewed by Jane King of Small Cap Nation (“SCN”). SCN has published a video
clip of this interview on March 1, 2016 on YouTube (
https://www.youtube.com/watch?v=9Xc9nBGv4U4
).
Dr. Seymour discussed the Company’s
current status and achievements. While the Company currently has approximately a dozen drug development programs in its research
and development pipeline, it is still preclinical at present. NanoViricides is currently focused on developing a drug for the herpes
infection of the eye, i.e. herpes keratitis, which can lead to blindness and the need for corneal transplants. NanoViricides has
established collaborations with the University of Wisconsin at Madison, the University of Pittsburgh, and Baylor University to
perform pre-clinical cell culture testing as well as animal studies of our eye drug candidates. Dr. Seymour suggested that if all
things go well then the ocular herpes keratitis drug could go into human clinical trials sometime next year. The Company’s
expectations may differ significantly from actual results, because of several factors that may be outside of its control.
NanoViricides, Inc. has developed a platform
technology that enables direct attack on the virus particle in circulation inside the body, thereby making it unable to infect
human cells, and thus blocking progression of the viral disease. This platform technology enables the Company to rapidly develop
viable drug candidates against a different virus in a relatively short period of time, which could be as little as a few months.
A “nanoviricide®” is made up of two parts: a polymer that self-assembles into a “nanomicelle” that
has the ability to attack and possibly dismantle the virus: and a ligand that enables zip-code-address-like targeting of the nanomicelle
onto the virus surface. Developing new drug candidates against a new virus primarily involves designing and synthesizing ligands
capable of binding to the virus surface. The Company can develop such ligands based on known or putative interactions of the virus
with the cell surface to which the virus binds. With the Company’s experience in this field and a library of proprietary
small chemicals in hand, the Company believes that the design of novel ligands for initial cell culture studies can take as little
as a couple of months. Synthesis of the corresponding nanoviricides thereafter usually takes a few additional months, depending
upon the complexity of the project. In many cases, initial testing has led to strong candidates that could be developed for clinical
application if there are no other drugs available. However, additional refining of the initial drug candidates may be required
and that can substantially extend the development period.
Dr. Seymour also discussed the Company’s
state of the art pilot-scale manufacturing facility that is designed to enable production and supply of any of its drug candidates
for human clinical trials and for preclinical studies. In addition, this facility also has sufficient production capacity to enable
entry into the market should one of the Company’s drugs receive FDA licensure.
In the context of the recent Zika virus
epidemic, Dr. Seymour noted that the Company believes its Dengue drug development provides a good starting point for developing
a Zika virus drug, should the Company decide to engage in such development. The Company believes this because the Zika virus belongs
to the same family of viruses called Flaviviruses, which the Dengue viruses also belong to, and therefore share significant similarities.
If our anti-dengue drug candidate is sufficiently broad in its spectrum, then it could potentially attack Zika virus as well.
However, there are significant differences in the pathology of Zika and Dengue viruses. Zika viruses are neurotropic. Thus the
cellular receptor(s) for Zika virus could be different from those for Dengue viruses.
Dr. Seymour alluded to the complexities
of the normal drug development program. Additional optimization of the ligands and polymers, safety/toxicology studies, additional
effectiveness studies in different animal model protocols, and other pre-clinical studies, need to be performed prior to selection
of a drug candidate for further clinical development under regulatory processes.
Dr. Seymour also referenced the Company’s
several collaborations for each of its drug development programs that enable pre-clinical testing of its drug candidates. At the
present time, the Company does not have any collaborations or other agreements with a pharmaceutical partner nor can there be any
assurance that such a collaboration will ever be developed.
Dr. Seymour also advised that the Company
is well financed and the cash on hand is expected to be sufficient to bring at least its first drug candidate into human clinical
trials. This expectation is based on the Company’s internal projections and informal estimates it has obtained from several
collaborators and contract research organizations for the potential costs of intended studies. The Company has limited experience
in clinical drug development and its actual drug development costs may differ from the estimated costs due to several factors that
may be outside its control.
On February 22, 2016, the Company announced
that information on its novel, proprietary anti-virus platform technology has been published in the book “
Handbook of
Clinical Nanomedicine, Vol. 1. Nanoparticles, Imaging, Therapy, and Clinical Applications
”, a CRC Press publication.
The chapter entitled “Nanoviricides: Targeted Anti-Viral Nanomaterials” provides an in-depth presentation of the NanoViricides
platform technology, evidence for how nanoviricides® are believed to act plus dramatic results of nanoviricides specifically
targeting certain viral diseases, such as Influenza.
This chapter introduces the novel NanoViricides
nanotechnology that possesses potent antiviral efficacy by targeting the mechanisms by which viruses attach or bind to cells. A
nanoviricide is believed to act like a decoy of a human cell. When the virus sees the appropriate mimic of its cell binding site
displayed on a nanoviricide, the virus binds to it. The Company believes that the flexible nanoviricide enables cooperative binding
of the nanoviricide to additional sites on the virus surface in a velcro-like effect. This maximization of virus binding would
lead to the nanoviricide spreading onto the virus particle, fusing with the virus surface, and then engulfing the virus. In the
process, the coat proteins that the virus uses for binding to cells would be expected to become unavailable, and could fall off
the virus surface. This highly targeted attack would lead to the loss of the viral coat proteins and the nanoviricide may further
dismantle the engulfed virus capsid. The loss of virus particle integrity would neutralize the virus, making the virus non-infectious.
The
Handbook of Clinical Nanomedicine,
Vol. 1. Nanoparticles, Imaging, Therapy, and Clinical Applications
, edited by Raj Bawa, PhD, Gerald F. Audette,
PhD, and Israel Rubinstein, MD, is the first volume in a two volume set published by CRC Press; it is part of the Pan Stanford
Series on Nanomedicine. The publisher states that Volume 1 “provides a comprehensive roadmap of basic research in nanomedicine
as well as clinical applications. It not only highlights current advances in diagnostics and therapies but also explores related
issues like nomenclature, terminology, historical developments, and regulatory aspects. While bridging the gap between basic biomedical
research, engineering, medicine and law, the handbook provides a thorough understanding of nano’s potential to address (i)
medical problems from both the patient and health provider's perspective, and (ii) current applications and their potential in
a healthcare setting.” The CRC Press lists the official publication date as February 28, 2016. (
https://www.crcpress.com/Handbook-of-Clinical-Nanomedicine-Two-Volume-Set/Bawa-Audette-Rubinstein/9789814316170
).
During the reported period, our CEO, Dr.
Seymour has presented an overview of the Company at various conferences.
On February 11, 2016, Dr. Seymour presented
information about the Company’s programs at the BIOCEO conference at the Waldorf-Astoria Hotel in New York City.
On January 13, 2016, Dr. Seymour gave a
presentation at the Biotech Showcase conference in San Francisco.
Our President, Anil R. Diwan, PhD, was
invited to attend the prestigious JP Morgan Life Sciences Conference held in San Francisco, from January 11-14, 2016.
Previously, our President, Dr. Anil Diwan,
was recently invited to present a talk entitled “Critical Regulatory Issue in Nanomedicines Translation: Manufacture and
Control - What, How, Why, When” in the session on “Enabling the Business Side of Translation of NanoMedicines”,
moderated by Dr. Raj Bawa, on October 17, 2015, at the 5th Annual Meeting of the American Society for Nanomedicines, held in the
Hilton Crystal City, Washington, DC.
NanoViricides, Inc. Annual Shareholders’
Meeting
On January 23, 2016, the Company held its
2015 Annual Shareholders Meeting at the Sheraton Stamford, in Stamford, CT from 10 am to 1:30 pm. Anil Diwan, PhD, Dr. Milton Boniuk
and Professor Mukund Kulkarni were all re-elected as Class I Directors, each for a two-year term expiring at the 2017 annual meeting
of stockholders and until each of their respective successors are duly elected and qualified or until each of their respective
earlier resignation or removal. Also, the appointment of EisnerAmper LLP as the Company’s independent registered public accounting
firm for the fiscal year ending June 30, 2016, was ratified. After adjournment of the Business Meeting, Dr. Seymour, our CEO, and
Dr. Diwan, our President gave presentations and engaged in discussions with investors.
Emphasis was placed on the Company’s
on-going transition from an R&D and “pre-clinical proof of concept” stage company to a true clinical-stage pharmaceutical
company that could market its drugs on its own, thus maximizing potential value.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read
in conjunction with the information contained in the consolidated financial statements of the Company and the notes thereto appearing
elsewhere herein and in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations
set forth in the Company’s Annual Report on Form 10-K for the year ended June 30, 2015. Readers should carefully review the
risk factors disclosed in our Form 10-K for the year ended June 30, 2015 and other documents filed by the Company with the SEC.
As used in this report, the terms “Company”,
“we”, “our”, “us” and “NNVC” refer to NanoViricides, Inc., a Nevada corporation.
PRELIMINARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This Report contains forward-looking statements
within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies
for the future, which we indicate by words or phrases such as “anticipate,” “expect,” “intend,”
“plan,” “will,” “we believe,” “NNVC believes,” “management believes”
and similar language. The forward-looking statements are based on the current expectations of NNVC and are subject to certain risks,
uncertainties and assumptions, including those set forth in the discussion under “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” in this report. Actual results may differ materially from results anticipated
in these forward-looking statements. We base the forward-looking statements on information currently available to us, and we assume
no obligation to update them.
Investors are also advised to refer to
the information in our previous filings with the Securities and Exchange Commission (SEC), especially on Forms 10-K, 10-Q and 8-K,
in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic
results. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors
to be an exhaustive statement of all risks and uncertainties or potentially inaccurate assumptions.
Management Discussion - Accomplishments
in Reported Quarter, Our Drug Development Programs and Current Drug Development Strategy
During the reported quarter we have continued
to focus our drug development work plans primarily on our lead Influenza drug candidate, and our anti-Herpes-virus programs.
We now have two advanced pre-clinical drug
candidates, namely, our injectable FluCide for severely ill patients, and our HerpeCide skin treatment for oral herpes cold sores.
In addition, our HerpeCide program is poised to produce additional advanced candidates against ocular herpes and shingles. Our
animal efficacy studies are performed by third parties. We opt into drug developments against specific disease indications for
which we have appropriate partners that can perform the necessary cell culture and animal efficacy studies.
We are developing the anti-herpes drug
candidates and the injectable FluCide for severely ill patients towards IND applications in parallel. We have engaged Biologics
Consulting of Alexandria, VA, a well-known group of regulatory consultants, to advise us on the regulatory pathways, and the studies
required for the IND applications for the various indications.
NanoViricides technology is now maturing
rapidly toward the clinical studies, with the new facility, expanded staff, and the financial strength that we have attained since
uplisting to NYSE-MKT.
To this end, we have completed moving our
operations to our new 18,000+ sqft campus at 1 Controls Drive, Shelton, CT, in a phased manner to minimize impact on current activities.
In addition, we are working on scale-up of the nanomicelle polymer backbone to approximately 500g scale, and on establishing in-process
control systems, as well as on developing post-process characterization assays for the same with the new instrumentation and analysis
equipment we have acquired as we established our new facilities.
Our new campus comprises a state of the
art pharmaceutical R&D synthesis laboratory, a chemistry translational scale-up laboratory, quality control and quality assurance
laboratories, a pilot-scale cGMP-capable pharmaceutical clinical drug manufacturing facility (“the cGMP Facility”),
and a BSL-2 compliant cell culture virology laboratory.
We have recently engaged a new Senior Virologist,
namely Brian Friedrich, PhD. Dr. Friedrich joined us from University of Texas Medical Branch, Galveston, TX (UTMB), where he worked
on West Nile Virus in Professor Beasley’s lab. Previously he has worked on drug development and drug screening for highly
pathogenic viruses including alphaviruses, bunyaviruses, and filoviruses, at United States Army Medical Research Institute for
Infectious Diseases (USAMRIID). He completed his PhD at UTMB in Professor Ferguson’s lab where he studied host protein involvement
in HIV-1 infection. Brian is trained in up to BSL-4 laboratory protocols in virology.
We are now able to perform drug
candidates screening in cell culture assays for some of the viruses in our own laboratories at our new campus. At this campus
we have built a small virology laboratory with three isolated rooms for cell-based virology research. This laboratory was
recently inspected by the State of Connecticut and has received BSL-2 certification. BSL-2, or Biological Safety Level 2, is
one level higher than a usual instructional biology laboratory. We employ worker protection, full containment, isolation, and
pathogen destruction procedures exceeding the BSL-2 guidelines. Simple non-lethal viruses such as several normal Influenza
strains, HSV, VZV, as well as Dengue viruses can be used in cell culture screening assays at low levels in our BSL-2 virology
facility.
We believe that performing the initial
drug screening as well as drug candidates screening during optimization studies in cell culture assays in our own facility will
significantly improve our drug development capabilities. We have previously identified that our total dependence on external facilities
even for cell culture-based screening has been causing significant delays in our drug development and drug candidate optimization
efforts.
We will continue to employ external facilities
for additional cell-culture screening of our drug candidates for different viruses. This will enable both confirmation of our in-house
studies, and expansion of the studies to virus strains or virus types that we do not handle in house. In addition, all of our pre-clinical
animal testing will continue to be performed by third parties.
We have thus significantly expanded our
drug development capabilities with the addition of virological research capabilities during this quarter.
The cGMP Facility in our new campus is
capable of multi-kilograms of production per batch. Further, it is capable of producing the most stringent injectable materials
from novel chemical synthesis, novel polymer production, to complete pharmaceutical drug substance and drug product manufacture.
This highly customizable facility is capable of producing any of our nanoviricides nanomedicines, and in all of the formulations
that we currently need, namely, injectable, oral, skin cream, lotion, eye drops, gels, etc.
We plan on using this facility to produce
the drugs needed for our tox package studies and for our human clinical trials, as and when needed. In addition, we believe that
this cGMP capability will allow rapid market introduction of our drug(s) once licensed. We estimate that the resulting sales could
be in the range of several tens of millions of dollars to several hundreds of millions of dollars, depending upon the drug pricing
and quantity of sales.
Having an in-house cGMP Facility for drug
manufacture sets us apart and puts us in the company of a limited number of drug developers. This capability enables the possibility
that NanoViricides could become a stand-alone pharma company, without any dependence on external big pharma collaborations or licensing/marketing
arrangements for revenue generation.
It is well known in the pharma industry
that investor value is maximized if a drug developer can become an independent pharma company with integrated manufacturing and
marketing capabilities.
We believe that a 200g production scale
would be sufficient for the tox package studies as well as initial clinical production for our anti-herpes virus drug candidates.
After the 200 and 500g scale-up is completed, we will continue to scale the production to larger reactors, to approximately 1kg~2kg
batch sizes. This larger scale has been estimated to be needed for production of our Injectable FluCide™ drug candidate for
the tox-package safety studies as well as efficacy studies that are part of the pre-IND development of this drug candidate.
During the reported quarter, we have continued
to perform further optimization of our anti-HSV drug candidates. In April 2015, we reported dramatic improvement in clinical symptoms
associated with a herpes simplex virus dermal infection in mice. The topical nanoviricide treatment significantly reduced the clinical
disease, and led to >85% survival of the mice dermally infected with a highly aggressive, neurotropic, HSV-1 H129c strain, wherein
all of the untreated mice had severe clinical morbidity and none of the untreated mice survived. Later in August 2015, we reported
that these results were reproduced at a different laboratory, with 100% survival being observed. The repeat studies were conducted
by Transpharm Preclinical Solutions, a pre-clinical services CRO in Jackson, MI.
We believe that these successes have positioned
us to develop drugs against multiple herpesvirus indications. The potential broad-spectrum nature of our anti-HSV drug candidates
is expected to enable several antiviral indications. Thus, HSV-1 primarily affects skin and mucous membranes causing “cold
sores”. HSV-2 primarily affects skin and mucous membranes leading to genital herpes. HSV-1 infection of the eye causes herpes
keratitis that can lead to blindness in some cases. In addition, human herpesvirus-3 (HHV-3), a.k.a. varicella-zoster virus (VZV),
causes chickenpox in children and when reactivated in adults, causes shingles. Shingles breakouts are amenable to topical treatment,
as are the HSV cold sores, genital lesions, and herpes keratitis of the eye. Most of these indications do not have satisfactory
treatments at present, if any.
Topical treatment of herpesvirus infection
is important because herpesviruses become latent in neuronal cells or in ganglia, and cause periodic localized breakouts that appear
as skin rashes and lesions. Systemic drug treatment results in side effects because of the high systemic drug concentrations that
need to be achieved and the large drug quantities that must be administered. Since the virus remains mostly localized in the area
of the rash and connected nerve apparatus, using high concentrations of drugs delivered in small quantities topically would allow
maximizing the effectiveness while minimizing the side effects.
We are now performing the studies necessary
for selection of IND candidates for several indications related to herpes viruses under our HerpeCide™ program. These indications
include ocular herpes keratitis, oral herpes (“cold sores”), genital herpes, and shingles. After initial achievement
of efficacy in the HSV-1 dermal model, we are now working on establishing the best anti-HSV ligand for our anti-HSV drug candidate
in this model. New ligands, based on a SAR (“structure-activity-relationship”) modeled after the successfully tested
ones were developed using knowledge-based approaches including molecular modeling and bioinformatics studies in our laboratory.
These novel ligands are entering final stages of synthesis and characterization as of this writing. Such SAR studies are undertaken
after initial success and may often result in large improvements in efficacy and safety. In addition, we will test certain nanomicelle
compositions to determine which composition is best suited for the dermal delivery. The nanomedicine technology enables tailor-made
nanomicelle polymer compositions so that transport across skin layers and delivery to the site of action can be accomplished properly.
Once these studies are successfully completed, we expect that we will be able to announce a broad-spectrum drug development candidate
for the dermal HSV-1 infection, namely, “cold sores”.
