Item 1. Business
This Annual Report on Form 10-K
contains statements of a forward-looking nature relating to future events or our future financial performance. These statements
are only predictions and actual events or results may differ materially. In evaluating such statements, you should carefully consider
the various factors identified in this report that could cause actual results to differ materially from those indicated in any
forward-looking statements, including those set forth in “Risk Factors” in this Annual Report on Form 10-K. See “Cautionary
Note Regarding Forward Looking Statements.”
Our Business Overview
We are a late-stage biopharmaceutical
company focused on developing and commercializing products to treat rare diseases where there is an unmet medical need. We maintain
two active business segments: BioTherapeutics and Vaccines/BioDefense.
Our BioTherapeutics business segment is
developing a novel photodynamic therapy (SGX301) utilizing topical synthetic hypericin activated with safe visible fluorescent
light for the treatment of cutaneous T-cell lymphoma (“CTCL”), our first-in-class innate defense regulator technology,
dusquetide (SGX942) for the treatment of oral mucositis in head and neck cancer, and proprietary formulations of oral beclomethasone
17,21-dipropionate (“BDP”) for the prevention/treatment of gastrointestinal (“GI”) disorders characterized
by severe inflammation, including pediatric Crohn’s disease (SGX203) and acute radiation enteritis (SGX201).
Our Vaccines/BioDefense business segment
includes active development programs for RiVax
®
, our ricin toxin vaccine candidate and SGX943, our therapeutic
candidate for antibiotic resistant and emerging infectious disease. The development of our vaccine programs currently is supported
by our heat stabilization technology, known as ThermoVax
®
, under existing and on-going government contract funding.
With the government contract from the National Institute of Allergy and Infectious Diseases (“NIAID”), we will attempt
to advance the development of RiVax
®
to protect against exposure to ricin toxin..
An outline of our business strategy follows:
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Following
positive interim analysis, complete enrollment and report final results in our pivotal
Phase 3 clinical trial of SGX301 for the treatment of CTCL;
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Continue
enrollment of the pivotal Phase 3 clinical trial of SGX942 for the treatment of oral
mucositis in head and neck cancer;
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Continue
development of RiVax
®
in combination with our ThermoVax
®
technology to develop a new heat stable vaccine in biodefense with NIAID funding support;
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Continue
to apply for and secure additional government funding for each of our BioTherapeutics
and Vaccines/BioDefense programs through grants, contracts and/or procurements;
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Pursue
business development opportunities for our pipeline programs, as well as explore merger/acquisition
strategies; and
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Acquire
or in-license new clinical-stage compounds for development.
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Corporate Information
We were incorporated in Delaware in 1987
under the name Biological Therapeutics, Inc. In 1987, we merged with Biological Therapeutics, Inc., a North Dakota corporation,
pursuant to which we changed our name to “Immunotherapeutics, Inc.” We changed our name to “Endorex Corp.”
in 1996, to “Endorex Corporation” in 1998, to “DOR BioPharma, Inc.” in 2001, and finally to “Soligenix,
Inc.” in 2009. Our principal executive offices are located at 29 Emmons Drive, Suite B-10, Princeton, New Jersey 08540 and
our telephone number is (609) 538-8200.
Our Product Candidates in Development
The following tables summarize our product
candidates under development:
BioTherapeutic
Product Candidates
Soligenix Product
Candidate
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Therapeutic Indication
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Stage of Development
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SGX301
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Cutaneous T-Cell Lymphoma
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Phase 2 trial completed; demonstrated significantly higher response rate compared to placebo; Phase 3 clinical trial enrolled first patient in December 2015, with positive interim analysis received in October 2018, and final results expected in the first quarter of 2020
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SGX942
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Oral Mucositis in Head and Neck Cancer
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Phase 2 trial completed; demonstrated significant response compared to placebo with positive long-term (12 month) safety also reported; Phase 3 clinical trial enrolled first patient in December 2017, with interim analysis enrollment completion expected in the first half of 2019 and the interim analysis anticipated in the third quarter of 2019; final results expected in the first half of 2020
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SGX203**
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Pediatric Crohn’s disease
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Phase 1/2 clinical trial completed; efficacy data, pharmacokinetic (PK)/pharmacodynamic (PD) profile and safety profile demonstrated; Phase 3 clinical trial initiation contingent upon additional funding, such as through partnership
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SGX201**
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Acute Radiation Enteritis
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Phase 1/2 clinical trial completed; safety profile and preliminary efficacy demonstrated; further clinical development contingent upon additional funding, such as through partnership
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Vaccine Thermostability Platform**
Soligenix
Product
Candidate
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Indication
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Stage
of Development
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ThermoVax
®
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Thermostability of aluminum
adjuvanted vaccine for ricin
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Pre-clinical
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BioDefense Products**
Soligenix
Product
Candidate
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Indication
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Stage
of Development
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RiVax
®
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Vaccine against Ricin
Toxin Poisoning
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Phase 1a and 1b trials
completed, safety and neutralizing antibodies for protection demonstrated; Phase 2 trial planned for the second half of 2019
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OrbeShield
®
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Therapeutic against
GI ARS
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Pre-clinical
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SGX943
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Therapeutic against
Emerging Infectious Diseases
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Pre-clinical
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**
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Contingent upon
continued government contract/grant funding or other funding source.
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BioTherapeutics Overview
SGX301 – for Treating
Cutaneous T-Cell Lymphoma
SGX301 is a novel, first-in-class, photodynamic
therapy that utilizes safe visible light for activation. The active ingredient in SGX301 is synthetic hypericin, a photosensitizer
which is topically applied to skin lesions and then activated by fluorescent light 16 to 24 hours later. Hypericin is also found
in several species of
Hypericum
plants, although the drug used in SGX301 is chemically synthesized by a proprietary manufacturing
process and not extracted from plants. Importantly, hypericin is optimally activated with visible light thereby avoiding the negative
consequences of ultraviolet light. Other light therapies using UVA light result in serious adverse effects including secondary
skin cancers.
Combined with photoactivation, in clinical
trials synthetic hypericin has demonstrated significant anti-proliferative effects on activated normal human lymphoid cells and
inhibited growth of malignant T-cells isolated from CTCL patients. In both settings, it appears that the mode of action is an
induction of cell death in a concentration as well as a light dose-dependent fashion. These effects appear to result, in part,
from the generation of singlet oxygen during photoactivation of hypericin.
Hypericin is one of the most efficient
known generators of singlet oxygen, the key component for phototherapy. The generation of singlet oxygen induces necrosis and
apoptosis in adjacent cells. The use of topical synthetic hypericin coupled with directed visible light results in generation
of singlet oxygen only at the treated site. We believe that the use of visible light (as opposed to cancer-causing ultraviolet
light) is a major advance in photodynamic therapy. In a published Phase 2 clinical study in CTCL, after six weeks of twice weekly
therapy, a majority of patients experienced a statistically significant (p
<
0.04) improvement with SGX301 whereas the
placebo was ineffective: 58.3% compared to 8.3%, respectively.
SGX301 has received Orphan Drug designation
as well as Fast Track designation from the U.S. Food and Drug Administration (“FDA”). The Orphan Drug Act is intended
to assist and encourage companies to develop safe and effective therapies for the treatment of rare diseases and disorders. In
addition to providing a seven-year term of market exclusivity for SGX301 upon final FDA approval, Orphan Drug designation also
positions us to be able to leverage a wide range of financial and regulatory benefits, including government grants for conducting
clinical trials, waiver of FDA user fees for the potential submission of a New Drug Application (“NDA”) for SGX301,
and certain tax credits. In addition, Fast Track is a designation that the FDA reserves for a drug intended to treat a serious
or life-threatening condition and one that demonstrates the potential to address an unmet medical need for the condition. Fast
Track designation is designed to facilitate the development and expedite the review of new drugs. For instance, should events
warrant, we will be eligible to submit a NDA for SGX301 on a rolling basis, permitting the FDA to review sections of the NDA prior
to receiving the complete submission. Additionally, NDAs for Fast Track development programs ordinarily will be eligible for priority
review. SGX301 for the treatment of CTCL also was granted Orphan Drug designation from the European Medicines Agency (“EMA”)
Committee for Orphan Medical Products and Promising Innovative Medicine (“PIM”) designation from the Medicines and
Healthcare Products Regulatory Agency (“MHRA”) in the United Kingdom (“UK”).
In August 2018, the United States Patent
Office granted us a patent titled “Systems and Methods for Producing Synthetic Hypericin” for the unique proprietary
process manufacturing the highly purified form of synthetic hypericin, the active pharmaceutical ingredient in SGX301.
We initiated our pivotal Phase 3 clinical
study of SGX301 for the treatment of CTCL during December 2015. This trial, referred to as the “FLASH” study (
F
luorescent
L
ight
A
ctivated
S
ynthetic
H
ypericin), aims to evaluate the response to SGX301 as a skin directed therapy
to treat early stage CTCL. We are actively enrolling patients with approximately 35 CTCL centers across the United States (“U.S.”)
participating in this pivotal trial. The Phase 3 protocol is a highly powered, double-blind, randomized, placebo-controlled, multicenter
trial and seeks to enroll approximately 120 evaluable subjects. The trial consists of three treatment cycles, each of eight weeks
duration. Treatments are administered twice weekly for the first six weeks and treatment response is determined at the end of
the eighth week. In the first treatment cycle, approximately 80 subjects receive SGX301 and 40 receive placebo treatment of their
index lesions. In the second cycle, all subjects receive SGX301 treatment of their index lesions, and in the third cycle all subjects
receive SGX301 treatment of all of their lesions. The majority of subjects enrolled to date have elected to continue into the
third optional, open-label cycle of the study. We continue to work closely with the Cutaneous Lymphoma Foundation, as well as
the National Organization for Rare Disorders. Subjects are followed for an additional six months after their last evaluation visit.
The primary efficacy endpoint is assessed on the percentage of patients in each of the two treatment groups (i.e., SGX301 and
placebo) achieving a partial or complete response of the treated lesions, defined as a ≥ 50% reduction in the total Composite
Assessment of Index Lesion Disease Severity (“CAILS”) score for three index lesions at the Cycle 1 evaluation visit
(Week 8) compared to the total CAILS score at baseline. Other secondary measures assess treatment response including duration,
degree of improvement, time to relapse and safety.
During September 2017, the National Cancer
Institute (“NCI”), part of the National Institutes of Health (“NIH”) awarded us a Small Business Innovation
Research (“SBIR”) grant of approximately $1.5 million over two years to support the conduct of our pivotal, Phase
3, randomized, double-blind, placebo-controlled study evaluating SGX301 (synthetic hypericin) as a treatment for CTCL.
During October 2018, an Independent Data
Monitoring Committee (“DMC”) completed an unblinded interim analysis with data from approximately 100 subjects, including
an assessment of the Phase 3 FLASH study’s primary efficacy endpoint. The DMC provided a positive recommendation to randomize
approximately 40 additional subjects into the trial to maintain the rigorous assumption of 90% statistical power for the primary
efficacy endpoint. No safety concerns were reported by the DMC based on the interim analysis.
We estimate the potential worldwide market
for SGX301 is in excess of $250 million for all applications, including the treatment of CTCL. This potential market information
is a forward-looking statement, and investors are urged not to place undue reliance on this statement. While we have determined
this potential market size based on assumptions that we believe are reasonable, there are a number of factors that could cause
our expectations to change or not be realized.
Cutaneous T-Cell Lymphoma
CTCL is a class of non-Hodgkin’s
lymphoma (“NHL”), a type of cancer of the white blood cells that are an integral part of the immune system. Unlike
most NHLs, which generally involve B-cell lymphocytes (involved in producing antibodies), CTCL is caused by an expansion of malignant
T-cell lymphocytes (involved in cell-mediated immunity) normally programmed to migrate to the skin. These skin-trafficking malignant
T-cells migrate to the skin, causing various lesions to appear that may change shape as the disease progresses, typically beginning
as a rash and eventually forming plaques and tumors. Mycosis fungoides (“MF”) is the most common form of CTCL. It
generally presents with skin involvement only, manifested as scaly, erythematous patches. Advanced disease with diffuse lymph
node and visceral organ involvement is usually associated with a poorer response rate to standard therapies. A relatively uncommon
sub-group of CTCL patients present with extensive skin involvement and circulating malignant cerebriform T-cells, referred to
as Sézary syndrome. These patients have substantially graver prognoses (expected five-year survival rate of 24%), than
those with MF (expected five-year survival rate of 88%).
CTCL mortality is related to stage of
disease, with median survival generally ranging from about 12 years in the early stages to only 2.5 years when the disease has
advanced. There is currently no FDA-approved drug for front-line treatment of early stage CTCL. Treatment of early-stage disease
generally involves skin-directed therapies. One of the most common unapproved therapies used for early-stage disease is oral 5
or 8-methoxypsoralen (“Psoralen”) given with ultraviolet A (“UVA”) light, referred to as PUVA, which is
approved for dermatological conditions such as disabling psoriasis not adequately responsive to other forms of therapy, idiopathic
vitiligo and skin manifestations of CTCL in persons who have not been responsive to other forms of treatment. Psoralen is a mutagenic
chemical that interferes with DNA causing mutations and other malignancies. Moreover, UVA is a carcinogenic light source that
when combined with the Psoralen, results in serious adverse effects including secondary skin cancers; therefore, the FDA requires
a Black Box warning for PUVA.
CTCL constitutes a rare group of NHLs,
occurring in about 4% of the approximate 500,000 individuals living with NHL. We estimate, based upon review of historic published
studies and reports and an interpolation of data on the incidence of CTCL, that it affects over 20,000 individuals in the U.S.,
with approximately 2,800 new cases seen annually.
Dusquetide
Dusquetide (research name: SGX94) is an
innate defense regulator (“IDR”) that regulates the innate immune system to simultaneously reduce inflammation, eliminate
infection and enhance tissue healing.
Dusquetide is based on a new class of
short, synthetic peptides known as IDRs. It has a novel mechanism of action in that it modulates the body’s reaction to
both injury and infection and is both simultaneously anti-inflammatory and anti-infective. IDRs have no direct antibiotic activity
but modulate host responses, increasing survival after infections with a broad range of bacterial Gram-negative and Gram-positive
pathogens including both antibiotic sensitive and resistant strains, as well as accelerating resolution of tissue damage following
exposure to a variety of agents including bacterial pathogens, trauma and chemo- or radiation-therapy. IDRs represent a novel
approach to the control of infection and tissue damage via highly selective binding to an intracellular adaptor protein, sequestosome-1,
also known as p62, which has a pivotal function in signal transduction during activation and control of the innate defense system.
Preclinical data indicate that IDRs may be active in models of a wide range of therapeutic indications including life-threatening
bacterial infections as well as the severe side-effects of chemo- and radiation-therapy. Additionally, due to selective binding
to p62, dusquetide may have potential anti-tumor action.
Dusquetide has demonstrated efficacy in
numerous animal disease models including mucositis, colitis, skin infection and other bacterial infections and has been evaluated
in a double-blind, placebo-controlled Phase 1 clinical trial in 84 healthy volunteers with both single ascending dose and multiple
ascending dose components. Dusquetide was shown to have a good safety profile and be well-tolerated in all dose groups when administered
by IV over 7 days and was consistent with safety results seen in pre-clinical studies. We believe that market opportunities for
dusquetide include, but are not limited to, oral and gastrointestinal mucositis, acute Gram-positive bacterial infections (e.g.,
methicillin resistant
Staphylococcus aureus
(MRSA)), acute Gram-negative infections (e.g., acinetobacter, melioidosis),
and acute radiation syndrome.
SGX942 – for Treating
Oral Mucositis in Head and Neck Cancer
SGX942 is our product candidate containing
our IDR technology, dusquetide, targeting the treatment of oral mucositis in head and neck cancer patients. Oral mucositis in
this patient population is an area of unmet medical need where there are currently no approved drug therapies. Accordingly, we
received Fast Track designation for the treatment of oral mucositis as a result of radiation and/or chemotherapy treatment in
head and neck cancer patients from the FDA. In addition, dusquetide has been granted PIM designation in the UK by the MHRA for
the treatment of severe oral mucositis in head and neck cancer patients receiving chemoradiation therapy. The U.S. Patent and
Trademark Office and the European Patent Office granted us the patent titled “Novel Peptides and Analogs for Use in the
Treatment of Oral Mucositis” on August 16, 2016 and January 23, 2019, respectively. The newly issued patent claims therapeutic
use of dusquetide and related IDR analogs, and adds to composition of matter claims for dusquetide and related analogs that have
been granted in the U.S. and worldwide.
We initiated a Phase 2 clinical study
of SGX942 for the treatment of oral mucositis in head and neck cancer patients in December of 2013. We completed enrollment in
this trial in the second half of 2015, and in December 2015 released positive preliminary results. In this Phase 2 proof-of-concept
clinical study that enrolled 111 patients, SGX942, at a dose of 1.5 mg/kg, successfully reduced the median duration of severe
oral mucositis by 50%, from 18 days to 9 days (p=0.099) in all patients and by 67%, from 30 days to 10 days (p=0.040) in patients
receiving the most aggressive chemoradiation therapy for treatment of their head and neck cancer. The p-values met the prospectively
defined statistical threshold of p<0.1 in the study protocol. A less severe occurrence of oral mucositis, ulcerative oral mucositis
(defined as oral mucositis with a WHO score ≥2 corresponding to the occurrence of overt ulceration in the mouth), was also
monitored during the study. In the patients receiving the most aggressive chemoradiation therapy, the median duration of oral
mucositis was found to decrease from 65 days in the placebo treated patients to 51 days in the patients treated with SGX942 1.5
mg/kg (p=0.099).
In addition to identifying the best dose
of 1.5 mg/kg, this study achieved all objectives, including increased incidence of “complete response” of tumor at
the one month follow-up visit (47% in placebo vs. 63% in SGX942 at 1.5 mg/kg). Decreases in mortality and decreases in infection
rate were also observed with SGX942 treatment, consistent with the preclinical results observed in animal models.
SGX942 was found to be generally safe
and well tolerated, consistent with the safety profile observed in the prior Phase 1 study conducted in 84 healthy volunteers.
