Notes
to Consolidated Financial Statements
(Unaudited)
Note
1. Nature of Business
Basis
of Presentation
Soligenix,
Inc. (the “Company”) is a late-stage biopharmaceutical company focused on developing and commercializing products
to treat rare diseases where there is an unmet medical need. The Company maintains two active business segments: BioTherapeutics
and Vaccines/BioDefense.
The
Company’s BioTherapeutics business segment is developing a novel photodynamic therapy (SGX301) utilizing topical synthetic
hypericin activated with safe visible light for the treatment of cutaneous T-cell lymphoma (“CTCL”), its first-in-class
innate defense regulator (“IDR”) technology, dusquetide (SGX942) for the treatment of oral mucositis in head and neck
cancer, and proprietary formulations of oral beclomethasone 17,21-dipropionate (“BDP”) for the prevention/treatment
of gastrointestinal (“GI”) disorders characterized by severe inflammation, including pediatric Crohn’s disease
(SGX203) and acute radiation enteritis (SGX201).
The
Company’s Vaccines/BioDefense business segment includes active development programs for RiVax™, its ricin toxin vaccine
candidate, OrbeShield
®
, a GI acute radiation syndrome (“GI ARS”) therapeutic candidate and SGX943,
a melioidosis therapeutic candidate. The development of the vaccine programs is currently supported by the heat stabilization
technology, known as ThermoVax
®
, under existing and on-going government contract funding. With the government contract
from the National Institute of Allergy and Infectious Diseases (“NIAID”), the Company will attempt to advance the
development of RiVax™ to protect against exposure to ricin toxin. The Company plans to use the funds received under the
government contracts with the Biomedical Advanced Research and Development Authority (“BARDA”) and NIAID to advance
the development of OrbeShield
®
for the treatment of GI ARS.
The
Company generates revenues under government grants primarily from the National Institutes of Health (the “NIH”) and
government contracts from BARDA and NIAID.
The
Company is subject to risks common to companies in the biotechnology industry including, but not limited to, development of new
technological innovations, dependence on key personnel, protections of proprietary technology, compliance with the United States
Food and Drug Administration (“FDA”) regulations, litigation, and product liability. Results for the three and nine
months ended September 30, 2016 are not necessarily indicative of results that may be expected for the full year.
Liquidity
As
of September 30, 2016, the Company had cash and cash equivalents of $5,655,200 as compared to $4,921,545 as of December 31, 2015,
representing an increase of $733,655 or 15%. As of September 30, 2016, the Company had working capital of $3,319,982, which excludes
a non-cash warrant liability of $1,324,909, as compared to working capital of $2,179,694, which excludes a non-cash warrant liability
of $2,434,101, as of December 31, 2015, representing an increase of $1,140,288 or 52%. The increase is primarily related to the
net increase in cash as a result of the proceeds received pursuant to our stock purchase agreement with SciClone Pharmaceuticals,
Inc.
Based
on the Company’s current rate of cash outflows, cash on hand, proceeds from its government contract and grant programs, availability
of funds from equity lines and proceeds from the state of New Jersey Technology Business Tax Certificate Transfer Program, management
believes that its current cash will be sufficient to meet the anticipated cash needs for working capital and capital expenditures
for at least the next twelve months.
Management’s
business strategy can be outlined as follows:
●
|
Complete
enrollment and report preliminary results in the pivotal Phase 3 clinical trial of SGX301
for the treatment of CTCL;
|
●
|
Continue
to collect the long-term follow-up safety data from the SGX942 Phase 2 proof-of-concept
study for the treatment of oral mucositis in head and neck cancer patients and publish
the findings from this study;
|
●
|
Obtain
agreement from the FDA on a pivotal Phase 2b/3 protocol of SGX942 in the treatment of
oral mucositis in head and neck cancer patients;
|
●
|
Initiate
a pivotal Phase 3 clinical trial of SGX203 for the treatment of pediatric Crohn’s
disease;
|
●
|
Continue
development of RiVax™ in combination with the Company’s ThermoVax
®
technology, to develop new heat stable vaccines in biodefense, with NIAID funding
support;
|
●
|
Advance
the preclinical and manufacturing development of OrbeShield
®
as a biodefense
medical countermeasure for the treatment of GI ARS under the BARDA contract and with
NIAID funding support;
|
●
|
Continue
to apply for and secure additional government funding for each of the Company’s
BioTherapeutics and Vaccines/BioDefense programs through grants, contracts and/or procurements;
|
●
|
Pursue
business development opportunities for the Company’s pipeline programs, as well
as explore merger/acquisition strategies; and
|
●
|
Acquire
or in-license new clinical-stage compounds for development.
|
The
Company’s plans with respect to its liquidity management include, but are not limited to, the following:
●
|
The
Company has up to $35.1 million in active government contract and grant funding still
available to support its associated research programs through 2016 and beyond, provided
the federal agencies exercise all options and do not elect to terminate the contracts
or grants for convenience. The Company plans to submit additional contract and grant
applications for further support of its programs with various funding agencies;
|
●
|
The
Company has continued to use equity instruments to provide a portion of the compensation
due to vendors and collaboration partners and expects to continue to do so for the foreseeable
future;
|
●
|
The
Company will pursue Net Operating Loss (“NOL”) sales in the state of New
Jersey pursuant to its Technology Business Tax Certificate Transfer Program. Based on
the receipt of $488,933 in proceeds pursuant to the sale of NJ NOL in 2015, the Company
expects to receive $530,143 in net proceeds in 2016. The Company expects to participate
in the program during 2017 and beyond as the program is available;
|
●
|
The
Company plans to pursue potential partnerships for pipeline programs. However, there
can be no assurances that we can consummate such transactions;
|
●
|
The
Company has $8.2 million available from equity facilities expiring in November 2016,
and $10.4 million from equity facilities expiring in March 2019; and
|
●
|
The
Company may seek additional capital in the private and/or public equity markets to continue
its operations, respond to competitive pressures, develop new products and services,
and to support new strategic partnerships. The Company is currently evaluating additional
equity financing opportunities on an ongoing basis and may execute them when appropriate.
However, there can be no assurances that the Company can consummate such a transaction,
or consummate a transaction at favorable pricing.
|
Reverse
Stock Split
On
October 7, 2016, the Company completed a reverse stock split of its issued and outstanding shares of common stock at a ratio of
one-for-ten, whereby, once effective, every ten shares of its common stock was exchanged for one share of its common stock. The
Company’s common stock began trading on the OTCQB on a reverse split basis at the market opening on October 7, 2016. All
share and per share data have been restated to reflect this reverse stock split.
Note
2. Summary of Significant Accounting Policies
Principles
of Consolidation
The
consolidated financial statements include Soligenix, Inc., and its wholly and majority owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated as a result of consolidation.
Reclassification
of Prior Year Presentation
Certain
prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no
effect on the reported results of operations.
Operating
Segments
Operating
segments are defined as components of an enterprise about which separate financial information is available that is evaluated
on a regular basis by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an
individual segment and in assessing the performance of the segment. The Company divides its operations into two operating segments:
BioTherapeutics and Vaccines/BioDefense.
Cash
and cash equivalents
The
Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.
Contracts
and Grants Receivable
Contracts
and grants receivable consist of unbilled amounts due from various grants from the NIH and contracts from BARDA and NIAID, an
institute of NIH, for costs incurred prior to the period end under reimbursement contracts. The amounts were billed to the respective
governmental agencies in the month subsequent to period end and collected shortly thereafter. Accordingly, no allowance for doubtful
amounts has been established. If amounts become uncollectible, they are charged to operations.
Intangible
Assets
One
of the most significant estimates or judgments that the Company makes is whether to capitalize or expense patent and license costs.
The Company makes this judgment based on whether the technology has alternative future uses, as defined in Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 730,
Research and Development
.
Based on this consideration, the Company capitalizes payments made to legal firms that are engaged in filing and protecting rights
to intellectual property and rights for its current products in both the domestic and international markets. The Company believes
that patent rights are one of its most valuable assets. Patents and patent applications are a key component of intellectual property,
especially in the early stage of product development, as their purchase and maintenance gives the Company access to key product
development rights from Soligenix’s academic and industry partners. These rights can also be sold or sub-licensed as part
of its strategy to partner its products at each stage of development as the intangible assets have alternative future use. The
legal costs incurred for these patents consist of work associated with filing new patents designed to protect, preserve and maintain
the Company’s rights, and perhaps extend the lives of the patents. The Company capitalizes such costs and amortizes intangibles
on a straight-line basis over their expected useful life – generally a period of 11 to 16 years.
The
Company did not capitalize any patent related costs during the nine months ended September 30, 2016 and 2015.
These
intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may
not be recoverable or if the underlying program is no longer being pursued. If the sum of the expected undiscounted cash flows
is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair
value and carrying value of the related asset or group of assets. No such write downs have occurred during the nine months ended
September 30, 2016 and 2015.
Impairment
of Long-Lived Assets
Office
furniture and equipment and intangible assets are evaluated and reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. The Company recognizes impairment of long-lived assets in the event
the net book value of such assets exceeds the estimated future undiscounted cash flows attributable to such assets. If the sum
of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized
for the difference between the fair value and the carrying value of the related asset or group of assets. Such analyses necessarily
involve significant judgment.
The
Company did not record any impairment of long-lived assets for the nine months ended September 30, 2016 and 2015.
Fair
Value of Financial Instruments
FASB
ASC 820 —
Fair Value Measurements and Disclosures,
defines fair value as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC
820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement
purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company
on September 30, 2016. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the
amounts that could be realized on disposition of the financial instruments.
FASB
ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable
or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market
assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
The
three levels of the fair value hierarchy are as follows:
●
|
Level
1 — Quoted prices in active markets for identical assets or liabilities that the
reporting entity has the ability to access at the measurement date. Level 1 primarily
consists of financial instruments whose value is based on quoted market prices such as
exchange-traded instruments and listed equities.
|
●
|
Level
2 — Inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly or indirectly. Level 2 includes financial
instruments that are valued using models or other valuation methodologies. These models
consider various assumptions, including volatility factors, current market prices and
contractual prices for the underlying financial instruments. Substantially all of these
assumptions are observable in the marketplace, can be derived from observable data or
are supported by observable levels at which transactions are executed in the marketplace.
|
●
|
Level
3 — Unobservable inputs for the asset or liability. Financial instruments are considered
Level 3 when their fair values are determined using pricing models, discounted cash flows
or similar techniques and at least one significant model assumption or input is unobservable.
|
The
carrying amounts reported in the consolidated balance sheet for cash and cash equivalents, contracts and grants receivable, accounts
payable, notes payable and accrued compensation approximate their fair value based on the short-term maturity of these instruments.
The Company recognizes all derivative financial instruments as assets or liabilities in the financial statements and measures
them at fair value with changes in fair value reflected as current period income or loss unless the derivatives qualify as hedges.
As a result, certain warrants issued in connection with the Company’s June 2013 registered public offering were accounted
for as derivatives. See Note 5,
Warrant Liability
.
Revenue
Recognition
The
Company’s revenues are primarily generated from government contracts and grants. The revenue from government contracts and
grants is based upon subcontractor costs and internal costs incurred that are specifically covered by the contracts and grants,
plus a facilities and administrative rate that provides funding for overhead expenses and management fees. These revenues are
recognized when expenses have been incurred by subcontractors or when the Company incurs reimbursable internal expenses that are
related to the government contracts and grants.
Research
and Development Costs
Research
and development costs are charged to expense when incurred in accordance with FASB ASC 730,
Research and Development
. Research
and development includes costs such as clinical trial expenses, contracted research and license agreement fees with no alternative
future use, supplies and materials, salaries, share-based compensation, employee benefits, equipment depreciation and allocation
of various corporate costs.
Accounting
for Warrants
The
Company considered FASB ASC 815,
Evaluating Whether an Instrument is Considered Indexed to an Entity’s Own Stock
,
which provides guidance for determining whether an equity-linked financial instrument (or embedded feature) issued by an entity
is indexed to the entity’s stock and, therefore, qualifying for the first part of the scope exception in paragraph 815-10-15.
The Company evaluated the provisions and determined that warrants issued in connection with the Company’s June 2013 registered
public offering contain provisions that protect holders from a decline in the issue price of the Company’s common stock
(or “down-round” provisions) and contain net settlement provisions. Consequently, these warrants are recognized as
liabilities at their fair value on the date of grant and remeasured at fair value on each reporting date. All other warrants issued
were indexed to the Company’s stock and therefore are accounted for as equity instruments for 2016 and 2015.
