Item 2. Management’ Discussion
and Analysis of Financial Condition and Results of Operations
The following discussion should be read
in conjunction with the information contained in the financial statements of the Company and the notes thereto appearing elsewhere
herein and in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations
set forth in the Company’s Annual Report on Form 10-K for the year ended June 30, 2016. Readers should carefully review the
risk factors disclosed in this Form 10-K and other documents filed by the Company with the SEC.
As used in this report, the terms “Company”,
“we”, “our”, “us” and “NNVC” refer to NanoViricides, Inc., a Nevada corporation.
PRELIMINARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This Report contains forward-looking statements
within the meaning of the federal securities laws. All statements other than statements of historical fact made in this report
are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial
position are forward-looking statements. These include statements about our expectations, beliefs, intentions or strategies for
the future, which we indicate by words or phrases such as “anticipate,” “expect,” “intend,”
“plan,” “will,” “we believe,” “Company believes,” “management believes”
and similar language. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,”
“could,” “possibly,” “probably,” “anticipates,” “projects,” “expects,”
“may,” “will,” or “should,” or other variations or similar words. No assurances can be given
that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s
current expectations and are inherently uncertain. The forward-looking statements are based on the current expectations of NanoViricides,
Inc. and are inherently subject to certain risks, uncertainties and assumptions, including those set forth in the discussion under
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report. Actual
results may differ materially from results anticipated in these forward-looking statements.
Investors are also advised to refer to
the information in our previous filings with the Securities and Exchange Commission (SEC), especially on Forms 10-K, 10-Q and 8-K,
in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic
results. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors
to be an exhaustive statement of all risks and uncertainties or potentially inaccurate assumptions.
Background - The Nanoviricide®
Platform Technology
NanoViricides, Inc. is a globally leading
company in the application of nanomedicine technologies to the complex issues of viral diseases. The nanoviricide® technology
enables direct attacks at multiple points on a virus particle. It is believed that such attacks would lead to the virus particle
becoming ineffective at infecting cells. Antibodies in contrast attack a virus particle at only a maximum of two attachment points
per antibody. In addition, the nanoviricide technology also simultaneously enables attacking the rapid intracellular reproduction
of the virus by incorporating one or more active pharmaceutical ingredients (APIs) within the core of the nanoviricide. The nanoviricide
technology is the only technology in the world, to the best of our knowledge, that is capable of both (a) attacking extracellular
virus, thereby breaking the reinfection cycle, and simultaneously (b) disrupting intracellular production of the virus, thereby
enabling complete control of a virus infection.
Our anti-viral therapeutics, that we call
“nanoviricides®” are designed to appear to the virus like the native host cell surface to which it binds. Since
these binding sites for a given virus do not change despite mutations and other changes in the virus, we believe that our drugs
will be broad-spectrum, i.e. effective against most if not all strains, types, or subtypes, of a given virus, provided the virus-binding
portion of the nanoviricide is engineered appropriately. Viruses would not be able to escape the nanoviricide drugs so designed
by mutations since they continue to bind to the same cellular receptor and thus would be captured by the nanoviricides. Virus escape
by mutations is a major problem in the treatment of viral diseases using conventional drugs.
The Company develops its drugs, that we
call a nanoviricide®, using a platform technology. This approach enables rapid development of new drugs against a number of
different viruses. A nanoviricide is a “biomimetic” - it is designed to “look like” the cell surface to
the virus. To accomplish this, we have developed a polymeric micelle structure composed of PEG and fatty acids that is designed
to create a surface like the cell membrane, with the fatty acids going inside of the micelle. On this surface, we chemically attach,
at regular intervals, virus-binding ligands. The virus is believed to be attracted to the nanomicelle by these ligands, and thereby
binds to the nanoviricide using the same glycoproteins that it uses for binding to a host cell. Upon such binding, a “lipid
mixing” interaction between the lipid envelope of the virus and the nanomicelle is thought to take place, leading to the
virus attempting to enter the nanomicelle. We believe many different kinds of viruses are likely to get destroyed in this process.
We engineer the ligands to “mimic”
the same site on the cell surface protein to which the virus binds. These sites do not change no matter how much a given virus
mutates. Thus, we believe that if a virus so mutates that it is not attacked by our nanoviricide, then it also would not bind to
the human host cell receptor effectively and therefore would be substantially reduced in its pathogenicity. Our success at developing
broad-spectrum nanoviricides depends upon how successfully we can design decoys of the cell surface receptor as ligands, among
other factors.
NanoViricides, Inc. is one of a few bio-pharma
companies that has all the capabilities needed from research and development to marketable drug manufacture in the small quantities
needed for human clinical trials. At our new campus at 1 Controls Drive, Shelton, CT, we possess state of the art nanomedicines
characterization facilities that we believe enable us to perform pre-IND nanomedicine analysis and characterization studies of
any of our various drug candidates in house. In addition, we believe we now have the ability to scale up production of any of our
drug candidates, and implement state of the art in-process controls as well as post-process analysis controls in order to establish
robust c-GMP-capable production methodologies. We also have a Biological Safety Level 2 (BSL2) certified virological cell culture
lab at our new campus. We are able to perform initial cell culture based screening of large numbers of drug candidates for effectiveness
and safety against certain of the viruses that we have targeted for drug development. This capability boosts our drug development
capabilities significantly. Other than this limited initial screening, all of the biological testing and characterization of our
drug candidates continues to be performed by external academic or institutional collaborators and contract research organizations
(CRO). In particular, all of the animal studies are performed by our collaborators and CROs.
Our Product Pipeline
We currently have eight different drug
development programs, attesting to the strength of our platform technology.
The potential broad-spectrum nature of
our anti-HSV drug candidates is enabling several anti-Herpes indications. Of these, our (i) Topical Treatment for Shingles (VZV)
is currently moving most rapidly towards clinical stage. We believe that the other anti-Herpes drug candidates, would follow this
lead drug to the clinical stage, namely, (ii) skin cream for the treatment of orolabial herpes (“cold sores”) and recurrent
herpes labialis (RHL) mostly caused by HSV-1, (iii) ocular eye drops treatment for external eye herpes keratitis (HK), caused by
HSV-1 or HSV-2, and (iv) skin cream for the treatment of genital herpes caused by HSV-2. In addition, we continue to work on our
other drug candidates at lower priority levels. These include (v) Injectable FluCide™ for hospitalized patients with severe
influenza, (vi) Oral FluCide™ for out-patients, (vii) DengueCide™, a broad spectrum nanoviricide designed to attack
all types of dengue viruses and expected to be effective in the Severe Dengue Disease syndromes including Dengue Hemorrhagic Fever
(DHS) and Dengue Shock Syndrome (DSS), and (viii) HIVCide™ for HIV/AIDS. In addition, the Company has research programs,
enabled by the robust nanoviricides platform technology, to develop drugs against Rabies virus, Ebola and Marburg viruses, and
other viruses.
To date, the Company does not have any
commercialized products. The Company continues to add to its existing portfolio of products through our internal discovery and
clinical development programs and also seeks to do so through an in-licensing strategy.
The Company has received an “Orphan
Drug Designation” for our DengueCide™ drug from the USFDA as well as the European Medicines Agency (EMA). This orphan
drug designation carries significant economic benefits for the Company, upon approval of a drug.
We believe we have demonstrated that we
can rapidly develop different types of formulations for different routes of administration, such as injectable, skin cream, lotion,
gel, and even oral, because of the inherent strength of the nanoviricide platform tailorable technology. The technology also enables
us to develop nasal sprays and bronchial aerosols. We plan to develop the appropriate formulations as necessary.
All of our drug programs are established
to target what we believe are unmet medical needs.
Herpes simplex viral infections cause keratitis
of the eye, and severe cases of infection may sometimes necessitate corneal transplants. Oral and genital herpes is also a well-known
disease, with no cure and existing treatments that are not very effective. Shingles, caused by VZV, a herpesvirus, does not have
an effective treatment at present, although some drugs are approved for use in shingles. Adenoviral Epidemic Kerato-Conjunctivitis
(EKC) is a severe pink eye disease that may lead to blurry vision in certain patients after recovery. The epidemic and pandemic
potential as well as the constantly changing nature of influenza viruses is well known. The HIV/AIDS worldwide epidemic and the
“curse of slow death” nature of HIV viral infection is also well known. Dengue viral infection is also known as “breakbone
fever”. What is worse, is that when a patient is infected with a dengue virus a second time, if the virus is a different
serotype, then it can cause a severe dengue disease, or dengue hemorrhagic syndrome, with very high morbidity and a high rate of
fatality. This is because, the patient’s immune system mounts an attack, but the antibodies that it generates, directed at
the previous infecting virus, are not effective against the new infection, and instead the new infecting virus uses them to hitch
a ride into host cells that it infects more severely. This phenomenon is called “Antibody-Dependent Enhancement” or
“ADE” for short.
In the United States alone, approximately
1 million cases of shingles (i.e. zoster) occur annually. The risk of zoster increases with age, and with decreased immune system
function. Zoster is characterized by pain and rash. Discrete cutaneous lesions occur in groups on the skin. The Company believes
that this presentation enables topical therapy for control of the viral outbreak.