The long-term (12 month) follow-up data was consistent with the preliminary positive safety and efficacy findings. While the placebo
population experienced the expected 12-month survival rate of approximately 80%, as defined in the Surveillance, Epidemiology,
and End Results statistics 1975-2012 from the National Cancer Institute, the SGX942 1.5 mg/kg treatment group reported a 12-month
survival rate of 93% (7% mortality in the SGX942 1.5 mg/kg group compared to 19% in the placebo group). Similarly, tumor resolution
(complete response) at 12 months was better in the SGX942 1.5 mg/kg treatment group relative to the placebo population (80% in
the 1.5 mg/kg group compared to 74% in the placebo group). Moreover, in the patients receiving chemotherapy every third week,
the SGX942 1.5 mg/kg treatment group had a tumor resolution rate (complete response) of 82% throughout the 12 months following
chemoradiation therapy, while the placebo group experienced a 64% complete response rate. The long-term follow-up results from
the Phase 2 study are reviewed in “Dusquetide: Reduction in Oral Mucositis associated with Enduring Ancillary Benefits in
Tumor Resolution and Decreased Mortality in Head and Neck Cancer Patients” published online in Biotechnology Reports and
available at the following link: https://doi.org/10.1016/j.btre.2017.05.002. In addition to safety, evaluations of other secondary
efficacy endpoints, such as the utilization of opioid pain medication, indicated that the SGX942 1.5mg/kg treatment group had
a 40% decrease in the use of opioids at the later stage of the treatment phase of the trial, when oral mucositis is usually most
severe and expected to increase pain medication use. This was in contrast to the placebo group, which demonstrated a 10% increase
in use of opioids over this same period. Data from this Phase 2 trial was published online in the Journal of Biotechnology. The
publication also delineates the supportive nonclinical data in this indication, demonstrating consistency in the qualitative and
quantitative biological response, including dose response, across the nonclinical and clinical data sets. The results are available
at the following link: http://authors.elservier.com/sd/article/S01681656116315668.
On September 9, 2016, we and SciClone
Pharmaceuticals, Inc. (“SciClone”) entered into an exclusive license agreement, pursuant to which we granted rights
to SciClone to develop, promote, market, distribute and sell SGX942 in defined territories. Under the terms of the license agreement,
SciClone will be responsible for all aspects of development, product registration and commercialization in the territories, having
access to data generated by us. In exchange for exclusive rights, SciClone will pay us royalties on net sales, and we will supply
commercial drug product to SciClone on a cost-plus basis, while maintaining worldwide manufacturing rights.
We have received clearance from the FDA
to advance the pivotal Phase 3 protocol for SGX942 in the treatment of oral mucositis in patients with head and neck cancer receiving
chemoradiation therapy. Additionally, we have received positive Scientific Advice from the EMA for the development of SGX942 as
a treatment for oral mucositis in patients with head and neck cancer. The Scientific Advice from the EMA indicates that a single,
double-blind, placebo-controlled, multinational, Phase 3 pivotal study, if successful, in conjunction with the Phase 2 dose-ranging
study, is generally considered sufficient to support a marketing authorization application (“MAA”) to the EMA for
potential licensure in Europe. The advice also provided several suggestions to strengthen the study design and data collection
that were integrated into the final protocol. Scientific Advice is offered by the EMA to stakeholders for clarification of questions
arising during development of medicinal products. The scope of Scientific Advice is limited to scientific issues and focuses on
development strategies rather than pre-evaluation of data to support an MAA. Scientific Advice is legally non-binding and is based
on the current scientific knowledge which may be subject to future changes.
We are working with leading oncology centers,
a number of which participated in the Phase 2 study, to advance this Phase 3 clinical trial referred to as the “DOM–INNATE”
study (
D
usquetide treatment in
O
ral
M
ucositis – by modulating
INNATE
immunity). Based on the
positive and previously published Phase 2 results (Study IDR-OM-01), the pivotal Phase 3 clinical trial (Study IDR-OM-02) is a
highly powered, double-blind, randomized, placebo-controlled, multinational trial that will seek to enroll approximately 190 subjects
with squamous cell carcinoma of the oral cavity and oropharynx who are scheduled to receive a minimum total cumulative radiation
dose of 55 Gy fractionated as 2.0-2.2 Gy per day with concomitant cisplatin chemotherapy given as a dose of 80-100 mg/m
2
every third week. Subjects are randomized to receive either 1.5 mg/kg SGX942 or placebo given twice a week during and for
two weeks following completion of chemoradiation therapy (“CRT”). The primary endpoint for the study is the median
duration of severe oral mucositis, which is assessed by oral examination at each treatment visit and then through six weeks following
completion of CRT. Oral mucositis is evaluated using the WHO Grading system. Severe oral mucositis is defined as a WHO Grade of
≥3. Subjects are followed for an additional 12 months after the completion of treatment.
During July 2017, we initiated our pivotal
Phase 3 study with a controlled roll-out of U.S. study sites, followed by the addition of European centers in 2018. We anticipate
that approximately fifty U.S. and European oncology centers will be participating in this pivotal Phase 3 study. We anticipate
an interim analysis report from an independent data monitoring committee to be available in the third quarter of 2019.
During September 2017, the National Institute
of Dental and Craniofacial Research (“NIDCR”), part of the NIH, awarded us a SBIR grant of approximately $1.5 million
over two years to support the conduct of our Phase 3, multinational, randomized, double-blind, placebo-controlled study evaluating
SGX942 (dusquetide) as a treatment for severe oral mucositis in patients with head and neck cancer receiving CRT.
We estimate the potential worldwide market
for SGX942 is in excess of $500 million for all applications, including the treatment of oral mucositis. This potential market
information is a forward-looking statement, and investors are urged not to place undue reliance on this statement. While we have
determined this potential market size based on assumptions that we believe are reasonable, there are a number of factors that
could cause our expectations to change or not be realized.
Oral Mucositis
Mucositis is the clinical term for damage
done to the mucosa by anticancer therapies. It can occur in any mucosal region, but is most commonly associated with the mouth,
followed by the small intestine. We estimate, based upon our review of historic studies and reports, and an interpolation of data
on the incidence of mucositis, that mucositis affects approximately 500,000 people in the U.S. per year and occurs in 40% of patients
receiving chemotherapy. Mucositis can be severely debilitating and can lead to infection, sepsis, the need for parenteral nutrition
and narcotic analgesia. The GI damage causes severe diarrhea. These symptoms can limit the doses and duration of cancer treatment,
leading to sub-optimal treatment outcomes.
The mechanisms of mucositis have been
extensively studied and have been linked to the interaction of chemotherapy and/or radiation therapy with the innate defense system.
Bacterial infection of the ulcerative lesions is regarded as a secondary consequence of dysregulated local inflammation triggered
by therapy-induced cell death, rather than as the primary cause of the lesions.
We estimate, based upon our review of
historic studies and reports, and an interpolation of data on the incidence of oral mucositis, that oral mucositis is a subpopulation
of approximately 90,000 patients in the U.S., with a comparable number in Europe. Oral mucositis almost always occurs
in patients with head and neck cancer treated with radiation therapy (greater than 80% incidence of severe mucositis) and is common
in patients undergoing high dose chemotherapy and hematopoietic cell transplantation, where the incidence and severity of oral
mucositis depends greatly on the nature of the conditioning regimen used for myeloablation.
Oral BDP
Oral BDP (beclomethasone 17,21-dipropionate)
represents a first
-
of
-
its
-
kind oral, locally acting therapy tailored to treat GI inflammation. BDP has been
marketed in the U.S. and worldwide since the early 1970s as the active pharmaceutical ingredient in a nasal spray and in a metered-dose
inhaler for the treatment of patients with allergic rhinitis and asthma. Oral BDP is specifically formulated for oral administration
as a single product consisting of two tablets. One tablet is intended to release BDP in the upper sections of the GI tract and
the other tablet is intended to release BDP in the lower sections of the GI tract.
Based on its pharmacological characteristics,
oral BDP may have utility in treating other conditions of the gastrointestinal tract having an inflammatory component. We are
planning to pursue development programs for the treatment of pediatric Crohn’s disease, acute radiation enteritis and GI
ARS pending further grant funding. We are also exploring the possibility of testing oral BDP for local inflammation associated
with ulcerative colitis, among other indications.
We estimate the potential worldwide market
for oral BDP is in excess of $500 million for all applications, including the treatment of pediatric Crohn’s disease. This
potential market information is a forward-looking statement, and investors are urged not to place undue reliance on this statement.
While we have determined this potential market size based on assumptions that we believe are reasonable, there are a number of
factors that could cause our expectations to change or not be realized.
SGX203 – for Treating
Pediatric Crohn’s Disease
SGX203 is a two tablet delivery system
of BDP specifically designed for oral use that allows for administration of immediate and delayed release BDP throughout the small
bowel and the colon. The FDA has given SGX203 Orphan Drug designation as well as Fast Track designation for the treatment of pediatric
Crohn’s disease. We will pursue a pivotal Phase 3 clinical trial of SGX203 for the treatment of pediatric Crohn’s
disease contingent upon additional funding, such as through partnership funding support.
Pediatric Crohn’s Disease
Crohn’s disease causes inflammation
of the GI tract. Crohn’s disease can affect any area of the GI tract, from the mouth to the anus, but it most commonly affects
the lower part of the small intestine, called the ileum. The swelling caused by the disease extends deep into the lining of the
affected organ. The swelling can induce pain and can make the intestines empty frequently, resulting in diarrhea. Because the
symptoms of Crohn’s disease are similar to other intestinal disorders, such as irritable bowel syndrome and ulcerative colitis,
it can be difficult to diagnose. People of Ashkenazi Jewish heritage have an increased risk of developing Crohn’s disease.
Crohn’s disease can appear at any
age, but it is most often diagnosed in adults in their 20s and 30s. However, approximately 30% of people with Crohn’s disease
develop symptoms before 20 years of age. We estimate, based upon our review of historic published studies and reports, and an
interpolation of data on the incidence of pediatric Crohn’s disease, that pediatric Crohn’s disease is a subpopulation
of approximately 80,000 patients in the U.S. with a comparable number in Europe. Crohn’s disease tends to be both severe
and extensive in the pediatric population and a relatively high proportion (approximately 40%) of pediatric Crohn’s patients
have involvement of their upper gastrointestinal tract.
Crohn’s disease presents special
challenges for children and teens. In addition to bothersome and often painful symptoms, the disease can stunt growth, delay puberty,
and weaken bones. Crohn’s disease symptoms may sometimes prevent a child from participating in enjoyable activities. The
emotional and psychological issues of living with a chronic disease can be especially difficult for young people.
SGX201 – for Preventing
Acute Radiation Enteritis
SGX201 is a delayed-release formulation
of BDP specifically designed for oral use. In 2012, we completed a Phase 1/2 clinical trial testing SGX201 in prevention of acute
radiation enteritis. Patients with rectal cancer scheduled to undergo concurrent radiation and chemotherapy prior to surgery were
randomized to one of four dose groups. The objectives of the study were to evaluate the safety and maximal tolerated dose of escalating
doses of SGX201, as well as the preliminary efficacy of SGX201 for prevention of signs and symptoms of acute radiation enteritis.
The study demonstrated that oral administration of SGX201 was safe and well tolerated across all four dose groups. There was also
evidence of a potential dose response with respect to diarrhea, nausea and vomiting and the assessment of enteritis according
to National Cancer Institute Common Terminology Criteria for Adverse Events for selected gastrointestinal events. In addition,
the incidence of diarrhea was lower than that seen in published historical control data in this patient population. This program
was supported in part by a $500,000 two-year SBIR grant awarded by the NIH. We continue to work with our Radiation Enteritis medical
advisors to identify additional funding opportunities to support the clinical development program.
We have received Fast Track designation
from the FDA for SGX201 for acute radiation enteritis.
Acute Radiation Enteritis
External radiation therapy is used to
treat most types of cancer, including cancer of the bladder, uterine, cervix, rectum, prostate, and vagina. During delivery of
treatment, some level of radiation will also be delivered to healthy tissue, including the bowel, leading to acute and chronic
toxicities. The large and small bowels are very sensitive to radiation and the larger the dose of radiation the greater the damage
to normal bowel tissue. Radiation enteritis is a condition in which the lining of the bowel becomes swollen and inflamed during
or after radiation therapy to the abdomen, pelvis, or rectum. Most tumors in the abdomen and pelvis need large doses, and almost
all patients receiving radiation to the abdomen, pelvis, or rectum will show signs of acute enteritis.
Patients with acute enteritis may have
nausea, vomiting, abdominal pain and bleeding, among other symptoms. Some patients may develop dehydration and require hospitalization.
With diarrhea, the gastrointestinal tract does not function normally, and nutrients such as fat, lactose, bile salts, and vitamin
B12 are not well absorbed.
Symptoms will usually resolve within two
to six weeks after therapy has ceased. Radiation enteritis is often not a self-limited illness, as over 80% of patients who receive
abdominal radiation therapy complain of a persistent change in bowel habits. Moreover, acute radiation injury increases the risk
of development of chronic radiation enteropathy, and overall 5% to 15% of the patients who receive abdominal or pelvic irradiation
will develop chronic radiation enteritis.
We estimate, based upon our review of
historic published studies and reports, and an interpolation of data on the treatment courses and incidence of cancers occurring
in the abdominal and pelvic regions, there to be over 100,000 patients annually in the U.S., with a comparable number in Europe,
who receive abdominal or pelvic external beam radiation treatment for cancer, and these patients are at risk of developing acute
and chronic radiation enteritis.
Vaccines/BioDefense Overview
ThermoVax
®
– Thermostability Technology
ThermoVax
®
is a novel method
of rendering aluminum salt, (known colloquially as Alum), adjuvanted vaccines stable at elevated temperatures. Alum is the most
widely employed adjuvant technology in the vaccine industry. The value of ThermoVax
®
lies in its potential ability
to eliminate the need for cold chain production, transportation, and storage for Alum adjuvanted vaccines. This would relieve
the high costs of producing and maintaining vaccines under refrigerated conditions. Based on historical reports from the World
Health Organization and other scientific reports, we believe that a meaningful proportion of vaccine doses globally are wasted
due to excursions from required cold chain temperature ranges. This is due to the fact that most Alum adjuvanted vaccines need
to be maintained at between 2 and 8 degrees Celsius (“C”) and even brief excursions from this temperature range (especially
below freezing) usually necessitates the destruction of the product or the initiation of costly stability programs specific for
the vaccine lots in question. ThermoVax
®
has the potential to facilitate easier storage and distribution of strategic
national stockpile vaccines for ricin exposure in emergency settings.
ThermoVax
®
development
was supported pursuant to our $9.4 million NIAID grant enabling development of thermo-stable ricin (RiVax
®
) and
anthrax (VeloThrax
®
) vaccines. Proof-of-concept preclinical studies with ThermoVax
®
indicate that
it is able to produce stable vaccine formulations using adjuvants, protein immunogens, and other components that ordinarily would
not withstand long temperature variations exceeding customary refrigerated storage conditions. These studies were conducted with
our aluminum-adjuvanted ricin toxin vaccine, RiVax
®
and our aluminum-adjuvanted anthrax vaccine, VeloThrax
®
.
Each vaccine was manufactured under precise lyophilization conditions using excipients that aid in maintaining native protein
structure of the key antigen. When RiVax
®
was kept at 40 degrees C (104 degrees Fahrenheit) for up to one year,
all of the animals vaccinated with the lyophilized RiVax
®
vaccine developed potent and high titer neutralizing
antibodies. In contrast, animals that were vaccinated with the liquid RiVax
®
vaccine kept at 40 degrees C did not
develop neutralizing antibodies and were not protected against ricin exposure. The ricin A chain is extremely sensitive to temperature
and rapidly loses the ability to induce neutralizing antibodies when exposed to temperatures higher than 8 degrees C. When VeloThrax
®
was kept for up to 16 weeks at 70 degrees C, it was able to develop a potent antibody response, unlike the liquid formulation
kept at the same temperature. Moreover, we also have demonstrated the compatibility of our thermostabilization technology with
other secondary adjuvants such as TLR-4 agonists.
We also entered into a collaboration agreement
with Axel Lehrer, PhD of the Department of Tropical Medicine, Medical Microbiology and Pharmacology, John A. Burns School of Medicine,
University of Hawai
ʻ
i at Manoa (“UH Manoa”) and Hawaii Biotech,
Inc. (“HBI”) to develop a heat stable subunit Ebola vaccine. Dr. Lehrer, a co-inventor of the Ebola vaccine with HBI,
has shown proof of concept efficacy with subunit Ebola vaccines in non-human primates. The most advanced Ebola vaccines involve
the use of vesicular stomatitis virus and adenovirus vectors – live, viral vectors which complicate the manufacturing, stability
and storage requirements. Dr. Lehrer’s vaccine candidate is based on highly purified recombinant protein antigens, circumventing
many of these manufacturing difficulties. Dr. Lehrer and HBI have developed a robust manufacturing process for the required proteins.
Application of ThermoVax
®
may allow for a product that can avoid the need for cold chain distribution and storage,
yielding a vaccine ideal for use in both the developed and developing world. This agreement has expired in accordance with its
terms.
On February 7, 2019, European Journal
of Pharmaceutics and Biopharmaceutics published a scientific article demonstrating the successful thermostabilization of an Ebola
subunit vaccine candidate.
During September 2017, we announced we
will be participating in a NIAID Research Project (R01) grant awarded to UH Manoa for the development of a trivalent thermostabilized
Ebola vaccine, with our awarded funding of approximately $700,000 over five years. Previous collaborations demonstrated the feasibility
of developing a heat stable subunit Ebola vaccine. Under the terms of the subaward, we will continue to support vaccine formulation
development with our proprietary vaccine thermostabilization technology, ThermoVax
®
. Ultimately, the objective
is to produce a thermostable trivalent filovirus vaccine for protection against Ebola and related diseases, allowing worldwide
distribution without the need for cold storage.