Share-Based
Compensation
Stock
options are issued with an exercise price equal to the market price on the date of grant. Stock options issued to directors upon
re-election vest quarterly for a period of one year (new director issuances are fully vested upon issuance). Stock options issued
to employees vest 25% on the grant date, then 25% each subsequent year for a period of three years. Stock options vest over each
three-month period from the date of issuance to the end of the three year period. These options have a ten year life for as long
as the individuals remain employees or directors. In general, when an employee or director terminates their position, the options
will expire within three months, unless otherwise extended by the Board.
From
time to time, the Company issues restricted shares of common stock to vendors and consultants as compensation for services performed.
Typically these instruments vest upon issuance and therefore the entire share-based compensation expense is recognized upon issuance
to the vendors and/or consultants.
Share-based compensation expense for options, warrants and shares of common stock granted to non-employees
has been determined in accordance with FASB ASC 505-50,
Equity-Based Payments to Non-Employees
, and represents the fair
value of the consideration received, or the fair value of the equity instruments issued, whichever may be more reliably measured.
For options that vest over future periods, the fair value of options granted to non-employees is amortized as the options vest.
The fair value is remeasured each reporting period until performance is complete.
For
the nine months ended September 30, 2016 and 2015, the Company issued stock options at a weighted average exercise price of $7.72
and $14.40 per share, respectively. The fair value of options issued during the nine months ended September 30, 2016 and 2015
was estimated using the Black-Scholes option-pricing model and the following assumptions:
●
|
a
dividend yield of 0%;
|
●
|
an
expected life of 4 years;
|
●
|
volatility
of 116% for 2016 and ranging from 136%-141% for 2015;
|
●
|
forfeitures
at a rate of 12%; and
|
●
|
risk-free
interest rates ranging from 0.96%-1.52% and 0.99%-1.34% for 2016 and 2015, respectively.
|
The
fair value of each option grant made during 2016 and 2015 was estimated on the date of each grant using the Black-Scholes option
pricing model and amortized ratably over the option vesting periods, which approximates the service period.
Income
Taxes
Deferred
tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is established when
it is more likely than not that all or a portion of a deferred tax asset will not be realized. A review of all available positive
and negative evidence is considered, including the Company’s current and past performance, the market environment in which
the Company operates, the utilization of past tax credits, and the length of carryback and carryforward periods. Deferred tax
assets and liabilities are measured utilizing tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. No current or deferred income taxes have been provided through September
30, 2016 due to the net operating losses incurred by the Company since its inception. The Company recognizes accrued interest
and penalties associated with uncertain tax positions, if any, as part of income tax expense. There were no tax related interest
and penalties recorded for 2016 and 2015. Additionally, the Company has not recorded an asset for unrecognized tax benefits or
a liability for uncertain tax positions at September 30, 2016 and December 31, 2015.
Earnings
Per Share
Basic
earnings per share (“EPS”) excludes dilution and is computed by dividing income (loss) available to common stockholders
by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the
issuance of common stock that shared in the earnings of the entity. Since there is a significant number of options and warrants
outstanding, fluctuations in the actual market price can have a variety of results for each period presented.
|
|
Three
Months Ended
September 30,
|
|
|
Nine
Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss) for basic earnings per share
|
|
$
|
(1,673,217
|
)
|
|
|
2,774,348
|
|
|
$
|
(2,915,424
|
)
|
|
$
|
(5,772,668
|
)
|
Less change in fair value of warrant liability
|
|
|
-
|
|
|
|
4,047,742
|
|
|
|
1,109,192
|
|
|
|
-
|
|
Net loss for diluted earnings per share
|
|
|
(1,673,217
|
)
|
|
|
(1,273,394
|
)
|
|
|
(4,024,616
|
)
|
|
|
(5,772,668
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average basic common shares outstanding
|
|
|
3,432,081
|
|
|
|
2,648,240
|
|
|
|
3,245,653
|
|
|
|
2,553,930
|
|
Assumed conversion of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock purchase warrants
|
|
|
-
|
|
|
|
180,818
|
|
|
|
102,184
|
|
|
|
-
|
|
Denominator for diluted earnings per share – adjusted weighted-average shares
|
|
|
3,432,081
|
|
|
|
2,829,058
|
|
|
|
3,347,837
|
|
|
|
2,553,930
|
|
Basic net income (loss) per share
|
|
$
|
(0.49
|
)
|
|
|
1.05
|
|
|
$
|
(0.90
|
)
|
|
$
|
(2.26
|
)
|
Diluted net loss per share
|
|
$
|
(0.49
|
)
|
|
|
(0.45
|
)
|
|
$
|
(1.20
|
)
|
|
$
|
(2.26
|
)
|
The
following table summarizes potentially dilutive adjustments to the weighted average number of common shares which were excluded
from the calculation because their effect would be anti-dilutive.
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Common stock purchase warrants
|
|
|
492,614
|
|
|
|
188,920
|
|
|
|
188,920
|
|
|
|
492,614
|
|
Stock options
|
|
|
299,752
|
|
|
|
230,074
|
|
|
|
299,752
|
|
|
|
230,074
|
|
Total
|
|
|
792,366
|
|
|
|
418,994
|
|
|
|
488,672
|
|
|
|
722,686
|
|
The
weighted average exercise price of the Company’s stock options and warrants outstanding at September 30, 2016 were $18.20
and $7.38 per share, respectively, and at September 30, 2015 were $23.30 and $8.00 per share, respectively.
Use
of Estimates and Assumptions
The
preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management
to make estimates and assumptions such as the fair value of warrants and stock options and recovery of the useful life of intangibles
that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.
Recently
Issued Accounting Pronouncements
In
August 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-15, “Presentation of Financial Statements
- Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.”
The amendments in this ASU are intended to define management’s responsibility to evaluate whether there is substantial doubt
about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Specifically, this
ASU provides a definition of the term substantial doubt and requires an assessment for a period of one year after the date that
the financial statements are issued (or available to be issued). It also requires certain disclosures when substantial doubt is
alleviated as a result of consideration of management’s plans and requires an express statement and other disclosures when
substantial doubt is not alleviated. The new standard will be effective for annual periods ending after December 15, 2016, and
interim periods thereafter, with early adoption permitted. The Company is currently evaluating the impact the adoption of this
standard will have on the Company's consolidated financial statements and disclosures.
In
February 2016, the FASB issued ASU No. 2016-02, “Leases” (topic 842). The FASB issued this update to increase transparency
and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key
information about leasing arrangements. The updated guidance is effective for annual periods beginning after December 15, 2018,
including interim periods within those fiscal years. Early adoption of the update is permitted. The Company is evaluating
the impact of the adoption of this update on our consolidated financial statements and related disclosures.
In
March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting, which amends ASC
Topic 718, and intends to simplify various aspects related to how share-based payments are accounted for and presented in the
financial statements. It is effective for annual reporting periods beginning after December 15, 2016, and interim periods within
that reporting period. Early adoption is permitted. The Company is currently evaluating the impact of adoption of this update
on our consolidated financial statements and related disclosures.
Note
3. Intangible Assets
The
following is a summary of intangible assets which consists of licenses and patents:
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
Book Value
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
462,234
|
|
|
$
|
354,179
|
|
|
$
|
108,055
|
|
Patents
|
|
|
1,893,185
|
|
|
|
1,858,932
|
|
|
|
34,253
|
|
Total
|
|
$
|
2,355,419
|
|
|
$
|
2,213,111
|
|
|
$
|
142,308
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
462,234
|
|
|
$
|
333,732
|
|
|
$
|
128,502
|
|
Patents
|
|
|
1,893,185
|
|
|
|
1,832,955
|
|
|
|
60,230
|
|
Total
|
|
$
|
2,355,419
|
|
|
$
|
2,166,687
|
|
|
$
|
188,732
|
|
Amortization
expense was $15,589 and $55,929 for the three months ended September 30, 2016 and 2015, respectively, and $46,424 and $165,288
for the nine months ended September 30, 2016 and 2015, respectively.
Based
on the balance of licenses and patents at September 30, 2016, the annual amortization expense for each of the succeeding four
years is expected to approximate as follows:
|
|
Amortization
Expense
|
|
October 1 thru December 31, 2016
|
|
$
|
15,376
|
|
2017
|
|
$
|
61,800
|
|
2018
|
|
$
|
37,300
|
|
2019
|
|
$
|
27,832
|
|
License
fees and royalty payments are expensed as incurred as the Company does not attribute any future benefits to such payments.
Note
4. Notes Payable
On
July 29, 2015, the Company entered into equity purchase agreements (the “Equity Line Purchase Agreements”) and registration
rights agreements with certain accredited institutional investors. Under the Equity Line Purchase Agreements, the investors have
agreed to purchase from the Company up to an aggregate of $10 million worth of shares of common stock, from time to time.
In
consideration for entering into the Equity Line Purchase Agreements, the Company issued to the investors promissory notes having
an aggregate principal amount of $300,000, which were recorded as stock issuance costs. The promissory notes were paid on April
15, 2016, and had an issuance date present value of $282,071. The promissory notes did not include terms for interest, therefore
the interest was imputed at 9%. Total discount amortization of $7,281 was recorded as interest expense for the nine months ended
September 30, 2016. The discount was being accreted over the term of the promissory notes using the effective interest rate method.
Note
5. Warrant Liability
Warrants
issued in connection with the Company’s June 2013 registered public offering contain provisions that protect holders from
a decline in the issue price of its common stock (or “down-round” provision) and contain net settlement provisions.
As a result, the Company accounts for these warrants as liabilities instead of equity instruments. Down-round provisions reduce
the exercise or conversion price of a warrant if the Company issues equity shares for a price that is lower than the exercise
or conversion price of the warrants. Net settlement provisions allow the holder of the warrant to surrender shares underlying
the warrant equal to the exercise price as payment of its exercise price, instead of exercising the warrant by paying cash. The
Company evaluates whether warrants to acquire its common stock contain provisions that protect holders from declines in the stock
price or otherwise could result in modification of the exercise price and/or shares to be issued under the respective warrant
agreements based on a variable that is not an input to the fair value of a “fixed for fixed” option. As a result of
the Company’s December 2014 registered public unit offering, the exercise price of warrants outstanding in connection with
the public offering completed in June 2013 was adjusted to $6.10 per share. As a result of the Company’s December 2015 drawings
on the Equity Line Purchase Agreements, the exercise price of warrants outstanding in connection with the public offering conducted
in June 2013 was adjusted to $5.10 per share. The Company recognized these warrants as liabilities at their fair value on the
date of grant and remeasures them to fair value on each reporting date.
The
Company recognized an initial warrant liability for the warrants issued in connection with the registered public offering completed
in June 2013 totaling $4,827,788, which was based on the June 25, 2013 closing price of a share of the Company’s common
stock as reported on OTC Markets of $9.60. On September 30, 2016, the closing price of the Company’s common stock as reported
on OTC Markets was $7.70. Due to the fluctuations in the market value of the Company’s common stock from December 31,
2015 through September 30, 2016, the Company recognized non-cash income of $1,109,192 for the change in the fair value of the
warrant liability for the nine months ended September 30, 2016.
The
assumptions used in connection with the valuation of warrants issued utilizing the binomial method were as follows:
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
Number of shares underlying the warrants
|
|
|
303,694
|
|
|
|
303,694
|
|
Exercise price
|
|
$
|
5.10
|
|
|
$
|
5.10
|
|
Volatility
|
|
|
90
|
%
|
|
|
98
|
%
|
Risk-free interest rate
|
|
|
0.68
|
%
|
|
|
1.19
|
%
|
Expected dividend yield
|
|
|
0
|
|
|
|
0
|
|
Expected warrant life (years)
|
|
|
1.73
|
|
|
|
2.48
|
|
Stock Price
|
|
$
|
7.70
|
|
|
$
|
11.30
|
|
The
table below provides a reconciliation of the beginning and ending balances for the liability measured at fair value using significant
unobservable inputs (Level 3). The table reflects gains for the nine months ended September 30, 2016 for the financial liability
categorized as Level 3 as of September 30, 2016
.
|
|
December 31,
2015
|
|
|
Decrease from Warrants Exercised in 2016
|
|
|
Decrease in Fair Value
|
|
|
September 30,
2016
|
|
Warrant liability
|
|
$
|
2,434,101
|
|
|
|
-
|
|
|
$
|
1,109,192
|
|
|
$
|
1,324,909
|
|
Note
6. Income Taxes
The
Company had gross NOLs at December 31, 2015 of approximately $90,891,000 for federal tax purposes and approximately $5,273,000
of New Jersey NOL carry forwards remaining after the sale of unused net operating loss carry forwards, portions of which will
begin to expire in 2018. In addition, the Company has $4,909,000 of various tax credits which expire from 2018 to 2034. The Company
may be able to utilize its NOLs to reduce future federal and state income tax liabilities. However, these NOLs are subject to
various limitations under Internal Revenue Code (“IRC”) Section 382. IRC Section 382 limits the use of NOLs to the
extent there has been an ownership change of more than 50 percentage points. In addition, the NOL carry forwards are subject to
examination by the taxing authority and could be adjusted or disallowed due to such exams. Although the Company has not undergone
an IRC Section 382 analysis, it is likely that the utilization of the NOLs may be substantially limited.