One in four patients develop zoster-related
pain that lasts more than 30 days. If it persists more than 3 months, it is called post-herpetic neuralgia (PHN), and may persist
for years. It is thought that zoster-associated pain and PHN is a result of chronic ganglionitis, i.e. continued low-grade production
of the virus in the infected ganglia and related immune response. The Company believes that effective control of the virus production
would minimize or eliminate PHN, a debilitating morbidity of zoster.
Zoster occurs mostly in the abdominal region. However, in 20% of cases, it occurs in the head area, with
reactivation involving trigeminal distribution. These cases of zoster can lead to serious complications including hemorrhagic stroke
(VZV vasculopathy), VZV encephalitis, ophthalmic complications, and may result in fatalities.
Currently available anti-herpes drugs have
had limited impact on zoster. Thus, an effective drug with a good safety profile could have a dramatic impact on zoster as well
as possibly PHN.
Ocular infections with HSV-1 have been
reported to be the leading cause of infectious blindness in the developed world, with recurrent episodes of viral reactivation
leading to progressive scarring and opacity of the cornea. HSV epithelial keratitis afflicts the epithelium of the cornea. In some
cases, the disease progresses to HSV stromal keratitis, which is a serious condition. HSV stromal keratitis involves the stroma,
the layer of tissue in the cornea, which is deeper in the eye than the epithelium. Its pathology disease involves the HSV infection
of stromal cells, and also involves the inflammatory response to this infection. It can lead to permanent scarring of the cornea
resulting in diminished vision. More serious cases require corneal replacement surgery. About 75% of corneal replacements are known
to fail in a 20-year time frame, due to graft versus host disease (i.e. rejection of the foreign implant by the body), requiring
a new procedure, or resulting in blindness.
Ocular herpes keratitis incidence
rates in the USA alone are reported to be in the range of 65,000 to 150,000 patients per year. Of these approximately 10,000
per year may be estimated as requiring corneal transplants. The incidence estimates vary widely based on source, and are also
assumed to be underreported. A corneal transplant costs approximately $15,000 to $25,000 for the surgery, with additional
costs for follow on drugs and treatments.
This scenario exists in spite of available
drugs, namely the acyclovir class of drugs, trifluridine, and others, that are used for treatment of herpes keratitis. The failure
of these drugs is primarily due to limited safety resulting in insufficient drug availability at the site of infection.
In addition, the Company is developing
broad-spectrum eye drops that are expected to be effective against a majority of the viral infections of the external eye. Most
of these viral infections are from adenoviruses or from herpesviruses. The Company has shown excellent efficacy of its drug candidates
against EKC (adenoviral epidemic kerato-conjunctivitis) in an animal model. Further, our anti-HSV drug candidates have shown excellent
efficacy in cell culture studies, as well as in a lethal skin infection animal model.
Thus, an effective drug with a good safety
profile could have a dramatic impact on ocular viral infections. Merit-based compensation for the herpes keratitis treatment would
enable strong financial incentive and could result in potential revenues in the several hundreds of millions range, depending upon
the effectiveness of the drug. The Company believes that it has sufficient production capacity at its current site to supply the
US requirement of the drug for treatment of (ocular) herpes keratitis upon drug licensure.
Topical treatment of herpesvirus infections
is important because of the disfiguring nature of herpesvirus breakouts, the associated local pain, and the fact that the virus
grows in these breakouts to expand its domain within the human host further. Topical treatment can deliver much higher local levels
of drugs than a systemic treatment can, and thus can be more effective and safer at the same time. Systemic drug treatment results
in side effects because of the high systemic drug concentrations that need to be achieved and the large drug quantities that must
be administered. Since the virus remains mostly localized in the area of the rash and connected nerve apparatus, using high concentrations
of drugs delivered in small quantities topically would allow maximizing the effectiveness while minimizing the side effects.
Herpesviruses become latent in neuronal
cells or in ganglia, and cause periodic localized breakouts that appear as skin rashes and lesions. Systemic drug treatment results
in side effects because of the high systemic drug concentrations that need to be achieved and the large drug quantities that must
be administered. Since the virus remains mostly localized in the area of the rash and connected nerve apparatus, using high concentrations
of drugs delivered in small quantities topically would allow maximizing the effectiveness while minimizing the side effects, leading
to minimizing viral production at the site. Such effective local control of the virus titer is expected to lead to reduction in
recurrence of herpesvirus “cold sores” or genital ulcers.
The potential broad-spectrum nature of
our anti-HSV drug candidates is expected to enable several antiviral indications. Thus, HSV-1 primarily affects skin and mucous
membranes causing “cold sores”. HSV-2 primarily affects skin and mucous membranes leading to genital herpes. HSV-1
infection of the eye causes herpes keratitis that can lead to blindness in some cases. In addition, human herpesvirus-3 (HHV-3),
a.k.a. varicella-zoster virus (VZV), causes chickenpox in children and when reactivated in adults, causes shingles. Shingles breakouts
are amenable to topical treatment, as are the HSV cold sores, genital lesions, and herpes keratitis of the eye. Most of these indications
do not have satisfactory treatments at present, if any. Further, the treatment of herpesvirus infections caused by acyclovir- and
famciclovir- resistant mutants is currently an unmet medical need. Drugs with mechanisms of action other than DNA-polymerase inhibitors
(such as acyclovir) are needed for effective treatment.
The childhood chickenpox vaccine has reduced
the cases of chickenpox, but this is a live attenuated virus vaccine that persists in the body. All adults who have had chickenpox
in childhood continue to harbor the chickenpox virus, and are expected to develop shingles at some time, with the risk of shingles
increasing with age or weakening of the immune system surveillance. In addition to the shingles breakout itself, post-herpetic
neuralgia (pain) (PHN) is a significant morbidity of shingles, and to a lesser extent, of oral and genital herpes. PHN is initially
caused probably by the inflammation and immune response related to the local virus expansion, but persists well after the virus
has subsided, the blisters have scabbed off, and the skin has recovered, due to the nerve damage that results from the local large
viral load during infection. Current PHN treatments are symptomatic, affecting the pain signaling circuit (such as novocaine, pramoxine,
capsaicin, etc.), and do not produce lasting control. An effective therapy that results in strong local control of the virus production
during the breakout itself is expected to minimize the resulting immune responses and nerve damage, and thereby minimize or possibly
eliminate PHN.
The Company thus believes that it can develop
its broad-spectrum anti-herpes drug candidate towards at least four topical indications, namely, (a) shingles, (b) ocular herpes
keratitis, (c) oral herpes (“cold sores”), and (d) genital herpes. As the HerpeCide™ program progresses, it is
likely that additional herpesvirus related pathologies may become amenable to treatment with our herpesvirus drug candidates.
Our nanoviricides in the HerpeCide™
program at present are designed as topical treatment for the breakout of shingles or herpes sores. Our animal studies results
are very significant considering that topical acyclovir in the form of a cream as well as an ointment, are approved for the treatment
of cold sores. We believe our strong anti-herpes nanoviricide® drug candidates are capable of reaching approval as a drug
for topical use against herpes cold sores, based on these datasets. Further drug development is necessary towards the goal of
drug approval. Currently, valacyclovir (Valtrex®) is approved as an oral drug for the treatment of severe shingles, but it
has limited effectiveness. Another oral drug known as “FV-100” was studied in Phase II in clinical trials for the
treatment of shingles by Bristol-Myers Squibb. This study has been completed in September 2015, but results are not available
to us. Currently this drug is being further developed by ContraVir Pharma. There is also a preventive vaccine for shingles that
can be taken by adults over 55 years of age. Given the number of cases of severe shingles, we believe that there is an unmet medical
need for developing a topical skin cream for the treatment of shingles. Local application should enable delivery of stronger,
local doses of medicine, with a stronger patient benefit, than oral systemic dosing allows.
Existing therapies against HSV include
acyclovir and drugs chemically related to it. These drugs must be taken orally or by injection. Available topical treatments, including
formulations containing acyclovir or chemically related anti-HSV drugs, are not very effective. Currently, there is no cure for
herpes infection.
Both the safety and effectiveness of any
new drug has to be determined experimentally. The safety of a nanoviricide drug is expected to depend upon the safety of the nanomicelle
portion as well as the safety of the antiviral ligand. We have observed excellent safety of our injectable anti-influenza drug
candidates. This leads us to believe that the nanomicelle backbones of these drug candidates that were evaluated in preliminary
safety studies should be safe in most if not all routes of administration.
The current market size for drugs for the
treatment of herpes infections is about $2~4B. Similarly, the current market size for the treatment of influenza infections is
in excess of $4B, and that for HIV treatments is in excess of $40B. The total market sizes for the drug development programs we
have in progress are estimated at around $100B.
We believe that when an effective topical
treatment is introduced, the market size is likely to expand substantially, as has been demonstrated in the case of HIV as well
as Hepatitis C.
Our timelines depend upon several assumptions,
many of which are outside the control of the Company, and thus are subject to delays.
We are currently focused on topical drug
development against several indications related to infections by herpes family viruses. The Company recognized, after consultations
with its FDA regulatory advisors, namely Biologics Consulting Group (of Alexandria, VA), and several other experts in the field,
that the development of these topical drug candidates towards human clinical trials is likely to be considerably faster than the
development of our anti-influenza systemic (injectable) drug candidate.