On December 21, 2010, we executed a worldwide
exclusive license agreement with the University of Colorado (“UC”) for certain patents relating to ThermoVax
®
in all fields of use. In April 2018, the UC delivered a notice of termination of our license agreement based upon our failure
to achieve one of the development milestones: initiation of the Phase 1 clinical trial of the heat stabilization technology by
March 31, 2018. After negotiating with the UC, we and the UC agreed to extend the termination date to October 31, 2018 in order
to allow us time to agree upon a potential agreement that would allow us to keep the rights to, and to continue to develop, the
heat stabilization technology or a product candidate containing the heat stabilization technology in our field of use.
On October 31, 2018, in a series of related
transactions, (a) we and the UC agreed to terminate the original license agreement, (b) the UC and VitriVax, Inc. (“VitriVax”)
executed a worldwide exclusive license agreement for the heat stabilization technology for all fields of use, and (c) we and VitriVax
executed a worldwide exclusive sublicense agreement for the heat stabilization technology for use in the fields of ricin and Ebola
vaccines. We paid a $100,000 sublicense fee on the effective date of the sublicense agreement. To maintain the sublicense we are
obliged to pay a minimum annual royalty of $20,000 until first commercial sale of a sublicensed product, upon which point, we
shall pay an earned royalty of 2% of net sales subject to a minimum royalty of $50,000 each year. We are also required to pay
royalty on any sub-sublicense income based on a declining percentage of all sub-sublicense income calculated within the contractual
period until reaching a minimum of 15% after two years. In addition, we are required to pay VitriVax milestone fees of: (a) $50,000
upon initiation of a Phase II clinical trial of the sublicensed product, (b) $200,000 upon regulatory approval of a sublicensed
product, and (c) $1 million upon achieving $10 million in aggregate net sales of a sublicensed product in the U.S. or equivalent.
To date none of these milestones have been met.
RiVax
®
–
Ricin Toxin Vaccine
RiVax
®
is our proprietary
vaccine candidate being developed to protect against exposure to ricin toxin and if approved, would be the first ricin vaccine.
The immunogen in RiVax
®
induces a protective immune response in animal models of ricin exposure and functionally
active antibodies in humans. The immunogen consists of a genetically inactivated ricin A chain subunit that is enzymatically inactive
and lacks residual toxicity of the holotoxin. RiVax
®
has demonstrated statistically significant (p < 0.0001)
preclinical survival results, providing 100% protection against acute lethality in an aerosol exposure non-human primate model
(Roy et al, 2015, Thermostable ricin vaccine protects rhesus macaques against aerosolized ricin: Epitope-specific neutralizing
antibodies correlate with protection, PNAS USA 112:3782-3787), and has also been shown to be well tolerated and immunogenic in
two Phase 1 clinical trials in healthy volunteers. Results of the first Phase 1 human trial of RiVax
®
established
that the immunogen was safe and induced antibodies that we believe may protect humans from ricin exposure. The antibodies generated
from vaccination, concentrated and purified, were capable of conferring immunity passively to recipient animals, indicating that
the vaccine was capable of inducing functionally active antibodies in humans. The outcome of this study was published in the Proceedings
of the National Academy of Sciences (Vitetta et al., 2006, A Pilot Clinical Trial of a Recombinant Ricin Vaccine in Normal Humans,
PNAS, 103:2268-2273). The second trial which was completed in September 2012 and was sponsored by University of Texas Southwestern
Medical Center (“UTSW”), evaluated a more potent formulation of RiVax
®
that contained an aluminum adjuvant
(Alum). The results of the Phase 1b study indicated that Alum-adjuvanted RiVax
®
was safe and well tolerated, and
induced greater ricin neutralizing antibody levels in humans than adjuvant-free RiVax
®
. The outcomes of this second
study were published in the Clinical and Vaccine Immunology (Vitetta et al., 2012, Recombinant Ricin Vaccine Phase 1b Clinical
Trial, Clin. Vaccine Immunol. 10:1697-1699). We have adapted the original manufacturing process for the immunogen contained in
RiVax
®
for thermostability and large scale manufacturing and recent studies have confirmed that the thermostabilized
RiVax
®
formulation enhances the stability of the RiVax
®
antigen, enabling storage for at least 1
year at temperatures up to 40°C (104 °F). The program will pursue approval via the FDA “Animal Rule” since
it is not possible to test the efficacy of the vaccine in a clinical study which would expose humans to ricin. Uniform, easily
measured and species-neutral immune correlates of protection that can be measured in humans and animals, and are indicative of
animal survival to subsequent ricin challenge, are central to the application of the “Animal Rule”. Recent work has
identified such potential correlates of immune protection in animals and work to qualify and validate these approaches is continuing,
with the goal of utilizing these assays in a planned Phase 1/2 clinical trial with the thermostable RiVax
®
formulation.
During September 2018, we published an extended stability study of RiVax
®
, showing up to 100% protection in mice
after 12 months storage at 40°C (104 °F) as well as identification of a potential in vitro stability indicating assay,
critical to adequately confirming the long-term shelf life of the vaccine. We have entered into a collaboration with IDT Biologika
GmbH to scale-up the formulation/filling process and continue development and validation of analytical methods established at
IDT to advance the program. We also have initiated a development agreement with Emergent BioSolutions, Inc. to implement a commercially
viable, scalable production technology for the RiVax
®
drug substance protein antigen.
The development of RiVax
®
has been sponsored through a series of overlapping challenge grants, UC1, and cooperative grants, U01, from the NIH, granted to
us and to UTSW where the vaccine originated. The second clinical trial was supported by a grant from the FDA’s Office of
Orphan Products to UTSW. To date, we and UTSW have collectively received approximately $25 million in grant funding from the NIH
for the development of RiVax
®
. In September 2014, we entered into a contract with the NIH for the development of
RiVax
®
that would provide up to an additional $24.7 million of funding in the aggregate if options to extend the
contract are exercised by the NIH. The development agreements with Emergent BioSolutions and IDT are specifically funded under
this NIH contract.
During June 2017 NIAID exercised an option
for the evaluation of RiVax
®
to fund additional animal efficacy studies. The exercised option will provide us with
approximately $2.0 million in additional funding. Additionally, during August 2017 NIAID exercised an option to fund good manufacturing
practices compliant RiVax
®
bulk drug substance and finished drug product manufacturing, which is required for the
conduct of future preclinical and clinical safety and efficacy studies. The exercised option will provide us with approximately
$2.5 million in additional non-dilutive funding, bringing the total amount awarded to date under this contract to $21.2 million,
of which $13.5 million is still available. If all contract options are exercised, the total award of up to $24.7 million will
support the preclinical, manufacturing and clinical development activities necessary to advance heat stable RiVax
®
with the FDA. In addition to the ongoing funding of up to $24.7 million for the development of RiVax
®
, biomarkers
for RiVax
®
testing have been successfully identified, facilitating potential approval under the FDA Animal Rule.
RiVax
®
has been granted
Orphan Drug designation by the FDA for the prevention of ricin intoxication. In addition, RiVax
®
has also been
granted Orphan Drug designation in the EU from the EMA Committee for Orphan Medical Products.
Assuming development efforts are successful
for RiVax
®
, we believe potential government procurement contract(s) could reach as much as $200 million. This
potential procurement contract information is a forward-looking statement, and investors are urged not to place undue reliance
on this statement. While we have determined this potential procurement contract value based on assumptions that we believe are
reasonable, there are a number of factors that could cause our expectations to change or not be realized.
As a new chemical entity, an FDA approved
RiVax
®
vaccine has the potential to qualify for a biodefense Priority Review Voucher (“PRV”). Approved
under the 21st Century Cures Act in late 2016, the biodefense PRV is awarded upon approval as a medical countermeasure when the
active ingredient(s) have not been otherwise approved for use in any context. PRVs are transferable and can be sold, with sales
in recent years of up to $350 million. When redeemed, PRVs entitle the user to an accelerated review period of nine months, saving
a median of seven months review time as calculated in 2009. However, FDA must be advised 90 days in advance of the use of the
PRV and the use of a PRV is associated with an additional user fee ($2.7 million in 2017).
Ricin Toxin
Ricin toxin can be cheaply and easily
produced, is stable over long periods of time, is toxic by several routes of exposure and thus has the potential to be used as
a biological weapon against military and/or civilian targets. As a bioterrorism agent, ricin could be disseminated as an aerosol,
by injection, or as a food supply contaminant. The potential use of ricin toxin as a biological weapon of mass destruction has
been highlighted in a Federal Bureau of Investigation Bioterror report released in November 2007 titled Terrorism 2002-2005, which
states that “Ricin and the bacterial agent anthrax are emerging as the most prevalent agents involved in WMD investigations”
(http://www.fbi.gov/stats-services/publications/terrorism-2002-2005/terror02_05.pdf). In recent years, Al Qaeda in the Arabian
Peninsula has threatened the use of ricin toxin to poison food and water supplies and in connection with explosive devices. Domestically,
the threat from ricin remains a concern for security agencies. In April 2013, letters addressed to the President of the United
States, a U.S. Senator and a judge tested positive for ricin. As recently as October 2018, an envelope addressed to President
Trump was suspected to contain this potent and potentially lethal toxin, which was subsequently confirmed to contain pieces of
castor beans used to make ricin.
The Centers for Disease Control and Prevention
has classified ricin toxin as a Category B biological agent. Ricin works by first binding to glycoproteins found on the exterior
of a cell, and then entering the cell and inhibiting protein synthesis leading to cell death. Once exposed to ricin toxin, there
is no effective therapy available to reverse the course of the toxin. The recent ricin threat to government officials has heightened
the awareness of this toxic threat. Currently, there is no FDA approved vaccine to protect against the possibility of ricin toxin
being used in a terrorist attack, or its use as a weapon on the battlefield nor is there a known antidote for ricin toxin exposure.
OrbeShield
®
– for Treating GI Acute Radiation Syndrome
OrbeShield
®
is an oral
immediate and delayed release formulation of the topically active corticosteroid BDP and is being developed for the treatment
of GI ARS. Corticosteroids are a widely used class of anti-inflammatory drugs. BDP is a corticosteroid with predominantly topical
activity that is approved for use in asthma, psoriasis and allergic rhinitis.
OrbeShield
®
has demonstrated
positive preclinical results in a canine GI ARS model which indicate that dogs treated with OrbeShield
®
demonstrated
statistically significant (p=0.04) improvement in survival with dosing at either two hours or 24 hours after exposure to lethal
doses of total body irradiation (“TBI”) when compared to control dogs. OrbeShield
®
appears to significantly
mitigate the damage to the GI epithelium caused by exposure to high doses of radiation using a well-established canine model of
GI ARS.
The GI tract is highly sensitive to ionizing
radiation and the destruction of epithelial tissue is one of the first effects of radiation exposure. The rapid loss of epithelial
cells leads to inflammation and infection that are often the primary cause of death in acute radiation injury. This concept of
GI damage also applies to the clinical setting of oncology, where high doses of radiation cannot be administered effectively to
the abdomen because radiation is very toxic to the intestines. We are seeking to treat the same type of toxicity in our acute
radiation enteritis clinical program with SGX201. As a result, we believe that OrbeShield
®
has the potential to
be a “dual use” compound, a desirable characteristic which is a specific priority for ARS and other medical countermeasure
indications.
In September 2013, we received two government
contracts from the Biomedical Advanced Research and Development Authority (“BARDA”) and NIAID for the advanced preclinical
and manufacturing development of OrbeShield
®
leading to FDA approval to treat GI ARS. The BARDA contract contained
a two year base period with two contract options, exercisable by BARDA, for a total of five years and up to $26.3 million. The
NIAID contract consisted of a one year base period and two contract options, exercisable by NIAID, for a total of three years
and up to $6.4 million. We received a combined approximate $18 million in contract funding from both BARDA and NIAID which includes
combined supplemental funding of $634,000, extending the programs through the first quarter of 2017. The NIAID contract was completed
during the first quarter of 2017 along with the expiration of the base period of the BARDA contract for the development of OrbeShield
®
,
with BARDA electing not to extend the current contract beyond the base period. We will continue to apply for additional government
funding. Previously, development of OrbeShield
®
had been largely supported by a $1 million NIH grant to our academic
partner, the Fred Hutchinson Cancer Research Center. In July 2012, we received an SBIR grant from NIAID of approximately $600,000
to support further preclinical development of OrbeShield
®
for the treatment of acute GI ARS. The FDA has given
OrbeShield
®
Orphan Drug designation and Fast Track designation for the prevention of death following a potentially
lethal dose of total body irradiation during or after a radiation disaster.
Assuming development efforts are successful
for OrbeShield
®
, we believe potential government procurement contracts could reach as much as $450 million. This
potential procurement contract information is a forward-looking statement, and investors are urged not to place undue reliance
on this statement. While we have determined this potential procurement contract value based on assumptions that we believe are
reasonable, there are a number of factors that could cause our expectations to change or not be realized.
GI Acute Radiation Syndrome
ARS
occurs after toxic radiation exposure and involves several organ systems, notably the bone marrow, the GI tract and later the
lungs. In the event of a nuclear disaster or terrorist detonation of a nuclear bomb, casualties exposed to greater than 2 grays
(“Gy”) of absorbed radiation are at high risk for development of clinically significant ARS. Exposure to high doses
of radiation exceeding 10-12 Gy causes acute GI injury which can result in death. The GI tract is highly sensitive due to the
continuous need for crypt stem cells and production of mucosal epithelium. The extent of injury to the bone marrow and the GI
tract are the principal determinants of survival after exposure to TBI. Although the hematopoietic syndrome can be rescued by
bone marrow transplantation or growth factor administration, there is no established treatment or preventive measure for the GI
damage that occurs after high-dose radiation. As a result, we believe there is an urgent medical need for specific medical counter
measures against the lethal pathophysiological manifestations of radiation-induced GI injury.
SGX943 – for Treating
Emerging and/or Antibiotic-Resistant Infectious Diseases
SGX943 is an IDR, containing the same
active ingredient as SGX942. Dusquetide is a fully synthetic, 5-amino acid peptide with high aqueous solubility and stability.
Extensive
in vivo
preclinical studies have demonstrated enhanced clearance of bacterial infection with SGX943 administration.
SGX943 has shown efficacy against both Gram-negative and Gram-positive bacterial infections in preclinical models, independent
of whether the bacteria is antibiotic-resistant or antibiotic-sensitive.
The innate immune system is responsible
for rapid and non-specific responses to combat bacterial infection. Augmenting these responses represents an alternative approach
to treating bacterial infections. In animal models, IDRs are efficacious against both antibiotic-sensitive and antibiotic-resistant
infections, both Gram-positive and Gram-negative bacteria, and are active irrespective of whether the bacteria occupies a primarily
extracellular or intracellular niche. IDRs are also effective as stand-alone agents or in conjunction with antibiotics. An IDR
for the treatment of serious bacterial infections encompasses a number of clinical advantages including:
|
●
|
Treatment
when antibiotics are contraindicated, such as:
|
|
o
|
before
the infectious organism and/or its antibiotic susceptibility is known; or
|
|
o
|
in
at-risk populations prior to infection.
|
|
●
|
An ability to be used as an additive, complementary treatment
with antibiotics, thereby:
|
|
o
|
enhancing
efficacy of sub-optimal antibiotic regimens (e.g., partially antibiotic-resistant infections);
|
|
o
|
enhancing
clearance of infection, thereby minimizing the generation of antibiotic resistance (e.g.,
in treating melioidosis); and
|
|
o
|
reducing
the required antibiotic dose, again potentially minimizing the generation of antibiotic
resistance.
|
|
●
|
An ability to modulate the deleterious consequences of
inflammation in response to the infection, including the inflammation caused by antibiotic-driven
bacterial lysis; and
|
|
●
|
Being unlikely to generate bacterial resistance since
the IDR acts on the host, and not the pathogen.
|
Importantly, systemic inflammation and
multi-organ failure is the ultimate common outcome of not only emerging and/or antibiotic-resistant infectious diseases, but also
of most biothreat agents (e.g.,
Burkholderia pseudomallei
), indicating that dusquetide would be applicable not only to
antibiotic-resistant infection, but also to biothreat agents, especially where the pathogen is not known and/or has been engineered
for enhanced antibiotic resistance.
The Drug Approval Process
The FDA and comparable regulatory agencies
in state, local and foreign jurisdictions impose substantial requirements on the clinical development, manufacture and marketing
of new drug and biologic products. The FDA, through regulations that implement the Federal Food, Drug, and Cosmetic Act, as amended
(“FDCA”), and other laws and comparable regulations for other agencies, regulate research and development activities
and the testing, manufacture, labeling, storage, shipping, approval, recordkeeping, advertising, promotion, sale, export, import
and distribution of such products. The regulatory approval process is generally lengthy, expensive and uncertain. Failure to comply
with applicable FDA and other regulatory requirements can result in sanctions being imposed on us or the manufacturers of our
products, including holds on clinical research, civil or criminal fines or other penalties, product recalls, or seizures, or total
or partial suspension of production or injunctions, refusals to permit products to be imported into or exported out of the United
States, refusals of the FDA to grant approval of drugs or to allow us to enter into government supply contracts, withdrawals of
previously approved marketing applications and criminal prosecutions.
Before human clinical testing in the U.S.
of a new drug compound or biological product can commence, an Investigational New Drug (“IND”), application is required
to be submitted to the FDA. The IND application includes results of pre-clinical animal studies evaluating the safety and efficacy
of the drug and a detailed description of the clinical investigations to be undertaken.
Clinical trials are normally done in three
phases, although the phases may overlap. Phase 1 trials are smaller trials concerned primarily with metabolism and pharmacologic
actions of the drug and with the safety of the product. Phase 2 trials are designed primarily to demonstrate effectiveness and
safety in treating the disease or condition for which the product is indicated. These trials typically explore various doses and
regimens. Phase 3 trials are expanded clinical trials intended to gather additional information on safety and effectiveness needed
to clarify the product’s benefit-risk relationship and generate information for proper labeling of the drug, among other
things. The FDA receives reports on the progress of each phase of clinical testing and may require the modification, suspension
or termination of clinical trials if an unwarranted risk is presented to patients. When data is required from long-term use of
a drug following its approval and initial marketing, the FDA can require Phase 4, or post-marketing, studies to be conducted.