The
Company and one or more of its subsidiaries files income tax returns in the U.S. Federal jurisdiction, and various state and local
jurisdictions. During the year ended December 31, 2015, in accordance with the State of New Jersey’s Technology Business
Tax Certificate Program, which allowed certain high technology and biotechnology companies to sell unused net operating loss carryforwards
to other New Jersey-based corporate taxpayers, the Company sold New Jersey net operating loss carryforwards, resulting in the
recognition of $488,933 of income tax benefit, net of transaction costs. There can be no assurance as to the continuation or magnitude
of this program in the future.
The
Company has no tax provision for the three and nine month periods ended September 30, 2016 and 2015 due to losses incurred and
the recognition of full valuation allowances recorded against net deferred tax assets.
Note
7. Shareholders’ Deficiency
Preferred
Stock
The
Company has 350,000 shares of preferred stock authorized, none of which are issued or outstanding.
Common
Stock
During
the nine months ended September 30, 2016, the Company issued the following shares of common stock:
●
|
In several separate transactions the Company issued 266,830 shares of common stock pursuant to the equity line with Lincoln Park Capital Fund, LLC (“Lincoln Park”);
|
●
|
On May 31, 2016, the Company issued 5,000 shares of common stock to a vendor for partial consideration for services performed. The market price of the Company’s common stock was $7.30 on the date issued and the shares were vested on the date of grant.
|
●
|
On August 29, 2016, the Company issued 2,500 shares of common stock to a vendor for partial consideration for services performed. The market price of the Company’s common stock was $6.40 on the date issued and the shares were vested on the date of grant.
|
●
|
On September 9, 2016, the Company and SciClone entered into an exclusive license agreement (the “License Agreement”), pursuant to which the Company granted rights to SciClone to develop, promote, market, distribute and sell SGX942 in the People’s Republic of China, including Hong Kong and Macau, as well as Taiwan, South Korea and Vietnam (the “Territory”). Under the terms of the License Agreement, SciClone will be responsible for all aspects of development, product registration and commercialization in the Territory, having access to data generated by the Company. In exchange for exclusive rights, SciClone will pay to the Company royalties on net sales, and the Company will supply commercial drug product to SciClone on a cost-plus basis, while maintaining worldwide manufacturing rights. The Company also entered into a common stock purchase agreement with SciClone pursuant to which we sold 352,942 shares of our common stock to SciClone for an aggregate price of $3,000,000.
|
Equity
Line Facilities
In
March 2016, the Company entered into a common stock purchase agreement with Lincoln Park. The Lincoln Park equity facility allows
the Company to require Lincoln Park to purchase up to 10,000 shares (“Regular Purchase”) of the Company’s common
stock every two business days, up to an aggregate of $12.0 million over approximately a 36-month period with such amounts increasing
as the quoted stock price increases. The Regular Purchase may be increased up to 15,000 shares of common stock if the closing
price of the common shares is not below $10.00, up to 20,000 shares of common stock if the closing price of the common shares
is not below $15.00 and up to 25,000 shares of common stock if the closing price of the common shares is not below $20.00. The
purchase price for the Regular Purchase shall be equal to the lesser of (i) the lowest sale price of the common shares during
the purchase date, or (ii) the average of the three lowest closing sale prices of the common shares during the twelve business
days prior to the purchase date. Each Regular Purchase shall not exceed $750,000. Furthermore, for each purchase by Lincoln Park,
additional commitment shares in commensurate amounts up to a total of 50,000 shares will be issued based upon the relative proportion
of the aggregate amount of $12.0 million. In addition to the Regular Purchase and provided that the closing price of the common
shares is not below $7.50 on the purchase date, the Company in its sole discretion may direct Lincoln Park on each purchase date
to purchase on the next stock trading day (Accelerated Purchase Date”) additional shares of Company stock up to the lesser
of (i) three times the number of shares purchased following a Regular Purchase or (ii) 30% of the trading volume of shares traded
on the Accelerated Purchase Date at a price equal to the lesser of the closing sale price on the Accelerated Purchase Date or
95% of the Accelerated Purchase Date’s volume weighted average price.
Upon
entering into the agreement, the Company issued 10,000 shares of common stock as consideration for its commitment to purchase
shares of our common stock under the purchase agreement. The value of these shares on the date granted was $81,000, which was
accounted for as a stock issuance cost.
During
the quarter ended September 30, 2016, the Company sold Lincoln Park 110,000 shares of common stock for an aggregate price of $676,510
and issued 2,819 additional shares of common stock with a value of $17,377 to Lincoln Park as a commitment fee pursuant to the
terms of the agreement. The additional shares issued as a commitment fee were accounted for as a stock issuance cost.
Note 8. Commitments and Contingencies
The
Company has commitments of approximately $416,667 as of September 30, 2016 for several licensing agreements with consultants and
universities. Additionally, the Company has collaboration and license agreements, which upon clinical or commercialization success,
may require the payment of milestones of up to $7.9 million and/or royalties up to 6% of net sales of covered products, if and
when achieved. However, there can be no assurance that clinical or commercialization success will occur. As of September 30, 2016,
no milestone or royalty payments have been paid or accrued.
In
December 2014, the Company entered into a lease agreement through May 31, 2018 for existing and expanded office space. The rent
for the first 12 months is approximately $12,300 per month, or approximately $20.85 per square foot. This rent increases to approximately
$12,375 per month, or approximately $20.95 per square foot, for the next 12 months and approximately $12,460 per month, or approximately
$21.13 per square foot for the remainder of the lease.
On
September 3, 2014, the Company entered into an asset purchase agreement with Hy Biopharma, Inc. (“Hy Biopharma”) pursuant
to which the Company acquired certain intangible assets, properties and rights of Hy Biopharma related to the development of Hy
BioPharma’s synthetic hypericin product. As consideration for the assets acquired, the Company paid $275,000 in cash and
issued 184,912 shares of common stock with a fair value based on the Company’s stock price on the date of grant of $3,750,000.
These amounts were charged to research and development expense during the third quarter of 2014 as the assets will be used in
the Company’s research and development activities and do not have alternative future use pursuant to generally accepted
accounting principles in the United States. Provided all future success-oriented milestones are attained, the Company will be
required to make additional payments of up to $10.0 million, if and when achieved. Payments will be payable in restricted securities
of the Company not to exceed 19.9% ownership of Company’s outstanding stock. As of September 30, 2016, no milestone or royalty
payments have been paid or accrued.
In
February 2007, the Company’s Board of Directors authorized the issuance of 50,000 shares of the Company’s common stock
to Dr. Schaber immediately prior to the completion of a transaction, or series or a combination of related transactions, negotiated
by its Board of Directors whereby, directly or indirectly, a majority of its capital stock or a majority of its assets are transferred
from the Company and/or its stockholders to a third party. Dr. Schaber’s amended employment agreement includes the
Company’s obligation to issue such shares if such event occurs.
As
a result of the above agreements, the Company has future contractual obligations over the next five years as follows:
Year
|
|
Research and Development
|
|
|
Property
and
Other Leases
|
|
|
Total
|
|
October 1 through December 31, 2016
|
|
$
|
16,667
|
|
|
$
|
39,333
|
|
|
$
|
56,000
|
|
2017
|
|
|
100,000
|
|
|
|
151,000
|
|
|
|
251,000
|
|
2018
|
|
|
100,000
|
|
|
|
52,000
|
|
|
|
152,000
|
|
2019
|
|
|
100,000
|
|
|
|
-
|
|
|
|
100,000
|
|
2020
|
|
|
100,000
|
|
|
|
-
|
|
|
|
100,000
|
|
Total
|
|
$
|
416,667
|
|
|
$
|
242,333
|
|
|
$
|
659,000
|
|
Note
9. Operating Segments
The
Company maintains two active operating segments: BioTherapeutics and Vaccines/BioDefense. Each segment includes an element of
overhead costs specifically associated with its operations, with its corporate shared services group responsible for support functions
generic to both operating segments.
|
|
Three Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Contract/Grant Revenue
|
|
|
|
|
|
|
Vaccines/BioDefense
|
|
$
|
2,959,254
|
|
|
$
|
3,879,675
|
|
BioTherapeutics
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
2,959,254
|
|
|
$
|
3,879,675
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations
|
|
|
|
|
|
|
|
|
Vaccines/BioDefense
|
|
$
|
239,012
|
|
|
$
|
653,415
|
|
BioTherapeutics
|
|
|
(908,086
|
)
|
|
|
(959,065
|
)
|
Corporate
|
|
|
(829,743
|
)
|
|
|
(964,016
|
)
|
Total
|
|
$
|
(1,498,817
|
)
|
|
$
|
(1,269,666
|
)
|
Amortization and Depreciation Expense
|
|
|
|
|
|
|
|
|
Vaccines/BioDefense
|
|
$
|
10,090
|
|
|
$
|
10,093
|
|
BioTherapeutics
|
|
|
10,313
|
|
|
|
50,673
|
|
Corporate
|
|
|
2,063
|
|
|
|
2,074
|
|
Total
|
|
$
|
22,466
|
|
|
$
|
62,840
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense), Net
|
|
|
|
|
|
|
|
|
Corporate
|
|
$
|
(174,400
|
)
|
|
$
|
4,044,014
|
|
|
|
|
|
|
|
|
|
|
Share-Based Compensation
|
|
|
|
|
|
|
|
|
Vaccines/BioDefense
|
|
$
|
25,164
|
|
|
$
|
19,344
|
|
BioTherapeutics
|
|
|
30,496
|
|
|
|
29,180
|
|
Corporate
|
|
|
61,590
|
|
|
|
86,400
|
|
Total
|
|
$
|
117,250
|
|
|
$
|
134,924
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Contract/Grant Revenue
|
|
|
|
|
|
|
Vaccines/BioDefense
|
|
$
|
8,750,291
|
|
|
$
|
5,781,816
|
|
BioTherapeutics
|
|
|
-
|
|
|
|
13,972
|
|
Total
|
|
$
|
8,750,291
|
|
|
$
|
5,795,788
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Operations
|
|
|
|
|
|
|
|
|
Vaccines/BioDefense
|
|
$
|
1,291,123
|
|
|
$
|
1,040,627
|
|
BioTherapeutics
|
|
|
(2,822,766
|
)
|
|
|
(3,094,883
|
)
|
Corporate
|
|
|
(2,882,836
|
)
|
|
|
(2,808,428
|
)
|
Total
|
|
$
|
(4,414,479
|
)
|
|
$
|
(4,862,684
|
)
|
Amortization and Depreciation Expense
|
|
|
|
|
|
|
|
|
Vaccines/BioDefense
|
|
$
|
30,150
|
|
|
$
|
29,820
|
|
BioTherapeutics
|
|
|
31,309
|
|
|
|
148,913
|
|
Corporate
|
|
|
6,443
|
|
|
|
5,763
|
|
Total
|
|
$
|
67,902
|
|
|
$
|
184,496
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense), Net
|
|
|
|
|
|
|
|
|
Corporate
|
|
$
|
1,499,055
|
|
|
$
|
(909,984
|
)
|
|
|
|
|
|
|
|
|
|
Share-Based Compensation
|
|
|
|
|
|
|
|
|
Vaccines/BioDefense
|
|
$
|
77,393
|
|
|
$
|
63,280
|
|
BioTherapeutics
|
|
|
96,313
|
|
|
|
88,615
|
|
Corporate
|
|
|
280,229
|
|
|
|
262,217
|
|
Total
|
|
$
|
453,935
|
|
|
$
|
414,112
|
|
|
|
As of
September 30,
2016
|
|
|
As of
December 31,
2015
|
|
Identifiable Assets
|
|
|
|
|
|
|
Vaccines/BioDefense
|
|
$
|
1,801,149
|
|
|
$
|
2,123,676
|
|
BioTherapeutics
|
|
|
56,555
|
|
|
|
76,183
|
|
Corporate
|
|
|
5,896,100
|
|
|
|
5,187,263
|
|
Total
|
|
$
|
7,753,804
|
|
|
$
|
7,387,122
|
|
Note 10. Subsequent Events
During November 2016, the Company
and the holders of the issued and outstanding common stock purchase warrants dated June 25, 2013 issued in connection with the
Company’s June 2013 registered public offering agreed to amend the terms of those common stock purchase warrants. According
to the terms of the Amendment to the Common Stock Purchase Warrant (the “Amendment”), the exercise price per share
of the common stock under those warrants (after giving effect to the one-for-ten reverse stock split effective October 7, 2016)
was reduced from $5.10 per share to $0.80 per share. In addition, the Amendment permits the holders to exercise those warrants
by means of a cashless exercise in which the holders shall be entitled to receive shares based on a formula in the Amendment and
the “down round” provision was eliminated. As a result of the Amendment, the warrant liability, as described in Note
5, Warrant Liability, was remeasured as of the date of the modification, which resulted in an approximate $430,000 decrease in
the carrying value of the warrant liability, which was recognized in the statement of operations on the date of the modification.