We plan to replicate similar studies of
our antiviral candidates in models for ocular HSV-1 infection, shingles, and genital HSV-2 infection. We are currently in the process
of identifying collaborators with capabilities in these areas, and establishing appropriate collaborations, agreements, and contracts.
We recently signed an agreement with the Collaborative Ophthalmic Research Laboratories, CORL, at the University of Wisconsin,
Madison, to perform studies intended to identify a drug development candidate as a treatment for ocular keratitis in humans caused
by herpes simplex virus infections. The studies will be performed in the laboratory of Dr. Curtis Brandt, an expert in herpes simplex
virus infections and in evaluating anti-viral agents.
To this end we have also engaged
several collaborators to perform the IND-enabling pre-clinical studies in our various HSV programs. We now have collaboration
agreements with the University of Wisconsin, Madison, the University of Pittsburgh, and the Baylor University, Houston, TX
for performing various aspects of the anti-HSV pre-clinical drug development. In addition, TransPharm continues to serve as a
pre-clinical CRO for certain HSV cell culture studies as well as a dermal animal model of HSV-1 H129 infection that was
previously transferred from the Professor Ken Rosenthal Lab at NEOMED.
We believe that our anti-herpes drug development
program is thus maturing towards a franchise of drug candidates, such as eye drops and gel formulations for ocular herpes keratitis,
skin creams for oral herpes “cold sores”, for genital herpes lesions, and for shingles (which is caused by the herpesvirus
called Varicella-Zoster virus that also causes chickenpox in children).
The current market size for drugs for the
treatment of herpes infections is about $2~4 billion. We believe that when an effective topical treatment is introduced, the market
size is likely to expand substantially.
We are also working on further developments
in our FluCide™ anti-Influenza drug development project, and in particular, on our broad-spectrum anti-influenza drug for
hospitalized, severely ill patients, Injectable FluCide™.
In addition, NanoViricides, Inc. is possibly
the first company in the world in the entire field of nanomedicines to have developed a nanomedicine drug that is effective when
taken orally (by mouth). Our oral anti-influenza drug candidate, NV-INF-2, has shown extremely high broad-spectrum effectiveness
against two different influenza A viruses in animal models, in our FluCide™ program. We believe that the Oral FluCide drug
development will follow the Injectable FluCide for hospitalized patients as the latter enters human clinical trials. We believe
we now have the ability to manufacture sufficient drug material for initial market entry of our Injectable FluCide drug candidate
when licensed by the FDA or another regulatory agency. However, an oral drug against influenza is expected to require very large
manufacturing facility in order to address the large worldwide out-patient influenza market, comprising billions of cases every
year. We intend to out-license the oral FluCide drug candidate when appropriate.
We have performed preliminary safety and
toxicology studies on certain drug candidates in the FluCide program. In all of the studies conducted, the drug candidates were
found to be extremely safe. Both mouse and rat models have been employed for these studies. Some of the earlier studies were performed
at KARD Scientific, MA. Recent studies have been performed at BASi, Inc., a well regarded pre-clinical CRO for tox package studies.
As a result of the strong safety, we have estimated a batch size requirement of about 2kg ~ 2.5kg of Injectable FluCide that will
be needed to complete the full set of tox studies as well as efficacy studies in different influenza virus strains in cell cultures
as well as in animal models. We have engaged in the scale up of production as described elsewhere.
We are continuing the CMC (Chemistry, Manufacture
and Control) related work and scale-up as described earlier. This drug development phase is intensive in terms of workload for
any drug candidate. In our case, and in general for nanomedicines, the workload in this phase is much more intensive than for small
chemical drugs. This is because we have to perform this work for the small chemical anti-viral ligand, the nanomicelle, and for
their chemical conjugate, which is our final nanoviricide drug candidate. FluCide drug candidate was our first drug candidate for
which this work was undertaken. This work was delayed because of the significant delays in making our new facilities operational
that were outside our control. Our new campus became operational around June 2015, and the scale-up and CMC program for Injectable
FluCide has gained momentum since then. The knowledge and expertise gained in this project is helping with our anti-herpes drug
candidate CMC development. Thus we anticipate the CMC program for our anti-herpes drug candidate to be significantly less time
consuming.
We believe that because of the smaller
quantity requirements and the less rigorous tox package studies needed for the dermal topical treatment, our anti-herpes drug candidates
are likely to move more rapidly towards clinical stage, while we continue to work on our anti-influenza drug candidate.
We believe that we will perform
development of the EKC adenovirus drug in the context of the ocular nanoviricide drug against herpes keratitis, with the goal
of developing a single broad-spectrum drug candidate that works against both adenovirus infections as well as herpesvirus
infections of the external eye. Our other important drug programs, namely DengueCide™ (anti-Dengue viruses drug
development), and HIVCide™ (anti-HIV/AIDS drug development), are presently at a lower priority. In addition, we are
watching with interest the recent development of Gilead Sciences and USAMRIID regarding the nucleotide analog GS-5734 as an
anti-Ebola drug. We had re-engaged our anti-Ebola drug development program only because of the major pandemic threat posed to
global health in the 2014 epidemic, when no viable drug candidates were around, although several drug candidates were in
different stages. We also continue to work on several other research programs that we believe will feed our pipeline in the
future.
We have limited our expenditures on socially
conscious projects such as “Neglected Tropical Diseases” (NTD’s), and “Bio-defense” projects to the
extent that participatory funding from third parties is available. To this end, we attempt to obtain grants and contracts financing
from government and non-government sources. We will continue to work on these programs as time and resources permit. In addition,
we continue to develop novel technologies such as ADIF™ (“Accurate-Drug-In-Field™”) which may possibly
represent one of the best scientific approaches against manmade and natural novel disease agents. Outbreaks of natural, novel viral
diseases, such as Ebola, MERS-CoV, SARS-CoV, H7N9 Influenza, and others, will continue to occur. At present, there is no feasible
therapeutic intervention for outbreaks of novel viruses, such as the recent Ebola virus epidemic, and the MERS coronavirus outbreak.
We continue to work on acquiring and establishing
new resources including equipment and instrumentation at our new campus in Shelton CT. NanoViricides as well as our affiliates
have added significant strength in our staffing, reaching a total staff strength of about 30 personnel, most of whom are scientists.
Our new campus in Shelton has enabled this substantial expansion of our capabilities. This expansion is necessary to accomplish
the substantial amount of scientific investigations, process engineering, quality engineering, large scale production and document
preparation that goes towards filing investigational new drug applications (IND’s) to the US Food and Drug Administration
(“FDA”), and equivalent applications to regulatory agencies across the globe. This expansion has also enabled us to
strengthen our novel platform technologies, and engage into further novel, application- oriented R&D work directed to the goal
of eradication of viral diseases.
It is believed that the development of
the topical anti-herpes drug candidates may be significantly faster and easier than the development of the injectable FluCide that
we are currently working on. Therefore, we have planned on continuing the development of the HerpeCide drug candidates as well
as the FluCide drug candidate towards clinical trials in parallel. With the expanded R&D labs, Analytical Labs, the new Bio
and BSL-2 Virology labs, the new Process Scale-Up production facility, and the new cGMP-capable manufacturing facility established
at our new Shelton campus, we are in a much stronger position than ever to move our drug development programs into the clinic rapidly.
The potential broad-spectrum nature of
our anti-HSV drug candidates is expected to enable several antiviral indications. Thus, HSV-1 primarily affects skin and mucous
membranes causing “cold sores”. HSV-2 primarily affects skin and mucous membranes leading to genital herpes. HSV-1
infection of the eye causes herpes keratitis that can lead to blindness in some cases. In addition, human herpesvirus-3 (HHV-3),
a.k.a. varicella-zoster virus (VZV), causes chickenpox in children and when reactivated in adults, causes shingles. Shingles breakouts
are amenable to topical treatment, as are the HSV cold sores, genital lesions, and herpes keratitis of the eye. Most of these indications
do not have satisfactory treatments at present, if any. Further, the treatment of herpesvirus infections caused by acyclovir- and
famciclovir- resistant mutants is currently an unmet medical need.
The childhood chickenpox vaccine has reduced
the cases of chickenpox, but this is a live attenuated virus vaccine that persists in the body. All adults who have had chickenpox
in childhood continue to harbor the chickenpox virus, and are expected to develop shingles at some time, with the risk of shingles
increasing with age or weakening of the immune system surveillance. In addition to the shingles breakout itself, post-herpetic
neuralgia (pain) (PHN) is a significant morbidity of shingles, and to a lesser extent, of oral and genital herpes. PHN is initially
caused probably by the inflammation and immune response related to the local virus expansion, but persists well after the virus
has subsided, the blisters have scabbed off, and the skin has recovered, due to the nerve damage that results from the local large
viral load during infection. Current PHN treatments are symptomatic, affecting the pain signaling circuit (such as novocaine, pramoxine,
capsaicin, etc.), and do not produce lasting control. An effective therapy that results in strong local control of the virus production
during the breakout itself is expected to minimize the resulting immune responses and nerve damage, and thereby minimize or possibly
eliminate PHN.