With certain exceptions, once successful
clinical testing is completed, the sponsor can submit a New Drug Application (“NDA”), for approval of a drug, or a
Biologic License Application (“BLA”), for biologics such as vaccines, which will be reviewed, and if successful, approved
by the FDA, allowing the product to be marketed. The process of completing clinical trials for a new drug is likely to take a
number of years and require the expenditure of substantial resources. Furthermore, the FDA or any foreign health authority may
not grant an approval on a timely basis, if at all. The FDA may deny the approval of an NDA or BLA, in its sole discretion, if
it determines that its regulatory criteria have not been satisfied or may require additional testing or information. Among the
conditions for marketing approval is the requirement that the prospective manufacturer’s quality control and manufacturing
procedures conform to good manufacturing practice regulations. In complying with standards contained in these regulations, manufacturers
must continue to expend time, money and effort in the area of production, quality control and quality assurance to ensure full
technical compliance. Manufacturing facilities, both foreign and domestic, also are subject to inspections by, or under the authority
of, the FDA and by other federal, state, local or foreign agencies.
Even after initial FDA or foreign health
authority approval has been obtained, further studies, including Phase 4 post-marketing studies, may be required to provide additional
data on safety and will be required to gain approval for the marketing of a product as a treatment for clinical indications other
than those for which the product was initially tested. For certain drugs intended to treat serious, life-threatening conditions
that show great promise in earlier testing, the FDA can also grant conditional approval. However, drug developers are required
to study the drug further and verify clinical benefit as part of the conditional approval provision, and the FDA can revoke approval
if later testing does not reproduce previous findings. The FDA may also condition approval of a product on the sponsor agreeing
to certain mitigation strategies that can limit the unfettered marketing of a drug. Also, the FDA or foreign regulatory authority
will require post-marketing reporting to monitor the side effects of the drug. Results of post-marketing programs may limit or
expand the further marketing of the product. Further, if there are any modifications to the drug, including any change in indication,
manufacturing process, labeling or manufacturing facility, an application seeking approval of such changes will likely be required
to be submitted to the FDA or foreign regulatory authority.
In the U.S., the FDCA, the Public Health
Service Act, the Federal Trade Commission Act, and other federal and state statutes and regulations govern, or influence the research,
testing, manufacture, safety, labeling, storage, record keeping, approval, advertising and promotion of drug, biological, medical
device and food products. Noncompliance with applicable requirements can result in, among other things, fines, recall or seizure
of products, refusal to permit products to be imported into the U.S., refusal of the government to approve product approval applications
or to allow us to enter into government supply contracts, withdrawal of previously approved applications and criminal prosecution.
The FDA may also assess civil penalties for violations of the FDCA involving medical devices.
For biodefense development, such as with
RiVax
®
and OrbeShield
®
, the FDA has instituted policies that are expected to result in shorter pathways
to market. This potentially includes approval for commercial use utilizing the results of animal efficacy trials, rather than
efficacy trials in humans. However, we will still have to establish that the vaccine and countermeasures it is developing are
safe in humans at doses that are correlated with the beneficial effect in animals. Such clinical trials will also have to be completed
in distinct populations that are subject to the countermeasures; for instance, the very young and the very old, and in pregnant
women, if the countermeasure is to be licensed for civilian use. Other agencies will have an influence over the benefit-risk scenarios
for deploying the countermeasures and in establishing the number of doses utilized in the Strategic National Stockpile. We may
not be able to sufficiently demonstrate the animal correlation to the satisfaction of the FDA, as these correlates are difficult
to establish and are often unclear. Invocation of the animal rule may raise issues of confidence in the model systems even if
the models have been validated. For many of the biological threats, the animal models are not available and we may have to develop
the animal models, a time-consuming research effort. There are few historical precedents, or recent precedents, for the development
of new countermeasure for bioterrorism agents. Despite the animal rule, the FDA may require large clinical trials to establish
safety and immunogenicity before licensure and it may require safety and immunogenicity trials in additional populations. Approval
of biodefense products may be subject to post-marketing studies, and could be restricted in use in only certain populations.
Vaccines are approved under the BLA process
that exists under the Public Health Service Act. In addition to the greater technical challenges associated with developing biologics,
the potential for generic competition is lower for a BLA product than a small molecule product subject to an NDA under the Federal
Food, Drug and Cosmetic Act. Under the Patient Protection and Affordable Care Act enacted in 2010, a “generic” version
of a biologic is known as a biosimilar and the barriers to entry – whether legal, scientific, or logistical – for
a biosimilar version of a biologic approved under a BLA are higher.
Orphan Drug Designation
Under the Orphan Drug Act, the FDA may
grant orphan drug designation to drugs or biologics intended to treat a rare disease or condition – generally a disease
or condition that affects fewer than 200,000 individuals in the United States. Orphan drug designation must be requested before
submitting an NDA or BLA. After the FDA grants orphan drug designation, the generic identity of the drug or biologic and its potential
orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration
of, the regulatory review and approval process. The first NDA or BLA applicant to receive FDA approval for a particular active
ingredient to treat a particular disease with FDA orphan drug designation is entitled to a seven-year exclusive marketing period
in the United States for that product, for that indication. During the seven-year exclusivity period, the FDA may not approve
any other applications to market the same drug or biologic for the same disease, except in limited circumstances, such as a showing
of clinical superiority to the product with orphan drug exclusivity. Orphan drug exclusivity does not prevent the FDA from approving
a different drug or biologic for the same disease or condition, or the same drug or biologic for a different disease or condition.
Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the NDA or BLA application
user fee.
Fast Track Designation and Accelerated Approval
The FDA is required to facilitate the
development, and expedite the review, of drugs or biologics that are intended for the treatment of a serious or life-threatening
disease or condition for which there is no effective treatment and which demonstrate the potential to address unmet medical needs
for the condition. Under the fast track program, the sponsor of a new drug or biologic candidate may request that the FDA designate
the candidate for a specific indication as a fast track drug or biologic concurrent with, or after, the filing of the IND for
the candidate. The FDA must determine if the drug or biologic candidate qualifies for fast track designation within 60 days of
receipt of the sponsor’s request. Unique to a fast track product, the FDA may initiate review of sections of a fast track
product’s NDA or BLA before the application is complete. This rolling review is available if the applicant provides, and
the FDA approves, a schedule for the submission of the remaining information and the applicant pays applicable user fees. However,
the FDA’s time period goal for reviewing an application does not begin until the last section of the NDA or BLA is submitted.
Additionally, the fast track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported
by data emerging in the clinical trial process.
Any product submitted to the FDA for marketing,
including under a fast track program, may be eligible for other types of FDA programs intended to expedite development and review,
such as accelerated approval. Drug or biological products studied for their safety and effectiveness in treating serious or life-threatening
illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval, which means
the FDA may approve the product based upon a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a
clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict
an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence
of the condition and the availability or lack of alternative treatments.
In clinical trials, a surrogate endpoint
is a measurement of laboratory or clinical signs of a disease or condition that substitutes for a direct measurement of how a
patient feels, functions, or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints.
A drug or biologic candidate approved on this basis is subject to rigorous post-marketing compliance requirements, including the
completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required
post-approval studies, or confirm a clinical benefit during post-marketing studies, will allow the FDA to withdraw the drug or
biologic from the market on an expedited basis. All promotional materials for drug candidates approved under accelerated regulations
are subject to prior review by the FDA.
Pediatric Information
Under the Pediatric Research Equity Act
(“PREA”), NDAs or BLAs or supplements to NDAs or BLAs must contain data to assess the safety and effectiveness of
the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each
pediatric subpopulation for which the drug is safe and effective. The FDA may grant full or partial waivers, or deferrals, for
submission of data. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan
designation has been granted.
Early Access to Medicines Scheme
Launched in April 2014 in the United Kingdom
by the MHRA, the Early Access to Medicines Scheme (“EAMS”) offers severely ill patients with life-threatening and
seriously debilitating conditions the lifeline of trying ground-breaking new medicines earlier than they would normally be accessible.
PIM designation is the first phase of EAMS and is awarded following an assessment of early nonclinical and clinical data by the
MHRA. The criteria product candidates must meet to obtain PIM designation are:
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Criterion 1 –
The condition should be life-threatening or seriously debilitating with a high unmet medical need (i.e., there is no method
of treatment, diagnosis or prevention available or existing methods have serious limitations).
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Criterion 2 –
The medicinal product is likely to offer major advantage over methods currently used in the UK.
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Criterion 3 –
The potential adverse effects of the medicinal product are likely to be outweighed by the benefits, allowing for the reasonable
expectation of a positive benefit risk balance. A positive benefit risk balance should be based on preliminary scientific
evidence that the safety profile of the medicinal product is likely to be manageable and acceptable in relation to the estimated
benefits.
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False Claims Laws
The federal False Claims Act prohibits, among
other things, any person or entity from knowingly presenting, or causing to be presented, a false claim for payment to, or approval
by, the federal government or knowingly making, using, or causing to be made or used a false record or statement material to a
false or fraudulent claim to the federal government. As a result of a modification made by the Fraud Enforcement and Recovery
Act of 2009, a claim includes “any request or demand” for money or property presented to the U.S. government.
Anti-Kickback Laws
The federal Anti-Kickback Statute prohibits,
among other things, any person or entity, from knowingly and willfully offering, paying, soliciting or receiving any remuneration,
directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging
for the purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs.
The term remuneration has been interpreted broadly to include anything of value. The Anti-Kickback Statute has been interpreted
to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers, and formulary managers
on the other.
United States Healthcare Reform
Federal Physician Payments Sunshine Act
and its implementing regulations require that certain manufacturers of drugs, devices, biological and medical supplies for which
payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report
information related to certain payments or other transfers of value made or distributed to physicians and teaching hospitals,
or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report
annually certain ownership and investment interests held by physicians and their immediate family members.
In addition, we may be subject to data
privacy and security regulation by both the federal government and the states in which we conduct our business. The Health Insurance
Portability and Accountability Act (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical
Health Act (“HITECH”), and its implementing regulations, imposes certain requirements relating to the privacy, security
and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security
standards directly applicable to “business associates” – independent contractors or agents of covered entities
that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH
also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable
to business associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages
or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing
federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances,
many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Third-Party Suppliers and Manufacturers
Drug substance and drug product manufacturing
is outsourced to qualified suppliers. We do not have manufacturing capabilities/infrastructure and do not intend to develop the
capacity to manufacture drug products substances. We have agreements with third-party manufacturers to supply bulk drug substances
for our product candidates and with third parties to formulate, package and distribute our product candidates. Our employees include
professionals with expertise in pharmaceutical manufacturing development, quality assurance and third party supplier management
who oversee work conducted by third-party companies. We believe that we have on hand or can easily obtain sufficient amounts of
product candidates to complete our currently contemplated clinical trials. All of the drug substances used in our product candidates
currently are manufactured by single suppliers. While we have not experienced any supply disruptions, the number of manufacturers
of the drug substances is limited. In the event it is necessary or advisable to acquire supplies from alternative suppliers, assuming
commercially reasonable terms could be reached, the challenge would be the efficient transfer of technology and know-how from
current manufactures to the new supplier. Formulation and distribution of our finished product candidates also currently are conducted
by single suppliers but we believe that alternative sources for these services are readily available on commercially reasonable
terms, subject to the efficient transfer of technology and know-how from current suppliers to the new supplier.
All of the current agreements for the
supply of bulk drug substances for our product candidates and for the formulation or distribution of our product candidates relate
solely to the development (including preclinical and clinical) of our product candidates. Under these contracts, our product candidates
are manufactured upon our order of a specific quantity. In the event that we obtain marketing approval for a product candidate,
we will qualify secondary suppliers for all key manufacturing activities supporting the marketing application.
Marketing and Collaboration
We do not currently have any sales and
marketing capability, other than to potentially market our biodefense vaccine products directly to government agencies. With respect
to other commercialization efforts, we currently intend to seek distribution and other collaboration arrangements for the sales
and marketing of any product candidate that is approved, while also evaluating the potential to commercialize on our own in orphan
disease indications. From time to time, we have had and are having strategic discussions with potential collaboration partners
for our biodefense vaccine product candidates, although no assurance can be given that we will be able to enter into one or more
collaboration agreements for our product candidate on acceptable terms, if at all. We believe that both military and civilian
health authorities of the U.S. and other countries will increase their stockpiling of therapeutics and vaccines to treat and prevent
diseases and conditions that could ensue following a bioterrorism attack.
On December 20, 2012, we re-acquired the
North American and European commercial rights to oral BDP through an amendment of our collaboration and supply agreement with
Sigma-Tau Pharmaceuticals, Inc., which is now known as Leadiant Biosciences, Inc. (“Leadiant”). The amendment requires
us to make certain approval and commercialization milestone payments to Leadiant which could reach up to $6 million. In addition,
we have agreed to pay Leadiant: (a) a royalty amount equal to 3% of all net sales of oral BDP made directly by us, and any third-party
partner and/or their respective affiliates in the U.S., Canada, Mexico and in each country in the European Territory for the later
to occur of: (i) a period of ten years from the first commercial sale of oral BDP in each country, or (ii) the expiration of our
patents and patent applications relating to oral BDP in such country (the “Payment Period”); and (b) 15% of all up-front
payments, milestone payments and any other consideration (exclusive of equity payments) received by us and/or a potential partner
from us and/or potential partner’s licensees, distributors and agents for oral BDP in each relevant country in the territory,
which amount will be paid on a product-by-product and a country-by-country basis for the Payment Period.
On August 25, 2013, we entered into an
agreement with SciClone Pharmaceuticals, Inc. (“SciClone”), pursuant to which SciClone provided us with access to
its oral mucositis clinical and regulatory data library in exchange for exclusive commercialization rights for SGX942 in the People’s
Republic of China, including Hong Kong and Macau, subject to the negotiation of economic terms. SciClone’s data library
was generated from two sequential Phase 2 clinical studies conducted in 2010 and 2012 evaluating SciClone’s compound, SCV-07,
for the treatment of oral mucositis caused by chemoradiation therapy in head and neck cancer patients, before SciClone terminated
its program. By analyzing data available from the placebo subjects in the SciClone trials, we acquired valuable insight into disease
progression, along with quantitative understanding of its incidence and severity in the head and neck cancer patient population.
This information assisted us with the design of the SGX942 Phase 2 clinical trial, in which positive preliminary results were
announced in December 2015.
On September 9, 2016, we and SciClone
entered into an exclusive license agreement, pursuant to which we granted rights to SciClone to develop, promote, market, distribute
and sell SGX942 in the People’s Republic of China, including Hong Kong and Macau, as well as Taiwan, South Korea and Vietnam.
Under the terms of the license agreement, SciClone will be responsible for all aspects of development, product registration and
commercialization in the territory, having access to data generated by us. In exchange for exclusive rights, SciClone will pay
us royalties on net sales, and we will supply commercial drug product to SciClone on a cost-plus basis, while maintaining worldwide
manufacturing rights. We also entered into a common stock purchase agreement with SciClone pursuant to which we sold 352,942 shares
of our common stock to SciClone for approximately $8.50 per share, for an aggregate price of $3,000,000.
Competition
Our competitors are pharmaceutical and
biotechnology companies, most of whom have considerably greater financial, technical, and marketing resources than we do. Universities
and other research institutions, including the U.S. Army Medical Research Institute of Infectious Diseases, also compete in the
development of treatment technologies, and we face competition from other companies to acquire rights to those technologies.
SGX301 Competition
The FDA has approved several treatments
for later stages (IIB-IV) of CTCL and/or in conditions that are unresponsive to prior treatment. Three are targeted therapies
(Targretin
®
-caps, Ontak
®
and Adcetris
®
), two are histone deacetylases inhibitors
(Zolina
®
and Istodax
®
) and the remaining two are topical therapies (Valchor
®
and
Targretin
®
-gel). There are currently no FDA approved therapies for the treatment of front-line, early stage (I-IIA)
CTCL; however certain topical chemotherapies and topical, radiation, photodynamic and other therapies which are approved for indications
other than CTCL are prescribed off-label for the treatment of early stage CTCL. These include psoralen combined with ultraviolet
A (UVA) light therapy (“PUVA”); however, PUVA treatments are usually limited to three times per week and 200 times
in total due to the potentially carcinogenic side effect. There are other drugs currently in development that may have the potential
to be used in early stage (I-IIA) CTCL – two in phase 2 (vorinostat (Zolina
®
), cobomarsen), one initiating
a Phase 2 study in Poland (TTI-621) and others in phase 1.
SGX94/942 Competition
Because SGX94 (dusquetide) uses a novel
mechanism of action in combating bacterial infections, there are no direct competitors at this time. Bacterial infections are
routinely treated with antibiotics and SGX94 treatment is anticipated to be utilized primarily where antibiotics are insufficient
(e.g., due to antibiotic resistance) or contra-indicated (e.g., in situations where the development of antibiotic resistance is
a significant concern). Many groups are working on the antibiotic resistance problem and research into the innate immune system
is intensifying, making emerging competition likely (from companies such as Celtaxsys Inc., Innaxon Therapeutics and Innate Pharma
SA).
There is currently one drug approved for
the treatment of oral mucositis in hematological cancer (palifermin). There are currently no approved drugs for treatment of oral
mucositis in cancers with solid tumors (e.g., head and neck cancer). There are several drugs in clinical development for oral
mucositis – three in Phase 3 (an epidermal growth factor under development by Daewoong Pharmaceutical Co. Ltd. a protease
inhibitor under investigation at a Chinese hospital, and daily infused GC4419 by Galera Therapeutics Inc.), four in Phase 2 (under
development by Innovation Pharmaceuticals, Intrexon Corporation, Monopar Therapeutics LLC, Moberg Pharma) and various natural
products in small and/or open label studies (including sage, turmeric, honey and olive oil). In addition, there are medical devices
approved for the treatment of oral mucositis including MuGard, GelClair, Episil and Caphosol. These devices attempt to create
a protective barrier around the oral ulceration with no biologic activity in treating the underlying disease.
Oral BDP Competition
There are a number of approved treatments
for Crohn’s disease and additional compounds are in late-stage development.