The warrant liability was then reclassified to equity as the amended terms of the warrants qualified them to be accounted for as
equity instruments. Of the 303,694 shares of common stock that remained issuable upon the exercise of such warrants as of
September 30, 2016, warrants to purchase a total of 42,444 shares were subsequently exchanged on a cashless exercise basis, and
as a result, 33,978 shares of common stock were issued through November 9, 2016.
ITEM
2 –
Management’s Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The
following discussion and analysis provides information to explain our results of operations and financial condition. You should
also read our unaudited consolidated interim financial statements and their notes included in this Form 10-Q, and our audited
consolidated financial statements and their notes. Risk Factors and other information included in our Annual Report on Form 10-K
for the year ended December 31, 2015. This report contains forward-looking statements. Forward-looking statements within this
Form 10-Q are identified by words such as “believes,” “anticipates,” “expects,” “intends,”
“may,” “will” “plans” and other similar expressions, however, these words are not the exclusive
means of identifying such statements. In addition, any statements that refer to expectations, projections or other characterizations
of future events or circumstances are forward-looking statements. These forward-looking statements are subject to significant
risks, uncertainties and other factors, which may cause actual results to differ materially from those expressed in, or implied
by, these forward-looking statements. Except as expressly required by the federal securities laws, we undertake no obligation
to publicly update or revise any forward-looking statements to reflect events, circumstances or developments occurring subsequent
to the filing of this Form 10-Q with the U.S. Securities and Exchange Commission or for any other reason and you should not place
undue reliance on these forward-looking statements. You should carefully review and consider the various disclosures we make in
this report and our other reports filed with the U.S. Securities and Exchange Commission that attempt to advise interested parties
of the risks, uncertainties and other factors that may affect our business. We provide addresses to internet sites solely for
the information to investors. We do not intend any addresses to be active links or to otherwise incorporate the contents of any
website into this report.
Our
Business Overview
We
are a late-stage biopharmaceutical company focused on developing and commercializing products to treat rare diseases where there
is an unmet medical need. We maintain two active business segments: BioTherapeutics and Vaccines/BioDefense.
Our BioTherapeutics business segment is developing
a novel photodynamic therapy (SGX301) utilizing topical synthetic hypericin activated with safe visible light for the treatment
of cutaneous T-cell lymphoma (“CTCL”), our first-in-class innate defense regulator (“IDR”) technology,
dusquetide (SGX942) for the treatment of oral mucositis in head and neck cancer, and proprietary formulations of oral beclomethasone
17,21-dipropionate (“BDP”) for the prevention/treatment of gastrointestinal (“GI”) disorders characterized
by severe inflammation, including pediatric Crohn’s disease (SGX203) and acute radiation enteritis (SGX201).
Our Vaccines/BioDefense business segment includes
active development programs for RiVax™, our ricin toxin vaccine candidate, OrbeShield
®
, our GI acute radiation
syndrome (“GI ARS”) therapeutic candidate and SGX943, our melioidosis therapeutic candidate. The development of our
vaccine programs currently is supported by our heat stabilization technology, known as ThermoVax
®
, under existing
and on-going government contract funding. With the government contract from the National Institute of Allergy and Infectious Diseases
(“NIAID”), we will attempt to advance the development of RiVax™ to protect against exposure to ricin toxin.
We plan to use the funds received under our awarded government contracts with the Biomedical Advanced Research and Development
Authority (“BARDA”) and NIAID to advance the development of OrbeShield
®
for the treatment of GI ARS.
An
outline for our business strategy follows:
●
|
Complete
enrollment and report preliminary results in our pivotal Phase 3 clinical trial of SGX301
for the treatment of CTCL;
|
●
|
Continue
to collect the long-term follow-up safety data from the SGX942 Phase 2 proof-of-concept
study for the treatment of oral mucositis in head and neck cancer patients and publish
the findings from this study;
|
●
|
Obtain
agreement from the United States Food and Drug Administration (the “FDA”) on
a pivotal Phase 2b/3 protocol of SGX942 for the treatment of oral mucositis in head and
neck cancer patients;
|
●
|
Initiate
a pivotal Phase 3 clinical trial of SGX203 for the treatment of pediatric Crohn’s
disease;
|
●
|
Continue
development of RiVax™ in combination with our ThermoVax
®
technology
to develop new heat stable vaccines in biodefense, with NIAID funding support;
|
●
|
Advance
the preclinical and manufacturing development of OrbeShield
®
as a biodefense
medical countermeasure for the treatment of GI ARS under the BARDA contract and with
NIAID funding support;
|
●
|
Continue
to apply for and secure additional government funding for each of our BioTherapeutics
and Vaccines/BioDefense programs through grants, contracts and/or procurements;
|
●
|
Pursue
business development opportunities for our pipeline programs, as well as explore merger/acquisition
strategies; and
|
●
|
Acquire
or in-license new clinical-stage compounds for development.
|
Corporate
Information
We
were incorporated in Delaware in 1987 under the name Biological Therapeutics, Inc. In 1987, the Company merged with Biological
Therapeutics, Inc., a North Dakota corporation, pursuant to which we changed our name to “Immunotherapeutics, Inc.”
We changed our name to “Endorex Corp.” in 1996, to “Endorex Corporation” in 1998, to “DOR BioPharma,
Inc.” in 2001, and finally to “Soligenix, Inc.” in 2009. Our principal executive offices are located at 29 Emmons
Drive, Suite C-10, Princeton, New Jersey 08540 and our telephone number is (609) 538-8200.
Our
Product Candidates in Development
The following tables summarize our product
candidates under development:
BioTherapeutic
Product Candidates
Soligenix Product
Candidate
|
|
Therapeutic Indication
|
|
Stage of Development
|
|
|
|
|
|
SGX301
|
|
Cutaneous T-Cell Lymphoma
|
|
Phase
2 trial completed; demonstrated significantly higher response rate compared to placebo; Phase 3 clinical trial initiated
in the second half of 2015, with data expected in the second half of 2017
|
|
|
|
|
|
SGX942 SGX942
|
|
Oral Mucositis in Head and Neck Cancer
|
|
Phase 2 trial initiated in the second half of 2013, with positive preliminary results reported in the second half of 2015; and long-term data expected in the second half of 2016; seek to obtain FDA agreement on the Phase 2b/3 protocol in the first half of 2017
|
|
|
|
|
|
SGX203**
|
|
Pediatric Crohn’s disease
|
|
Phase 1/2 clinical trial completed in June 2013, efficacy data, pharmacokinetic (PK)/pharmacodynamic (PD) profile and safety profile demonstrated; Phase 3 clinical trial planned for the first half of 2017, with data expected in the second half of 2018
|
|
|
|
|
|
SGX201**
|
|
Acute Radiation Enteritis
|
|
Phase 1/2 clinical trial complete; safety profile and preliminary efficacy demonstrated
|
Vaccine
Thermostability Platform**
Soligenix Product Candidate
|
|
Indication
|
|
Stage of Development
|
|
|
|
|
|
ThermoVax
®
|
|
Thermostability of aluminum
adjuvanted vaccines
|
|
Pre-clinical
|
BioDefense
Products**
Soligenix
Product Candidate
|
|
Indication
|
|
Stage
of Development
|
|
|
|
|
|
RiVax™
|
|
Vaccine
against
Ricin Toxin Poisoning
|
|
Phase
1b trial complete, safety and neutralizing antibodies for protection demonstrated;
Phase 1/2 trial planned for the second half of 2017
|
|
|
|
|
|
OrbeShield
®
|
|
Therapeutic
against GI ARS
|
|
Pre-clinical
|
|
|
|
|
|
SGX943
|
|
Melioidosis
|
|
Pre-clinical
|
**
Contingent upon continued government contract/grant funding or other funding source.
BioTherapeutics
Overview
SGX301
– for Treating Cutaneous T-Cell Lymphoma
SGX301
is a novel photodynamic therapy that utilizes safe visible light for activation. The active ingredient in SGX301 is synthetic
hypericin, a photosensitizer which is topically applied to skin lesions and then activated by fluorescent light 16 to 24 hours
later. Hypericin is also found in several species of
Hypericum
plants, although the drug used in SGX301 is chemically synthesized
by a proprietary manufacturing process and not extracted from plants. Importantly, hypericin is optimally activated with visible
light thereby avoiding the negative consequences of ultraviolet light. Other light therapies using UVA light result in serious
adverse effects including secondary skin cancers.
Combined
with photoactivation, in clinical trials hypericin has demonstrated significant anti-proliferative effects on activated normal
human lymphoid cells and inhibited growth of malignant T-cells isolated from CTCL patients. In both settings, it appears that
the mode of action is an induction of cell death in a concentration as well as a light dose-dependent fashion. These effects appear
to result, in part, from the generation of singlet oxygen during photoactivation of hypericin.
Hypericin
is one of the most efficient known generators of singlet oxygen, the key component for phototherapy. The generation of singlet
oxygen induces necrosis and apoptosis in adjacent cells. The use of topical hypericin coupled with directed visible light results
in generation of singlet oxygen only at the treated site. We believe that the use of visible light (as opposed to cancer-causing
ultraviolet light) is a major advance in photodynamic therapy. In a published Phase 2 clinical study in CTCL, after six weeks
of twice weekly therapy, a majority of patients experienced a statistically significant improvement (p
<
0.04) with topical
hypericin treatment whereas the placebo was ineffective: 58.3% compared to 8.3%, respectively.
SGX301
has received orphan drug designation as well as Fast Track designation from the FDA. The Orphan Drug Act is intended to assist
and encourage companies to develop safe and effective therapies for the treatment of rare diseases and disorders. In addition
to providing a seven-year term of market exclusivity for SGX301 upon final FDA approval, orphan drug designation also positions
us to be able to leverage a wide range of financial and regulatory benefits, including government grants for conducting clinical
trials, waiver of FDA user fees for the potential submission of a New Drug Application (“NDA”) for SGX301, and certain
tax credits. In addition, Fast Track is a designation that the FDA reserves for a drug intended to treat a serious or life-threatening
condition and one that demonstrates the potential to address an unmet medical need for the condition. Fast Track designation is
designed to facilitate the development and expedite the review of new drugs. For instance, should events warrant, we will be eligible
to submit a NDA for SGX301 on a rolling basis, permitting the FDA to review sections of the NDA prior to receiving the complete
submission. Additionally, NDAs for Fast Track development programs ordinarily will be eligible for priority review. SGX301 also
was granted orphan drug designation from the European Medicines Agency Committee for Orphan Medical Products.
We
initiated our pivotal Phase 3 clinical study of SGX301 for the treatment of CTCL during December 2015 and are actively
enrolling patients. The Phase 3 protocol is expected to be a highly powered, double-blinded, randomized, placebo-controlled,
multicenter trial and will seek to enroll 120 evaluable subjects. The trial will consist of three treatment cycles, each of
eight weeks duration. Treatments will be administered twice weekly for the first six weeks and treatment response will be
determined at the end of the eighth week. In the first treatment cycle, approximately 80 subjects will receive SGX301 and 40
will receive placebo treatment of their index lesions. In the second cycle, all subjects will receive SGX301 treatment of
their index lesions, and in the third cycle all subjects will receive SGX301 treatment of all of their lesions. Subjects will
be followed for an additional six months after the completion of treatment. The primary efficacy endpoint will be assessed on
the percentage of patients in each of the two treatment groups (i.e., SGX301 and placebo) achieving a partial or complete
response of the treated lesions, defined as a ≥ 50% reduction in the total Composite Assessment of Index Lesion Disease
Severity (“CAILS”) score for three index lesions at the Cycle 1 evaluation visit (Week 8) compared to the total
CAILS score at baseline. Other secondary measures will assess treatment response including duration, degree of improvement,
time to relapse and safety.
We
estimate the potential worldwide market for SGX301 is in excess of $250 million for all applications, including the treatment
of CTCL. This potential market information is a forward-looking statement, and investors are urged not to place undue
reliance on this statement. While we have determined this potential market size based on assumptions that we believe are
reasonable, there are a number of factors that could cause our expectations to change or not be realized.