We believe we are now one of the very few
small pharmaceutical drug innovators that possess their own cGMP or cGMP-capable manufacturing facility (see below). With our new
campus and pilot-scale c-GMP-capable manufacturing facility, we are now in a position to advance our drug candidates into clinical
trials, produce the pre-clinical “tox package” batches, and the clinical drug substance batches.
Management Discussion - Accomplishments
in Reported Quarter, Our Drug Development Programs and Current Drug Development Strategy
During the reported quarter we have continued
to focus our drug development work plans primarily on our lead anti-Herpes-virus programs. In particular, we have focused on a
work plan related to identifying a clinical development candidate for the topical skin cream for the treatment of shingles outbreak.
Because of the broad-spectrum nature of our anti-herpes drug candidates, we have also simultaneously continued further development
of our drug candidates for the other three indications in the HerpeCide™ project, namely, cold sores, genital ulcers, and
ocular viral infections. We have also continued to work on our anti-influenza drug development programs under the FluCide™
project.
Recent developments and our discussions
with our regulatory advisors and consultants indicate that the shingles drug candidate may be likely to reach the human clinical
evaluation phase earliest compared to the other drug candidates. Other drug candidates in the HerpeCide project are expected to
follow into clinical stage rapidly thereafter. This is primarily because of the topical treatment nature of the drug candidates
we have chosen to develop in these indications. The FluCide drug candidates are now expected to enter human clinical stage later
than the HerpeCide drug candidates.
Animal model studies of lethal herpesvirus
infection using the highly pathogenic and neurotropic HSV-1 H129 strain in two different sites resulted in 85% to 100% survival
in animals treated with certain anti-HSV nanoviricide drug candidates, while control animals uniformly died. We reported on these
studies as the results became available in April 2015, from Professor Emeritus Ken Rosenthal’s lab at NEOMED, and in August
2015, from TransPharm Preclinical Solutions, LLC, Jackson, MI, a CRO. Previously, we have improved the anti-HSV drug candidates
in cell culture studies and were able to achieve significant effectiveness before engaging into animal studies. We re-designed
the anti-HSV drug candidates so that the solutions would not run off the skin when applied. With this redesign, our drug candidates
demonstrated complete survival of HSV-1 H129 lethally infected animals.
The Company thus has achieved animal studies
efficacy proof of concept for HSV-1 skin topical treatment. The Company believes that the broad-spectrum nature of these drug candidates
should allow effectiveness against related herpesvirus types such as HSV-2 as well as the more distantly related HHV-3 aka VZV
or chickenpox/shingles virus.
The Company has established additional
collaborations towards IND-enabling development of drug candidates against the four indications listed earlier. We now have collaboration
agreements with the CORL at the University of Wisconsin, the Campbell Lab at the University of Pittsburgh, and, the Moffat Lab
at SUNY Upstate Medical Center, for the evaluation of our nanoviricides® drug candidates in models of ocular herpesvirus and
adenovirus infections as well as VZV infections in
in vitro
and
ex vivo
models. TransPharm Preclinical Solutions,
a CRO, will continue to perform testing of our anti-herpes drug candidates in dermal infection animal models. The Company also
now has the ability to perform initial screening of our drug candidates in our BSL2 certified Virology Lab in Shelton, CT, against
several viruses that include various strains and subtypes of HSV-1, HSV-2, VZV, and Influenza.
The Company has previously reported the
successes of its nanoviricides drug candidates in pre-clinical studies of dermal herpes virus infections in mouse models. The studies
in Dr. Brandt’s laboratory, namely CORL, at the University of Wisconsin will be critical in optimizing our anti-herpes drug
candidates against ocular herpes virus infections. The goal of these studies will be to identify a drug development candidate as
a treatment for ocular keratitis in humans caused by herpes simplex virus infections.
The Company has continued to test several
drug candidates with different formulation consistencies in multiple studies in order to select a clinical development candidate
for the topical treatment of shingles. Following identification of the clinical development candidate, the Company will engage
into scaled up production of said drug candidate at our Scale-Up Lab in the new campus. The Scale-up Lab has been in operation
since June 2015, and we have scaled most production operations to 200g scale previously.
Once we identify the clinical drug
candidate for the treatment of shingles, we will need to manufacture it in sufficient quantities to enable further
IND-enabling studies. These studies include formulation optimization studies, dose-response efficacy studies, efficacy
studies with different viral strains, and preliminary safety/tox in small animals, followed by cGLP safety/tox in larger
animals, and PK/PD studies (pharmacokinetics and pharmacodynamics studies) in standard animal models.
The Company is evaluating the possibility
of performing Phase I and Phase II human clinical studies internationally. It is widely believed that Phase I studies can be performed
in Australia more quickly than in the USA due to differences in regulatory procedures and guidelines.
The Company believes that its anti-herpes
drug candidate for the treatment of cold sores and for genital lesions should lead to effective control of the cold sores rapidly,
and may also lead to a long lag time before a new recurrence episode occurs. This is because it is believed that recurrence rates
increase by virtue of further infection of new nerve endings from the site of the herpesvirus outbreak which result in additional
nerve cells harboring the virus. If this in situ re-infection is limited, which we believe is the primary mechanism of nanoviricide
drugs, then it is expected that the number of HSV harboring reservoir cells should decrease, and recurrence rate should go down.
The Company believes that it will be able
to expand its anti-herpes portfolio in the future to include many other herpesviruses such as cytomegalovirus (CMV), KSHV, and
Epstein-Barr virus (EBV, cause of mononucleosis). This would lead to a very large number of therapeutic indications beyond the
four indications we are currently targeting.
The Company thus continues to expand its
portfolio of opportunities, while also making progress towards the clinical trials stage.
The Company continues to work on its anti-influenza
drug candidates in parallel to its HerpeCide program. We are currently developing Injectable FluCide™ for hospitalized patients
with severe influenza as our first, broad-spectrum anti-influenza drug candidate. We have demonstrated the very first effective
orally available nanomedicine, namely oral FluCide™ for outpatients with influenza. The development of Oral FluCide is expected
to follow behind Injectable FluCide.
Because of our limited resources, we have
assigned lower development priorities to our other drug candidates in our pipeline such as DengueCide™ (a broad spectrum
nanoviricide designed to attack all types of dengue viruses and expected to be effective in the Severe Dengue Disease syndromes
including Dengue Hemorrhagic Fever (DHS) and Dengue Shock Syndrome (DSS)) and HIVCide™ (a potential “Functional Cure”
for HIV/AIDS).
Of these, our Injectable FluCide anti-influenza
drug candidate for hospitalized patients and our anti-HSV-1 drug candidate for dermal herpes infections or “cold sores”
are in advanced pre-clinical stage. Our remaining drug development programs are presently at pre-clinical stage. We continue to
test several drug candidates under each program even though we may achieve extremely strong results with some of the candidates.
Both of our anti-influenza therapeutic
candidates are designed to be “broad-spectrum”, i.e. they are expected to be effective against most if not all types
of influenzas including the recently discovered novel strain of H7N9, Bird Flu H5N1, other Highly Pathogenic Influenzas (HPI/HPAI),
Epidemic Influenzas such as the 2009 “swine flu” H1N1/A/2009, and Seasonal Influenzas including the recent H3N2 influenza.
The Company has already demonstrated that our anti-influenza drugs have significantly superior activity when compared to oseltamivir
(Tamiflu®) against two unrelated influenza A subtypes, namely, H1N1 and H3N2 in a highly lethal animal model.
Our position that an injectable drug against
influenza is a viable option is now affirmed by the US FDA licensure of the very first injectable drug for influenza in December
2014, namely peramivir (Rapivab, by BioCryst). Interestingly, peramivir as an injection was approved even though it did not appear
to provide significant additional benefits over other drugs in its class. Overall, patients who received 600 mg of peramivir had
symptom relief 21 hours sooner, on average, than those who received the placebo, which is consistent with other drugs in the same
class. Additionally, peramivir injection was found to be not effective for hospitalized patients with severe influenza.
Thus, an
effective therapy for patients hospitalized with severe influenza continues to be an unmet need. In addition, a single injection
treatment of non-hospitalized patients would be a viable drug if it provides superior benefits to existing therapies.
Both of our anti-influenza drug candidates
can be used as prophylactics to protect at-risk personnel such as health-care workers and immediate family members and caretakers
of a patient.
We are developing our anti-herpes drug
candidates and the injectable FluCide for severely ill patients towards IND applications in parallel. We have engaged Biologics
Consulting Group, a well-known group of regulatory consultants, to advise us on the regulatory pathways, and the studies required
for the IND applications for the various indications.
We believe we have demonstrated that we
can rapidly develop different types of formulations for different routes of administration, such as injectable, skin cream, lotion,
gel, and even oral, because of the inherent strength of the nanoviricide platform tailorable technology. The technology also enables
us to develop nasal sprays and bronchial aerosols. We plan to develop the appropriate formulations as necessary.
Our Campus and Facilities
We have completed our relocation to the
new campus in Shelton, CT. We performed this transition smoothly and without affecting continuing operations by employing a staged
relocation strategy.