Remicade (infliximab) and Humira (adalimumab)
are currently approved for the treatment of pediatric Crohn’s disease; however, both carry significant Black Box warnings
in their labeling for increased risk of serious infection and malignancy, and therefore are approved for treatment of moderate
to severe patients. Entocort (enteric-coated budesonide) is currently approved for the treatment of mild to moderate active Crohn’s
disease involving the lower GI tract (ileum and/or the ascending colon) in patients 8 years of age and older who weigh more than
25 kilograms. There is one other marketed biologic, Tysabri (natalizumab), in a Phase 2 study for pediatric Crohn’s.
ThermoVax
®
Competition
Multiple groups and companies are working
to address the unmet need of vaccine thermostability using a variety of technologies. In addition, other organizations, such as
the Bill and Melinda Gates Foundation and PATH, have programs designed to advance technologies to address this need.
Several stabilization technologies currently
being developed involve mixing vaccine antigen +/- adjuvant with various proprietary excipients or co-factors that either serve
to stabilize the vaccine or biological product in a liquid or dried (lyophilized) form. Examples of these approaches include
the use of various plant-derived sugars and macromolecules being developed by companies such as Stabilitech Ltd. Variation Biotechnologies,
Inc. (“VBI”) is developing a lipid system (resembling liposomes) to stabilize viral antigens, including virus-like
particles (“VLPs”), and for potential application to a conventional influenza vaccine among others.
Other approaches involve process variations
to freeze-dry live virus vaccines. For example, PaxVax, Inc. is seeking to employ a spray drying technology in concert with
enteric coating to achieve formulations for room temperature stability of live virus vaccines using adenovirus vectors. VBI
is seeking to utilize their proprietary stabilization technology for a number of vaccines (as a co-development service, similar
to the business model being developed by Stabilitech Ltd.), whereas PaxVax is applying the technology to their own proprietary
vaccine development programs. Stabilitech uses combinations of excipients, which include glassifying sugars similar to the ThermoVax
®
technology, and variations in drying cycles during lyophilization, as does the ThermoVax
®
technology.
Additionally, companies like Pharmathene,
Inc., Panacea Biotec Ltd., and Compass Biotech Inc. are developing proprietary vaccines with the application of some form of stabilization
technology.
Vaccines/BioDefense Competition
We face competition in the area of biodefense
product development from various public and private companies, universities and governmental agencies, such as the U.S. Army,
some of whom may have their own proprietary technologies which may directly compete with our technologies.
The U.S. Army Medical Research Institute
of Infectious Diseases, the DoD’s lead laboratory for medical research to counter biological threats is also developing
a ricin vaccine candidate, RVEc™. RVEc™ has been shown to be fully protective in mice exposed to lethal doses of ricin
toxin by the aerosol route. Further studies, in both rabbits and nonhuman primates, were conducted to evaluate RVEc™’s
safety as well as its immunogenicity, with positive results observed. A monoclonal antibody is also being developed by Mapp Biopharmaceutical
Inc. as a ricin therapeutic, with administration 4 hours after exposure demonstrating efficacy while administration 12 hours after
ricin exposure was not protective in animal models.
In the area of radiation-protective antidotes
such as OrbeShield
®
, various companies, such as Cleveland Biolabs, Inc., Pluristem Therapeutics, Inc., Aeolus Pharmaceuticals,
Inc. Boulder Biotechnology, Inc., RxBio, Inc., Avaxia Biologics, Inc., Exponential Biotherapies, Inc., Osiris Therapeutics, Inc.,
ImmuneRegen BioSciences, Inc., Neumedicines, Inc., Cellerant Therapeutics, Inc., Onconova Therapeutics, Inc., Araim Pharmaceuticals,
Inc., EVA Pharmaceuticals, LLC, Terapio Corporation, Cangene Corporation, Humanetics Corporation and the University of Arkansas
Medical Sciences Center are developing biopharmaceutical products that may directly compete with OrbeShield
®
, even
though their approaches to such treatment are different.
RxBio, Avaxia Biologics and the University
of Arkansas have programs specifically for GI ARS. RxBio’s Rx100 is a stem cell protectant designed as a single dose (oral
or injection) which has shown promise in nonhuman primate studies. Avaxia is developing an orally delivered anti-TNF antibody
as a treatment agent for exposure to radiation following a nuclear accident, attack or explosion. Pasireotide, a drug in development
by Novartis for Cushing’s disease, is being developed at the University of Arkansas to protect the intestine by reducing
pancreatic secretions that exacerbate intestinal inflammation.
Patents and Other Proprietary Rights
Our goal is to obtain, maintain and enforce
patent protection for our products, formulations, processes, methods and other proprietary technologies, preserve our trade secrets,
and operate without infringing on the proprietary rights of other parties, both in the U.S. and in other countries. Our policy
is to actively seek to obtain, where appropriate, the broadest intellectual property protection possible for our product candidates,
proprietary information and proprietary technology through a combination of contractual arrangements and patents, both in the
U.S. and elsewhere in the world.
We also depend upon the skills, knowledge
and experience of our scientific and technical personnel, as well as that of our advisors, consultants and other contractors,
none of which is patentable. To help protect our proprietary knowledge and experience that is not patentable, and for inventions
for which patents may be difficult to enforce, we rely on trade secret protection and confidentiality agreements to protect our
interests. To this end, we require all employees, consultants, advisors and other contractors to enter into confidentiality agreements,
which prohibit the disclosure of confidential information and, where applicable, require disclosure and assignment to us of the
ideas, developments, discoveries and inventions important to our business.
In 2014, we acquired a novel photodynamic
therapy that utilizes safe visible light for activation, which we refer to as SGX301. The active ingredient in SGX301 is synthetic
hypericin, a photosensitizer which is topically applied to skin lesions and then activated by fluorescent light 16 to 24 hours
later. As part of the acquisition, we acquired a license agreement relating to the use of photo-activated hypericin, composition
of matter patent for SGX301 (U.S. patent 8,629,302) and additional issued and pending applications, both in the US and abroad.
U.S. patent 8,629,302 is expected to expire in September 2030. In August 2018, we were granted a U.S. patent (No. 10,053,513)
titled “Systems and Methods for Producing Synthetic Hypericin”. This newly issued patent, expected to expire in 2036,
broadens the production around synthetic hypericin. Our proprietary formulation of synthetic hypericin also has been granted a
European patent for the treatment of psoriasis, EP 2571507, and complements the method of treatment claims covered by the previously
issued US patent 6001882, Photoactivated hypericin and the use thereof.
In addition to issued and pending patents,
we also have “Orphan Drug” designations for SGX301 in the U.S. and the EU for CTCL, SGX203 in the U.S. for pediatric
Crohn’s disease, and OrbeShield
®
in the U.S. for GI ARS, as well as for RiVax
®
in the U.S
and EU. Our Orphan Drug designations provide for seven years of post-approval marketing exclusivity in the U.S. and ten years
exclusivity in Europe. We have pending patent applications for this indication that, if granted, may extend our anticipated marketing
exclusivity beyond the U.S. seven year or E.U. ten year post-approval exclusivity provided by Orphan Drug legislation.
In 2013, we expanded our patent portfolio
to include innate defense regulation through the acquisition of the novel drug technology, known as SGX94. By binding to the pivotal
regulatory protein p62, also known as sequestosome-1, SGX94 regulates the innate immune system to reduce inflammation, eliminate
infection and enhance healing. As part of the acquisition, we acquired all rights, including composition of matter patents for
SGX94 as well as other analogs and crystal structures of SGX94 with its protein target p62, including U.S. patent 8,124,721 and
additional pending applications, both in the U.S. and abroad. SGX94 was developed pursuant to discoveries made by Professors B.
Brett Finlay and Robert Hancock of University of British Columbia (“UBC”). U.S. patent 8,124,721 is expected to expire
in April 2028. The U.S. Patent Office has granted the patent entitled “Novel Peptides and Analogs for Use in the Treatment
of Oral Mucositis”. The newly issued patent claims therapeutic use of dusquetide and related IDR analogs, and adds to composition
of matter claims for dusquetide and related analogs that have been granted in the U.S. and worldwide. In January 2019, the European
Patent Office granted the patent entitled “Novel Peptides for Treating and Preventing Immune-Related Disorders, Including
Treating and Preventing Infection by Modulating Innate Immunity”. This newly issued patient claims composition of matter
of IDR analogs, expanding patent protection around our lead IDR, dusquetide.
We have issued U.S. patents 8,263,582
that cover the use of oral BDP for treating inflammatory disorders of the gastrointestinal tract, which patent is expected to
expire in March 2022. We also have European patent EP 1392321 claiming the use of topically active corticosteroids in orally administered
dosage forms that act concurrently to treat inflammation in the upper and lower gastrointestinal tract, as well as European patent
EP 2242477 claiming the use of orally ingested BDP for treatment of interstitial lung disease. European patents EP 1392321 and
EP 2242477 are expected to expire in March 2022 and January 2029.
The subject of U.S. patent application
number 12/633,631 filed December 8, 2009 and continued into patent application 15/495,798 filed April 24, 2017 and corresponding
European patent application number 09836727.9, which was granted as patent 2373160 in October 2017 and pursued in multiple European
countries, is the use of topically active BDP in radiation and chemotherapeutics injury. Additionally, we have numerous patent
filings currently issued or pending in foreign jurisdictions covering this subject matter, including Australia, Canada, China,
Hong Kong, Israel, Japan, South Korea and New Zealand.
ThermoVax
®
is the subject
of U.S. patent 8,444,991 issued on May 21, 2013 titled “Method of Preparing an Immunologically-Active Adjuvant-Bound Dried
Vaccine Composition” and also U.S. patent application number 13/474,661 filed May 17, 2012 titled “Thermostable Vaccine
Compositions and Methods of Preparing Same.” The patent application and the corresponding foreign filings for both patents
are pending and licensed to us by the UC and they address the use of adjuvants in conjunction with vaccines that are formulated
to resist thermal inactivation. The license agreement covers thermostable vaccines for biodefense as well as other potential vaccine
indications. U.S. patent 8,444,991 is expected to expire in February 2030.
RiVax
®
is the subject of
three issued U.S. patent numbers 6,566,500, 6,960,652, and 7,829,668, all titled “Compositions and methods for modifying
toxic effects of proteinaceous compounds.” This patent family includes composition of matter claims for the modified ricin
toxin A chain which is the immunogen contained in RiVax
®
, and issued in 2003, 2005 and 2010 respectively. The initial
filing date of these patents is March 2000 and they are expected to expire in March 2020. The issued patents contain claims that
describe alteration of sequences within the ricin A chain that affect vascular leak, one of the deadly toxicities caused by ricin
toxin. Another U.S. patent number 7,175,848 titled “Ricin A chain mutants lacking enzymatic activity as vaccines to protect
against aerosolized ricin,” was filed in October of 2000 and is expected to expire in September 2020.
SGX301 License Agreement
In September 2014, we acquired a worldwide
exclusive license agreement with New York University and Yeda Research and Development Company Ltd. for the rights to a novel
photodynamic therapy that utilizes safe visible light for activation, which we refer to as SGX301. To maintain this license we
are obligated to pay $25,000 in annual license fees. In addition, we will pay the licensors: (a) a royalty amount equal to 3%
of all net sales of SGX301 made directly by us and/or any affiliates; (b) a royalty amount equal to 2.5% of all net sales of SGX301
made by our sublicensees, subject to stated maximums and (c) 20% of all payments, not based on net sales, received by us from
our sublicensees. This license may be terminated by either party upon notice of a material breach by the other party that is not
cured within the applicable cure period. The exclusive license includes rights to several issued U.S. patents, including U.S.
patent numbers 6,867,235 and 7,122,518, among other domestic and foreign patent applications. U.S. Patent numbers 6,867,235 and
7,122,518 are expected to expire in January 2020 and November 2023, respectively.
We acquired the license agreement for
SGX301 and related intangible assets, including U.S. patent 8,629,302, properties and rights pursuant to an asset purchase agreement
with Hy Biopharma Inc. (“Hy Biopharma”). As consideration for the assets acquired, we paid $275,000 in cash and issued
184,912 shares of common stock with a market value of $3,750,000. Provided all future success-orientated milestones are attained,
we will be required to make payments of up to $10.0 million, if and when achieved, payable in our common stock.
SGX94 License Agreements
On December 18, 2012, we announced the
acquisition of a first in class drug technology, known as SGX94 (dusquetide), representing a novel approach to modulation of the
innate immune system. SGX94 is an IDR that regulates the innate immune system to reduce inflammation, eliminate infection and
enhance tissue healing by binding to the pivotal regulatory protein p62, also known as sequestosome-1. As part of the acquisition,
we acquired all rights, including composition of matter patents, preclinical and Phase 1 clinical study datasets for SGX94. We
also assumed a license agreement with UBC to advance the research and development of the SGX94 technology. The license agreement
with UBC provides us with exclusive worldwide rights to manufacture, distribute, market sell and/or license or sublicense products
derived or developed from this technology. Under the license agreement we are obligated to pay UBC (i) an annual license maintenance
fee of CAN $1,000, and (ii) milestone payments which could reach up to CAN $1.2 million. This license agreement (a) will automatically
terminate if we file, or become subject to an involuntary filing, for bankruptcy, and (b) may be terminated by UBC in the event
of, among other things, our insolvency, dissolution, grant of a security interest in the technology licensed to us pursuant to
the license agreement, or material breach of or failure to perform material obligations under the license agreement or other research
agreements between us and UBC.
Oral BDP License Agreement
On November 24, 1998, the Company, known
at the time as Enteron Pharmaceuticals, Inc. (“Enteron”) and George B. McDonald (“Dr. McDonald”) entered
into an exclusive license agreement for the rights to intellectual property, including know-how, relating to oral BDP. We have
an exclusive license to commercially exploit the covered products worldwide, subject to Dr. McDonald’s right to make and
use the technology for research purposes and the U.S. Government’s right to use the technology for government purposes.
Pursuant to the license agreement, as amended, we are is required to (i) reimburse Dr. McDonald for certain out-of-pocket expenses
incurred by Dr. McDonald in connection with the patent applications and issued patents, (ii) pay Dr. McDonald $300,000
upon approval by the FDA of our first NDA incorporating oral BDP; (iii) pay Dr. McDonald royalty payments equal to 3% of
net sales of the covered products and (iv) pay Dr. McDonald $400,000 in cash upon an approval of oral BDP by the European Medicines
Agency.
Additionally, in the event that sublicenses
our rights under the license agreement, we will be required to pay Dr. McDonald 10% of any sublicense fees and royalty payments
paid by the sublicense to us.
The term of the license agreement expires
upon the expiration of the licensed patent applications or patents. Dr. McDonald has the right to terminate the license agreement
in its entirety or to terminate exclusivity under the agreement if we or its sublicenses have not commercialized or are not actively
attempting to commercialize a covered product.
Additionally, the agreement terminates:
(i) automatically upon us becoming insolvent; (ii) upon 30 days’ notice, if we breach any obligation under the agreement
without curing such breach during the notice period; and (iii) upon 90 days’ notice by us. After any termination, we will
have the right to sell our inventory for a period not to exceed three months following the date of termination, subject to the
payment of the amounts owed under the agreement.
ThermoVax
®
License Agreement
On December 21, 2010, we executed a worldwide
exclusive license agreement with the UC for ThermoVax
®
, which is the subject of U.S. patent number 8,444,991 issued
on May 21, 2013 titled “Method of Preparing an Immunologically-Active Adjuvant-Bound Dried Vaccine Composition.” This
patent and its corresponding foreign filings are licensed to us by the UC and they address the use of adjuvants in conjunction
with vaccines that are formulated to resist thermal inactivation. U.S. Patent 8,444,991 is expected to expire in December 2031.
The license agreement also covers thermostable vaccines for biodefense as well as other potential vaccine indications. In
addition, we, in conjunction with UC, filed domestic and foreign patent applications claiming priority back to a provisional application
filed on May 17, 2011 titled: “Thermostable Vaccine Compositions and Methods of Preparing Same.” In April 2018, the
UC delivered a notice of termination of our license agreement based upon our failure to achieve one of the development milestones:
initiation of the Phase 1 clinical trial of the heat stabilization technology by March 31, 2018. After negotiating with the UC,
we and the UC agreed to extend the termination date to October 31, 2018 in order to allow us time to agree upon a potential agreement
that would allow us to keep the rights to, and to continue to develop, the heat stabilization technology or a product candidate
containing the heat stabilization technology in our field of use.
On October 31, 2018, in a series of related
transactions, (a) we and the UC agreed to terminate the original license agreement, (b) the UC and VitriVax executed a worldwide
exclusive license agreement for the heat stabilization technology for all fields of use, and (c) we and VitriVax executed a worldwide
exclusive sublicense agreement for the heat stabilization technology for use in the fields of ricin and Ebola vaccines. We paid
a $100,000 sublicense fee on the effective date of the sublicense agreement. To maintain the sublicense we are obliged to pay
a minimum annual royalty of $20,000 until first commercial sale of a sublicensed product, upon which point, we will be required
to pay an earned royalty of 2% of net sales subject to a minimum royalty of $50,000 each year. We are also required to pay royalties
on any sub-sublicense income based on a declining percentage of all sub-sublicense income calculated within the contractual period
until reaching a minimum of 15% after two years. In addition, we are required to pay VitriVax milestone fees of: (a) $50,000 upon
initiation of a Phase II clinical trial of the sublicensed product, (b) $200,000 upon regulatory approval of a sublicensed product,
and (c) $1 million upon achieving $10 million in aggregate net sales of a sublicensed product in the U.S. or equivalent. To date
none of these milestones have been met.
RiVax
®
License
Agreement
In June 2003, we executed a worldwide
exclusive option to license patent applications with UTSW for the nasal, pulmonary and oral uses of a non-toxic ricin vaccine.
In June 2004, we entered into a license agreement with UTSW for the injectable rights to the ricin vaccine and, in October 2004,
we negotiated the remaining oral rights to the ricin vaccine. To maintain this license we are obligated to pay $50,000 in annual
license fees. Through this license, we have rights to the issued patent number 7,175,848 titled “Ricin A chain mutants lacking
enzymatic activity as vaccines to protect against aerosolized ricin.” This patent includes methods of use and composition
claims for RiVax
®
.
Research and Development Expenditures
We spent approximately $6.8 million and
$5.5 million in the years ended December 31, 2018 and 2017, respectively, on research and development. The amounts we spent on
research and development per product during the years ended December 31, 2018, and 2017 are set forth in “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K.