Cutaneous
T-Cell Lymphoma
CTCL
is a class of non-Hodgkin’s lymphoma (“NHL”), a type of cancer of the white blood cells that are an integral
part of the immune system. Unlike most NHLs, which generally involve B-cell lymphocytes (involved in producing antibodies), CTCL
is caused by an expansion of malignant T-cell lymphocytes (involved in cell-mediated immunity) normally programmed to migrate
to the skin. These skin-trafficking malignant T-cells migrate to the skin, causing various lesions to appear that may change shape
as the disease progresses, typically beginning as a rash and eventually forming plaques and tumors. Mycosis fungoides (“MF”)
is the most common form of CTCL. It generally presents with skin involvement only, manifested as scaly, erythematous patches.
Advanced disease with diffuse lymph node and visceral organ involvement is usually associated with a poorer response rate to standard
therapies. A relatively uncommon sub-group of CTCL patients present with extensive skin involvement and circulating malignant
cerebriform T-cells, referred to as Sézary syndrome. These patients have substantially graver prognoses than those with
MF.
CTCL
mortality is related to stage of disease, with median survival generally ranging from about 12 years in the early stages to only
2.5 years when the disease has advanced. There is currently no FDA-approved drug for front-line treatment of early stage CTCL.
Treatment of early-stage disease generally involves skin-directed therapies. One of the most common unapproved therapies used
for early-stage disease is oral 5 or 8-methoxypsoralen (“Psoralen”) given with ultraviolet A (“UVA”) light,
referred to as PUVA, which is approved for dermatological conditions such as disabling psoriasis not adequately responsive to
other forms of therapy, idiopathic vitiligo and skin manifestations of CTCL in persons who have not been responsive to other forms
of treatment. Psoralen is a mutagenic chemical that interferes with DNA causing mutations and other malignancies. Moreover, UVA
is a carcinogenic light source that when combined with the Psoralen, results in serious adverse effects including secondary skin
cancers; therefore, the FDA requires a Black Box warning for PUVA.
CTCL
constitutes a rare group of NHLs, occurring in about 4% of the approximate 500,000 individuals living with NHL. We estimate, based
upon review of historic published studies and reports and an interpolation of data on the incidence of CTCL, that it affects over
20,000 individuals in the U.S., with approximately 2,800 new cases seen annually.
Dusquetide
Dusquetide
(research name: SGX94) is an innate defense regulator (“IDR”) that regulates the innate immune system to simultaneously
reduce inflammation, eliminate infection and enhance tissue healing.
Dusquetide
is based on a new class of short, synthetic peptides known as IDRs that have a novel mechanism of action in that it is simultaneously
anti-inflammatory and anti-infective. IDRs have no direct antibiotic activity but modulate host responses, increasing survival
after infections with a broad range of bacterial Gram-negative and Gram-positive pathogens including both antibiotic sensitive
and resistant strains, as well as accelerating resolution of tissue damage following exposure to a variety of agents including
bacterial pathogens, trauma and chemo- or radiation-therapy. IDRs represent a novel approach to the control of infection and tissue
damage via highly selective binding to an intracellular adaptor protein, sequestosome-1, also known as p62, which has a pivotal
function in signal transduction during activation and control of the innate defense system. Preclinical data indicate that IDRs
may be active in models of a wide range of therapeutic indications including life-threatening bacterial infections as well as
the severe side-effects of chemo- and radiation-therapy.
Dusquetide
has demonstrated efficacy in numerous animal disease models including mucositis, colitis, skin infection and other bacterial infections
and has been evaluated in a double-blind, placebo-controlled Phase 1 clinical trial in 84 healthy volunteers with both single
ascending dose and multiple ascending dose components. Dusquetide was shown to have a good safety profile and well-tolerated in
all dose groups when administered by IV over 7 days and was consistent with safety results seen in pre-clinical studies. Dusquetide
is the subject of an open Investigational New Drug (“IND”) application which has been cleared by the FDA. We believe
that market opportunities for dusquetide include mucositis, acute methicillin resistant
Staphylococcus aureus
bacterial
infections, acinetobacter, melioidosis, and acute radiation syndrome.
SGX942
– for Treating Oral Mucositis in Head and Neck Cancer
SGX942
is our product candidate containing our IDR technology, dusquetide, targeting the treatment of oral mucositis in head and neck
cancer patients. Oral mucositis in this patient population is an area of unmet medical need where there are currently no approved
drug therapies. Accordingly, we received “Fast Track” designation for the treatment of oral mucositis as a result
of radiation and/or chemotherapy treatment in head and neck cancer patients from the FDA.
We initiated a Phase 2 clinical study of SGX942
for the treatment of oral mucositis in head and neck cancer patients in the second half of 2013. We completed enrollment in this
trial in the second half of 2015, and in December 2015 released positive preliminary results. In this Phase 2 proof-of-concept
clinical study that enrolled 111 patients, SGX942, at a dose of 1.5 mg/kg, successfully reduced the median duration of severe
oral mucositis by 50%, from 18 days to 9 days (p=0.099) in all patients and by 67%, from 30 days to 10 days (p=0.040) in patients
receiving the most aggressive chemoradiation therapy for treatment of their head and neck cancer. The p-values met the prospectively
defined statistical threshold of p<0.1 in the study protocol. In addition to identifying the optimal dose of 1.5 mg/kg, this
study achieved all objectives, including increased incidence of “complete response” of tumor at the one month follow-up
visit (47% in placebo vs. 63% in SGX942 at 1.5 mg/kg). Decreases in mortality and decreases in infection rate were also observed
with SGX942 treatment, consistent with the preclinical results observed in animal models, and are being further evaluated. SGX942
was found to be generally safe and well tolerated, consistent with the safety profile observed in the prior Phase 1 study conducted
in 84 healthy volunteers. Long-term follow-up evaluations are ongoing with final results expected in the fourth quarter of 2016.
Data from this Phase 2 trial was published online in the Journal of Biotechnology. The publication also delineates the supportive
nonclinical data in this indication, demonstrating consistency in the qualitative and quantitative biological response, including
dose response, across the nonclinical and clinical data sets. The results are available at the following link:
http://authors.elservier.com/sd/article/S01681656116315668
.
On
September 9, 2016, we and SciClone entered into an exclusive license agreement (the “License Agreement”), pursuant
to which we granted rights to SciClone to develop, promote, market, distribute and sell SGX942 in the People’s Republic
of China, including Hong Kong and Macau, as well as Taiwan, South Korea and Vietnam (the “Territory”). Under the terms
of the License Agreement, SciClone will be responsible for all aspects of development, product registration and commercialization
in the Territory, having access to data generated by us. In exchange for exclusive rights, SciClone will pay to us royalties on
net sales, and we will supply commercial drug product to SciClone on a cost-plus basis, while maintaining worldwide manufacturing
rights. We also entered into a common stock purchase agreement with SciClone pursuant to which we sold 352,942 shares of our common
stock to SciClone for an aggregate price of $3,000,000.
We
estimate the potential worldwide market for SGX942 is in excess of $500 million for all applications, including the treatment
of oral mucositis. This potential market information is a forward-looking statement, and investors are urged not to place undue
reliance on this statement. While we have determined this potential market size based on assumptions that we believe are reasonable,
there are a number of factors that could cause our expectations to change or not be realized.
Oral
Mucositis
Mucositis
is the clinical term for damage done to the mucosa by anticancer therapies. It can occur in any mucosal region, but is most commonly
associated with the mouth, followed by the small intestine. We estimate, based upon our review of historic studies and reports,
and an interpolation of data on the incidence of mucositis, that mucositis affects approximately 500,000 people in the U.S. per
year and occurs in 40% of patients receiving chemotherapy. Mucositis can be severely debilitating and can lead to infection, sepsis,
the need for parenteral nutrition and narcotic analgesia. The GI damage causes severe diarrhea. These symptoms can limit the doses
and duration of cancer treatment, leading to sub-optimal treatment outcomes.
The
mechanisms of mucositis have been extensively studied and have been recently linked to the interaction of chemotherapy and/or
radiation therapy with the innate defense system. Bacterial infection of the ulcerative lesions is regarded as a secondary consequence
of dysregulated local inflammation triggered by therapy-induced cell death, rather than as the primary cause of the lesions.
We
estimate, based upon our review of historic studies and reports, and an interpolation of data on the incidence of oral mucositis,
that oral mucositis is a subpopulation of approximately 90,000 patients in the U.S., with a comparable number in Europe. Oral
mucositis almost always occurs in patients with head and neck cancer treated with radiation therapy (greater than 80% incidence
of severe mucositis) and is common in patients undergoing high dose chemotherapy and hematopoietic cell transplantation, where
the incidence and severity of oral mucositis depends greatly on the nature of the conditioning regimen used for myeloablation.
Oral
BDP
Oral
BDP (beclomethasone 17,21-dipropionate) represents a first
-
of
-
its
-
kind oral, locally acting therapy tailored
to treat GI inflammation. BDP has been marketed in the U.S. and worldwide since the early 1970s as the active pharmaceutical ingredient
in a nasal spray and in a metered-dose inhaler for the treatment of patients with allergic rhinitis and asthma. Oral BDP is specifically
formulated for oral administration as a single product consisting of two tablets. One tablet is intended to release BDP in the
upper sections of the GI tract and the other tablet is intended to release BDP in the lower sections of the GI tract.
Based
on its pharmacological characteristics, oral BDP may have utility in treating other conditions of the gastrointestinal tract having
an inflammatory component. We are planning to pursue development programs for the treatment of pediatric Crohn’s disease,
acute radiation enteritis and GI ARS pending further grant funding. We are also exploring the possibility of testing oral BDP
for local inflammation associated with ulcerative colitis, among other indications.
We
are pursuing orphan drug designations for relevant indications as appropriate in both the U.S. and Europe. An orphan drug designation
provides for seven years and ten years of market exclusivity upon approval in the U.S. and Europe, respectively.
SGX203
–for Treating Pediatric Crohn’s Disease
SGX203
is a proprietary two tablet delivery system of BDP specifically designed for oral use that allows for administration of immediate
and delayed release BDP throughout the small bowel and the colon. The FDA has given SGX203 orphan drug designation as well as
Fast Track designation for the treatment of pediatric Crohn's disease.
We
estimate the potential worldwide market for oral BDP is in excess of $500 million for all applications, including the treatment
of pediatric Crohn’s disease. This potential market information is a forward-looking statement, and investors are urged
not to place undue reliance on this statement. While we have determined this potential market size based on assumptions that we
believe are reasonable, there are a number of factors that could cause our expectations to change or not be realized.
Pediatric
Crohn's Disease
Crohn's disease
causes inflammation of the GI tract. Crohn's disease can affect any area of the GI tract, from the mouth to the anus, but it most
commonly affects the lower part of the small intestine, called the ileum. The swelling caused by the disease extends deep into
the lining of the affected organ. The swelling can induce pain and can make the intestines empty frequently, resulting in diarrhea.
Because the symptoms of Crohn's disease are similar to other intestinal disorders, such as irritable bowel syndrome and ulcerative
colitis, it can be difficult to diagnose. People of Ashkenazi Jewish heritage have an increased risk of developing Crohn's disease.
Crohn's
disease can appear at any age, but it is most often diagnosed in adults in their 20s and 30s. However, approximately 30% of people
with Crohn's disease develop symptoms before 20 years of age. We estimate, based upon our review of historic published studies
and reports, and an interpolation of data on the incidence of Pediatric Crohn’s disease, that Pediatric Crohn's disease
is a subpopulation of approximately 80,000 patients in the U.S. with a comparable number in Europe. Crohn’s disease tends
to be both severe and extensive in the pediatric population and a relatively high proportion (approximately 40%) of pediatric
Crohn’s patients have involvement of their upper gastrointestinal tract.
Crohn's disease presents special challenges for children and teens. In addition
to bothersome and often painful symptoms, the disease can stunt growth, delay puberty, and weaken bones. Crohn's disease symptoms
may sometimes prevent a child from participating in enjoyable activities. The emotional and psychological issues of living with
a chronic disease can be especially difficult for young people.
SGX201
– for Preventing Acute Radiation Enteritis
SGX201
is a delayed-release formulation of BDP specifically designed for oral use. In 2012, we completed a Phase 1/2 clinical trial testing
SGX201 in prevention of acute radiation enteritis. Patients with rectal cancer scheduled to undergo concurrent radiation and chemotherapy
prior to surgery were randomized to one of four dose groups. The objectives of the study were to evaluate the safety and maximal
tolerated dose of escalating doses of SGX201, as well as the preliminary efficacy of SGX201 for prevention of signs and symptoms
of acute radiation enteritis. The study demonstrated that oral administration of SGX201 was safe and well tolerated across all
four dose groups. There was also evidence of a potential dose response with respect to diarrhea, nausea and vomiting and the assessment
of enteritis according to National Cancer Institute Common Terminology Criteria for Adverse Events for selected gastrointestinal
events. In addition, the incidence of diarrhea was lower than that seen in recent published historical control data in this patient
population. This program was supported in part by a $500,000 two-year Small Business Innovation and Research (“SBIR”)
grant awarded by the National Institutes of Health (“NIH”). We continue to work with our Radiation Enteritis medical
advisory board to identify additional funding opportunities to support the clinical development program.