We have built a c-GMP capable facility
at our new campus in Shelton, Connecticut, where we will be able to manufacture multi-kilogram quantities of the c-GMP-like and
c-GMP-compliant batches of drug substances as well as drug products (cGMP = “current Good Manufacturing Practices”).
This multi-purpose facility can produce any of our nanoviricide drug candidates. Moreover, we believe the campus will be able
to produce our drugs in any of the different formulations we have been working on including injectables, skin creams and lotions,
eye drops and ocular gels, as well as oral syrups. This facility has the capability of production scales from several grams to
a few kilograms per batch, depending upon the product. These quantities are more than sufficient for pre-IND studies, IND-enabling
studies, and human clinical trials of all of the drug candidates we are currently focusing on towards IND.
We have recently engaged a new Senior Virologist,
Brian Friedrich, PhD. He has worked on drug development and drug screening for highly pathogenic viruses including alphaviruses,
bunyaviruses, and filoviruses, at United States Army Medical Research Institute for Infectious Diseases (USAMRIID). He has also
worked on HIV-1 and on flaviviruses such as West Nile Virus. Brian is trained in up to BSL-4 laboratory protocols in virology.
We are now able to perform certain initial
in vitro
drug candidates screening assays in cell culture for some of the viruses in our own BSL-2 Cell Culture Virology
laboratories at our new campus. Certain non-lethal viruses such as several Influenza strains, HSV, VZV, as well as Dengue viruses
can be used in cell culture screening assays at low levels in our BSL-2 virology facility.
We believe that performing the initial
drug screening as well as drug candidates screening during optimization studies in cell culture assays in our own facility will
significantly improve our drug development capabilities. We have previously identified that our total dependence on external facilities
even for cell culture-based screening has been causing significant delays in our drug development and drug candidate optimization
efforts.
We will continue to employ external facilities
for additional cell-culture screening of our drug candidates for different viruses. This will enable both confirmation of our in-house
studies, and expansion of the studies to virus strains or virus types that we do not handle in house. In addition, all of our pre-clinical
animal testing will continue to be performed by third parties.
We have thus significantly expanded our
drug development capabilities with the addition of virological research capabilities.
We have moved
our existing equipment and have installed a substantial amount of additional equipment at the Shelton facility. We need to test
and validate each piece of equipment. We will need to validate, test and verify that all the systems are functioning as needed
for being able to make cGMP drug substance batches. Then we will need to run several batches, analyze the resulting products, and
establish that our manufacturing processes are performing satisfactorily to produce the desired drug substance. A minimum of two
consecutive reproducible batches are generally required to be made before qualifying a product, process, and facility under c-GMP.
In addition, we will also need to seek and obtain US FDA registration as a cGMP facility, after we successfully commission c- GMP-like
production of at least one drug substance at this facility.
We expect the Company will be able to produce
“cGMP-like” material in the new facility once the facility is validated, all of the protocols are finalized, standardized,
and the standard protocols are documented in the manner needed for cGMP operation. A “cGMP-like” drug substance can
be loosely defined as drug substance made using the same processes as c-GMP material but prior to undergoing the FDA registration
process for the c-GMP facility. Such c-GMP-like product can be used for clinical batches for human clinical studies in most countries
around the world. The Company is currently investigating all such options in order to expedite the timeline to entering human clinical
trials. The Company intends to contract out clinical batch fulfillments to outside contract manufacturers.
We continue to work on scale-up of the
nanomicelle polymer backbone to approximately 500g scale, and on establishing in-process control systems, as well as post-process
characterization assays for the same with the new instrumentation and analysis equipment we have acquired as we were establishing
our new facilities. Many of the critical nanomedicine characterization assays needed for our nanoviricide drug candidates have
now been developed, and will be perfected into standardized assays over the next several months.
We are currently working on process development and scale-up of production of our anti-herpes drug candidates at the 200g to 500g per batch scales. After the 200 and 500g scale-up is completed, we will continue to scale the production to larger reactors, to approximately 1kg batch sizes. We have estimated, in consultations with BASi and other consultants, that approximately 500g~1kg drug product would be needed for the safety/toxicology study of our first drug candidate expected to go into clinical trials, namely, a topical skin cream for the treatment of shingles. The estimates will be further tightened as the safety/toxicology program is finalized. We are on schedule in our production scale-up program to meet this scale of production, as of this writing. BASi is the contract service provider for our safety/toxicology studies. Previously, we had estimated a drug product requirement of approximately 2.5kg for our Injectable FluCide™ drug candidate for the safety/tox-package studies as well as efficacy studies that are part of the pre-IND development of this drug candidate. We will continue the process scale up efforts to meet the large requirement of FluCide after the shingles drug product enters into human clinical trials.
While we have expanded our staff significantly
in the last two years, including the staff at our affiliates, we continue to operate with a relatively small team compared to the
number of programs and the number of objectives in each program. We have continued to move forward in each of the objectives as
we complete critical tasks at hand, using teams composed of substantially the same people. This serialization naturally extends
the timeline for entry into the clinical phase. However, even if we increased staff, we would still need to train the new staff
members into various proprietary techniques, which would take significant amount of time away from our current staff, and would
also add to development costs substantially. We have therefore strategically chosen to continue development with the smaller but
agile, highly flexible, and multi-talented team that we have now built.
Our timelines depend upon several assumptions,
many of which are outside the control of the Company, and thus are subject to delays.
With our new campus and c-GMP capable facility,
we are now in a position to advance our drug candidates into clinical trials, produce the pre-clinical “tox package”
batches, the clinical batches, as well as initial quantities of marketed drugs. This makes NanoViricides, Inc. one of very few
drug developer companies that have the internal capability to support market entry.
Our new facility is expected to enable
initial commercial manufacture of our drugs under cGMP guidelines, once licensed, in order to gain market entry. Any of our drugs,
once introduced to the market, is estimated to generate revenues of several tens of millions of dollars. The market sizes of many
of our drugs are in several billion dollars. Thus, we anticipate developing additional manufacturing capability for each of our
drugs as they mature towards clinical products. We believe that we may be able to license the drugs to bigger pharmaceutical companies
that can manufacture the drugs, or license the manufacture of the drugs to other commercial scale cGMP manufacturing facilities.
This versatile, customizable facility is
designed to support the production of kilogram-scale quantities of any of our nanoviricides drugs. In addition, it is designed
to support the production of the drug in any formulation such as injectable, oral, skin cream, eye drops, lotions, etc. The production
scale is designed so that clinical batches for Phase I, Phase II, and Phase III can be made in this facility. The clean room suite
contains areas suitable for the production of sterile injectable drug formulations, which require special considerations.
Current Status of the Company’s Drug Development
Programs
All of our drug development programs are
in the pre-clinical or advanced pre-clinical stages.
With the achievement of extremely high
levels of effectiveness in appropriate animal models for its current drug candidates listed above, the Company has progressed to
advance its drugs into the IND-enabling studies needed to go into the clinical stage. Our drug development strategy now is to focus
on the IND-enabling studies for at least one, possibly two, indications in the HerpeCide topical treatment program, and our injectable
FluCide drug candidate for severely ill patients hospitalized with influenza (IND = Investigational New Drug application). In addition,
the other programs will continue to progress at different priorities.
Our animal efficacy studies are performed
by third parties. We opt into drug developments against specific disease indications for which we have appropriate partners that
can perform the necessary cell culture and animal efficacy studies.
NanoViricides technology is now maturing
rapidly toward the clinical studies, with the new facility, expanded staff, and the financial strength that we have attained since
uplisting to the NYSE-MKT.
During the reported quarter we have continued
to perform further optimization of our anti-HSV drug candidates. We have increased our efforts at characterization and study of
each synthetic step in order to develop a knowledge base for further scale up of syntheses to larger scales. This process, as is
well known in the industry, requires painstaking studies, and is time consuming. In April 2015, we reported dramatic improvement
in clinical symptoms associated with a herpes simplex virus dermal infection in mice. The topical nanoviricide treatment significantly
reduced the clinical disease, and led to >85% survival of the mice dermally infected with a highly aggressive, neurotropic,
HSV-1 H129c strain, wherein all of the untreated mice had severe clinical morbidity and none of the untreated mice survived. Later
in August 2015, we reported that these results were reproduced at a different laboratory, with 100% survival being observed. The
repeat studies were conducted by Transpharm Preclinical Solutions, a pre-clinical contract research services organization (CRO),
in Jackson, MI. We plan to replicate similar studies of our antiviral candidates in appropriate models for shingles, ocular HSV-1
infection and genital HSV-2 infection.
We believe that these successes have positioned
us to develop drugs against multiple herpesvirus indications. The potential broad-spectrum nature of our anti-HSV drug candidates
is expected to enable several antiviral indications. Thus, HSV-1 primarily affects skin and mucous membranes causing “cold
sores”. HSV-2 primarily affects skin and mucous membranes leading to genital herpes. HSV-1 infection of the eye causes herpes
keratitis that can lead to blindness in some cases. In addition, human herpesvirus-3 (HHV-3), a.k.a. varicella-zoster virus (VZV),
causes chickenpox in children and when reactivated in adults, causes shingles. Shingles breakouts are amenable to topical treatment,
as are the HSV cold sores, genital lesions, and herpes keratitis of the eye. Most of these indications do not have satisfactory
treatments at present, if any.