The Company thus believes that it can develop
its broad-spectrum anti-herpes drug candidate towards at least four topical indications, namely, (a) oral herpes (“cold sores”),
(b) genital herpes, (c) ocular herpes keratitis, and (d) shingles.
These nanoviricides are designed as topical
treatment for the breakout of herpes sores. Our animal studies results are very significant considering that topical acyclovir
in the form of a cream as well as an ointment, are approved for the treatment of cold sores. We believe our strong anti-herpes
nanoviricide® drug candidates are capable of reaching approval as a drug for topical use against herpes cold sores, based on
these datasets. Further drug development is necessary towards the goal of drug approval.
Existing therapies against HSV include
acyclovir and drugs chemically related to it. These drugs must be taken orally or by injection. Available topical treatments, including
formulations containing acyclovir or chemically related anti-HSV drugs, are not very effective. Currently, there is no cure for
herpes infection.
The market size for existing herpes simplex
virus treatments is in excess of $2 billion annually. The Company believes that a drug that is superior to existing therapies could
result in significantly expanded market size.
The Company has engaged Transpharm Preclinical
Solutions to perform the topical animal studies as well as cell culture studies for the herpesvirus topical treatments. Transpharm
is a pre-clinical contract research services organization (CRO) that offers numerous types of studies for testing antimicrobials,
antivirals, antifungals, antiparasitics, along with newer therapies using antibodies. TransPharm’s scientists’ skill
set covers a broad range of Research and Development, enabling numerous services at the request of a client. TransPharm will perform
the topical dermal efficacy studies for our anti-HSV drug candidates.
In addition, the Company has established
additional collaborations towards IND-enabling development of drug candidates against the four indications listed earlier. We now
have collaboration agreements with the CORL at the University of Wisconsin, the Campbell Lab at the University of Pittsburgh, and
the Pflugfelder Lab at the Baylor College of Medicine, for the evaluation of its nanoviricides® drug candidates in models of
ocular herpesvirus and adenovirus infections.
The Company met with its FDA advisory consulting
group, namely, Biologics Consulting, of Alexandria, VA, to chart out the path towards approval of anti-HSV topical treatments.
The Company believes, based on these meetings, that the drug approval process for a topical treatment would be significantly faster
and less expensive compared to an injectable drug development. Therefore the Company has now put HerpeCide development at high
priority. The Company intends to work on HerpeCide topical treatments in parallel to its FluCide injectable drug development.
The Company believes that the anti-influenza
drug candidates it has developed are broad-spectrum, i.e. they should work against most if not all of influenza viruses. This is
because, in spite of mutations and antigenic drift, all influenza viruses bind to the same cell surface receptor called sialic
acid, and the Company has developed small chemical ligands that mimic this receptor, to attack the influenza viruses. These ligands
are chemically attached to the Company’s polymeric micelle backbones that mimic the cell membrane, to create the nanoviricides.
The Company has previously shown effectiveness of its very early anti-influenza drug candidates against two different strains of
H5N1 Bird Flu virus in cell culture studies. The Company has since then improved the ligands as well as the chemistries as reported
from time to time.
As part of the advanced IND–enabling
development of our Injectable FluCide™ drug candidate, we performed initial safety-toxicology screening of an optimized FluCide™
drug candidate in a GLP-like toxicology study in rats. We reported that a good safety profile was observed for this drug candidate
in rats, around the end of January 2015. These results are extremely important since they indicate that FluCide continues to look
very promising as one of the most advanced candidates in the Company’s drug development pipeline.
No direct adverse clinical effects were
found upon administration of this FluCide candidate intravenously at doses of up to 300mg/kg/day for 14 days (a total of 4,200mg/kg)
in rats. Organs were examined for gross histological observations. Microscopic histological tissue analysis was also performed.
There were no adverse histological findings in gross organ level histological examination, nor were there any adverse findings
in microscopic histological analysis. Equally importantly, there were no meaningful effects observed on animal weight gain, food
consumption, hematology, or clinical chemistry at the end of the 14 day dosing period.
The Company believes that these strong
safety data bode well for our other drug programs as well. This is because a nanoviricide is built of two parts – (1) a virus
specific ligand, that is chemically attached to (2) a “nanomicelle” or polymeric micelle based on our specific chemistries.
It is reasonable to believe that the nanomicelle structures of our other drug candidates should also be safe. In addition, we believe
that we have chosen antiviral ligands for our other drug candidates in a very conservative, safety-biased fashion.
The study was conducted at BASi (Bioanalytical
Systems, Inc., NASDAQ: BASI) in Evansville, Indiana. The study was performed in a cGLP-like fashion, compliant with BASi Evansville
standard operating procedures. BASi has over 40 years of experience providing contract research services and niche instrumentation
to the life sciences, primarily drug research and development.
These results are in agreement with the
previously reported results of a non-GLP toxicology study in mice. The current study results also support the Company’s positive
findings in animal models of infection with different influenza A virus strains in which no safety or toxicology concerns were
observed. The Company has previously reported that many of its FluCide candidates demonstrated extremely high anti-influenza activity
in those models.
This study was developed in collaboration
with BASi and conducted by BASi in a c-GLP-like fashion in order to understand the safety parameters of FluCide intravenous dosing.
We have been actively studying different
chemical processes and routes of synthesis of the backbone polymer, the ligand, and the nanoviricide drug itself, which is a chemical
conjugate of the two. The objective of these studies is to develop pathways that will allow industrial manufacturing scale production
of a well-defined drug substance, so that multiple batches will produce consistent product. Our studies also involve the development
of methods of chemical and physical characterization of the materials at various stages in the entire production process. These
studies also include performing the syntheses at different scales, and at least sufficiently characterizing the products at different
stages to enable decision-making regarding different possible process variations. We are also continuing to develop additional
tests that are needed for analyses of samples from animals that will be generated during the safety/toxicology studies, and later
in the human clinical trials. Such tests are needed for estimating a drug’s distribution pattern in the body as well as the
time profile of the distribution. Such tests are also needed to decipher the metabolic fate of the drug. Since a nanoviricide drug
is not a simple small chemical or an antibody, development of these tests is relatively complex, and is taking a significant amount
of time.
The next phase of the toxicology package
studies for our injectable influenza drug candidate will involve larger animals, and will require much larger quantities of the
anti-influenza drug candidate. In order to accomplish this, we have continued to scale up our production processes for both the
backbone polymer and the ligands at our new Shelton facility. We believe that we will be able to make as much as a few kilograms
in a single batch in the new cGMP-capable facility. We have continued to work successfully towards large-scale production of this
anti-Influenza drug candidate. The Scale-Up Laboratory in our new Shelton campus now has the necessary equipment for this scale
up. Initial process engineering and in-process control schemes have been designed, and in-process control equipment required for
this has been identified. Appropriate equipment has been ordered to test the suitability of the control procedures we have designed.
Some of this equipment is being tested in practice now. Initial batches for each synthesis step are being committed.
The Company intends to develop data about
effectiveness of its drug candidates against certain unrelated influenza A viruses using both cell culture studies and animal models
in a reasonable manner. These data will be needed as part of the IND application that the Company is working on. An IND application
will be required for the Company to enter into human clinical trials.
In the case of HIVCide™ we are close
to completing the ligand optimization and are also in the process of further optimizing the polymer backbone. We have already identified
certain polymeric backbone chemistries that appear to provide extended viral load suppression for as long as 30 days or more even
after stopping the drug, in animal studies. Given the chronic nature of HIV/AIDS, such a drug that has long sustained effect is
expected to provide significant benefits to the patient. We believe once a week dosing is possible. Anti-HIV drug development is
both expensive and slow because of the nature of the animal studies that require SCID mice whose immune system is destroyed and
then replaced by surgically implanting and growing human immune system tissues in the mouse body. Due to our limited resources,
HIVCide development is further hampered. Nevertheless we have continued to make progress in the HIVCide program. We are also working
on developing a total cure of HIV/AIDS. In addition to minimizing the viral load to achieve a ” Functional Cure” with
the HIVCide, a total cure would require development of a drug that hones in on infected cells, and seeks to destroy only the
HIV infected cells that harbor the HIV genome inside it. We believe we have excellent technologies for such site-directed, specific
approaches. This program is in R&D stage and we expect that it will take some time before a drug candidate with the potential
of totally curing HIV/AIDS can be identified.
Our anti-HIV program is conducted at a
lower priority level because the Company lacks the resources needed to commit to the development of an anti-HIV drug. We will continue
to advance this program, albeit at a relatively slow pace in order to enable us to seek appropriate partnerships and/or non-dilutive
funding.