Employees
As of December 31, 2018, we had 14 full-time
employees, 6 of whom are MDs/PhDs.
Available Investor Information
We file electronically with the Securities
and Exchange Commission (“SEC”) our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) of 15(d) of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”). We make available through our website, free of charge, copies of these reports
as soon as reasonably practicable after we electronically file or furnish them to the SEC. Our website is located at www.soligenix.com.
You can also request copies of such documents by contacting the company at (609) 538-8200 or sending an email to info@soligenix.com.
Item 1A. Risk factors
An investment in our securities involves
a high degree of risk. You should carefully consider the following information about these risks, together with the other information
about these risks contained in this Annual Report, as well as the other information contained in this Annual Report generally,
before deciding to buy our securities. Any of the risks we describe below could adversely affect our business, financial condition,
operating results or prospects. The market prices for our securities could decline if one or more of these risks and uncertainties
develop into actual events and you could lose all or part of your investment. Additional risks and uncertainties that we do not
yet know of, or that we currently think are immaterial, may also impair our business operations. You should also refer to the
other information contained in this Annual Report, including our financial statements and the related notes.
Risks Related to our Business
We have had significant losses and
anticipate future losses; if additional funding cannot be obtained, we may reduce or discontinue our product development and commercialization
efforts.
We have experienced significant losses
since inception and, at December 31, 2018, had an accumulated deficit of approximately $166 million. We expect to incur additional
operating losses in the future and expect our cumulative losses to increase. As of December 31, 2018, we had approximately $9.0
million in cash and cash equivalents available. Based on our projected budgetary needs, funding from existing contracts and grants
over the next two years and sales pursuant to our At the Market Issuance Sales Agreement (“FBR Sales Agreement”) with
B. Riley FBR, Inc. (“FBR”), we expect to be able to maintain the current level of our operations through at least
March 31, 2020.
In September 2014, we entered into a contract
with the NIH for the development of RiVax
®
to protect against exposure to ricin toxin that would provide up to
$24.7 million of funding in the aggregate over six years if options to extend the contract are exercised by the NIH. In September
2013, we entered into contracts with NIAID and BARDA for the development of OrbeShield
®
that would provide up to
$32.7 million of funding in the aggregate if options to extend the contracts are exercised by BARDA and the NIH. We have received
approximately $18 million in combined BARDA and NIH contract funding for the development of OrbeShield
®
. We have
completed the contract with NIAID and the BARDA contract base period, with BARDA electing not to extend the contract. In addition,
in 2017, we were awarded two separate grants from the NIH of approximately $1.5 million each to support our pivotal Phase 3 trials
of SGX301 for the treatment of CTCL and SGX942 for the treatment of oral mucositis in head and neck cancer. Our biodefense grants
have an overhead component that allows us an agency-approved percentage over our incurred costs. We estimate that the overhead
component associated with our existing contracts and grants will fund some fixed costs for direct employees working on these contracts
and grants as well as other administrative costs. As of December 31, 2018, we have approximately $14.6 million in awarded contract
and grant funding, assuming the NIAID option is exercised for the development of RiVax
®
.
Our product candidates are positioned for or are
currently in clinical trials, and we have not yet generated any significant revenues from sales or licensing of these product
candidates. From inception through December 31, 2018, we have expended approximately $83.0 million developing our current product
candidates for pre-clinical research and development and clinical trials, and we currently expect to spend approximately $9.3
million for the year ending December 31, 2019 in connection with the development of our therapeutic and vaccine products, licenses,
employment agreements, and consulting agreements, of which approximately $3.3 million is expected to be reimbursed through our
existing government contracts and grants.
We have no control over the resources
and funding NIH, BARDA and NIAID may devote to our programs, which may be subject to periodic renewal and which generally may
be terminated by the government at any time for convenience. Any significant reductions in the funding of U.S. government agencies
or in the funding areas targeted by our business could materially and adversely affect our biodefense program and our results
of operations and financial condition. If we fail to satisfy our obligations under the government contracts, the applicable Federal
Acquisition Regulations allow the government to terminate the agreement in whole or in part, and we may be required to perform
corrective actions, including but not limited to delivering to the government any incomplete work. If NIH, BARDA or NIAID do not
exercise future funding options under the contracts or grants, terminate the funding or fail to perform their responsibilities
under the agreements or grants, it could materially impact our biodefense program and our financial results.
Unless and until we are able to generate
sales or licensing revenue from one of our product candidates, we will require additional funding to meet these commitments, sustain
our research and development efforts, provide for future clinical trials, and continue our operations. There can be no assurance
we can raise such funds. If additional funds are raised through the issuance of equity securities, stockholders may experience
dilution of their ownership interests, and the newly issued securities may have rights superior to those of the common stock.
If additional funds are raised by the issuance of debt, we may be subject to limitations on our operations. If we cannot raise
such additional funds, we may have to delay or stop some or all of our drug development programs.
If we are unable to develop our
product candidates, our ability to generate revenues and viability as a company will be significantly impaired.
In order to generate revenues and profits,
our organization must, along with corporate partners and collaborators, positively research, develop and commercialize our technologies
or product candidates. Our current product candidates are in various stages of clinical and pre-clinical development and will
require significant further funding, research, development, pre-clinical and/or clinical testing, regulatory approval and commercialization,
and are subject to the risks of failure inherent in the development of products based on innovative or novel technologies. Specifically,
each of the following is possible with respect to any of our product candidates:
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we
may not be able to maintain our current research and development schedules;
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we
may be unable to secure procurement contracts on beneficial economic terms or at all
from the U.S. government or others for our biodefense products;
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we
may encounter problems in clinical trials; or
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the
technology or product may be found to be ineffective or unsafe, or may fail to obtain
marketing approval.
|
If any of the risks set forth above occur,
or if we are unable to obtain the necessary regulatory approvals as discussed below, we may be unable to develop our technologies
and product candidates and our business will be seriously harmed. Furthermore, for reasons including those set forth below, we
may be unable to commercialize or receive royalties from the sale of any other technology we develop, even if it is shown to be
effective, if:
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it
is not economical or the market for the product does not develop or diminishes;
|
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we
are not able to enter into arrangements or collaborations to manufacture and/or market
the product;
|
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the
product is not eligible for third-party reimbursement from government or private insurers;
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others
hold proprietary rights that preclude us from commercializing the product;
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we
are not able to manufacture the product reliably;
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others
have brought to market similar or superior products; or
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the
product has undesirable or unintended side effects that prevent or limit its commercial
use.
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We expect a number of factors to cause our operating
results to fluctuate on a quarterly and annual basis, which may make it difficult to predict our future performance.
We are a late-stage biopharmaceutical
company. Our operations to date have been primarily limited to developing our technology and undertaking pre-clinical studies
and clinical trials of our product candidates in our two active business segments, BioTherapeutics and Vaccines/BioDefense. We
have not yet obtained regulatory approvals for any of our product candidates. Consequently, any predictions made about our future
success or viability may not be as accurate as they could be if we had commercialized products. Our financial condition has varied
significantly in the past and will continue to fluctuate from quarter-to-quarter or year-to-year due to a variety of factors,
many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include other
factors described elsewhere in this Annual Report and also include:
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our
ability to obtain additional funding to develop our product candidates;
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delays
in the commencement, enrollment and timing of clinical trials;
|
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the
success of our product candidates through all phases of clinical development;
|
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any
delays in regulatory review and approval of product candidates in clinical development;
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our
ability to obtain and maintain regulatory approval for our product candidates in the
United States and foreign jurisdictions;
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potential
side effects of our product candidates that could delay or prevent commercialization,
limit the indications for any approved drug, require the establishment of risk evaluation
and mitigation strategies, or cause an approved drug to be taken off the market;
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our
dependence on third-party contract manufacturing organizations to supply or manufacture
our products;
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our
dependence on contract research organizations to conduct our clinical trials;
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our
ability to establish or maintain collaborations, licensing or other arrangements;
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market
acceptance of our product candidates;
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our
ability to establish and maintain an effective sales and marketing infrastructure, either
through the creation of a commercial infrastructure or through strategic collaborations;
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competition
from existing products or new products that may emerge;
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the
ability of patients or healthcare providers to obtain coverage of or sufficient reimbursement
for our products;
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our
ability to discover and develop additional product candidates;
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our
ability and our licensors’ abilities to successfully obtain, maintain, defend and
enforce intellectual property rights important to our business;
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our
ability to attract and retain key personnel to manage our business effectively;
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our
ability to build our finance infrastructure and improve our accounting systems and controls;
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potential
product liability claims;
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potential
liabilities associated with hazardous materials; and
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our
ability to obtain and maintain adequate insurance policies.
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Accordingly, the results of any quarterly
or annual periods should not be relied upon as indications of future operating performance.
We have no approved products on
the market and therefore do not expect to generate any revenues from product sales in the foreseeable future, if at all.
To date, we have no approved product on
the market and have not generated any significant product revenues. We have funded our operations primarily from sales of our
securities and from government contracts and grants. We have not received, and do not expect to receive for at least the next
several years, if at all, any revenues from the commercialization of our product candidates. To obtain revenues from sales of
our product candidates, we must succeed, either alone or with third parties, in developing, obtaining regulatory approval for,
manufacturing and marketing drugs with commercial potential or successfully obtain government procurement or stockpiling agreements.
We may never succeed in these activities, and we may not generate sufficient revenues to continue our business operations or achieve
profitability.
Our business is subject to extensive
governmental regulation, which can be costly, time consuming and subjects us to unanticipated delays.
Our business is subject to very stringent
federal, foreign, state and local government laws and regulations, including the Federal Food, Drug and Cosmetic Act, the Environmental
Protection Act, the Occupational Safety and Health Act, and state and local counterparts to these acts. These laws and regulations
may be amended, additional laws and regulations may be enacted, and the policies of the FDA and other regulatory agencies may
change.
The regulatory process applicable to our
products requires pre-clinical and clinical testing of any product to establish its safety and efficacy. This testing can take
many years, is uncertain as to outcome, and requires the expenditure of substantial capital and other resources. We estimate that
the clinical trials of our product candidates that we have planned will take at least several years to complete. Furthermore,
failure can occur at any stage of the trials, and we could encounter problems that cause us to abandon or repeat clinical trials.
Favorable results in early studies or trials, if any, may not be repeated in later studies or trials. Even if our clinical trials
are initiated and completed as planned, we cannot be certain that the results will support our product candidate claims. Success
in preclinical testing, Phase 1 and Phase 2 clinical trials does not ensure that later Phase 2 or Phase 3 clinical trials will
be successful. In addition, we, the FDA or other regulatory authorities may suspend clinical trials at any time if it appears
that we are exposing participants to unacceptable health risks or the FDA or other regulatory authorities find deficiencies in
our submissions or conduct of our trials.
We may not be able to obtain, or we may
experience difficulties and delays in obtaining, necessary domestic and foreign governmental clearances and approvals to market
a product. Also, even if regulatory approval of a product is granted, that approval may entail limitations on the indicated uses
for which the product may be marketed.
Following any regulatory approval, a marketed
product and its manufacturer are subject to continual regulatory review. Later discovery of problems with a product or manufacturer
may result in restrictions on such product or manufacturer. These restrictions may include product recalls and suspension or withdrawal
of the marketing approval for the product. Furthermore, the advertising, promotion and export, among other things, of a product
are subject to extensive regulation by governmental authorities in the U.S. and other countries. If we fail to comply with applicable
regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure
of products, operating restrictions and/or criminal prosecution.
There may be unforeseen challenges
in developing our biodefense products.
For development of biodefense vaccines
and therapeutics, the FDA has instituted policies that are expected to result in accelerated approval. This includes approval
for commercial use using the results of animal efficacy trials, rather than efficacy trials in humans, referred to as the Animal
Rule. However, we will still have to establish that the vaccines we are developing are safe in humans at doses that are correlated
with the beneficial effect in animals. Such clinical trials will also have to be completed in distinct populations that are subject
to the countermeasures; for instance, the very young and the very old, and in pregnant women, if the countermeasure is to be licensed
for civilian use. Other agencies will have an influence over the risk benefit scenarios for deploying the countermeasures and
in establishing the number of doses utilized in the Strategic National Stockpile. We may not be able to sufficiently demonstrate
the animal correlation to the satisfaction of the FDA, as these correlates are difficult to establish and are often unclear. Invocation
of the Animal Rule may raise issues of confidence in the model systems even if the models have been validated. For many of the
biological threats, the animal models are not available and we may have to develop the animal models, a time-consuming research
effort. There are few historical precedents, or recent precedents, for the development of new countermeasures for bioterrorism
agents. Despite the Animal Rule, the FDA may require large clinical trials to establish safety and immunogenicity before licensure
and it may require safety and immunogenicity trials in additional populations. Approval of biodefense products may be subject
to post-marketing studies, and could be restricted in use in only certain populations. The government’s biodefense priorities
can change, which could adversely affect the commercial opportunity for the products we are developing. Further, other countries
have not, at this time, established criteria for review and approval of these types of products outside their normal review process,
i.e., there is no Animal Rule equivalent, and consequently there can be no assurance that we will be able to make a submission
for marketing approval in foreign countries based on such animal data.
Additionally, few facilities in the United
States and internationally have the capability to test animals with ricin, or otherwise assist us in qualifying the requisite
animal models. We have to compete with other biodefense companies for access to this limited pool of highly specialized resources.
We therefore may not be able to secure contracts to conduct the testing in a predictable timeframe or at all.
We are dependent on government funding,
which is inherently uncertain, for the success of our biodefense operations.
We are subject to risks specifically associated
with operating in the biodefense industry, which is a new and unproven business area. We do not anticipate that a significant
commercial market will develop for our biodefense products. Because we anticipate that the principal potential purchasers of these
products, as well as potential sources of research and development funds, will be the U.S. government and governmental agencies,
the success of our biodefense division will be dependent in large part upon government spending decisions. The funding of government
programs is dependent on budgetary limitations, congressional appropriations and administrative allotment of funds, all of which
are inherently uncertain and may be affected by changes in U.S. government policies resulting from various political and military
developments. Our receipt of government funding is also dependent on our ability to adhere to the terms and provisions of the
original grant and contract documents and other regulations. We can provide no assurance that we will receive or continue to receive
funding for grants and contracts we have been awarded. The loss of government funds could have a material adverse effect on our
ability to progress our biodefense business.
If the parties we depend on for
supplying our drug substance raw materials and certain manufacturing-related services do not timely supply these products and
services, it may delay or impair our ability to develop, manufacture and market our products. We do not have or anticipate having
internal manufacturing capabilities.
We rely on suppliers for our drug substance
raw materials and third parties for certain manufacturing-related services to produce material that meets appropriate content,
quality and stability standards, which material will be used in clinical trials of our products and, after approval, for commercial
distribution. To succeed, clinical trials require adequate supplies of drug substance and drug product, which may be difficult
or uneconomical to procure or manufacture. We and our suppliers and vendors may not be able to (i) produce our drug substance
or drug product to appropriate standards for use in clinical studies, (ii) perform under any definitive manufacturing, supply
or service agreements with us or (iii) remain in business for a sufficient time to be able to develop, produce, secure regulatory
approval of and market our product candidates. If we do not maintain important manufacturing and service relationships, we may
fail to find a replacement supplier or required vendor or develop our own manufacturing capabilities which could delay or impair
our ability to obtain regulatory approval for our products and substantially increase our costs or deplete profit margins, if
any. If we do find replacement manufacturers and vendors, we may not be able to enter into agreements with them on terms and conditions
favorable to us and, there could be a substantial delay before a new facility could be qualified and registered with the FDA and
foreign regulatory authorities.
We rely on third parties for pre-clinical
and clinical trials of our product candidates and, in some cases, to maintain regulatory files for our product candidates. If
we are not able to maintain or secure agreements with such third parties on acceptable terms, if these third parties do not perform
their services as required, or if these third parties fail to timely transfer any regulatory information held by them to us, we
may not be able to obtain regulatory approval for, or commercialize, our product candidates.
We rely on academic institutions, hospitals,
clinics and other third-party collaborators for preclinical and clinical trials of our product candidates. Although we monitor,
support, and/or oversee our pre-clinical and clinical trials, because we do not conduct these trials ourselves, we have less control
over the timing and cost of these studies and the ability to recruit trial subjects than if we conducted these trials wholly by
ourselves. If we are unable to maintain or enter into agreements with these third parties on acceptable terms, or if any such
engagement is terminated, we may be unable to enroll patients on a timely basis or otherwise conduct our trials in the manner
we anticipate. In addition, there is no guarantee that these third parties will devote adequate time and resources to our studies
or perform as required by a contract or in accordance with regulatory requirements, including maintenance of clinical trial information
regarding our product candidates. If these third parties fail to meet expected deadlines, fail to timely transfer to us any regulatory
information, fail to adhere to protocols or fail to act in accordance with regulatory requirements or our agreements with them,
or if they otherwise perform in a substandard manner or in a way that compromises the quality or accuracy of their activities
or the data they obtain, then preclinical and/or clinical trials of our product candidates may be extended, delayed or terminated,
or our data may be rejected by the FDA or regulatory agencies.
The manufacturing of our products
is a highly exacting process, and if we or one of our materials suppliers encounter problems manufacturing our products, our business
could suffer.
The FDA and foreign regulators require
manufacturers to register manufacturing facilities. The FDA and foreign regulators also inspect these facilities to confirm compliance
with current Good Manufacturing Practice (“cGMP”) or similar requirements that the FDA or foreign regulators establish.
We, or our materials suppliers, may face manufacturing or quality control problems causing product production and shipment delays
or a situation where we or the supplier may not be able to maintain compliance with the FDA’s cGMP requirements, or those
of foreign regulators, necessary to continue manufacturing our drug substance. Any failure to comply with cGMP requirements or
other FDA or foreign regulatory requirements could adversely affect our clinical research activities and our ability to market
and develop our products.
We may use our financial and human
resources to pursue a particular research program or product candidate and fail to capitalize on programs or product candidates
that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and
human resources, we are currently focusing on the regulatory approval of certain product candidates. As a result, we may forego
or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial
potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market
opportunities. Our spending on existing and future product candidates for specific indications may not yield any commercially
viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate,
we may relinquish valuable rights to that product candidate through strategic alliance, licensing or other royalty arrangements
in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such
product candidate, or we may allocate internal resources to a product candidate in an area in which it would have been more advantageous
to enter into a partnering arrangement.