We are currently performing the studies
necessary for selection of IND candidates (i.e. clinical drug candidates) for several indications related to herpes viruses under
our HerpeCide™ program. These indications include shingles, ocular herpes keratitis, oral herpes (“cold sores”),
and genital herpes. After initial achievement of efficacy in the HSV-1 dermal model, we are now working on establishing the best
anti-HSV ligand for our anti-HSV drug candidate in this model. New ligands, based on a SAR (“structure-activity-relationship”)
modeled after our successfully tested earlier ligands were developed using knowledge-based approaches including molecular modeling
and bioinformatics studies in our laboratory. Synthesis of these novel ligands has been substantially completed as of this writing.
Such SAR studies are undertaken after initial success and may often result in large improvements in efficacy and safety.
In addition, we will test certain nanomicelle
compositions to determine which composition is best suited for the dermal delivery. The nanomedicine technology enables tailor-made
nanomicelle polymer compositions so that transport across skin layers and delivery to the site of action can be accomplished properly.
Once these
studies are successfully completed, we expect that we will be able to announce a broad-spectrum clinical drug development candidate
for the topical treatment of shingles outbreak. We believe that clinical candidates for the dermal topical treatment of HSV-1 and
HSV-2 infections should be identified after an additional cycle of testing for effectiveness for these respective indications.
In this quarter, we have continued to work on scaling up the production capabilities and proving the manufacturing steps at increasing scales of production, with particular focus on the potential candidates under study. Several of the steps have been taken to ~500g scale, and are being perfected. Further scale-up to 1kg scales is being scheduled. The large-scale production schedules depend heavily upon the availability of raw materials and the schedule for acquiring them from outside sources. If there are delays in acquiring the raw materials in quantities needed, our production programs will be consequently delayed.
We had discussions with BASi, Toxicology Services of West Lafayette, IN (“BASi”), a CRO for GLP and non-GLP safety/toxicology
studies
recently regarding the Safety/toxicology studies that would be needed for our topical dermal skin cream for the treatment of various
herpesvirus skin infections including zoster (shingles), herpes labialis, and herpetic genital ulcers. We have also held discussions
with other experts in the industry. We have developed a plan for the required studies, and are in the process of estimating the
drug product requirements. We believe that we have the facilities for producing the drug product batches needed for the safety/tox
studies as well as the initial human clinical trials.
Subsequent to this quarterly report, on
April 26, 2017, we announced that we are now close to identifying clinical drug candidates for shingles skin cream. We noted that
we have positive results in our efficacy studies and that additional studies are in progress to verify the results and to perform
the final steps of drug candidate selection. We are currently analyzing the repeat datasets from efficacy studies of some of the
candidates.
Our antiviral safety and efficacy studies
are substantially performed by third party collaborators or contract organizations. To this end, we have engaged several new collaborations
to help us finalize clinical candidates and develop IND-enabling pre-clinical data in our various programs this year. For our HerpeCide
program, we have collaborations with the CORL at the University of Wisconsin for HSV-1 and HSV-2, with focus on small animal models
for ocular disease; the Campbell Lab at the University of Pittsburgh for in vitro cell culture models of various ocular viruses
including many adenovirus and herpesvirus strains, as well as animal models for ocular herpes keratitis (HK) and adenoviral epidemic
kerato-conjunctivitis (EKC); and TransPharm, LLC, a contract research organization (CRO), for pre-clinical animal efficacy studies
for our HSV-1 and HSV-2 skin cream drug candidates. In addition, we have a continuing relationship with BASi. We have engaged Biologics Consulting
Group (BCG) for advice and help with regulatory affairs.
We have entered into an agreement with
SUNY Upstate Medical University for the testing of our nanoviricides® drug candidates against VZV (varicella zoster virus),
i.e. the shingles virus. The research is being performed in the laboratory of Dr. Jennifer Moffat and will include
in vitro
,
ex vivo
and possibly
in vivo
studies. Dr. Moffat has extensive experience in VZV infection and antiviral agent discovery.
The goal of these studies is to help select a clinical drug development candidate for toxicology and safety evaluation intended
for clinical trials for the treatment of shingles in humans.
A major impediment in VZV infection studies
is a lack of suitable animal models because VZV is restricted to human tissue and only infects and replicates in human tissue.
To overcome this problem, Dr. Moffat has developed an “
ex-vivo
” human skin organ culture VZV infection model
for the evaluation of therapeutics. This model is a good representative model of natural VZV infection in humans as well as an
important model for evaluating antiviral activity, because it demonstrates behavior similar to the skin lesions caused by VZV
in human patients.
The
in vitro
studies will evaluate
the effectiveness of the Company's nanoviricides antiviral agents against VZV infection of certain human cells in culture. The
ex vivo
studies will evaluate the efficacy of the Company's nanoviricides to inhibit VZV in human skin organ cultures.
A limitation of this
ex vivo
model at present is the number of samples that can be studied at one time. We have planned
several studies in sequence to overcome this issue. We are pleased to note that we are in the process of repeating the
ex vivo
skin patch model studies to establish reproducibility of the data. We have planned these studies such that they will help
us identify a clinical drug candidate for the topical treatment of shingles when they are completed.
Dr. Moffat is an internationally recognized
expert on varicella zoster virus, and her research has focused on the pathogenesis and treatment of infection by this virus. The
National Institutes of Health has recognized this VZV model via a contract with Dr. Moffat’s lab for evaluating antiviral
compounds against VZV. Dr. Moffat is the director of two research core facilities at SUNY Upstate, namely, the Center for Humanized
Mouse Models and the core facility for
In Vivo
Imaging.
We believe that our anti-herpes drug development
program is thus maturing towards a franchise of drug candidates, such as eye drops and gel formulations for ocular herpes keratitis,
skin creams for oral herpes “cold sores”, for genital herpes lesions, and for shingles (which is caused by the herpesvirus
called Varicella-Zoster virus that also causes chickenpox in children).
We are also working on further developments
in our FluCide™ anti-Influenza drug development project, and in particular, on our broad-spectrum anti-influenza drug for
hospitalized, severely ill patients, Injectable FluCide™.
In addition, NanoViricides, Inc. is possibly
the first company in the world in the entire field of nanomedicines to have developed a nanomedicine drug that is effective when
taken orally (by mouth). Our oral anti-influenza drug candidate, NV-INF-2, has shown extremely high broad-spectrum effectiveness
against two different influenza A viruses in animal models, in our FluCide™ program. We believe that the Oral FluCide drug
development will follow the Injectable FluCide for hospitalized patients as the latter enters human clinical trials. We believe
we now have the ability to manufacture sufficient drug material for initial market entry of our Injectable FluCide drug candidate
when licensed by the FDA or another regulatory agency. However, an oral drug against influenza is expected to require very large
manufacturing facility in order to address the large worldwide outpatient influenza market, comprising billions of cases every
year. We intend to out-license the oral FluCide drug candidate when appropriate.
We have performed preliminary safety and
toxicology studies on certain drug candidates in the FluCide program. In all of the studies conducted, the drug candidates were
found to be extremely safe. Both mouse and rat models have been employed for these studies. Some of the earlier studies were performed
at KARD Scientific. Recent studies have been performed at BASi, Inc., a well-regarded pre-clinical CRO for tox package studies.
As a result of the strong safety, we have estimated a batch size requirement of about 2kg ~ 2.5kg of Injectable FluCide that will
be needed to complete the full set of tox studies as well as efficacy studies in different influenza virus strains in cell cultures
as well as in animal models. However, the HerpeCide program drug candidates are expected to require only 100g~500g scale batch
production for toxicological and initial human clinical trials studies. We have therefore re-prioritized our programs last year
and are now focused on the scale up studies for the HerpeCide drug candidates at approximately 200g scale of production. We will
be able to continue further development of a 1kg~2kg per batch scale for FluCide drug candidates after we have completed the HerpeCide
program scale up.
We are now optimizing the production processes
at different scales of production. As part of this, we are designing, evaluating, and implementing various in-process controls.
We are developing and implementing several tools and methods for the characterization of the materials we produce as part of making
the final drug substance. Much of the work performed for the optimization of the polymer backbone of the nanoviricide would be
applicable to several of our drug candidates. After the processes and methods are finalized, we will need to document the production
processes as well as the specific characterization methods into standardized procedures. We will then need to manufacture at least
two batches under the standardized protocols, and establish that the product meets the acceptance criteria. If the batches are
not reproducibly acceptable, then we will need to further optimize the processes to eliminate the problems. Once the batches are
acceptable, the resulting product would be considered “c-GMP-like” and we would be able to use it in human clinical
trials.
We are continuing the CMC (Chemistry, Manufacture
and Control) related work and scale-up for the HerpeCide program at present. This drug development phase is intensive in terms
of workload for any drug candidate. In our case, and in general for nanomedicines, the workload in this phase is much more intensive
than for small chemical drugs. This is because we have to perform this work for the small chemical anti-viral ligand, the nanomicelle,
and for their chemical conjugate, which is our final nanoviricide drug candidate. We anticipate the CMC program for our anti-herpes
drug candidate to be significantly less time consuming as compared to our FluCide drug program, which will require scaling to a
much larger scale of production. We generally plan our scale-up studies in small steps, going from ~1g to ~10g to ~50g to ~200g
to ~500g to ~1kg. At each stage, we must collect parameters and observations from each batch, improve process control at the next
batch, and make a replicate batch at the end when the process is relatively stabilized. We do not need to finalize the production
processes before entering human clinical trials. However, we must develop appropriate quality characterization assays, quality
control techniques, process control methods, and quality assurance assays so that we can make equivalent materials from batch to
batch.