Previously we have reported on certain
anti-HIV studies in animals that were designed to discriminate the comparative effectiveness of different ligands. We reported
that our lead anti-HIV candidate achieved anti-HIV efficacy equivalent to a HAART (highly active anti-retroviral therapy) triple
drug cocktail in this recently completed animal study. Treatment with this lead anti-HIV nanoviricide reduced HIV levels and protected
the human T cells (CD4+/CD8+) to the same extent as treatment with the HAART cocktail. The three drug HAART cocktail used for comparison
in this study is one of the combination therapies recommended for initial therapy in humans. No evidence of drug toxicity was observed
in the case of nanoviricide drug candidates. We later reported that this lead anti- HIV drug candidate achieved a long term anti-HIV
effect with a much shorter dosing regimen and a markedly lower total drug dose than the HAART drug cocktail therapy in a recent
animal study. The antiviral effect of the anti-HIV nanoviricide (“HIVCide™”) continued throughout the 48 days
of study even though HIVCide dosing was discontinued after only 20 days. The clinical benefit of HIVCide was found to be sustained
for at least four weeks after the last drug dose. Treatment with the lead anti-HIV nanoviricide both (1) reduced the HIV viral
load and (2) also protected the human T cells (CD4+, CD8+, as well as double-positive CD4+CD8+), equally well as compared to treatment
with the three-drug HAART cocktail, at 24-days as well as at 48-days, even though the HIVCide treatment was stopped at 20 days.
The lead candidate is now undergoing further optimization.
A long and sustained effect of HIVCide
would lead to improved patient compliance, which is a sought after goal in HIV therapy. With this new study, we believe that we
are close to a “Functional Cure” of HIV wherein the patient can take treatment until the viral load is undetectable
and then stop treatment until an episode of virus reawakening occurs.
Our drug candidates against dengue viruses
have previously achieved significant survival of mice in a lethal infection animal model of dengue disease. This model simulates
antibody-dependent enhancement of dengue, which is believed to lead in humans to severe dengue, and dengue hemorrhagic fever. These
studies were performed by Professor Eva Harris at the University of Berkeley.
The Company reports summaries of its studies
as the data becomes available to the Company, after analyzing and verifying same, in its press releases. The studies of biological
testing of materials provide information that is relatively easy to understand and therefore readily reported. In addition, we
continue to engage in substantial work that is needed for the optimization of synthesis routes and for the chemical characterization
of the nanoviricide drug candidates. We also continue to work on improving the drug candidates and the virus binding ligands where
necessary. We continue to work on creating the information needed for the development of controlled chemical synthesis procedures
that is vital for developing c-GMP manufacturing processes.
In addition, we have now developed a state
of the art, multi-purpose, customizable cGMP-capable manufacturing facility that can produce any of our drug candidates in sufficient
quantities so that any of our drug candidates can now move into IND-enabling studies and production is no longer a constraint to
our progress. Until now, we were hampered in our progress towards an IND due to the lack of ability to manufacture our drugs in
large enough quantities and in a suitable cGMP-capable environment. We are now one of the very few small pharmaceutical drug innovators
that possess their own cGMP or cGMP-capable manufacturing facility.
Intellectual Property and Patents
We have previously announced certain important
issuances of patents on the TheraCour® technology underlying our nanoviricides® drugs. A fundamental patent on the polymeric
micelles composition, structure and uses was issued in the USA with substantially broad claims. This validates the novelty of our
approach as well as our leadership position in the nanomedicines based on polymeric micelle technologies. This patent application
has so far been issued, granted, and/or validated, with substantially similar broad claims as 52 different patents in different
countries and multi-country intellectual property organizations. The Company announced in May 2012 that a fundamental patent, on
which the nanoviricides® technology is based, is due to be issued in the USA on May 8, 2012. The US Patent (No. 8,173,764)
is granted for “Solubilization and Targeted Delivery of Drugs with Self-Assembling Amphiphilic Polymers.” It was issued
on May 8, 2012. The patent term is expected to last through October 1, 2028, including anticipated extensions in compensation for
time spent in clinical trials. This US Patent has been allowed with a very broad range of claims to a large number of families
of chemical structure compositions, pharmaceutical compositions, methods of making the same, and uses of the same. The disclosed
structures enable self-assembling, biomimetic nanomedicines. NanoViricides, Inc. holds exclusive, perpetual, worldwide licenses
to these technologies for a broad range of antiviral applications and diseases. The other national and regional counterparts of
the international Patent Cooperation Treaty (“PCT”) application number PCT/US06/01820, which was filed in 2006, have
issued as a Singapore National Patent Publication, a South African patent, and also as an ARIPO regional patent, an OAPI regional
patent (covering Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Republic of Congo, Cote d’Ivoire, Equatorial
Guinea, Gabon, Guinea, Guinea Bissau, Mali, Mauritania, Niger, Senegal, and Togo). It has also issued as a granted patent in New
Zealand, China, Mexico, Japan, Australia, Canada, several countries in Europe, Hong Kong, Indonesia, Israel, Korea, Malaysia, Philippines,
Pakistan, and Vietnam among others. Estimated expiry dates range nominally from 2026 to 2027 prior to accounting for various extensions
available in different regions and countries. Additional issuances are continuing in Europe, and in several other countries around
the world.
Another fundamental patent application
on the antivirals developed using the polymeric micelles has so far been issued, granted, and/or validated, with substantially
broad claims as well, as 9 different patents. The counterparts of the international PCT application PCT/US2007/001607 have issued
as a granted patent in ARIPO, Australia, China, Japan, Mexico, New Zealand, OAPI, South Africa, and Korea to date. Additional issuances
are expected in Europe, USA, and in several other countries around the world. This patent application teaches antivirals based
on the TheraCour polymeric micelle technologies, their broad structures and compositions of matter, pharmaceutical compositions,
methods of making the same, and their uses. The nominal expiry dates are expected to range from 2027 to 2029. Further patent prosecution
in several other regions and countries is continuing.
A total of 61 patents have been issued
globally as of August 23, 2015, on the basis of the two international PCT patent families that cover the fundamental aspects of
our platform technology. Additional patent grants are expected to continue as the applications progress through prosecution processes.
All of the resulting patents have substantially broad claims.
These patents have nominal expiry dates
in 2026 to 2027. The dates can be further extended in several countries and regions for the additional allowances due to the regulatory
burden of drug development process, or other local considerations, such as licensing to a local majority held company. Many countries
allow up to five years extension for regulatory delays.
No patent applications
have been filed for the actual drug candidates that we intend to develop as drugs as of now. We intend to file the patent application
for FluCide and HerpeCide before entering human clinical trials. The estimated expiry date for the FluCide and HerpeCide patents,
if and when issued, would be no earlier than 2035-2036.
With the achievement of extremely high
levels of effectiveness in appropriate animal models for its current drug candidates listed above, the Company has progressed to
advance its drugs into the IND-enabling studies needed to go into the clinical stage. Our drug development strategy now is to focus
on the IND-enabling studies for at least one, possibly two, indications in the HerpeCide topical treatment program, and our injectable
FluCide drug candidate for severely ill patients hospitalized with influenza (IND = Investigational New Drug application). In addition,
the other programs will continue to progress at different priorities.
In March 2012, we held a pre-IND meeting
with the United States Food & Drug Administration (“FDA”) for our anti-influenza drug candidate, NV-INF-1. We obtained
valuable advice from the US FDA regarding the requirements for filing an Investigational New Drug (“IND”) for this
anti-influenza drug candidate. The feedback from the FDA at this pre-IND meeting was very useful for our other anti-viral drug
development programs as well.
Our strategy is to minimize capital expenditure.
We therefore rely on third party collaborations for the testing of our drug candidates. We continue to engage with our previous
collaborators. In addition, we have engaged TransPharm preclinical services for herpesvirus animal models. We have engaged Biologics
Consulting Group, Inc., to help us with the FDA regulatory submissions. We also engaged Australian Biologics Pty, Ltd to help
us with clinical trials and regulatory approvals in Australia. We believe that cGMP-like manufactured product is acceptable for
entering human clinical trials in Australia.
The drugs are required to be manufactured
in cGMP-compliant manner (cGMP = “current Good Manufacturing Practices”) for use in human clinical trials. We have
now developed a facility where the drugs can be manufactured in such a fashion. In addition, the process of making the materials
has to be optimized and appropriate analytical and quality control methods must be developed. This is a part of CMC (“Chemistry,
Manufacture and Controls”) activities required before filing an Investigational New Drug application (IND) to allow human
clinical studies. The Company is progressing steadily in satisfying the CMC requirements for its Injectable anti- Influenza drug
candidates at present.
We are now optimizing the production processes
at different scales of production. As part of this, we are designing, evaluating, and implementing various in-process controls.
We are developing and implementing several tools and methods for the characterization of the materials we produce as part of making
the final drug substance. Much of the work performed for the optimization of the polymer backbone of the nanoviricide would be
applicable to several of our drug candidates. After the processes and methods are finalized, we will need to document the production
processes as well as the specific characterization methods into standardized procedures. We will then need to manufacture at least
two batches under the standardized protocols, and establish that the product meets the acceptance criteria. If the batches are
not reproducibly acceptable, then we will need to further optimize the processes to eliminate the problems. Once the batches are
acceptable, the resulting product would be considered “c-GMP-like” and we would be able to use it in human clinical
trials.