We
have received Fast Track designation from the FDA for SGX201 for acute radiation enteritis.
We
estimate the potential worldwide market for oral BDP is in excess of $500 million for all applications, including the treatment
of acute radiation enteritis. This potential market information is a forward-looking statement, and investors are urged not to
place undue reliance on this statement. While we have determined this potential market size based on assumptions that we believe
are reasonable, there are a number of factors that could cause our expectations to change or not be realized.
Acute
Radiation Enteritis
External
radiation therapy is used to treat most types of cancer, including cancer of the bladder, uterine, cervix, rectum, prostate, and
vagina. During delivery of treatment, some level of radiation will also be delivered to healthy tissue, including the bowel, leading
to acute and chronic toxicities. The large and small bowels are very sensitive to radiation and the larger the dose of radiation
the greater the damage to normal bowel tissue. Radiation enteritis is a condition in which the lining of the bowel becomes swollen
and inflamed during or after radiation therapy to the abdomen, pelvis, or rectum. Most tumors in the abdomen and pelvis need large
doses, and almost all patients receiving radiation to the abdomen, pelvis, or rectum will show signs of acute enteritis.
Patients
with acute enteritis may have nausea, vomiting, abdominal pain and bleeding, among other symptoms. Some patients may develop dehydration
and require hospitalization. With diarrhea, the gastrointestinal tract does not function normally, and nutrients such as fat,
lactose, bile salts, and vitamin B 12 are not well absorbed.
Symptoms
will usually resolve within two to six weeks after therapy has ceased. Radiation enteritis is often not a self-limited illness,
as over 80% of patients who receive abdominal radiation therapy complain of a persistent change in bowel habits. Moreover, acute
radiation injury increases the risk of development of chronic radiation enteropathy, and overall 5% to 15% of the patients who
receive abdominal or pelvic irradiation will develop chronic radiation enteritis.
We
estimate, based upon our review of historic published studies and reports, and an interpolation of data on the treatment courses
and incidence of cancers occurring in the abdominal and pelvic regions, there to be over 100,000 patients annually in the U.S.,
with a comparable number in Europe, who receive abdominal or pelvic external beam radiation treatment for cancer, and these patients
are at risk of developing acute and chronic radiation enteritis.
Vaccines/BioDefense
Overview
ThermoVax
®
– Thermostability Technology
Our
thermostability technology, ThermoVax
®
, is a novel method of rendering aluminum salt, (known colloquially as Alum),
adjuvanted vaccines stable at elevated temperatures. Alum is the most widely employed adjuvant technology in the vaccine industry.
The value of ThermoVax
®
lies in its potential ability to eliminate the need for cold-chain production, transportation,
and storage for Alum adjuvanted vaccines. This would relieve companies of the high costs of producing and maintaining vaccines
under refrigerated conditions. Based on historical reports from the World Health Organization and other scientific reports, we
believe that a meaningful proportion of vaccine doses globally are wasted due to excursions from required cold chain temperature
ranges. This is due to the fact that most Alum adjuvanted vaccines need to be maintained at between 2 and 8 degrees Celsius (“C”)
and even brief excursions from this temperature range (especially below freezing) usually necessitates the destruction of the
product or the initiation of costly stability programs specific for the vaccine lots in question. We believe that the savings
realized from the elimination of cold chain costs and related product losses would significantly increase the profitability of
vaccine products. We believe that elimination of the cold chain could further facilitate the use of these vaccines in the lesser
developed parts of the world. ThermoVax
®
has the potential to facilitate easier storage and distribution of strategic
national stockpile vaccines in emergency settings.
ThermoVax
®
development was supported pursuant to our $9.4 million NIAID grant enabling development of thermo-stable ricin (RiVax™)
and anthrax (VeloThrax
®
) vaccines. Proof-of-concept preclinical studies with ThermoVax
®
indicate
that it is able to produce stable vaccine formulations using adjuvants, protein immunogens, and other components that ordinarily
would not withstand long temperature variations exceeding customary refrigerated storage conditions. These studies were conducted
with our aluminum-adjuvanted ricin toxin vaccine, RiVax™ and our aluminum-adjuvanted anthrax vaccine, VeloThrax
®
.
Each vaccine was manufactured under precise lyophilization conditions using excipients that aid in maintaining native protein
structure of the key antigen. When RiVax™ was kept at 40 degrees C (104 degrees Fahrenheit) for up to one year, all of the
animals vaccinated with the lyophilized RiVax™ vaccine developed potent and high titer neutralizing antibodies. In contrast,
animals that were vaccinated with the liquid RiVax™ vaccine kept at 40 degrees C did not develop neutralizing antibodies
and were not protected against ricin exposure. The ricin A chain is extremely sensitive to temperature and rapidly loses the ability
to induce neutralizing antibodies when exposed to temperatures higher than 8 degrees C. When VeloThrax
®
was kept
for up to 16 weeks at 70 degrees C, it was able to develop a potent antibody response, unlike the liquid formulation kept at the
same temperature. Moreover, we have also demonstrated the compatibility of our thermostabilization technology with other secondary
adjuvants such as TLR-4 agonists. Additionally, the University of Colorado conducted a study that demonstrated a heat stable vaccine
formulation of a human papillomavirus (“HPV”) vaccine. The work was conducted by Drs. Randolph and Garcea and
demonstrated the successful conversion of a commercial virus-like particle based vaccine requiring cold-chain storage to a subunit,
alum-adjuvanted, vaccine which is stable at ambient temperatures. This work, funded by a University of Colorado seed grant
and the Specialized Program of Research Excellence in cervical cancer, is the first demonstration of the utility of ThermoVax
®
technology for the development of a subunit based commercial vaccine. The HPV vaccine formulation was found to be
stable for at least 12 weeks at 50 degrees C. In the study, mice immunized with the ThermoVax
®
-stabilized
HPV subunit vaccine were also found to achieve immune responses similar to the commercial HPV vaccine, Cervarix
®
,
as measured by either total antibody levels or neutralizing antibody levels. Moreover, whereas the immune responses to Cervarix®
were reduced after storage for 12 weeks at 50 degrees C, the ThermoVax
®
formulated vaccine retained its efficacy.
The results were published online in the European Journal of Pharmaceutics and Biopharmaceutics. See
http://www.sciencedirect.com/science/article/pii/S0939641115002416
).
We
also entered into a collaboration agreement with Axel Lehrer, PhD of the Department of Tropical Medicine, Medical Microbiology
and Pharmacology, John A. Burns School of Medicine, University of Hawai
ʻ
i
at Mānoa and Hawaii Biotech, Inc. (“HBI”) to develop a heat stable subunit Ebola vaccine. Dr. Lehrer, a co-inventor
of the Ebola vaccine with HBI, has shown proof of concept efficacy with subunit Ebola vaccines in non-human primates. The most
advanced Ebola vaccines involve the use of vesicular stomatitis virus and adenovirus vectors – live, viral vectors which
complicate the manufacturing, stability and storage requirements. Dr. Lehrer’s vaccine candidate is based on highly purified
recombinant protein antigens, circumventing many of these manufacturing difficulties. Dr. Lehrer and HBI have developed a robust
manufacturing process for the required proteins. Application of ThermoVax
®
may allow for a product that can avoid
the need for cold chain distribution and storage, yielding a vaccine ideal for use in both the developed and developing world.
Although this agreement has expired in accordance with its terms, we expect to extend the period of the agreement or enter into
another agreement with Dr. Lehrer and HBI to replace this agreement.
We
intend to seek out potential partnerships with companies marketing FDA/ex-U.S. health authority approved Alum adjuvanted vaccines
and currently developing Alum adjuvanted vaccines that are interested in eliminating the need for cold chain for their products.
We believe that ThermoVax
®
also will enable us to expand our vaccine development expertise beyond biodefense into
the infectious disease space and also has the potential to allow for the development of multivalent vaccines (e.g., combination
ricin-anthrax vaccine).
RiVax™
– Ricin Toxin Vaccine
RiVax™ is our proprietary vaccine
candidate being developed to protect against exposure to ricin toxin and, if approved, would be the first ricin vaccine. The immunogen
in RiVax™ induces a protective immune response in animal models of ricin exposure and functionally active antibodies in
humans. The immunogen consists of a genetically inactivated subunit ricin A chain that is enzymatically inactive and lacks residual
toxicity of the holotoxin. RiVax™ has demonstrated statistically significant (p < 0.0001) preclinical survival results
in a lethal aerosol exposure non-human primate model (Roy et al, 2015, Thermostable ricin vaccine protects rhesus macaques against
aerosolized ricin: Epitope-specific neutralizing antibodies correlate with protection, PNAS USA March 24, 2015), and has also
been shown to be well tolerated and immunogenic in two Phase 1 clinical trials in healthy volunteers. Results of the first Phase
1 human trial of RiVax™ established that the immunogen was safe and induced antibodies that we believe may protect humans
from ricin exposure. The antibodies generated from vaccination, concentrated and purified, were capable of conferring immunity
passively to recipient animals, indicating that the vaccine was capable of inducing functionally active antibodies in humans.
The outcome of this study was published in the Proceedings of the National Academy of Sciences (Vitetta et al., 2006, A Pilot
Clinical Trial of a Recombinant Ricin Vaccine in Normal Humans, PNAS, 103:2268-2273). The second trial, which was completed in
September 2012 and was sponsored by University of Texas Southwestern Medical Center (“UTSW”), evaluated a more potent
formulation of RiVax™ that contained an aluminum adjuvant (Alum). The results of the Phase 1b study indicated that Alum
adjuvanted RiVax™ was safe and well tolerated, and induced greater ricin neutralizing antibody levels in humans than adjuvant-free
RiVax™. The outcomes of this second study were published in the Clinical and Vaccine Immunology (Vitetta et al., 2012, Recombinant
Ricin Vaccine Phase 1b Clinical Trial, Clin. Vaccine Immunol. 10:1697-9). We have adapted the original manufacturing process for
the immunogen contained in RiVax™ for thermostability and large scale manufacturing and are further establishing correlates
of the human immune response in non-human primates. We have initiated a development agreement with Emergent BioSolutions, Inc.
to implement a commercially viable, scalable production technology for the RiVax
™
drug substance protein antigen.
The
development of RiVax™ has been sponsored through a series of overlapping challenge grants, UC1, and cooperative grants,
U01, from the NIH, granted to us and to UTSW where the vaccine originated. The second clinical trial was supported by a grant
from the FDA’s Office of Orphan Products to UTSW. To date, we and UTSW have collectively received approximately $25 million
in grant funding from the NIH for the development of RiVax™. In September 2014, we entered into a contract with the NIH
for the development of RiVax™ that would provide up to an additional $24.7 million of funding in the aggregate if options
to extend the contract are exercised by the NIH.
RiVax™ has
been granted orphan drug designation by the FDA for the prevention of ricin intoxication.
Assuming
development efforts are successful for RiVax™, we believe potential government procurement contract(s) could reach
$200 million. This potential procurement contract information is a forward-looking statement, and investors are urged not to place
undue reliance on this statement. While we have determined this potential procurement contract value based on assumptions that
we believe are reasonable, there are a number of factors that could cause our expectations to change or not be realized.
Ricin
Toxin
Ricin
toxin can be cheaply and easily produced, is stable over long periods of time, is toxic by several routes of exposure and thus
has the potential to be used as a biological weapon against military and/or civilian targets. As a bioterrorism agent, ricin could
be disseminated as an aerosol, by injection, or as a food supply contaminant. The potential use of ricin toxin as a biological
weapon of mass destruction has been highlighted in a Federal Bureau of Investigation Bioterror report released in November 2007
titled
Terrorism 2002-2005
, which states that “Ricin and the bacterial agent anthrax are emerging as the most prevalent
agents involved in WMD investigations” (
http://www.fbi.gov/stats-services/publications/terrorism-2002-2005/terror02_05.pdf
).
In recent years, Al Qaeda in the Arabian Peninsula has threatened the use of ricin toxin to poison food and water supplies and
in connection with explosive devices. Domestically, the threat from ricin remains a concern for security agencies. As recently
as April 2013, letters addressed to the President of the United States, a U.S. Senator and a judge tested positive for ricin.
The
Centers for Disease Control and Prevention has classified ricin toxin as a Category B biological agent. Ricin works by first binding
to glycoproteins found on the exterior of a cell, and then entering the cell and inhibiting protein synthesis leading to cell
death. Once exposed to ricin toxin, there is no effective therapy available to reverse the course of the toxin. The recent ricin
threat to government officials has heightened the awareness of this toxic threat. Currently, there is no FDA approved vaccine
to protect against the possibility of ricin toxin being used in a terrorist attack, or its use as a weapon on the battlefield,
nor is there a known antidote for ricin toxin exposure.