We believe that because of the smaller
quantity requirements and the less rigorous tox package studies needed for the dermal topical treatment, our anti-herpes drug candidates
are likely to move more rapidly towards clinical stage, while we continue to work on our anti-influenza drug candidate.
As part of the advanced IND–enabling
development of our Injectable FluCide™ drug candidate, we performed initial safety-toxicology screening of an optimized FluCide™
drug candidate in a GLP-like toxicology study in rats. We reported that a good safety profile was observed for this drug candidate
in rats, around the end of January 2015. These results are extremely important since they indicate that FluCide continues to look
very promising as one of the most advanced candidates in the Company’s drug development pipeline.
No direct adverse clinical effects were
found upon administration of this FluCide candidate intravenously at doses of up to 300mg/kg/day for 14 days (a total of 4,200mg/kg)
in rats. Organs were examined for gross histological observations. Microscopic histological tissue analysis was also performed.
There were no adverse histological findings in gross organ level histological examination, nor were there any adverse findings
in microscopic histological analysis. Equally importantly, there were no meaningful effects observed on animal weight gain, food
consumption, hematology, or clinical chemistry at the end of the 14 day dosing period.
The Company believes that these strong
safety data bode well for our other drug programs as well. This is because a nanoviricide is built of two parts – (1) a virus
specific ligand, that is chemically attached to (2) a “nanomicelle” or polymeric micelle based on our specific chemistries.
It is reasonable to believe that the nanomicelle structures of our other drug candidates should also be safe. In addition, we believe
that we have chosen antiviral ligands for our other drug candidates in a very conservative, safety-biased fashion.
The study was conducted at BASi. The study
was performed in a cGLP-like fashion, compliant with BASi Evansville standard operating procedures. BASi has over 40 years of experience
providing contract research services and niche instrumentation to the life sciences, primarily drug research and development. This
study was developed in collaboration with BASi and conducted by BASi in a c-GLP-like fashion in order to understand the safety
parameters of FluCide intravenous dosing.
These results are in agreement with the
previously reported results of a non-GLP toxicology study in mice. The current study results also support the Company’s positive
findings in animal models of infection with different influenza A virus strains in which no safety or toxicology concerns were
observed. The Company has previously reported that many of its FluCide candidates demonstrated extremely high anti-influenza activity
in those models.
Our anti-HIV program is conducted at a
lower priority level because the Company lacks the resources needed to commit to the development of an anti-HIV drug. We will continue
to advance this program albeit at a relatively slow pace in order to enable us to seek appropriate partnerships and/or non-dilutive
funding.
The Company reports summaries of its studies
as the data becomes available to the Company, after analyzing and verifying same, in its press releases. The studies of biological
testing of materials provide information that is relatively easy to understand and therefore readily reported. In addition, we
continue to engage in substantial work that is needed for the optimization of synthesis routes and for the chemical characterization
of the nanoviricide drug candidates. We also continue to work on improving the drug candidates and the virus binding ligands where
necessary. We continue to work on creating the information needed for the development of controlled chemical synthesis procedures
that is vital for developing c-GMP manufacturing processes.
NanoViricides Business Strategy in
Brief
NanoViricides, Inc. intends to perform
the regulatory filings and own all the regulatory licenses for the drugs it is currently developing. The Company will develop these
drugs in part via subcontracts to TheraCour Pharma, Inc., the exclusive source for these nanomaterials. The Company may manufacture
these drugs itself, or under subcontract arrangements with external manufacturers that carry the appropriate regulatory licenses
and have appropriate capabilities. The Company intends to distribute these drugs via subcontracts with distributor companies or
in partnership arrangements. The Company plans to market these drugs either on its own or in conjunction with marketing partners.
The Company also plans to actively pursue co-development, as well as other licensing agreements with other Pharmaceutical companies.
Such agreements may entail up-front payments, milestone payments, royalties, and/or cost sharing, profit sharing and many other
instruments that may bring early revenues to the Company. Such licensing and/or co-development agreements may shape the manufacturing
and development options that the company may pursue. There can be no assurance that the Company will be able to enter into co-development
or other licensing agreements.
The Company has kept its capital expenditures
to a minimum in the past, and we intend to continue to do the same, in order to conserve our cash for drug development purposes,
and in order to minimize additional capital requirements.
Collaborations, Agreements and Contracts
Our strategy is to minimize capital expenditure.
We therefore rely on third party collaborations for the testing of our drug candidates. We continue to engage with our previous
collaborators. We also seek to engage with additional collaborators, as necessitated for the progress of our programs.
We have signed a collaboration agreement with the Professor
Moffat Lab at SUNY Upstate Medical Center, Syracuse, NY, for evaluating safety and effectiveness studies of our drug candidates
in cell culture and in animal models for shingles VZV infections.
We have signed a collaboration agreement
with the CORL at the University of Wisconsin, Madison, WI, for HSV-1 and HSV-2, with focus on small animal models for ocular disease.
We have signed a collaboration agreement
with the Campbell Lab at the University of Pittsburgh, Pittsburgh, PA for evaluating safety and effectiveness studies of our drug
candidates in cell culture and in animal models for ocular infections by HSV-1, HSV-2 and Adenoviruses.
We have signed a Master Services Agreement
with TransPharm Preclinical Services, Jackson, MI. TransPharm is currently performing evaluation of our anti-HSV drug candidates
in a dermal model of HSV-1 infection.
We have an agreement with the Professor
Eva Harris lab at the University of California at Berkeley for evaluation and development of our Denguecide drug candidates.
We have engaged Biologics Consulting Group,
Inc., to help us with the US FDA regulatory submissions. We are also engaged with Australian Biologics Pty, Ltd to help us with
clinical trials and regulatory approvals in Australia. We believe that cGMP-like manufactured product is acceptable for entering
human clinical trials in Australia.
In addition, we have signed a Master Services
Agreement with Public Health England (PHE), UK.
We have also signed a new CRADA-Materials
Transfer Agreement with USAMRIID for the evaluation of our anti-Ebola nanoviricide drug candidates.
We anticipate completing master services
agreements, after performing our due diligence, with additional parties in furtherance of our anti-viral drug development programs.
We have continued to achieve significant
milestones in our drug development activities. All of our drug development programs are presently at pre-clinical or advanced pre-clinical
stage. We believe we are advancing these programs at a faster pace than industry peers. We continue to test several drug candidates
under each program even though we may achieve extremely strong results with some of the candidates
Intellectual Property and Patents
The nanomedicine technologies licensed
from TheraCour Pharma, Inc. (“TheraCour”) serve as the foundation for our intellectual property. The Company holds
a worldwide exclusive perpetual license to this technology for several drugs with specific targeting mechanisms in perpetuity for
the treatment of the following human viral diseases: Human Immunodeficiency Virus (HIV/AIDS), Hepatitis B Virus (HBV), Hepatitis
C Virus (HCV), Rabies, Herpes Simplex Virus (HSV), Influenza and Asian Bird Flu Virus. The Company has entered into an Additional
License Agreement with TheraCour granting the Company the exclusive licenses in perpetuity for technologies developed by TheraCour
for the additional virus types: Dengue viruses, Japanese Encephalitis virus, West Nile Virus, Viruses causing viral Conjunctivitis
(a disease of the eye) and Ocular Herpes, and Ebola/Marburg viruses. The Company may want to add further virus types to its drug
pipeline. The Company would then need to negotiate with TheraCour an amendment to the existing Licensing Agreement to include those
of such additional viruses that the Company determines it wants to follow for further development. We are seeking to add to our
existing portfolio of products through our internal discovery pre-clinical development programs and through an in-licensing strategy.
NanoViricides,
Inc. holds exclusive, worldwide, perpetual, licenses from TheraCour Pharma, Inc. to these technologies and patents for a broad
range of antiviral applications and diseases that include all Influenzas including Asian Bird Flu Virus, Human Immunodeficiency
Virus (HIV/AIDS), Hepatitis B Virus (HBV), Hepatitis C Virus (HCV), Herpes Simplex Virus (HSV), Dengue viruses, West Nile Virus,
Rabies virus, Ebola/Marburg viruses, Japanese Encephalitis virus, as well as viruses causing viral Conjunctivitis (a disease of
the eye) and ocular herpes. NanoViricides currently holds two licenses in perpetuity to develop and sell drugs for the treatment
of these viral diseases.
These licenses are provided for all the
intellectual property held by TheraCour Pharma, Inc. that relates to our antiviral licensed products. These licenses are not limited
to underlying patents, but also include the know-how, trade secrets, and other important knowledge base that is utilized for developing
the drugs and making them successful.