Even if approved, our products will
be subject to extensive post-approval regulation.
Once a product is approved, numerous post-approval
requirements apply. Among other things, the holder of an approved New Drug Application (“NDA”) is subject to periodic
and other FDA monitoring and reporting obligations, including obligations to monitor and report adverse events and instances of
the failure of a product to meet the specifications in the NDA. Application holders must submit new or supplemental applications
and obtain FDA approval for certain changes to the approved product, product labeling, or manufacturing process. Application holders
must also submit advertising and other promotional material to the FDA and report on ongoing clinical trials.
Depending on the circumstances, failure
to meet these post-approval requirements can result in criminal prosecution, fines, injunctions, recall or seizure of products,
total or partial suspension of production, denial or withdrawal of pre-marketing product approvals, or refusal to allow us to
enter into supply contracts, including government contracts. In addition, even if we comply with FDA and other requirements, new
information regarding the safety or effectiveness of a product could lead the FDA to modify or withdraw product approval.
Even if we obtain regulatory
approval to market our product candidates, our product candidates may not be accepted by the market.
Even if the FDA approves one or more of
our product candidates, physicians and patients may not accept it or use it. Even if physicians and patients would like to use
our products, our products may not gain market acceptance among healthcare payors such as managed care formularies, insurance
companies or government programs such as Medicare or Medicaid. Acceptance and use of our products will depend upon a number of
factors including: perceptions by members of the health care community, including physicians, about the safety and effectiveness
of our drug product; cost-effectiveness of our product relative to competing products; availability of reimbursement for our product
from government or other healthcare payers; and effectiveness of marketing and distribution efforts by us and our licensees and
distributors, if any.
The degree of market acceptance of any
product that we develop will depend on a number of factors, including:
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the
safety and effectiveness of our products, including any significant potential side effects,
as compared to alternative products or treatment methods;
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the
timing of market entry as compared to competitive products;
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the
rate of adoption of our products by doctors and nurses;
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product
labeling or product insert required by the FDA for each of our products;
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reimbursement
policies of government and third-party payors;
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effectiveness
of our sales, marketing and distribution capabilities and the effectiveness of such capabilities
of our collaborative partners, if any; and
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unfavorable
publicity concerning our products or any similar products.
|
Our product candidates, if successfully
developed, will compete with a number of products manufactured and marketed by major pharmaceutical companies, biotechnology companies
and manufacturers of generic drugs. Our products may also compete with new products currently under development by others. Physicians,
patients, third-party payors and the medical community may not accept and utilize any of our product candidates. If our products
do not achieve market acceptance, we will not be able to generate significant revenues or become profitable.
Because we expect sales of our current
product candidates, if approved, to generate substantially all of our product revenues for the foreseeable future, the failure
of these products to find market acceptance would harm our business and could require us to seek additional financing.
We do not have extensive sales and
marketing experience and our lack of experience may restrict our success in commercializing some of our product candidates.
We do not have extensive experience in
marketing or selling pharmaceutical products whether in the U.S. or internationally. To obtain the expertise necessary to successfully
market and sell any of our products, the development of our own commercial infrastructure and/or collaborative commercial arrangements
and partnerships will be required. Our ability to make that investment and also execute our current operating plan is dependent
on numerous factors, including, the performance of third party collaborators with whom we may contract.
Our products, if approved, may not
be commercially viable due to change in health care practice and third party reimbursement limitations.
Initiatives to reduce the federal deficit
and to change health care delivery are increasing cost-containment efforts. We anticipate that Congress, state legislatures and
the private sector will continue to review and assess alternative benefits, controls on health care spending through limitations
on the growth of private health insurance premiums and Medicare and Medicaid spending, price controls on pharmaceuticals, and
other fundamental changes to the health care delivery system. Any changes of this type could negatively impact the commercial
viability of our products, if approved. Our ability to successfully commercialize our product candidates, if they are approved,
will depend in part on the extent to which appropriate reimbursement codes and authorized cost reimbursement levels of these products
and related treatment are obtained from governmental authorities, private health insurers and other organizations, such as health
maintenance organizations. In the absence of national Medicare coverage determination, local contractors that administer the Medicare
program may make their own coverage decisions. Any of our product candidates, if approved and when commercially available, may
not be included within the then current Medicare coverage determination or the coverage determination of state Medicaid programs,
private insurance companies or other health care providers. In addition, third-party payers are increasingly challenging the necessity
and prices charged for medical products, treatments and services.
Our product candidates may cause
serious adverse events or undesirable side effects which may delay or prevent marketing approval, or, if approval is received,
require them to be taken off the market, require them to include safety warnings or otherwise limit their sales.
Serious adverse events or undesirable
side effects from any of our product candidates could arise either during clinical development or, if approved, after the approved
product has been marketed. The results of future clinical trials may show that our product candidates cause serious adverse events
or undesirable side effects, which could interrupt, delay or halt clinical trials, resulting in delay of, or failure to obtain,
marketing approval from the FDA and other regulatory authorities.
If any of our product candidates cause
serious adverse events or undesirable side effects:
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regulatory
authorities may impose a clinical hold which could result in substantial delays and adversely
impact our ability to continue development of the product;
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regulatory
authorities may require the addition of labeling statements, specific warnings, a contraindication
or field alerts to physicians and pharmacies;
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we
may be required to change the way the product is administered, conduct additional clinical
trials or change the labeling of the product;
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we
may be required to implement a risk minimization action plan, which could result in substantial
cost increases and have a negative impact on our ability to commercialize the product;
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we
may be required to limit the patients who can receive the product;
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we
may be subject to limitations on how we promote the product;
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sales
of the product may decrease significantly;
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regulatory
authorities may require us to take our approved product off the market;
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we
may be subject to litigation or product liability claims; and
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our
reputation may suffer.
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Any of these events could
prevent us from achieving or maintaining market acceptance of the affected product or could substantially increase commercialization
costs and expenses, which in turn could delay or prevent us from generating significant revenues from the sale of our products.
If we fail to obtain or maintain
orphan drug exclusivity for our product candidates, our competitors may sell products to treat the same conditions and our revenue
will be reduced.
Under the Orphan Drug Act, the FDA may
designate a product as an orphan drug if it is intended to treat a rare disease or condition, defined as a patient population
of fewer than 200,000 in the United States, or a patient population greater than 200,000 in the United States where there is no
reasonable expectation that the cost of developing the drug will be recovered from sales in the United States. In the European
Union, the European Medicines Agency’s Committee for Orphan Medicinal Products grants orphan drug designation to promote
the development of products that are intended for the diagnosis, prevention, or treatment of a life-threatening or chronically
debilitating condition affecting not more than five in 10,000 persons in the European Union. Additionally, designation is granted
for products intended for the diagnosis, prevention, or treatment of a life-threatening, seriously debilitating or serious and
chronic condition when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to
justify the necessary investment in developing the drug or biological product or where there is no satisfactory method of diagnosis,
prevention, or treatment, or, if such a method exists, the medicine must be of significant benefit to those affected by the condition.
In the United States, orphan drug designation
entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages,
and user-fee waivers. In addition, if a product receives the first FDA approval for the indication for which it has orphan designation,
the product is entitled to orphan drug exclusivity, which means the FDA may not approve any other application to market the same
drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority
over the product with orphan exclusivity or where the manufacturer is unable to assure sufficient product quantity. In the European
Union, orphan drug designation entitles a party to financial incentives such as reduction of fees or fee waivers and ten years
of market exclusivity following drug or biological product approval. This period may be reduced to six years if the orphan drug
designation criteria are no longer met, including where it is shown that the product is sufficiently profitable not to justify
maintenance of market exclusivity.
Even though we have orphan drug designation
for SGX301 in the United States and Europe, and SGX203, RiVax
®
and OrbeShield
®
in the United States,
we may not be the first to obtain marketing approval for any particular orphan indication due to the uncertainties associated
with developing drugs or biologic products. Further, even if we obtain orphan drug exclusivity for a product, that exclusivity
may not effectively protect the product from competition because different drugs with different active moieties can be approved
for the same condition. Absent patent or other intellectual property protection, even after an orphan drug is approved, the FDA
or European Medicines Agency may subsequently approve the same drug with the same active moiety for the same condition if the
FDA or European Medicines Agency concludes that the later drug is safer, more effective, or makes a major contribution to patient
care.
Federal and/or state health care
reform initiatives could negatively affect our business.
The availability of reimbursement by governmental
and other third-party payers affects the market for any pharmaceutical product. These third-party payers continually attempt to
contain or reduce the costs of healthcare. There have been a number of legislative and regulatory proposals to change the healthcare
system and further proposals are likely. Medicare’s policies may decrease the market for our products. Significant uncertainty
exists with respect to the reimbursement status of newly approved healthcare products.
Third-party payers are increasingly
challenging the price and cost-effectiveness of medical products and services. Once approved, we might not be able to sell our
products profitably or recoup the value of our investment in product development if reimbursement is unavailable or limited in
scope, particularly for product candidates addressing small patient populations. On July 15, 2008, the Medicare Improvements for
Patients and Providers Act of 2008 became law with a number of Medicare and Medicaid reforms to establish a bundled Medicare payment
rate that includes services and drug/labs that were separately billed at that time. Bundling initiatives that have been implemented
in other healthcare settings have occasionally resulted in lower utilization of services that had not previously been a part of
the bundled payment.
In addition, in some foreign countries,
the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary
widely from country to country. We expect that there will continue to be a number of U.S. federal and state proposals to implement
governmental pricing controls. While we cannot predict whether such legislative or regulatory proposals will be adopted, the adoption
of such proposals could have a material adverse effect on our business, financial condition and profitability.
We may not be able to retain rights
licensed to us by third parties to commercialize key products or to develop the third party relationships we need to develop,
manufacture and market our products.
We currently rely on license agreements
from New York University, Yeda Research and Development Company Ltd., the University of Texas Southwestern Medical Center, the
University of British Columbia, Harvard University and George B. McDonald, MD as well as sublicense agreement from VitriVax for
the rights to commercialize key product candidates. We may not be able to retain the rights granted under these agreements or
negotiate additional agreements on reasonable terms, if at all. Our existing license agreements impose, and we expect that future
license agreements will impose, various diligence, milestone payment, royalty, and other obligations on us. If we fail to comply
with our obligations under these agreements, or we are subject to a bankruptcy, we may be required to make certain payments to
the licensor, we may lose the exclusivity of our license, or the licensor may have the right to terminate the license, in which
event we would not be able to develop or market products covered by the license.
Additionally, the milestone and other
payments associated with these licenses will make it less profitable for us to develop our drug candidates. See “Business
- Patents and Other Proprietary Rights” for a description of our license agreements.
Licensing of intellectual property is
of critical importance to our business and involves complex legal, business, and scientific issues. Disputes may arise regarding
intellectual property subject to a licensing agreement, including but not limited to:
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the
scope of rights granted under the license agreement and other interpretation-related
issues;
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the
extent to which our technology and processes infringe on intellectual property of the
licensor that is not subject to the licensing agreement;
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the
sublicensing of patent and other rights;
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our
diligence obligations under the license agreement and what activities satisfy those diligence
obligations;
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the
ownership of inventions and know-how resulting from the joint creation or use of intellectual
property by our licensors and us and our collaborators; and
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the
priority of invention of patented technology.
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If disputes over intellectual property
and other rights that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable
terms, we may be unable to successfully develop and commercialize the affected product candidates.
Additionally, the research resulting in
certain of our licensed patent rights and technology was funded by the U.S. government. As a result, the government may have certain
rights, or march-in rights, to such patent rights and technology. When new technologies are developed with government funding,
the government generally obtains certain rights in any resulting patents, including a non-exclusive license authorizing the government
to use the invention for non-commercial purposes. The government can exercise its march-in rights if it determines that action
is necessary because we fail to achieve practical application of the government-funded technology, because action is necessary
to alleviate health or safety needs, to meet requirements of federal regulations or to give preference to U.S. industry. In addition,
our rights in such inventions may be subject to certain requirements to manufacture products embodying such inventions in the
United States. Any exercise by the government of such rights could harm our competitive position, business, financial condition,
results of operations and prospects.
Furthermore, we currently have very limited
product development capabilities and no manufacturing, marketing or sales capabilities. For us to research, develop and test our
product candidates, we need to contract or partner with outside researchers, in most cases with or through those parties that
did the original research and from whom we have licensed the technologies. If products are successfully developed and approved
for commercialization, then we will need to enter into additional collaboration and other agreements with third parties to manufacture
and market our products. We may not be able to induce the third parties to enter into these agreements, and, even if we are able
to do so, the terms of these agreements may not be favorable to us. Our inability to enter into these agreements could delay or
preclude the development, manufacture and/or marketing of some of our product candidates or could significantly increase the costs
of doing so. In the future, we may grant to our development partners rights to license and commercialize pharmaceutical and related
products developed under the agreements with them, and these rights may limit our flexibility in considering alternatives for
the commercialization of these products. Furthermore, third-party manufacturers or suppliers may not be able to meet our needs
with respect to timing, quantity and quality for the products.
Additionally, if we do not enter into
relationships with additional third parties for the marketing of our products, if and when they are approved and ready for commercialization,
we would have to build our own sales force or enter into commercialization agreements with other companies. Development of an
effective sales force in any part of the world would require significant financial resources, time and expertise. We may not be
able to obtain the financing necessary to establish a sales force in a timely or cost effective manner, if at all, and any sales
force we are able to establish may not be capable of generating demand for our product candidates, if they are approved.
We may suffer product and other
liability claims; we maintain only limited product liability insurance, which may not be sufficient.
The clinical testing, manufacture and
sale of our products involves an inherent risk that human subjects in clinical testing or consumers of our products may suffer
serious bodily injury or death due to side effects, allergic reactions or other unintended negative reactions to our products.
As a result, product and other liability claims may be brought against us. We currently have clinical trial and product liability
insurance with limits of liability of $10 million, which may not be sufficient to cover our potential liabilities. Because liability
insurance is expensive and difficult to obtain, we may not be able to maintain existing insurance or obtain additional liability
insurance on acceptable terms or with adequate coverage against potential liabilities. Furthermore, if any claims are brought
against us, even if we are fully covered by insurance, we may suffer harm such as adverse publicity.
We may use hazardous chemicals in
our business. Potential claims relating to improper handling, storage or disposal of these chemicals could affect us and be time
consuming and costly.
Our research and development processes
and/or those of our third party contractors involve the controlled use of hazardous materials and chemicals. These hazardous chemicals
are reagents and solvents typically found in a chemistry laboratory. Our operations also may produce hazardous waste products.
Federal, state and local laws and regulations govern the use, manufacture, storage, handling and disposal of hazardous materials.
While we attempt to comply with all environmental laws and regulations, including those relating to the outsourcing of the disposal
of all hazardous chemicals and waste products, we cannot eliminate the risk of contamination from or discharge of hazardous materials
and any resultant injury. In the event of such an accident, we could be held liable for any resulting damages and any liability
could materially adversely affect our business, financial condition and results of operations.
Compliance with environmental laws and
regulations may be expensive. Current or future environmental regulations may impair our research, development or production efforts.
We might have to pay civil damages in the event of an improper or unauthorized release of, or exposure of individuals to, hazardous
materials. We are not insured against these environmental risks. We may agree to indemnify our collaborators in some circumstances
against damages and other liabilities arising out of development activities or products produced in connection with these collaborations.
In addition, the federal, state and local
laws and regulations governing the use, manufacture, storage, handling and disposal of hazardous or radioactive materials and
waste products may require us to incur substantial compliance costs that could materially adversely affect our business, financial
condition and results of operations.
We may not be able to compete with
our larger and better financed competitors in the biotechnology industry.
The biotechnology industry is intensely
competitive, subject to rapid change and sensitive to new product introductions or enhancements. Most of our existing competitors
have greater financial resources, larger technical staffs, and larger research budgets than we have, as well as greater experience
in developing products and conducting clinical trials. Our competition is particularly intense in the gastroenterology and transplant
areas and is also intense in the therapeutic area of inflammatory bowel diseases. We face intense competition in the biodefense
area from various public and private companies and universities as well as governmental agencies, such as the U.S. Army, which
may have their own proprietary technologies that may directly compete with our technologies. In addition, there may be other companies
that are currently developing competitive technologies and products or that may in the future develop technologies and products
that are comparable or superior to our technologies and products. We may not be able to compete with our existing and future competitors,
which could lead to the failure of our business.
Additionally, if a competitor receives
FDA approval before we do for a drug that is similar to one of our product candidates, FDA approval for our product candidate
may be precluded or delayed due to periods of non-patent exclusivity and/or the listing with the FDA by the competitor of patents
covering its newly-approved drug product. Periods of non-patent exclusivity for new versions of existing drugs such as our current
product candidates can extend up to three and one-half years. See “Business - The Drug Approval Process.”
These competitive factors could require
us to conduct substantial new research and development activities to establish new product targets, which would be costly and
time consuming. These activities would adversely affect our ability to commercialize products and achieve revenue and profits.
Competition and technological change
may make our product candidates and technologies less attractive or obsolete.
We compete with established pharmaceutical
and biotechnology companies that are pursuing other forms of treatment for the same indications we are pursuing and that have
greater financial and other resources. Other companies may succeed in developing products earlier than us, obtaining FDA approval
for products more rapidly, or developing products that are more effective than our product candidates. Research and development
by others may render our technology or product candidates obsolete or noncompetitive, or result in treatments or cures superior
to any therapy we develop. We face competition from companies that internally develop competing technology or acquire competing
technology from universities and other research institutions. As these companies develop their technologies, they may develop
competitive positions that may prevent, make futile, or limit our product commercialization efforts, which would result in a decrease
in the revenue we would be able to derive from the sale of any products.
There can be no assurance that any of
our product candidates will be accepted by the marketplace as readily as these or other competing treatments. Furthermore, if
our competitors’ products are approved before ours, it could be more difficult for us to obtain approval from the FDA. Even
if our products are successfully developed and approved for use by all governing regulatory bodies, there can be no assurance
that physicians and patients will accept our product(s) as a treatment of choice.
