ITEM
1 - Financial Statements
Soligenix, Inc. and
Subsidiaries
Consolidated Balance Sheets
The accompanying notes are an integral part of
these consolidated financial statements.
Soligenix, Inc. and
Subsidiaries
Consolidated Statements of Operations
For the Three and Nine Months Ended September
30, 2020 and 2019
(Unaudited)
The accompanying notes are an integral part of
these consolidated financial statements.
Soligenix, Inc. and
Subsidiaries
Consolidated Statements of Comprehensive Loss
For the Three and Nine Months Ended September
30, 2020 and 2019
(Unaudited)
The accompanying notes are an integral part of
these consolidated financial statements.
Soligenix, Inc. and
Subsidiaries
Consolidated Statements of Changes in Shareholders’
Equity
For the Nine Months Ended September 30, 2020
and 2019
(Unaudited)
The accompanying notes are an integral part of
these consolidated financial statements.
Soligenix, Inc. and
Subsidiaries
Consolidated Statements of Changes in Shareholders’
Equity
For the Three Months Ended September 30, 2020
and 2019
(Unaudited)
The accompanying notes are an integral part of
these consolidated financial statements.
Soligenix, Inc. and
Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30,
(Unaudited)
The accompanying notes are an integral part of
these consolidated financial statements.
Soligenix, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1. Nature of Business
Basis
of Presentation
Soligenix, Inc. (the “Company”)
is a late-stage biopharmaceutical company focused on developing and commercializing products to treat rare diseases where there is an
unmet medical need. The Company maintains two active business segments: Specialized BioTherapeutics and Public Health Solutions.
The Company’s Specialized BioTherapeutics
business segment is developing a novel photodynamic therapy (SGX301) utilizing topical synthetic hypericin activated with safe visible
light for the treatment of cutaneous T-cell lymphoma (“CTCL”), its first-in-class innate defense regulator 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 disorders characterized by severe inflammation, including pediatric
Crohn’s disease (SGX203) and acute radiation enteritis (SGX201).
The Company’s Public Health Solutions
business segment includes active development programs for RiVax®,
its ricin toxin vaccine candidate and SGX943, a therapeutic candidate for antibiotic resistant and emerging infectious disease, and vaccine
programs, including a program targeting filoviruses (such as Marburg and Ebola) and a program developing CiVaxaTM,
its vaccine candidate for the prevention of COVID-19 (caused by SARS-CoV-2). The development of the vaccine programs is currently supported
by the heat stabilization technology, known as ThermoVax®.
To date, this business segment has been supported with government grant and contract funding from the National Institute of Allergy and
Infectious Diseases (“NIAID”), the Biomedical Advanced Research and Development Authority and the Defense Threat Reduction
Agency (“DTRA”).
The Company generates revenues under government
grants primarily from the National Institutes of Health (“NIH”) and government contracts from NIAID. The Company is currently
developing RiVax® under a NIAID contract of up to $21.2 million over six years, and a one-year NIH grant of $150,000 in
support of its SGX942 pediatric program. In addition, the Company has a subcontract of approximately $700,000 from a NIAID grant over
five years for its thermostabilization technology, and a DTRA subcontract of approximately $600,000 over three years for SGX943. The Company
will continue to apply for additional government funding.
The Company is subject to risks common to companies
in the biotechnology industry including, but not limited to, development of new technological innovations, dependence on key personnel,
protections of proprietary technology, compliance with the United States (“U.S.”) Food and Drug Administration regulations,
and other regulatory authorities, litigation, and product liability. Results for the three and nine months ended September 30, 2020 are
not necessarily indicative of results that may be expected for the full year.
Liquidity
In accordance with Accounting Standards Codification
205-40, Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial
doubt about the Company’s ability to continue as a going concern within one year after the date the consolidated financial statements
are issued. As of September 30, 2020, the Company had an accumulated deficit of $187,673,869. During the nine months ended September 30,
2020, the Company incurred a net loss of $12,148,257 and used $7,329,471 of cash in operating activities. The Company expects to continue
to generate losses in the foreseeable future. The Company’s liquidity needs will be largely determined by the budgeted operational
expenditures incurred in regards to the progression of its product candidates. The Company’s plans to meet its liquidity needs
primarily include its ability to control the timing and spending on its research and development programs and raising additional funds
through potential partnership and/or financings. Based on the Company’s approved operating budget, current rate of cash outflows,
cash on hand, proceeds from government contract and grant programs, and proceeds available from the At Market Issuance Sales Agreement
(“FBR Sales Agreement”) with B. Riley FBR Inc. (“FBR”), management believes that its current cash will be
sufficient to meet the anticipated cash needs for working capital and capital expenditures for at least the next 12 months from issuance
of the financial statements.
As of September 30, 2020, the Company had
cash and cash equivalents of $11,342,794 as compared to $5,420,708 as of December
31, 2019, representing an increase of $5,922,086 or 109%. As of September 30,
2020, the Company had working capital of $7,193,758 as compared to working
capital of $1,181,249 as of December 31, 2019, representing an increase of $6,012,509
or 508%. The increase in cash and working capital was primarily related to proceeds
received from the utilization of the FBR Sales Agreement and warrant
exercises during the nine months ended September 30, 2020 and management
of cash burn, partially offset by cash used in operating activities.