In addition, these extremely broad licenses
are not limited to some specific chemical structures, but comprise all possible structures that we could deploy against the particular
virus, based on these technologies. In addition, the licenses are held in perpetuity by NanoViricides for worldwide use. The licenses
are also exclusively provided to NanoViricides for the licensed products so NanoViricides is the only party that can further sublicense
the resulting drugs to another party, if it so desires. TheraCour cannot further license anything in our licensed products areas
because of the breadth of the license. The licenses can revert only in the case of a default by NanoViricides. The terms of default
are such that, effectively, TheraCour would be able to take the licenses back only in the event that NanoViricides files bankruptcy
or otherwise declares insolvency and the inability to conduct its business. This structure is standard in the licensing world as
it saves the IP from being blocked from commercialization in lengthy and potentially fragmentary bankruptcy proceedings.
A fundamental Patent Cooperation Treaty
(“PCT”) patent application, on which the nanoviricides® technology is based, has resulted in additional issued
patents in Europe and Korea. As with issuances in other countries including the United States, these patents have been allowed
with a very broad range of claims to a large number of families of chemical structure compositions, pharmaceutical compositions,
methods of making the same, and uses of the same. The corresponding original “pi-polymer” international application,
namely, PCT/US06/01820, was filed under the Patent Cooperation Treaty (PCT) system in 2006. Several other patents have already
been granted previously in this patent family in various countries and regions, including Australia, ARIPO, Canada, China, Hong
Kong, Indonesia, Israel, Japan, Mexico, New Zealand, OAPI, Philippines, Singapore, Vietnam, South Africa, and the USA. Prosecution
in several other countries continues. In May 2012, the US Patent (No. 8,173,764) was granted for “Solubilization and Targeted
Delivery of Drugs with Self-Assembling Amphiphilic Polymers.” The US patent term is expected to last through October 1, 2028,
including anticipated extensions in compensation for time spent in clinical trials. This US Patent has been allowed with a very
broad range of claims to a large number of families of chemical structure compositions, pharmaceutical compositions, methods of
making the same, and uses of the same. The disclosed structures enable self-assembling, biomimetic nanomedicines. Estimated expiry
dates for these patents range nominally from 2027 to 2029 with various extensions accounting for delays in clinical trials. Additional
issuances are expected in Europe, and in several other countries around the world.
In addition to this basic PCT application
that covers the “pi-polymer” structure itself, another PCT application, PCT/US2007/001607, that discloses making antiviral
agents from the TheraCour family of polymers and such structures is in various stages of prosecution in several countries, and
has already issued in at least seven countries and regions. The counterparts of the international PCT application have issued as
a granted patent in Australia, Japan, China, ARIPO, Mexico, New Zealand, OAPI, Pakistan, and, South Africa to date. Additional
issuances are expected in Europe, USA, and in several other countries around the world. This patent application covers antivirals
based on the TheraCour polymeric micelle technologies, their broad structures and compositions of matter, pharmaceutical compositions,
methods of making the same, and their uses. The nominal expiry dates are expected to range from 2027 to 2029.
More than 61 patents have been issued globally
on the basis of the two international PCT patent families that cover the fundamental aspects of our platform technology. Additional
patent grants are expected to continue as the applications progress through prosecution processes. All of the resulting patents
have substantially broad claims.
The patents are issued to the inventors
Anil R. Diwan, PhD, Jayant G. Tatake, PhD, and Ann L. Onton, all of whom are among the founders of NanoViricides, Inc. The patents
have been assigned to AllExcel, Inc., the Company at which the groundbreaking work was performed. AllExcel, Inc. has contractually
transferred this intellectual property to TheraCour Pharma, Inc.
Patents and other proprietary rights are
essential for our operations. If we have a properly designed and enforceable patent, it can be more difficult for our competitors
to use our technology to create competitive products and more difficult for our competitors to obtain a patent that prevents us
from using technology we create. As part of our business strategy, we actively seek patent protection both in the United States
and internationally and intend to file additional patent applications, when appropriate, to cover improvements in our compounds,
products and technology. We also rely on trade secrets, internal know-how, technological innovations and agreements with third
parties to develop, maintain and protect our competitive position. Our ability to be competitive will depend on the success of
this strategy.
The Company believes that the drugs by
themselves, Shingles antiviral topical treatment, HerpeCide for Cold Sores, HerpeCide for genital ulcers, antiviral nanoviricide
eye drops, Injectable FluCide, Oral FluCide, DengueCide, HIVCide, RabiCide, and others, may be eligible for patent protection.
The Company plans on filing patent applications for protecting these drugs when we have definitive results from in-vitro or in-vivo
studies that enable further drug development and IND application filing.
The issued patents have nominal expiry
dates in 2026 to 2029. The dates can be further extended in several countries and regions for the additional allowances due to
the regulatory burden of drug development process, or other local considerations, such as licensing to a local majority held company.
Many countries allow up to five years extension for regulatory delays.
No patent applications have been filed
for the actual drug candidates that we intend to develop as drugs as of now. We intend to file the patent application for FluCide
and HerpeCide before entering human clinical trials. The estimated expiry date for the FluCide and HerpeCide patents, if and when
issued, would be no earlier than 2037.
We may obtain patents for our compounds
many years before we obtain marketing approval for them. Because patents have a limited life, which may begin to run prior to the
commercial sale of the related product, the commercial value of the patent may be limited. However, we may be able to apply for
patent term extensions, based on delays experienced in marketing products due to regulatory requirements. There is no assurance
we would be able to obtain such extensions. The Company controls the research and work TheraCour performs on its behalf and no
costs may be incurred without the prior authorization or approval of the Company.
Patents relating to pharmaceutical, biopharmaceutical
and biotechnology products, compounds and processes such as those that cover our existing compounds, products and processes and
those that we will likely file in the future, do not always provide complete or adequate protection. Future litigation or reexamination
proceedings regarding the enforcement or validity of our licensor, TheraCour Pharma Inc.’s existing patents or any future
patents, could invalidate TheraCour’s patents or substantially reduce their protection. In addition, the pending patent applications
and patent applications filed by TheraCour, may not result in the issuance of any patents or may result in patents that do not
provide adequate protection. As a result, we may not be able to prevent third parties from developing the same compounds and products
that we have developed or are developing. In addition, certain countries do not permit enforcement of our patents, and manufacturers
are able to sell generic versions of our products in those countries.
We also rely on unpatented trade secrets
and improvements, unpatented internal know-how and technological innovation. In particular, a great deal of our material manufacturing
expertise, which is a key component of our core material technology, is not covered by patents but is instead protected as a trade
secret. We protect these rights mainly through confidentiality agreements with our corporate partners, employees, consultants and
vendors. These agreements provide that all confidential information developed or made known to an individual during the course
of their relationship with us will be kept confidential and will not be used or disclosed to third parties except in specified
circumstances. In the case of employees, the agreements provide that all inventions made by the individual while employed by us
will be our exclusive property. We cannot be certain that these parties will comply with these confidentiality agreements, that
we have adequate remedies for any breach, or that our trade secrets will not otherwise become known or be independently discovered
by our competitors.
Trademarks
On April 20, 2010, the United States Patent
and Trademark Office granted trademark registration number 3,777,001 to the Company for the standard character mark “nanoviricides”
(the “Mark”) for International Class 5, pharmaceutical preparation for the treatment of viral diseases. The Mark was
registered on the Principal Register and is protected in all its letter forms, including corresponding plural and singular forms,
various forms of capitalization, and fonts and designs.
Analysis of Financial Condition,
and Result of Operations
As of March 31, 2017, we had cash and equivalents
of $16,155,085, prepaid expenses of $587,468, and property and equipment of $11,390,057, net of accumulated depreciation of $2,340,146.
Long-term liabilities were $5,842,274 and stockholders’ equity was $22,405,748 at March 31, 2017.
As of June 30, 2016, we had cash and equivalents
of $24,162,185, and $219,458 in prepaid expenses. Property and equipment stood at $11,760,767 net of accumulated depreciation of
$1,850,816. Long-term liabilities were $6,841,190 and the stockholders’ equity was $23,048,214 at June 30, 2016.
During the three and nine month periods
ended March 31, 2017 we used approximately $2,100,000 and $6,900,000 respectively, in cash toward operating activities.
We do not anticipate any major capital
costs going forward in the near future.
Based on the current rate of expenditures
(excluding capital costs), we believe that we have sufficient funds in hand to last more than twelve months. In addition, in order
to conserve cash, we also pay compensation in stock and stock instruments to various parties. The Company believes that our spending
continues to be in line with our estimates.
We project, based on various estimates
that we have obtained, that our current available financing is sufficient for accomplishing the goal of filing an IND or equivalent
regulatory applications, and initial human clinical trials in at least one of our drug programs. Two of our drug programs, namely
Shingles skin cream and Injectable FluCide, are now in the late pre-clinical or IND-enabling studies stage, with HerpeCide™
skin cream (for “cold sores” treatment) to follow. We anticipate that these drug candidates will move forward into
IND or equivalent regulatory filings, and ensuing human clinical trials. As these drug candidates are advancing into the clinic,
we believe that our additional drug candidates will also move forward into IND-enabling studies. We are thus poised for strong
growth with a number of drug candidates in a wide variety of disease indications.
The Company does not currently have any
revenue. All of the Company’s products are in the development stage and require successful development through regulatory
processes before commercialization. We have generated funding through the issuances of debt and private placement of common stock
and also the sale of our registered securities. The Company does not currently have any long-term debt, other than convertible
debentures as disclosed earlier. We have not generated any revenues and we may not be able to generate revenues in the near future.