NanoViricides, Inc. intends to perform
the regulatory filings and own all the regulatory licenses for the drugs it is currently developing. The Company will develop these
drugs in part via subcontracts to TheraCour Pharma, Inc., the exclusive source for these nanomaterials. The Company may manufacture
these drugs itself, or under subcontract arrangements with external manufacturers that carry the appropriate regulatory licenses
and have appropriate capabilities. The Company intends to distribute these drugs via subcontracts with distributor companies or
in partnership arrangements. The Company plans to market these drugs either on its own or in conjunction with marketing partners.
The Company also plans to actively pursue co-development, as well as other licensing agreements with other Pharmaceutical companies.
Such agreements may entail up-front payments, milestone payments, royalties, and/or cost sharing, profit sharing and many other
instruments that may bring early revenues to the Company. Such licensing and/or co-development agreements may shape the manufacturing
and development options that the company may pursue. There can be no assurance that the Company will be able to enter into co-development
or other licensing agreements.
To date, we have engaged in organizational
activities; developing and sourcing compounds and preparing nano-materials; and experimentation involving preclinical studies using
cell cultures and animals. Several of the Company’s drug candidates have shown excellent levels of efficacy and preliminary
safety in animal studies in many different animal models against many different viruses. The Company determined that its anti-Influenza
program, “FluCide™”, was the most advanced and obtained and held a pre-IND meeting with the US FDA for the same
on March 29, 2012. The Company believes it has gained valuable guidance from the FDA that enables us to develop and execute a product
development plan for our anti-influenza drug candidate with the goal of filing an Investigational New Drug (IND) application to
the US FDA, and similar applications in other countries in the world for the Injectable FluCide drug candidate. In addition, much
of what we have learned is applicable other nanomedicine drug candidates we are developing for different indications including
the various herpesvirus infection indications such as oral herpes infections, genital herpes infections, herpes keratitis (eye
infections), and shingles. Our recent results in the dermal HSV-1 infection model suggest that our dermal herpesvirus drug candidates
are now at an advanced pre-clinical stage of development. We anticipate that this will enable us to advance our anti-herpesvirus
indications franchise rapidly through pre-clinical studies towards IND filings and human clinical development further towards licensure.
Collaborations, Agreements and Contracts
Our strategy is to minimize capital expenditure.
We therefore rely on third party collaborations for the testing of our drug candidates. We continue to engage with our previous
collaborators. We also seek to engage with additional collaborators, as necessitated for the progress of our programs.
We have recently signed an agreement with
Baylor College of Medicine (Baylor) for the testing of ournanoviricides® drug candidates in a small animal model of ocular
virus infections. The research will be supervised by Dr. Stephen Pflugfelder, Professor of Ophthalmology and the James and Margaret
Elkins Chair in Ophthalmology at Baylor. Dr. Pflugfelder has extensive experience in ophthalmological research as well as in ocular
drug development, including conducting clinical trials. The research will be performed in the laboratories of the Department of
Ophthalmology. These animal studies will evaluate the efficacy and potency of the Company’s nanoviricides anti-viral agents
in certain ocular viral infections. The goal of these studies is to help select clinical drug development candidates for treatment
of certain ocular viral diseases including herpes keratitis in humans.
We have recently signed an agreement with
the University of Pittsburgh for the testing of our nanoviricides® drug candidates in standard animal models of ocular virus
infections. The research will be performed in the Charles T. Campbell Ophthalmic Microbiology Laboratory by Dr. Eric Romanowski,
Research Director. Dr. Romanowski has extensive experience in ocular virus infections and anti-viral agents discovery. These animal
studies will evaluate the efficacy and potency of the Company’s nanoviricides anti-viral agents in ocular viral infections.
The Charles T. Campbell Ophthalmic Microbiology Laboratory is part of the University of Pittsburgh Medical Center’s Eye Center
(UPMC Eye Center). The UPMC Eye Center in the Department of Ophthalmology of the University of Pittsburgh School of Medicine has
one of the top basic and clinical research programs in the country. UPMC Eye Center’s research focuses on infectious disease,
ocular immunology, molecular genetics and molecular biology of retinal disease, glaucoma and advanced diagnostic imaging technology
development. The goal of these studies is to help select clinical drug development candidates for treatment of ocular herpes keratitis
in humans. In addition, the Campbell lab also has the capabilities for evaluating the drug efficacy of our nanoviricide candidates
against adenoviruses. Adenoviruses and herpesviruses taken together cause most of the viral infections of the eye.
We have signed an agreement with the
Collaborative Ophthalmic Research Laboratories, CORL, at the University of Wisconsin, Madison, to perform studies intended to
identify a drug development candidate as a treatment for ocular keratitis in humans caused by herpes simplex virus
infections. The studies will be performed in the laboratory of Dr. Curtis Brandt, an expert in herpes simplex virus
infections and in evaluating anti-viral agents. Dr. Brandt is Professor in the Departments of Ophthalmology and Visual
Sciences, Medical Microbiology and Immunology, and Director of the Vision Research Core at the University of Wisconsin.
We have signed a Master Services Agreement
with TransPharm Preclinical Services, Jackson, MI. TransPharm is currently performing evaluation of our anti-HSV drug candidates
in a dermal model of HSV-1 infection.
We have an agreement with the Professor
Eva Harris lab at the University of California at Berkeley for evaluation and development of our Denguecide drug candidates.
We have engaged Biologics Consulting Group,
Inc., to help us with the US FDA regulatory submissions. We are also engaged with Australian Biologics Pty, Ltd to help us with
clinical trials and regulatory approvals in Australia. We believe that cGMP-like manufactured product is acceptable for entering
human clinical trials in Australia.
In addition, we have signed a Master Services
Agreement with Public Health England (PHE), UK.
We have also signed a new CRADA-Materials
Transfer Agreement with USAMRIID for the evaluation of our anti-Ebola nanoviricide drug candidates.
We anticipate completing master services
agreements, after performing our due diligence, with additional parties in furtherance of our anti-viral drug development programs.
We have continued to achieve significant
milestones in our drug development activities. All of our drug development programs are presently at pre-clinical or advanced pre-clinical
stage. We believe we are advancing these programs at a faster pace than industry peers. We continue to test several drug candidates
under each program even though we may achieve extremely strong results with some of the candidates
The Company’s Drug Pipeline in
Brief
We currently have, in early, active development,
(1) HerpeCide™ skin cream/lotion against Herpes virus cold sores, (2) HerpeCide eye drops for ocular herpes keratitis treatment,
(3) HerpeCide skin cream/lotion for treatment of herpes zoster aka shingles, (4) HerpeCide skin cream/lotion for the treatment
of genital Herpes, in the HerpeCide program; (5) an Injectible FluCide™ for hospitalized patients with severe influenza;
(6) Oral FluCide™ for outpatient – both of these drug candidates are expected to be active against Epidemic Influenzas
including the current novel H1N1/2009 “Swine flu” virus, H5N1 and other Highly Pathogenic Avian Influenzas (H5N, H7N,
H9N HPAI, Bird Flu), as well as common seasonal human Influenzas, in the FluCide program; (7) HIVCide, a potential “Functional
Cure that is active against both the R5 and X4 strains of HIV, (8) Eye drops against viral diseases of the eye such as Epidemic
Kerato-Conjunctivitis (EKC) and Herpes Keratitis, and (9) DengueCide against Dengue viruses. Of these, the HerpeCide program and
the FluCide program are our highest priority programs.
The epidemic and pandemic potential as
well as the constantly changing nature of influenza viruses is well known. The HIV/AIDS worldwide epidemic and the “curse
of slow death” nature of HIV viral infection is also well known. Adenoviral Epidemic Kerato-Conjunctivitis (EKC) is a severe
pink eye disease that may lead to blurry vision in certain patients after recovery. Herpes simplex viral infections cause keratitis
of the eye, and severe cases of infection may sometimes necessitate corneal transplants. Oral and genital herpes is also a well-known
disease. Dengue viral infection is also known as “break-bone fever”. What is worse, that when a patient is infected
with a dengue virus a second time, if the virus is a different serotype, then it can cause a severe dengue disease, or dengue hemorrhagic
syndrome, with very high morbidity and a high rate of fatality. This is because, the patient’s immune system mounts an attack,
but the antibodies that it generates, directed at the previous infecting virus, are not effective against the new infection, and
instead the new infecting virus uses them to hitch a ride into host cells that it infects more severely. This phenomenon is called
“Antibody-Dependent Enhancement” or “ADE” for short. Both the safety and effectiveness of any drug
has to be determined experimentally. The safety of a nanoviricide drug is expected to depend upon the safety of the nanomicelle
portion as well as the safety of the antiviral ligand. We have observed excellent safety of our injectable anti-influenza drug
candidates. This leads us to believe that the nanomicelle backbones of these drug candidates that were evaluated in preliminary
safety studies should be safe in most if not all routes of administration.