OrbeShield
®
– for Treating GI Acute Radiation Syndrome
OrbeShield
®
is an oral immediate and delayed release formulation of the topically active corticosteroid BDP and is being developed for
the treatment of GI ARS. Corticosteroids are a widely used class of anti-inflammatory drugs. BDP is a corticosteroid with predominantly
topical activity that is approved for use in asthma, psoriasis and allergic rhinitis.
OrbeShield
®
has demonstrated positive preclinical results in a canine GI ARS model which indicate that dogs treated with OrbeShield
®
demonstrated statistically significant (p=0.04) improvement in survival with dosing at either two hours or 24 hours after
exposure to lethal doses of total body irradiation (“TBI”) when compared to control dogs. OrbeShield
®
appears to significantly mitigate the damage to the GI epithelium caused by exposure to high doses of radiation using a well-established
canine model of GI ARS.
The
GI tract is highly sensitive to ionizing radiation and the destruction of epithelial tissue is one of the first effects of radiation
exposure. The rapid loss of epithelial cells leads to inflammation and infection that are often the primary cause of death in
acute radiation injury. This concept of GI damage also applies to the clinical setting of oncology, where high doses of radiation
cannot be administered effectively to the abdomen because radiation is very toxic to the intestines. We are seeking to treat the
same type of toxicity in our acute radiation enteritis clinical program with SGX201. As a result, we believe that OrbeShield
®
has the potential to be a “dual use” compound, a desirable characteristic which is a specific priority of BARDA
for ARS and other medical countermeasure indications. The FDA has cleared the IND application for OrbeShield
®
for
the mitigation of morbidity and mortality associated with GI ARS.
In
September 2013, we received two government contracts from BARDA and NIAID for the advanced preclinical and manufacturing development
of OrbeShield
®
leading to FDA approval to treat GI ARS. The BARDA contract contains a two year base period with
two contract options, exercisable by BARDA, for a total of five years and up to $26.3 million. The NIAID contract consists of
a one year base period and two contract options, exercisable by NIAID, for a total of three years and up to $6.4 million. Previously,
development of OrbeShield
®
had been largely supported by a $1 million NIH grant to our academic partner, the Fred
Hutchinson Cancer Research Center. In July 2012, we received an SBIR grant from NIAID of approximately $600,000 to support further
preclinical development of OrbeShield
®
for the treatment of acute GI ARS. The FDA has given OrbeShield
®
orphan drug designation and Fast Track designation for the prevention of death following a potentially lethal dose of total
body irradiation during or after a radiation disaster.
Assuming
development efforts are successful for OrbeShield
®
, we believe potential government procurement contracts could
reach as much as $450 million. This potential procurement contract information is a forward-looking statement, and investors are
urged not to place undue reliance on this statement. While we have determined this potential procurement contract value based
on assumptions that we believe are reasonable, there are a number of factors that could cause our expectations to change or not
be realized.
GI
Acute Radiation Syndrome
ARS
occurs after toxic radiation exposure and involves several organ systems, notably the bone marrow, the GI tract and later the
lungs. In the event of a nuclear disaster or terrorist detonation of a nuclear bomb, casualties exposed to greater than 2 grays
(“Gy”) of absorbed radiation are at high risk for development of clinically significant ARS. Exposure to high doses
of radiation exceeding 10-12 Gy causes acute GI injury which can result in death. The GI tract is highly sensitive due to the
continuous need for crypt stem cells and production of mucosal epithelium. The extent of injury to the bone marrow and the GI
tract are the principal determinants of survival after exposure to TBI. Although the hematopoietic syndrome can be rescued by
bone marrow transplantation or growth factor administration, there is no established treatment or preventive measure for the GI
damage that occurs after high-dose radiation. As a result, we believe there is an urgent medical need for specific medical counter
measures against the lethal pathophysiological manifestations of radiation-induced GI injury.
SGX943–
for Treating Melioidosis
SGX943
uses the same active ingredient, dusquetide, as contained in SGX942. SGX943 is being developed in preclinical studies as a potential
treatment for melioidosis. Because SGX943 directly targets the innate immune system (and does not attempt to kill the bacteria
directly), we believe it is particularly relevant for antibiotic-resistant bacteria. The bacteria which causes melioidosis,
Burkholderia pseudomallei,
is known to be resistant to most antibiotics and to require prolonged treatment with the few
antibiotics that do work. In February 2014, we were awarded a one-year NIAID SBIR award of approximately $300,000 to further
evaluate SGX943 as a potential treatment for melioidosis. Preclinical results to date have demonstrated that SGX943 treatment,
in combination with standard of care antibiotics such as doxycycline, can statistically significantly enhance survival in a lethal
murine pneumonic melioidosis model (p< 0.001).
Melioidosis
Melioidosis
is a potentially fatal infection caused by the Gram-negative bacillus,
Burkholderia pseudomallei
(“Bp”). Highly
resistant to many antibiotics, Bp can cause an acute disease characterized by a fulminant pneumonia and a chronic condition that
can recrudesce. There is no preventive vaccine or effective immunotherapy for melioidosis. We believe that there is an unmet
medical need for improved prevention and therapy.
Bp
infection (melioidosis) is a major public health concern in the endemic regions of Southeast Asia and Northern Australia. In
Northeast Thailand, which has the highest incidence of melioidosis, the mortality rate associated with Bp infection is over 40
percent, making it the third most common cause of death from infectious disease in that region after HIV/AIDS and tuberculosis.
Bp activity is seen in Southeast Asia, South America, Africa, the Middle East, India, and Australia. The highest pockets of disease
activity occur in Northern Australia and Northeast Thailand with increasing recognition of disease activity in coastal regions
of India.
Beyond
its public health significance, Bp and the closely-related
Burkholderia mallei
(“Bm”) are considered possible
biological warfare agents by the DHHS because of the potential for widespread dissemination through aerosol. Bp like its relative
Bm, the cause of Glanders, was studied by the U.S. as a potential biological warfare agent, but was never weaponized. It
has been reported that the Soviet Union was also experimenting with Bp as a biological warfare agent. Both Bp and Bm have
been designated high priority threats by the DHHS in its PHEMCE Strategy released in 2012 and are classified as Category B Priority
Pathogens by NIAID.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of the financial
statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, and
related disclosure of contingent assets and liabilities. We evaluate these estimates and judgments on an on-going basis.
Intangible
Assets
One
of the most significant estimates or judgments that we make is whether to capitalize or expense patent and license costs. We make
this judgment based on whether the technology has alternative future uses, as defined in Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 730,
Research and Development
. Based on this
consideration, we capitalized payments made to legal firms that are engaged in filing and protecting rights to intellectual property
for our current product candidates in both the domestic and international markets. We believe that patent rights are one of our
most valuable assets. Patents and patent applications are key components of intellectual property, especially in the early stage
of product development, as their purchase and maintenance gives us access to key product development rights from our academic
and industry partners. These rights can also be sold or sub-licensed as part of our strategy to partner our product candidates
at each stage of development as the intangible assets have alternative future use. The legal costs incurred for these patents
consist of work associated with filing new patents designed to protect, preserve, and maintain our rights, and perhaps to extend
the lives of the patents. We capitalize such costs and amortize intangibles on a straight-line basis over their expected useful
life - generally a period of 11 to 16 years.
These
intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may
not be recoverable or if the underlying program is no longer being pursued. If the sum of the expected undiscounted cash flows
is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair
value and carrying value of the related asset or group of assets.
Fair
Value of Financial Instruments
FASB
ASC 820 —
Fair Value Measurements and Disclosures,
defines fair value as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC
820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement
purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to us on September
30, 2016. Accordingly, the estimates presented in the financial statements are not necessarily indicative of the amounts that
could be realized on disposition of the financial instruments.
FASB
ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable
or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market
assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
The
three levels of the fair value hierarchy are as follows:
|
●
|
Level
1 — Quoted prices in active markets for identical assets or liabilities that the
reporting entity has the ability to access at the measurement date. Level 1 primarily
consists of financial instruments whose value is based on quoted market prices such as
exchange-traded instruments and listed equities.
|
|
●
|
Level
2 — Inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly or indirectly. Level 2 includes financial
instruments that are valued using models or other valuation methodologies. These models
consider various assumptions, including volatility factors, current market prices and
contractual prices for the underlying financial instruments. Substantially all of these
assumptions are observable in the marketplace, can be derived from observable data or
are supported by observable levels at which transactions are executed in the marketplace.
|
|
●
|
Level
3 — Unobservable inputs for the asset or liability. Financial instruments are considered
Level 3 when their fair values are determined using pricing models, discounted cash flows
or similar techniques and at least one significant model assumption or input is unobservable.
|
The
carrying amounts reported in the consolidated balance sheet for cash and cash equivalents, contract and grants receivable, accounts
payable and accrued compensation approximate their fair value based on the short-term maturity of these instruments. We recognize
all derivative financial instruments as assets or liabilities in the financial statements and measure them at fair value with
changes in fair value reflected as current period income or loss unless the derivatives qualify as hedges. As a result, certain
warrants issued in connection with our June 2013 offering were accounted for as derivatives.
Revenue
Recognition
Our
revenues are primarily generated from government contracts and grants. The revenue from government contracts and grants is based
upon subcontractor costs and internal costs incurred that are specifically covered by the contracts and grants, plus a facilities
and administrative rate that provides funding for overhead expenses and management fees. These revenues are recognized when expenses
have been incurred by subcontractors or when we incur reimbursable internal expenses that are related to the government contracts
and grants.
Research
and Development Costs
Research
and development costs are charged to expense when incurred in accordance with FASB ASC 730,
Research and Development
. Research
and development includes costs such as clinical trial expenses, contracted research and license agreement fees with no alternative
future use, supplies and materials, salaries, share-based compensation, employee benefits, equipment depreciation and allocation
of various corporate costs.
Accounting
for Warrants
We
considered FASB ASC 815,
Evaluating Whether an Instrument is Considered Indexed to an Entity’s Own Stock
, which provides
guidance for determining whether an equity-linked financial instrument (or embedded feature) issued by an entity is indexed to
the entity’s stock and, therefore, qualifying for the first part of the scope exception in paragraph 815-10-15. We evaluated
the provisions in our outstanding warrants and determined that warrants issued in connection with our June 2013 registered public
offering contain provisions that protect holders from a decline in the issue price of our common stock (or “down-round”
provisions) and contain net settlement provisions. Consequently, these warrants are recognized as liabilities at their fair value
on the date of grant and remeasured at fair value on each reporting date. All other warrants issued were indexed to our own stock
and, therefore, are accounted for as equity instruments for 2016 and 2015.
Share-Based
Compensation
Stock
options are issued with an exercise price equal to the market price on the date of grant. Stock options issued to directors upon
re-election vest quarterly for a period of one year (new director issuances are fully vested upon issuance). Stock options issued
to employees vest 25% on the grant date, then 25% each subsequent year for a period of three years. Stock options vest over each
three-month period from the date of issuance to the end of the three year period. These options have a ten year life for as long
as the individuals remain employees or directors. In general, when an employee or director terminates their position, the options
will expire within three months, unless otherwise extended by the Board.
From
time to time, we issue restricted shares of our common stock to vendors and consultants as compensation for services performed.
Typically these instruments vest upon issuance and therefore the entire stock compensation expense is recognized upon issuance
to the vendors and/or consultants.
Share-based
compensation expense for options, warrants and shares of common stock granted to non-employees has been determined in accordance
with FASB ASC 505-50,
Equity-Based Payments to Non-Employees
, and represents the fair value of the consideration received,
or the fair value of the equity instruments issued, whichever may be more reliably measured. For options that vest over future
periods, the fair value of options granted to non-employees is amortized as the options vest.
The
weighted average fair value of each option grant made during 2016 and 2015 was estimated on the date of each grant using the Black-Scholes
option pricing model and amortized ratably over the option vesting periods, which approximates the service period.
Material
Changes in Results of Operations
Three
and Nine Months Ended September 30, 2016 Compared to September 30, 2015
For the three months ended September 30, 2016,
we had a net loss of $1,673,217 as compared to net income of $2,774,348 for the same period in the prior year, representing an
increase in the net loss of $4,447,565 or 160%. For the nine months ended September 30, 2016, we had a net loss of $2,915,424
as compared to a net loss of $5,772,668 for the same period in the prior year, representing a decrease of $2,857,244 or 49%. Included
in the net loss for the three months and nine months ended September 30, 2016 and 2015 is the change in the fair value of the
warrant liability related to warrants issued in connection with our June 2013 registered public financing. The change in the fair
value of the warrant liability for the three months ended September 30, 2016 and 2015 resulted in an expense of ($176,293) and
income of $4,047,742, respectively. For the nine months ended September 30, 2016 and 2015, the change in fair value resulted in
$1,109,192 of income and ($907,368) of expense, respectively.