We may not be successful in developing our drugs and start selling our products when planned, or we may not become profitable in
the future. We have incurred net losses in each fiscal period since inception of our operations.
Research and Development Costs
The Company does not maintain separate
accounting line items for each project in development. The Company maintains aggregate expense records for all research and development
conducted. Because at this time all of the Company’s projects share a common core material, the Company allocates expenses
across all projects at each period-end for purposes of providing accounting basis for each project. Project costs are allocated
based upon labor hours performed for each project.
The Company has signed several cooperative
research and development agreements with different agencies and institutions. The Company expects to enter into additional cooperative
agreements with other governmental and non-governmental, academic, or commercial, agencies, institutions, and companies. There
can be no assurance that a final agreement may be achieved and that the Company will execute any of these agreements. However,
should any of these agreements materialize, the Company will need to implement a system to track these costs by project and account
for these projects as customer-sponsored activities and show these project costs separately.
Requirement for Additional
Capital
As of March 31, 2017, we have current assets of $16,742,553 that is more than sufficient for our operations
for more than one year at the Company’s current rate of expenditure, and including the projected expenditure for certain
human clinical trials.
While we now have the necessary funds based
on our current operations to last more than one year, we anticipate undertaking additional expenditures for regulatory submissions.
With our current funds we believe that we have sufficient funding available to perform Safety/Toxicology Package studies, and additional
animal efficacy studies, to move at least one of our drug candidates into an Investigational New Drug Application (“IND”)
with the US FDA or a similar application with an international regulatory agency, and to conduct at least Phase I (and possibly
Phase IIa) human clinical trials of at least one of our drug candidates. In order to file an IND application, we also need to enable
manufacturing of the drug under US FDA guidelines called cGMP, which we plan to perform at our new campus in 1 Controls Drive,
Shelton, CT, which became operational around June 2015.
Our estimates are based on various preliminary
discussions and “soft” quotes from contract research organizations that provide pre-clinical and clinical studies support.
The estimates are also based on certain time estimates for achievement of various objectives. If we miss these time estimates or
if the actual costs of the development are greater than the early estimates we have at present, our drug development cost estimates
may be substantially greater than anticipated now. In that case, we may have to re-prioritize our programs and/or seek additional
funding. Also, additional funding, if available, will allow us to move our other drug candidates towards IND filings. These additional
funds will be needed to pay for additional personnel, increased subcontract costs related to the expansion and further development
of our drug pipeline, and for additional capital and operational expenditures required to file IND applications. We will accelerate
our business plans provided that we can obtain such additional funding. We believe that we currently have adequate financing for
our current business plan of operations.
The Company does not have direct experience
in taking a drug through human clinical trials. In addition, we depend upon external collaborators, service providers and consultants
for much of our drug development work. As such our projections and estimates may be significantly off from actual future results
both in terms of timeline and in terms of cost budgets.
The Company anticipates it will have sufficient
access to capital even if it decides to develop dermal HerpeCide or Injectable FluCide through Phase III on its own. The Company
believes it will continue to be able to successfully raise financing as needed. If we are unable to obtain additional financing,
our business plan will be significantly delayed.
The Company has limited experience with
pharmaceutical drug development. Thus, our budget estimates are not based on experience, but rather based on advice given by our
associates and consultants. As such these budget estimates may not be accurate. In addition, the actual work to be performed is
not known at this time, other than a broad outline, as is normal with any scientific work. As further work is performed, additional
work may become necessary or change in plans or workload may occur. Such changes may have an adverse impact on our estimated budget.
Such changes may also have an adverse impact on our projected timeline of drug development.
We believe that this coming year’s
work plan will lead us to obtain certain information about the safety and efficacy of some of the drugs under development in animal
models. If our studies are not successful, we will have to develop additional drug candidates and perform further studies. If our
studies are successful, then we expect to be able to undertake further studies in animal models to obtain necessary data regarding
the pharmaco-kinetic and pharmaco-dynamic profiles of our drug candidates. We believe this data will then enable us to file an
Investigational New Drug Application, towards the goal of obtaining FDA approval for testing the drugs in human patients.
Most pharmaceutical companies expect 4
to 10 years of study to be required before a drug candidate reaches the IND stage. We believe that because we are working in the
infectious agents’ area, our studies will have objective response end points, and most of our human clinical studies will
be of relatively short duration. Our business plan is based on these assumptions. If we find that we have underestimated the time
duration of our studies, or we have to undertake additional studies, due to various reasons within or outside of our control, this
will grossly and adversely impact both our timelines and our financing requirements.
Management intends to use capital and debt
financing, as required, to fund the Company’s operations. Management also intends to pursue non-diluting funding sources
such as government grants and contracts as well as licensing agreements with other pharmaceutical companies. There can be no assurance
that the Company will be able to obtain such additional capital resources or that such financing will be on terms that are favorable
to the Company.
Results of Operations
The Company is a biopharmaceutical company
and did not have any revenue for the three and nine month periods ended March 31, 2017 and 2016.
Revenues
– The
Company is currently a non-revenue producing entity.
Operating Expenses
–
Research and development expenses for the three months ended March 31, 2017 increased $491,707 to $1,559,202 from $1,067,495 for
the three months ended March 31, 2016, and for the nine months ended March 31, 2017 increased $845,271 to $4,272,339 from $3,427,068
for the nine months ended March 31, 2016. This increase in the cost of research and development is largely attributable to the
increase in research and development payroll costs, lab supplies and materials.
General and Administration Expenses
– General and administrative expenses for the three months ended March 31, 2017 increased $75,781 to $1,056,512 from
$980,731 for the three months ended March 31, 2016 and for the nine months ended March 31, 2017 increased $144,932 to $3,081,442
from $2,936,510 for the nine months ended March 31, 2016. The increase resulted primarily from an increase in other operating expenses
in general.
Interest Income (Expense)
– Interest income decreased $21,157 to $17,959 for the three months ended March 31, 2017 from interest income
of $39,116 for the three months ended March 31, 2016. Interest income increased $492 to $43,870 for the nine months ended March
31, 2017 from $43,378 for the nine months ended December 31, 2016. Interest income included interest on cash equivalent deposits
in interest-bearing accounts at market rates. The decrease for the three months ended March 31, 2017 is due to a decrease in cash
deposited in interest bearing accounts offset by increases in market rates.
Interest Expense on Convertible
Debentures
– Interest expense decreased $135,348 to $165,767 for the three months ended March 31, 2017 from $301,115
for the three months ended March 31, 2016. Interest expense decreased $135,348 to $655,767 for the nine months ended March 31,
2017 from $791,115 for the nine months ended March 31, 2016.
The decrease resulted from the repayment
of the Series B debenture on February 8, 2017.
Other Expenses
–
Discount on convertible debentures for the three months ended March 31, 2017 decreased $65,331 to $297,662 from $362,993 for the
three months ended March 31, 2016. Discount on convertible debentures for the nine months ended March 31, 2017 increased $77,748
to $1,124,411 from $1,046,663 for the nine months ended March 31, 2016. The decrease for the three months resulted from the repayment
of the Company’ Series B Debenture in February 2017. The increase for the nine months resulted from increased amortization
of the discount on the Company’s Series B and Series C Convertible Debentures as they near maturity. Loss on extinguishment
of debt for the three and nine months ended March 31, 2017 was $332,524 and arose from the extinguishment of $5,000,000 of the
Company’s Series B Convertible Debenture for the Company’s common stock. There was no extinguishment of debt in the
three and nine months ended March 31, 2016.
Other Income
– Change in fair value of derivatives for the three months ended March 31, 2017 increased $2,573,484 to
$255,031 from ($2,318,453) for the three months ended March 31, 2016. Change in fair value of derivatives for the nine months ended
March 31, 2017 increased $2,592,031 to $1,676,093 from $(915,938) for the nine months ended March 31, 2016. Change in the fair
value of derivatives is a non-cash item estimate based upon certain actuarial assumptions. See Footnote 7 to the Financial Statements.
Income Taxes
– There is no provision
for income taxes due to ongoing operating losses.
Net Loss
- For the nine
months ended March 31, 2017, the Company had a net loss of ($7,746,520), or $ ($0.13) per share on a fully diluted basis compared
to a net loss of ($9,073,916) or ($0.16) per share on a fully diluted basis for the nine months ended March 31, 2016. The Company
does not have any revenue and reports its operating and other expenses resulting in a net operating loss for the current period.
The net operating loss in the current period was greater than the net operating loss for the nine months ended March 31, 2016,
due to an increase in the operating and administrative expenses related to the increase in research and development activities.
Liquidity and Capital Reserves
The Company had cash and cash equivalents
of approximately $16,155,000 as of March 31, 2017 and accounts payable and accrued liabilities of approximately $165,000.
Since inception, the Company has expended
substantial resources on research and development. Consequently, we have sustained substantial losses. The Company has an accumulated
deficit of approximately $72,571,000 at March 31, 2017.
Our cash and cash equivalent balance is
sufficient for us to continue our operations for more than one year at our current rate of expenditure.
Off Balance Sheet Arrangements
We have not entered into any off-balance
sheet arrangements during the nine months ended March 31, 2017.