We also have research programs against
Rabies virus, Ebola/Marburg family of viruses, as well as other viral hemorrhagic fevers. We also have a research program called
ADIF(™) “Accurate-Drug-In-Field”, that we believe is the only way to combat a novel viral threat right in the
field before it becomes an epidemic like SARS, bird flu H5N1, Ebola, or other viral outbreak. The Company’s ability to achieve
progress in the drugs in development is dependent upon available financing and upon the Company’s ability to raise capital.
The Company will negotiate with TheraCour to obtain licenses for additional viral diseases as necessary. However, there can be
no assurance that TheraCour will agree to license these materials to the Company, or to do so on terms that are favorable to the
Company.
Analysis of Financial Condition,
and Result of Operations
As of March 31, 2016, we had cash and
equivalents of $25,596,376, current prepaid expenses of $314,489, and property, plant and equipment of $11,897,918, net of
depreciation of $1,690,724. Long-term liabilities were $7,716,449 and stockholders’ equity was $23,981,818 at March 31,
2016. Additionally, $6 million of the Company’s Series B Convertible Debentures mature in February, 2017 and
were reported as a current liability.
As of June 30, 2015, we had
$31,467,748 in cash and cash equivalents, and additional assets of $214,425 in the form of prepaid expenses. Property, plant
and equipment stood at $11,962,648, net of accumulated depreciation of $1,534,203. Long term liabilities were $11,800,327 and
stockholders’ equity was $31,785,867 at June 30, 2015.
During the reporting quarter we spent
approximately $2,580,000 in cash toward operating expenses and approximately $61,000 in cash toward capital expenditures. For
the nine month period we spent approximately $5,447,000 in cash toward operating expenses and approximately $424,000 in cash
toward capital expenditures. For the nine month period, the Company recorded the abandonment of fully depreciated
nonremovable laboratory fixtures and leasehold improvements associated with the 135 Wood Street rented facility of $332,476
as a reduction to Property and Equipment with a corresponding reduction to Accumulated Depreciation.
We do not anticipate any major capital
costs going forward in the near future.
Based on the current rate of expenditures
(excluding capital costs), we believe that we have sufficient funds in hand to last at least through March 31, 2018, or two years.
In addition, in order to conserve cash expenditures, we also pay compensation in stock and stock instruments to various parties.
Thus, the Company believes that our spending
continues to be in line with our estimates. We have not engaged in any additional raises after the “old warrant” conversion
that closed in September 2014.
We project, based on various estimates
that we have obtained, that our current available financing is sufficient for accomplishing the goal of filing one or possibly
two IND or equivalent regulatory applications, and initial human clinical trials in at least one of our drug programs. Two of our
drug programs, namely Injectable FluCide, and HerpeCide skin cream, are now in the late pre-clinical or IND-enabling studies stage.
We anticipate that these drug candidates will move forward into IND or equivalent regulatory filings, and ensuing human clinical
trials. As these drug candidates are advancing into the clinic, we believe that our additional drug candidates will also move forward
into IND-enabling studies. We are thus poised for strong growth with a number of drug candidates in a number of disease indications.
The Company does not currently have any
revenue. All of the Company’s products are in development stage and require successful development through regulatory processes
before commercialization. We have generated funding through the issuances of debt and private placement of common stock and also
the sale of our registered securities. The Company does not currently have any long term debt, other than convertible debentures
as disclosed earlier. We have not generated any revenues and we may not be able to generate revenues in the near future. We may
not be successful in developing our drugs and start selling our products when planned, or we may not become profitable in the future.
We have incurred net losses in each fiscal period since inception of our operations.
Research and Development Costs
The Company does not maintain separate
accounting line items for each project in development. The Company maintains aggregate expense records for all research and development
conducted. Because at this time all of the Company’s projects share a common core material, the Company allocates expenses
across all projects at each period-end for purposes of providing accounting basis for each project. Project costs are allocated
based upon labor hours performed for each project.
The Company has signed several cooperative
research and development agreements with different agencies and institutions. The Company expects to enter into additional cooperative
agreements with other governmental and non-governmental, academic, or commercial, agencies, institutions, and companies. There
can be no assurance that a final agreement may be achieved and that the Company will execute any of these agreements. However,
should any of these agreements materialize, the Company will need to implement a system to track these costs by project and account
for these projects as customer-sponsored activities and show these project costs separately.
Requirement for Additional Capital
As of March 31, 2016, we have current
assets of approximately $25,911,000. We expect this amount to be sufficient for our operations through almost two years, or March
31, 2018, at the Company’s current rate of expenditure, and including the projected expenditure for certain human clinical
trials.
While we now have the necessary funds based
on our current operations to last more than the next 24 months, we anticipate undertaking additional expenditures to accelerate
our progress to regulatory submissions. With our current funds we believe that we have sufficient funding available to perform
Toxicology Package studies, and additional animal efficacy studies, to move at least one of our drug candidates into an Investigational
New Drug Application (“IND”) with the US FDA or a similar application with an international regulatory agency, and
to conduct Phase I and Phase IIa human clinical trials of at least one of our drug candidates. In order to file an IND application,
we also need to enable manufacturing of the drug under US FDA guidelines called cGMP, which we plan to perform at our new campus
in 1 Controls Drive, Shelton, CT.
We anticipate that we have sufficient
funding to take at least one of our drug candidates through initial Phase I and Phase II human clinical trials. At present, we
believe that we may also have sufficient additional funding in hand to take at least one more drug candidate into an IND application
stage. These estimates are based on various preliminary discussions and “soft” quotes from contract research organizations
that provide pre-clinical and clinical studies support. The estimates are also based on certain time estimates for achievement
of various objectives. If we miss these time estimates or if the actual costs of the development are greater than the early estimates
we have at present, our drug development cost estimates may be substantially greater than anticipated now. In that case, we may
have to re-prioritize our programs and/or seek additional funding. Also, additional funding, if available, will allow us to move
our other drug candidates towards IND filings. These additional funds will be needed to pay for additional personnel, increased
subcontract costs related to the expansion and further development of our drug pipeline, and for additional capital and operational
expenditures required to file IND applications. We may accelerate our business plans provided that we can obtain such additional
funding. We believe that we currently have adequate financing for our current business plan of operations.
The Company does not have direct experience
in taking a drug through human clinical trials. In addition, we depend upon external collaborators, service providers and consultants
for much of our drug development work. As such our projections and estimates may be significantly off from actual future results
both in terms of timeline and in terms of cost budgets.
We anticipate that we will incur the following
additional expenses as our drug candidates mature into human clinical trials:
1. Research and Development of $9,000,000:
Planned costs for in-vivo and in-vitro studies for the various HerpeCide program drug candidates, pan-influenza FluCide, Eye nanoviricide,
HIVCide, Dengue, and other research programs.
2. Corporate overhead of $2,000,000: This
amount includes budgeted office salaries, legal, accounting, investor relations, public relations, and other costs expected to
be incurred by being a public reporting company.
3. Capital costs of $500,000: This is the
estimated cost for additional equipment and laboratory improvements.
4. Staffing costs of $1,500,000: This is
the estimated cost of hiring additional scientific staff and consulting firms to assist with FDA compliance, material characterization,
pharmaco-kinetic, pharmaco-dynamic and toxicology studies, and other items related to FDA compliance, as required for development
of necessary data for filing an Investigational New Drug with the United States Food and Drug Administration.
5. If and when we initiate human clinical
trials for any one of the HerpeCide indications, we anticipate approximately $1 million in total costs for the Phase I clinical
trials, and approximately $2 million for the Phase IIa (human efficacy study) clinical trials.
6. If and when we initiate human clinical
trials for Injectable FluCide, we anticipate approximately $2 million in total costs for the Phase I clinical trials, and approximately
$4 million for the Phase IIa (virus challenge human efficacy study) clinical trials.
We believe that we have sufficient funding
available to accomplish the steps 1 through 6 listed above with our current available cash.
We therefore believe that we currently
have sufficient funds in hand to take at least one more drug candidate through the initial human clinical trials, and at least
one more drug candidate into initial human clinical trials.
In addition, in a subsequent year, if
our anti-herpesvirus Phase I and Phase IIa are successful, we anticipate expending approximately $5 million for anti-herpesvirus
Phase IIb (human efficacy study in a larger group of patients) human clinical trials. Further, in a subsequent year, if Phase
I and Phase IIa of our Injectable FluCide drug candidate are successful, we anticipate approximately $7~8 million for Phase IIb
human clinical trials.
The Company anticipates it will have sufficient
access to capital even if it decides to develop ocular HerpeCide, dermal HerpeCide, or Injectable FluCide through Phase III on
its own. The Company believes it will continue to be able to successfully raise financing as needed. If we are unable to obtain
additional financing, our business plan will be significantly delayed.
These estimates are based on rough
quotes from potential investigators, and assumptions relative to additional costs. These estimates assume that our drug
candidates, Injectable FluCide, and Dermal HerpeCide, are highly effective and therefore are estimated to require relatively
few patients in each arm of each trial in order to establish statistically significant results. Actual costs may be materially
different than those set forth above that could cause the Company to modify its expected operations.