Furthermore, the pharmaceutical research
industry is diverse, complex, and rapidly changing. By its nature, the business risks associated therewith are numerous and significant.
The effects of competition, intellectual property disputes, market acceptance, and FDA regulations preclude us from forecasting
revenues or income with certainty or even confidence.
Our business could be harmed
if we fail to retain our current personnel or if they are unable to effectively run our business.
We currently have 16 employees and we
depend upon these employees, in particular Dr. Christopher Schaber, our President and Chief Executive Officer, to manage the day-to-day
activities of our business. Because we have such limited personnel, the loss of any of them or our inability to attract and retain
other qualified employees in a timely manner would likely have a negative impact on our operations. We may be unable to effectively
manage and operate our business, and our business may suffer, if we lose the services of our employees.
Instability and volatility in the
financial markets could have a negative impact on our business, financial condition, results of operations, and cash flows.
During recent years, there has been substantial
volatility in financial markets due at least in part to the uncertainty with regard to the global economic environment. In addition,
there has been substantial uncertainty in the capital markets and access to additional financing is uncertain. Moreover, customer
spending habits may be adversely affected by current and future economic conditions. These conditions could have an adverse effect
on our industry and business, including our financial condition, results of operations, and cash flows.
To the extent that we do not generate
sufficient cash from operations, we may need to issue stock or incur indebtedness to finance our plans for growth. Recent turmoil
in the credit markets and the potential impact on the liquidity of major financial institutions may have an adverse effect on
our ability to fund our business strategy through borrowings, under either existing or newly created instruments in the public
or private markets on terms we believe to be reasonable, if at all.
We may not be able to utilize all
of our net operating loss carryforwards.
The State of New Jersey’s Technology
Business Tax Certificate Program allows certain high technology and biotechnology companies to sell unused net operating loss (“NOL”)
carryforwards to other New Jersey-based corporate taxpayers. In accordance with this program, for the year ended December 31, 2016,
we sold New Jersey NOL carryforwards, resulting in the recognition of $416,810 of income tax benefit. The Company has not yet sold
its 2017 New Jersey NOLs but may do so in the future. If there is an unfavorable change in the State of New Jersey’s Technology
Business Tax Certificate Program (whether as a result of a change in law, policy or otherwise) that terminates the program or eliminates
or reduces our ability to use or sell our NOL carryforwards, or if we are unable to find a suitable buyer to utilize our New Jersey
NOL carryforwards to the extent the NOLs expire before we are able to utilize them against our taxable income, our cash taxes may
increase which may have an adverse effect on our financial condition.
Risks Related to our Intellectual Property
We may be unable to commercialize
our products if we are unable to protect our proprietary rights, and we may be liable for significant costs and damages if we
face a claim of intellectual property infringement by a third party.
Our near and long-term prospects depend
in part on our ability to obtain and maintain patents, protect trade secrets and operate without infringing upon the proprietary
rights of others. In the absence of patent and trade secret protection, competitors may adversely affect our business by independently
developing and marketing substantially equivalent or superior products and technology, possibly at lower prices. We could also
incur substantial costs in litigation and suffer diversion of attention of technical and management personnel if we are required
to defend ourselves in intellectual property infringement suits brought by third parties, with or without merit, or if we are
required to initiate litigation against others to protect or assert our intellectual property rights. Moreover, any such litigation
may not be resolved in our favor.
Although we and our licensors have filed
various patent applications covering the uses of our product candidates, patents may not be issued from the patent applications
already filed or from applications that we might file in the future. Moreover, the patent position of companies in the pharmaceutical
industry generally involves complex legal and factual questions, and has been the subject of much litigation. Any patents we own
or license, now or in the future, may be challenged, invalidated or circumvented. To date, no consistent policy has been developed
in the U.S. Patent and Trademark Office (the “PTO”) regarding the breadth of claims allowed in biotechnology patents.
In addition, because patent applications
in the U.S. are maintained in secrecy until patent applications publish or patents issue, and because publication of discoveries
in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we and our licensors are
the first creators of inventions covered by any licensed patent applications or patents or that we or they are the first to file.
The PTO may commence interference proceedings involving patents or patent applications, in which the question of first inventorship
is contested. Accordingly, the patents owned or licensed to us may not be valid or may not afford us protection against competitors
with similar technology, and the patent applications licensed to us may not result in the issuance of patents.
It is also possible that our owned and
licensed technologies may infringe on patents or other rights owned by others, and licenses to which may not be available to us.
We may be unable to obtain a license under such patent on terms favorable to us, if at all. We may have to alter our products
or processes, pay licensing fees or cease activities altogether because of patent rights of third parties.
In addition to the products for which
we have patents or have filed patent applications, we rely upon unpatented proprietary technology and may not be able to meaningfully
protect our rights with regard to that unpatented proprietary technology. Furthermore, to the extent that consultants, key employees
or other third parties apply technological information developed by them or by others to any of our proposed projects, disputes
may arise as to the proprietary rights to this information, which may not be resolved in our favor.
We may be involved in lawsuits to
protect or enforce our patents, which could be expensive and time consuming.
The pharmaceutical industry has been characterized
by extensive litigation regarding patents and other intellectual property rights, and companies have employed intellectual property
litigation to gain a competitive advantage. We may become subject to infringement claims or litigation arising out of patents
and pending applications of our competitors, or additional interference proceedings declared by the PTO to determine the priority
of inventions. The defense and prosecution of intellectual property suits, PTO proceedings, and related legal and administrative
proceedings are costly and time-consuming to pursue, and their outcome is uncertain. Litigation may be necessary to enforce our
issued patents, to protect our trade secrets and know-how, or to determine the enforceability, scope, and validity of the proprietary
rights of others. An adverse determination in litigation or interference proceedings to which we may become a party could subject
us to significant liabilities, require us to obtain licenses from third parties, or restrict or prevent us from selling our products
in certain markets. Although patent and intellectual property disputes might be settled through licensing or similar arrangements,
the costs associated with such arrangements may be substantial and could include our paying large fixed payments and ongoing royalties.
Furthermore, the necessary licenses may not be available on satisfactory terms or at all.
Competitors may infringe our patents,
and we may file infringement claims to counter infringement or unauthorized use. This can be expensive, particularly for a company
of our size, and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid
or is unenforceable or may refuse to stop the other party from using the technology at issue on the grounds that our patents do
not cover its technology. An adverse determination of any litigation or defense proceedings could put one or more of our patents
at risk of being invalidated or interpreted narrowly.
Also, a third party may assert that our
patents are invalid and/or unenforceable. There are no unresolved communications, allegations, complaints or threats of litigation
related to the possibility that our patents are invalid or unenforceable. Any litigation or claims against us, whether or not
merited, may result in substantial costs, place a significant strain on our financial resources, divert the attention of management
and harm our reputation. An adverse decision in litigation could result in inadequate protection for our product candidates and/or
reduce the value of any license agreements we have with third parties.
Interference proceedings brought before
the PTO may be necessary to determine priority of invention with respect to our patents or patent applications. During an interference
proceeding, it may be determined that we do not have priority of invention for one or more aspects in our patents or patent applications
and could result in the invalidation in part or whole of a patent or could put a patent application at risk of not issuing. Even
if successful, an interference proceeding may result in substantial costs and distraction to our management.
Furthermore, because of the substantial
amount of discovery required in connection with intellectual property litigation or interference proceedings, there is a risk
that some of our confidential information could be compromised by disclosure. In addition, there could be public announcements
of the results of hearings, motions or other interim proceedings or developments. If investors perceive these results to be negative,
the price of our common stock could be adversely affected.
If we infringe the rights of third
parties we could be prevented from selling products, forced to pay damages, and defend against litigation.
If our products, methods, processes and
other technologies infringe the proprietary rights of other parties, we could incur substantial costs and we may have to: obtain
licenses, which may not be available on commercially reasonable terms, if at all; abandon an infringing product candidate; redesign
our products or processes to avoid infringement; stop using the subject matter claimed in the patents held by others; pay damages;
and/or defend litigation or administrative proceedings which may be costly whether we win or lose, and which could result in a
substantial diversion of our financial and management resources.
Risks Related to our Securities
The price of our common stock and
warrants may be highly volatile.
The market price of our securities, like
that of many other research and development public pharmaceutical and biotechnology companies, has been highly volatile and the
price of our common stock and warrants may be volatile in the future due to a wide variety of factors, including:
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announcements
by us or others of results of pre-clinical testing and clinical trials;
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announcements
of technological innovations, more important bio-threats or new commercial therapeutic
products by us, our collaborative partners or our present or potential competitors;
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failure
of our common stock or warrants to continue to be listed or quoted on a national exchange
or market system, such as The Nasdaq Stock Market (“NASDAQ”) or NYSE Amex
LLC;
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our
quarterly operating results and performance;
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developments
or disputes concerning patents or other proprietary rights;
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litigation
and government proceedings;
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changes
in government regulations;
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our
available working capital;
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economic
and other external factors;
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general
market conditions.
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Since January 1, 2018,
the closing stock price of our common stock has fluctuated between a high of $2.40 per share to a low of $0.85 per share. Since
January 1, 2018, the closing price of our common stock warrants has fluctuated between a high of $0.81 per warrant to a low of
$0.13 per warrant. On March 20, 2019 the last reported sales prices of our common stock and our common stock warrant on The Nasdaq
Capital Market were $1.01 per share and $0.20 per warrant. The fluctuation in the price of our common stock and warrants has sometimes
been unrelated or disproportionate to our operating performance. In addition, potential dilutive effects of future sales of shares
of common stock and warrants by us, as well as potential sale of common stock by the holders of warrants and options, could have
an adverse effect on the market price of our shares.
We are not currently in compliance
with the continued listing requirements for The Nasdaq Capital Market. If the price of our common stock continues to trade below
$1.00 per share for a sustained period or we do not meet other continued listing requirements, our common stock may be delisted
from The Nasdaq Capital Market, which could affect the market price and liquidity for our common stock and reduce our ability
to raise additional capital.
Our common stock is listed on The Nasdaq
Capital Market. In order to maintain that listing, we must satisfy minimum financial and other requirements including, without
limitation, a requirement that our closing bid price be at least $1.00 per share. On March 11, 2018, we received a written notice
from The Nasdaq Stock Market indicating that we are not in compliance with the minimum bid price requirement for continued listing
on The Nasdaq Capital Market. We have until September 9, 2019 to regain compliance. We can regain compliance if at any time prior
to September 9, 2019 the bid price of our common stock closes at or above $1.00 per share for a minimum of ten consecutive business
days.
If we fail to regain compliance with the
minimum bid price requirement by September 9, 2019, we may be afforded an additional 180-day period to regain compliance provided
that (i) we meet the applicable market value of publicly held shares requirement for continued listing and all other applicable
requirements for initial listing on The Nasdaq Capital Market (except for the bid price requirement) based on our most recent
public filings and market information and (ii) we provide notice of our intent to cure the bid price requirement deficiency prior
to the completion of the second 180-day compliance period by effecting a reverse stock split, if necessary.
We anticipate that we will seek stockholder
approval at our annual meeting in 2019 to grant discretionary authority to our board of directors to amend our certificate of
incorporation to effect a reverse split of our outstanding shares of common stock within a range of one share of common stock
for every ten shares of common stock to one share of common stock for every twenty shares of common stock, with the exact reverse
split ratio to be decided and publicly announced by the board of directors prior to the effective time of the amendment to our
certificate of incorporation.
We intend to monitor the closing bid price
of our common stock and consider our available options to resolve our noncompliance with the minimum bid price requirement. There
can be no assurance that we will be able to regain compliance with the minimum bid price requirement or that we will otherwise
be in compliance with other listing criteria. If we fail to regain compliance with the minimum bid requirement or to meet the
other applicable continued listing requirements for The Nasdaq Capital Market in the future and staff of The Nasdaq Stock Market
determines to delist our common stock, the delisting could adversely affect the market price and liquidity of our common stock
and reduce our ability to raise additional capital. In addition, if our common stock is delisted from The Nasdaq Capital Market
and the trading price remains below $5.00 per share, trading in our common stock might also become subject to the requirements
of certain rules promulgated under the Exchange Act, which require additional disclosure by broker-dealers in connection with
any trade involving a stock defined as a “penny stock” (generally, any equity security not listed on a national securities
exchange that has a market price of less than $5.00 per share, subject to certain exceptions).
If we fail to remain current with
our listing requirements, we could be removed from The Nasdaq Capital Market, which would limit the ability of broker-dealers
to sell our securities and the ability of shareholders to sell their securities in the secondary market.
Companies trading on The Nasdaq Stock
Market, such as our Company, must be reporting issuers under Section 12 of the Exchange Act, as amended, and must meet the listing
requirements in order to maintain the listing of common stock on The Nasdaq Capital Market. If we do not meet these requirements,
the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell
our securities and the ability of shareholders to sell their securities in the secondary market.
The warrants
may not have any value.
The outstanding warrants do not confer
any rights of common stock ownership on their holders, such as voting rights or the right to receive dividends, but rather merely
represent the right to acquire shares of common stock at a fixed price for a limited period of time. Specifically, the holders
of the outstanding warrants may exercise their right to acquire the common stock and pay the per share exercise price, prior to
the expiration date, after which date any unexercised warrants will expire and have no further value. In the event our common
stock does not exceed the exercise price of the warrants during the period when the warrants are exercisable, the warrants may
not have any value.
Shareholders may suffer substantial
dilution related to issued stock warrants and options.
As of December 31, 2018, we had a number
of agreements or obligations that may result in dilution to investors. These include:
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warrants to purchase
a total of approximately 6,303,643 shares of our common stock at a current weighted average exercise price of approximately
$3.09;
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options to purchase
approximately 1,022,095 shares of our common stock at a current weighted average exercise price of approximately $5.32; and
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The FBR Sales Agreement
pursuant to which we may, but have no obligation to, sell up to an additional $8.5 million worth of our common stock as of
March 20, 2019.
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We also have an incentive compensation
plan for our management, employees and consultants. We have granted, and expect to grant in the future, options to purchase shares
of our common stock to our directors, employees and consultants. To the extent that warrants or options are exercised, our stockholders
will experience dilution and our stock price may decrease.
Our shares of common stock and warrants
are thinly traded, so stockholders may be unable to sell at or near ask prices or at all if they need to sell shares or warrants
to raise money or otherwise desire to liquidate their shares.
Our common stock and warrants have from
time to time been “thinly-traded,” meaning that the number of persons interested in purchasing our common stock or
warrants at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a
number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers,
institutional investors and others in the investment community that generate or influence sales volume, and that even if we came
to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours
or purchase or recommend the purchase of our shares until such time as we become more seasoned and viable. As a consequence, there
may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned
issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse
effect on share price. We cannot give stockholders any assurance that a broader or more active public trading market for our common
shares and warrants will develop or be sustained, or that current trading levels will be sustained.
We do not currently intend to pay
dividends on our common stock in the foreseeable future, and consequently, our stockholders’ ability to achieve a return
on their investment will depend on appreciation in the price of our common stock.
We have never declared or paid cash dividends
on our common stock and do not anticipate paying any cash dividends to holders of our common stock in the foreseeable future.
Consequently, our stockholders must rely on sales of their common stock and warrants after price appreciation, which may never
occur, as the only way to realize any future gains on their investments. There is no guarantee that shares of our common stock
or warrants will appreciate in value or even maintain the price at which our stockholders have purchased their shares.
Upon our dissolution, our stockholders
may not recoup all or any portion of their investment.
In the event of our liquidation, dissolution
or winding-up, whether voluntary or involuntary, the proceeds and/or our assets remaining after giving effect to such transaction,
and the payment of all of our debts and liabilities will be distributed to the holders of common stock on a pro rata basis. There
can be no assurance that we will have available assets to pay to the holders of common stock, or any amounts, upon such a liquidation,
dissolution or winding-up. In this event, our stockholders could lose some or all of their investment.
The issuance of our common stock
pursuant to the terms of the asset purchase agreement with Hy Biopharma Inc. may cause dilution and the issuance of such shares
of common stock, or the perception that such issuances may occur, could cause the price of our common stock to fall.
On April 1, 2014, we entered into an option
agreement pursuant to which Hy Biopharma granted us an option to purchase certain assets, properties and rights (the “Hypericin
Assets”) related to the development of Hy Biopharma’s synthetic hypericin product candidate for the treatment of CTCL,
which we refer to as SGX301, from Hy Biopharma. In exchange for the option, we paid $50,000 in cash and issued 4,307 shares of
common stock in the aggregate to Hy Biopharma and its assignees. We subsequently exercised the option, and on September 3, 2014,
we entered into an asset purchase agreement with Hy Biopharma, pursuant to which we purchased the Hypericin Assets. Pursuant to
the purchase agreement, we paid $275,000 in cash and issued 184,912 shares of common stock in the aggregate to Hy Biopharma and
its assignees, and the licensors of the license agreement acquired from Hy Biopharma, and may issue up to an aggregate of $10
million worth of our common stock (subject to a cap equal to 19.99% of our issued and outstanding common stock) in the aggregate
upon attainment of specified milestones. The next milestone payment will be payable if the Phase 3 clinical trial of SGX301 is
successful in demonstrating efficacy and safety in the CTCL patient population. Also on September 3, 2014, we entered into a Registration
Rights Agreement with Hy Biopharma, pursuant to which we have filed a registration statement with the SEC.
The number of shares that we may issue
under the purchase agreement will fluctuate based on the market price of our common stock. Depending on market liquidity at the
time, the issuance of such shares may cause the trading price of our common stock to fall.
We may ultimately issue all, some or none
of the additional shares of our common stock that may be issued pursuant to the purchase agreement. We are required to register
any shares issued pursuant to the purchase agreement for resale under the Securities Act of 1933, as amended. After any such shares
are registered, the holders will be able to sell all, some or none of those shares. Therefore, issuances by us under the purchase
agreement could result in substantial dilution to the interests of other holders of our common stock. Additionally, the issuance
of a substantial number of shares of our common stock pursuant to the purchase agreement, or the anticipation of such issuances,
could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we
might otherwise wish to effect sales.