For the three and nine months ended September 30, 2016, revenues
related to government contracts and grants awarded in support of our development of OrbeShield
®
for the treatment
of GI ARS and RiVax™, and other development programs. For the three months ended September 30, 2016, we had revenues of
$2,959,254 as compared to $3,879,675 for the same period in the prior year, representing a decrease of $920,421 or 24%. The decrease
in revenues is a result of certain contracted fixed and management fees being recognized from the achievement of development milestones.
For the nine months ended September 30, 2016, we had revenues of $8,750,291 as compared to $5,795,788 for the same period in the
prior year, representing an increase of $2,954,503 or 51%. The increase in revenues during the nine month period was a result
of increased activities performed under our government contracts associated with OrbeShield
®
and RiVax
™
.
We
incurred costs related to those revenues for the three months ended September 30, 2016 and 2015 of $2,630,046 and $3,050,814,
respectively, representing a decrease of $420,768, or 14%. For the nine months ended September 30, 2016, costs related to revenues
were $7,204,920 as compared to $4,394,915 for the same period in the prior year, representing an increase of $2,810,005 or 64%.
These costs relate to allocated employee costs and payments due to subcontractors in connection with research performed pursuant
to the contracts and grants.
Our
gross profit for the three months ended September 30, 2016 was $329,208 or 11%, as compared to $828,861 or 21%, for the same period
in 2015, representing a decrease of $499,653 or 60%. For the nine months ended September 30, 2016, gross profit was $1,545,371
or 18%, as compared to $1,400,873 or 25%, for the same period in the prior year, representing an increase of $144,498 or 10%.
The decrease in gross profit percentage is attributable to a larger percentage of reimbursable costs not available for contracted
fixed management fee reimbursement. The management fee associated with certain contracts are payable upon the achievement of development
milestones.
Research
and development expenses decreased by $81,752 or 6%, to $1,177,263 for the three months ended September 30, 2016 as compared to
$1,259,015 for the same period in 2015. For the nine months ended September 30, 2016, research and development expenses were $3,433,595
compared to $3,731,813 for the same period in 2015, reflecting a decrease of $298,218 or 8%. The decrease is primarily due to
a decrease in manufacturing for Pediatric Crohns, as well as the completion of patient enrollment in the Phase 2 trial of SGX942
for the treatment of oral mucositis in head and neck cancer in late 2015.
General and administrative expenses decreased
by $188,750 or 22%, to $650,762 for the three months ended September 30, 2016 as compared to $839,512 for the same period in 2015.
For the nine months ended September 30, 2016, general and administrative expenses were $2,526,255 compared to $2,531,744 for the
same period in 2015, reflecting a nominal decrease. The decrease for the three months ended September 30, 2016 is primarily related
to outside professional fees.
Total
other income (expense) for the three months ended September 30, 2016 was ($174,400) as compared to $4,044,014 for the same period
in 2015, reflecting a change of $4,218,414. For the nine months ended September 30, 2016 and 2015, total other income (expense)
was $1,499,055 and ($909,984), respectively, reflecting a change of $2,409,039. The change in both the three and nine months ended
September 30, 2016 is primarily due to the change in the fair value of the warrant liability related to warrants issued in connection
with our June 2013 registered public offering. In addition, $390,599 is included in other income for the nine months ended September
30, 2016 related to an amount that had previously been accrued. We were notified during the second quarter of 2016 that the amount
was no longer considered outstanding by the counterparty and therefore reversed the amount accrued, resulting in other income.
Financial
Condition
Cash
and Working Capital
As
of September 30, 2016, we had cash and cash equivalents of $5,655,200 as compared to $4,921,545 as of December 31, 2015, representing
an increase of $733,655 or 15%. As of September 30, 2016, we had working capital of $3,319,982 which excludes a non-cash warrant
liability of $1,324,909, as compared to working capital of $2,179,694 which excludes a non-cash warrant liability of $2,434,101,
as of December 31, 2015, representing an increase of $1,140,288 or 52%. The increase is primarily related to the increase in cash
as a result of the proceeds received from our stock purchase agreement with SciClone.
Based
on the Company’s current rate of cash outflows, cash on hand, proceeds from government contract and grant programs, proceeds
available from the equity line with Lincoln Park Capital Fund, LLC and proceeds from the State of New Jersey Technology Business
Tax Certificate Transfer Program, management believes that its current cash will be sufficient to meet the anticipated cash needs
for working capital and capital expenditures for at least the next twelve months.
Our
plans with respect to our liquidity management include, but are not limited to, the following:
●
|
We
have up to approximately $35.1 million in active contract and grant funding still available
to support our associated research programs in 2016 and beyond, provided the federal
agencies exercise all options and do not elect to terminate the contracts or grants for
convenience. We plan to submit additional contract and grant applications for further
support of these programs with various funding agencies;
|
●
|
We
have continued to use equity instruments to provide a portion of the compensation due
to vendors and collaboration partners and expect to continue to do so for the foreseeable
future;
|
●
|
We
will pursue Net Operating Loss (“NOL”) sales in the State of New Jersey pursuant
to its Technology Business Tax Certificate Transfer Program. Based on the receipt of
$488,933 in proceeds from the sale of NJ NOL in 2015, we expect to receive $530,143
in net proceeds in 2016. We expect to participate in the program during 2017 and beyond as
the program is available;
|
●
|
We
plan to pursue potential partnership for our pipeline programs. However, there can be
no assurances that we can consummate such transactions;
|
●
|
We
have $8.2 million available from equity facilities expiring in November 2016 and $10.4
million from equity facilities expiring in March 2019; and
|
●
|
We
may seek additional capital in the private and/or public equity markets to continue our
operations, respond to competitive pressures, develop new products and services,
and to support new strategic partnerships. We are currently evaluating additional
equity financing opportunities on an ongoing basis and may execute them when appropriate.
However, there can be no assurances that we can consummate such a transaction, or consummate
a transaction at favorable pricing.
|
Reverse
Stock Split
On October 7, 2016, we completed a reverse stock split of our issued and outstanding shares of common
stock at a ratio of one-for-ten, whereby, every ten shares of our common stock were exchanged for one share of our common stock.
Our common stock began trading on the OTCQB on a reverse split basis on October 7, 2016. All share and per share data have been
restated to reflect this reverse stock split.
Expenditures
Under
our budget and based upon our existing product development agreements and license agreements pursuant to letters of intent and
option agreements, we expect our total research and development expenditures for the next 12 months to be approximately $12.0
million before any contract or grant reimbursements, of which $5.8 million relates to the BioTherapeutics business and $6.2 million
relates to the Vaccines/BioDefense business. We anticipate contract and grant revenues in the next 12 months of approximately
$6.2 million to offset research and development expenses of the Vaccines/BioDefense business segment.
The
table below details our costs for research and development by program and amounts reimbursed for the nine months ended September
30:
|
|
2016
|
|
|
2015
|
|
Research & Development Expenses
|
|
|
|
|
|
|
Oral BDP
|
|
$
|
210,038
|
|
|
$
|
548,061
|
|
RiVax™ and ThermoVax
®
Vaccines
|
|
|
228,274
|
|
|
|
381,172
|
|
Dusquetide (SGX942)
|
|
|
1,030,740
|
|
|
|
1,179,335
|
|
SGX943
|
|
|
1,628
|
|
|
|
10,671
|
|
SGX301
|
|
|
1,559,480
|
|
|
|
1,310,279
|
|
Other
|
|
|
403,435
|
|
|
|
302,295
|
|
Total
|
|
$
|
3,433,595
|
|
|
$
|
3,731,813
|
|
|
|
|
|
|
|
|
|
|
Reimbursed under Government Contracts and Grants
|
|
|
|
|
|
|
|
|
OrbeShield
®
|
|
$
|
3,254,204
|
|
|
$
|
3,748,875
|
|
RiVax™ and ThermoVax
®
Vaccines
|
|
|
3,950,365
|
|
|
|
561,297
|
|
Other
|
|
|
351
|
|
|
|
84,743
|
|
Total
|
|
|
7,204,920
|
|
|
|
4,394,915
|
|
|
|
|
|
|
|
|
|
|
Grand Total
|
|
$
|
10,638,515
|
|
|
$
|
8,126,728
|
|
Contractual
Obligations
We
have commitments of approximately $416,667 as of September 30, 2016 relating to several licensing agreements with consultants
and universities. Additionally, we have collaboration and license agreements, which upon clinical or commercialization success
may require the payment of milestones of up to $7.9 million and/or royalties up to 6% of net sales of covered products, if and
when achieved. However, there can be no assurance that clinical or commercialization success will occur. As of September 30, 2016,
no milestone or royalty payments have been paid or accrued.
In December 2014, we entered into a
lease agreement through May 31, 2018 for existing and expanded office space. The rent for the first 12 months was approximately
$12,300 per month, or approximately $20.85 per square foot. This rent increased to approximately $12,375 per month, or approximately
$20.95 per square foot, for the next 12 months, and thereafter increased to approximately $12,460 per month, or approximately
$21.13 per square foot for the remainder of the lease.
On
September 3, 2014, we entered into an asset purchase agreement with Hy Biopharma, Inc. (“Hy Biopharma”) pursuant to
which we acquired certain intangible assets, properties and rights of Hy Biopharma related to the development of Hy BioPharma’s
synthetic hypericin product. As consideration for the assets acquired, we paid $275,000 in cash and issued 184,912 shares of common
stock with a fair value of $3,750,000. These amounts were charged to research and development expense during the third quarter
of 2014 as the assets will be used in our research and development activities and do not have alternative future use pursuant
to generally accepted accounting principles in the United States. Provided all future success-oriented milestones are attained,
we will be required to make payments of up to $10.0 million, if and when achieved. Payments will be payable in restricted securities
of the Company not to exceed 19.9% ownership of our outstanding stock. As of September 30, 2016, no milestone payments have been
made or accrued.
In
February 2007, our Board of Directors authorized the issuance of 5,000 shares of our common stock to Dr. Schaber immediately prior
to the completion of a transaction, or series or a combination of related transactions negotiated by our Board of Directors whereby,
directly or indirectly, a majority of our capital stock or a majority of our assets are transferred from us and/or our stockholders
to a third party. Dr. Schaber’s amended employment agreement includes our obligation to issue such shares if such event
occurs.
As
a result of these above agreements, we have future contractual obligations over the next five years as follows:
Year
|
|
Research
and
Development
|
|
|
Property
and
Other Leases
|
|
|
Total
|
|
October 1 through December 31, 2016
|
|
$
|
16,667
|
|
|
$
|
39,333
|
|
|
$
|
56,000
|
|
2017
|
|
|
100,000
|
|
|
|
151,000
|
|
|
|
251,000
|
|
2018
|
|
|
100,000
|
|
|
|
52,000
|
|
|
|
152,000
|
|
2019
|
|
|
100,000
|
|
|
|
-
|
|
|
|
100,000
|
|
2020
|
|
|
100,000
|
|
|
|
-
|
|
|
|
100,000
|
|
Total
|
|
$
|
416,667
|
|
|
$
|
242,333
|
|
|
$
|
659,000
|
|
ITEM
3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our
primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest
rates, particularly because the majority of our investments are in short-term marketable securities. Due to the nature of our
short-term investments, we believe that we are not subject to any material market risk exposure. We do not have any foreign currency
or other derivative financial instruments.
ITEM
4 - CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Disclosure
controls and procedures are the Company’s controls and other procedures that are designed to ensure that information required
to be disclosed by us in the reports that we file or submit under
the Securities Exchange Act of 1934,
as amended (the
“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the rules and
forms of the U.S. Securities and Exchange Commission. Disclosure
controls and procedures
include, without limitation, controls
and procedures designed
to ensure that information
required to be disclosed by us in
the reports that we file under the Exchange Act
is
accumulated and communicated to
our
management, including
our
principal executive officer and principal financial officer,
as appropriate, to allow timely decisions regarding required
disclosure
. Our management recognizes that any controls and procedures, no matter how
well designed and operated, can only provide reasonable assurance of achieving their objectives and management necessarily applies
its judgment in evaluating the possible controls and procedures.
Our
management has evaluated, with the participation of our principal executive officer and principal financial officer, the
effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our
management,
including our
principal executive officer and principal financial officer, has concluded that, as of the
end
of the period covered by this report, the Company’s
disclosure controls and procedures were effective
at the reasonable assurance level
.
Changes
in Internal Controls
There
was no change in our internal control over financial reporting identified in connection with the evaluation of such internal controls
that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect,
the
Company’s internal control over financial reporting
.
PART
II – OTHER INFORMATION.