The Company has limited experience with
pharmaceutical drug development. Thus, our budget estimates are not based on experience, but rather based on advice given by our
associates and consultants. As such these budget estimates may not be accurate. In addition, the actual work to be performed is
not known at this time, other than a broad outline, as is normal with any scientific work. As further work is performed, additional
work may become necessary or change in plans or workload may occur. Such changes may have an adverse impact on our estimated budget.
Such changes may also have an adverse impact on our projected timeline of drug development.
We believe that this coming year’s
work-plan will lead us to obtain certain information about the safety and efficacy of some of the drugs under development in animal
models. If our studies are not successful, we will have to develop additional drug candidates and perform further studies. If our
studies are successful, then we expect to be able to undertake further studies in animal models to obtain necessary data regarding
the pharmaco-kinetic and pharmaco-dynamic profiles of our drug candidates. We believe these data will then enable us to file an
Investigational New Drug Application, towards the goal of obtaining FDA approval for testing the drugs in human patients.
Most pharmaceutical companies expect 4
to 10 years of study to be required before a drug candidate reaches the IND stage. We believe that because we are working in the
infectious agents’ area, our studies will have objective response end points, and most of our human clinical studies will
be of relatively short durations. Our business plan is based on these assumptions. If we find that we have underestimated the time
duration of our studies, or we have to undertake additional studies, due to various reasons within or outside of our control, this
will grossly and adversely impact both our timelines and our financing requirements.
Management intends to use capital and
debt financing, as required, to fund the Company’s operations. Management also intends to pursue non-diluting funding
sources such as government grants and contracts as well as licensing agreements with other pharmaceutical companies. There
can be no assurance that the Company will be able to obtain the additional capital resources necessary to fund its
anticipated obligations beyond March 31, 2018. The Company currently has no long term debt other than the convertible
debentures as disclosed.
Results of Operations
The Company is a biopharmaceutical company
and did not have any revenue for the nine months ended March 31, 2016 and 2015.
Revenues
- The Company
is a non-revenue producing entity.
Operating Expenses
-
Research and development expenses for the three months ended March 31, 2016 increased $521,031 to $1,067,495 from $546,464 for
the three months ended March 31, 2015.For the nine months ended March 31, 2016 these costs increased $1,152,758 to $3,427,068
from $2,274,310 for the nine months ended March 31, 2015. This increase in the cost of research and development is largely attributable
to the increase in research and development payroll costs, lab supplies, and materials.
General and administrative expenses for
the periods ended March 31, 2016 increased $404,558 to $980,731 from $576,173 for the three months ended March 31, 2015 and increased
$750,432 to $2,936,510 from $2,186,078 for the nine months ended March 31, 2015. The increase for the three months resulted from
an increase in staff and expenses for our new facilities. The increase for the nine months resulted from non-cash compensation
costs paid in corporate stock offset by lower rent and other operating expenses in general.
Other Income (Expenses)
–
Net interest income increased $4,107 for the three months ended March 31, 2016 to $39,116 from $35,009 for the three months ended
March 31, 2015. Net interest income increased $53,380 for the nine months ended March 31, 2016 to $43,378 from ($10,002) for the
nine months ended March 31, 2015. Net interest income included interest on cash equivalent deposits in interest-bearing accounts
at market rates.
Interest Expenses
–
Interest expense for the three months ended March 31, 2016 and 2015 was $ 301,115 and $1,920,268. Interest expense was $791,115
for the nine months ended March 31, 2016 and $2,412,712 for the nine months ended March 31, 2015. The interest expense represents
cash and securities paid as additional interest on the Company’s outstanding debentures. The decrease in interest expense for the three and nine month period ended March 31, 2016, as compared
to the three and nine month period ended March 31, 2015, is due to the Fair Value of Securities issued for and recorded as interest.
On February 1, 2016, the Company issued 571,433 warrants to the same debenture holders and recognized interest expense of $56,115.
On February 1, 2015, the Company issued 571,433 shares of the Company’s common stock and recognized interest expense of $1,502,869.
Other Expenses
–
Discount on convertible debentures for the three months ended March 31, 2016 increased $65,717 to $362,993 from $297,276 for the
three months ended March 31, 2015. Discount on convertible debentures for the nine months ended March 31, 2016 increased $186,209
to $1,046,663 from $860,454 for the nine months ended March 31, 2015. The increase reflects amortization of the discount on the
Company’s Series B and Series C Convertible Debentures.
Other Income
–
Change in fair value of derivatives for the three months ended March 31, 2016 decreased $5,372,607 to ($2,318,453) from $3,054,154
for the three months ended March 31, 2015. Change in fair value of derivatives for the nine months ended March 31, 2016 decreased
$7,379,033 to ($915,938) from $6,463,095 for the nine months ended March 31, 2015. Change in the fair value of derivatives is a
non-cash item estimated based upon certain actuarial assumptions. See Footnote 7 to the Financial Statements.
Income Taxes
–
There is no provision for income taxes due to ongoing operating losses.
Net Loss
- For the nine
months ended March 31, 2016, the Company had a net loss of ($9,073,916), or ($0.16) per share (as adjusted) on a fully diluted
basis compared to a net loss of ($1,280,461), or ($0.07) per share (as adjusted) on a fully diluted basis for the nine months ended
March 31, 2015. The Company does not have any revenue and reports its operating and other expenses resulting in a net operating
loss for the current period. The net loss in the current period has been increased, in part, from the change in the fair value
of derivatives.
Liquidity and Capital Reserves
The Company had cash and cash equivalents
of approximately $25,596,000 as of March 31, 2016 and accounts payable and accrued liabilities of approximately $531,000. Additionally,
$6 million of the Company's Series B Convertible Debentures mature in February 2017.
Since inception, the Company has expended
substantial resources on research and development. Consequently, we have sustained substantial losses. The Company has an accumulated
deficit of approximately $63,173,000 at March 31, 2016.
Our cash and cash equivalent balance is
sufficient for us to continue our operations through March 31, 2018 at our current rate of expenditure.
Off Balance Sheet Arrangements
We have not entered into any off-balance
sheet arrangements during the nine months ended March 31, 2016.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.
Market risk is the risk of loss arising
from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices.
We currently have no foreign operations and are not exposed to foreign currency fluctuations. Our primary exposure to market risk
is interest rate risk associated with our short term cash equivalent investments, which the Company deems to be non-material. The
Company does not have any financial instruments held for trading or other speculative purposes and does not invest in derivative
financial instruments, interest rate swaps or other investments that alter interest rate exposure. The Company does not have any
credit facilities with variable interest rates.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and
Procedures
Under the supervision and with the participation of the external firms that perform the finance and accounting
functions for our Company, together with our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”)
we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Management has previously reported that
the effectiveness of our internal controls over financial reporting was not effective due to a material weakness in the reporting
process due to the insufficient complement of personnel with the appropriate level of knowledge to identify and account for non-routine
transactions such as derivative instruments, which led to a restatement of its annual and interim financial statements for the
fiscal year ended June 30, 2014, and for the interim financial statements for the period ended September 30, 2014.
A material weakness is a deficiency or
combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Subsequent to identification of the material
weakness, management has taken several steps to correct the same. We have made additions to personnel and have improved corresponding
internal control procedures. In particular, in May 2015, the Company added an Accounting Manager, reporting to our Controller.
This person comes to us with over 30 years of experience in senior financial roles such as controller, divisional controller, and
chief accounting officer, in large companies with multi-site operations. He has garnered experience with analysis and recording
for complex agreements that required specific evaluations including evaluation of ratcheting rights provisions. This person is
currently in additional training regarding SEC filing requirements. In addition, where needed, the Company may seek assistance
from third parties to supplement current resources. With these additions, plus the experience gained by the Company officials in
the process of identifying and correcting the derivative effects of our prior financing agreements previously, the Company is confident
that it has taken the necessary steps to remediate the identified material weakness. Our improved internal controls procedures
along with our improved expertise level as described above have significantly upgraded our internal control over financial reporting
and are expected to fully remediate the material weakness described above.
Although management has implemented certain
initiatives as of March 31, 2016, and we believe that such initiatives will fully remediate the identified weakness, these initiatives
have not been in operation for a sufficient period of time, nor has the Company initiated a new financial transaction containing
derivatives, for the Company to support operating effectiveness of the measures implemented to remediate the material weakness.
Therefore Management must report that as of March 31, 2016, the material weakness in internal control over financial reporting
described above has not been fully remediated for the current fiscal year, although the Company has made significant progress towards
this goal.
As such, based on the evaluation of our
controls and procedures, our CEO and CFO are required to report that as of the end of the period covered by this report our disclosure
controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) were not effective to provide reasonable
assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported
within the time periods specified by the rules and forms of the SEC and is accumulated and communicated to management, including
the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure due to the material weakness in internal
control over financial reporting described above.
Changes in internal control over financial
reporting
There were no material changes in our internal
controls over financial reporting (as defined in Rule 13a- 15(f) under the Exchange Act) that occurred for the quarter ended March
31, 2016, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.