Management’s business strategy can be outlined
as follows:
-
Following positive primary endpoint topline analysis for the Phase 3 clinical trial of SGX301, as well as further statistically significant
improvement in response rates with longer treatment (18 weeks compared to 12 and 6 weeks), continue to explore partnership
and commercialization while pursuing New Drug Application filing;
-
Following positive interim analysis and enrollment completion, report final
topline results in the Company’s pivotal Phase 3 clinical trial of SGX942 for the treatment of oral mucositis in head and neck
cancer;
-
Continue development of RiVax® (ricin toxin vaccine) and CiVaxTM (COVID-19 vaccine) in
combination with the Company’s ThermoVax® technology
to develop new heat stable vaccines in biodefense and public health with NIAID funding support;
-
Continue development of our therapeutic SGX943 and our vaccine programs targeting
filoviruses (such as Marburg and Ebola) with DTRA and NIAID funding support;
-
Pursue business development opportunities for the Company’s pipeline
programs, as well as explore all strategic alternatives, including but not limited to merger/acquisition
strategies; and
-
Acquire or in-license new clinical-stage compounds for development.
The Company’s plans with respect to its
liquidity management include, but are not limited to, the following:
-
The Company has up to $0.9 million
in active government contract and grant funding still available as of September 30, 2020, to support its associated research programs
through 2020 and beyond. The Company plans to submit additional contract and grant applications for further support of its programs with
various funding agencies.
-
The Company has continued to use equity instruments to provide a portion of the compensation due to vendors and collaboration partners
and expects to continue to do so for the foreseeable future.
-
The Company will continue to pursue Net Operating Loss (“NOL”) sales in the state of New Jersey pursuant to its Technology
Business Tax Certificate Transfer Program if the program is available.
-
The Company plans to pursue potential partnerships for pipeline programs; however, there can be no assurances that it can consummate
such transactions.
-
The Company has $20.0 million remaining from the FBR Sales Agreement
as of November 09, 2020 under the prospectus supplement filed August 28, 2020,
as no sales have been made under the FBR Sales Agreement since July 28, 2020.
-
The Company has obtained a Paycheck Protection Program Loan through financial stimulus packages authorized by both the federal and
state governments based on the current outbreak of SARS-CoV-2, the pathogen responsible for COVID-19. The loan amount totaling
$417,830 was granted by the Small Business Administration ("SBA") and administered through JPMorgan Chase Bank, N.A. to fund the Company’s
payroll costs and other expenses allowed by the program. The Company will continue to explore and evaluate additional funding options
through financial stimulus packages afforded by both the federal and state governments based on the current outbreak of SARS-CoV-2, the
pathogen responsible for COVID-19 if and as they become available.
-
The Company may seek additional capital in the private and/or public equity markets, to continue its operations, respond to competitive
pressures, develop new products and services, and to support new strategic partnerships. The Company is evaluating additional equity/debt
financing opportunities on an ongoing basis and may execute them when appropriate. However, there can be no assurances that the Company
can consummate such a transaction, or consummate a transaction at favorable pricing.
Note 2. Summary of Significant Accounting Policies
Principles
of Consolidation
The consolidated financial statements include
Soligenix, Inc., and its wholly and majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated
as a result of consolidation.
Operating
Segments
Operating segments are defined as components of
an enterprise about which separate financial information is available that is evaluated on a regular basis by the chief operating decision
maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing the performance of the
segment. The Company divides its operations into two operating segments: Specialized BioTherapeutics and Public Health Solutions.
Cash and
Cash Equivalents
The Company considers all highly liquid investments
with maturities of three months or less when purchased to be cash equivalents.
Contracts
and Grants Receivable
Contracts and grants receivable consist of amounts
due from various grants from the NIH and contracts from NIAID, an institute of NIH, for costs incurred prior to the period end under reimbursement
contracts. The amounts were billed to the respective governmental agencies in the month subsequent to period end and collected shortly
thereafter. Accordingly, no allowance for doubtful amounts has been established. If amounts become uncollectible, they are charged to
operations.
Intangible
Assets
The Company determines whether to capitalize or expense patent and license costs based
on whether the technology has alternative future uses, as defined in Financial Accounting Standards Board (“FASB”) Accounting
Standards Codification (“ASC”) 730, Research and Development. Based on this consideration, the Company capitalizes
payments made to legal firms that are engaged in filing and protecting rights to intellectual property and rights for its current product candidates
in both the domestic and international markets. The Company believes that patent rights are one of its most valuable assets. Patents and
patent applications are a key component of intellectual property, especially in the early stage of product development, as their purchase
and maintenance gives the Company access to key product development rights from Soligenix’s academic and industry partners. These
rights can also be sold or sub-licensed as part of its strategy to partner its product candidates at each stage of development as
the intangible assets have alternative future use. The legal costs incurred for these patents consist of work associated with filing new
patents designed to protect, preserve and maintain the Company’s rights, and perhaps extend the lives of the patents. The Company
capitalizes such costs and amortizes intangibles on a straight-line basis over their expected useful life – generally a period
of 11 to 16 years.
The Company did not capitalize any patent related
costs during the three or nine months ended September 30, 2020 and 2019.
Website
Development Costs
In February 2019, Altamont Pharmaceutical Holdings,
LLC, a company which since January 1, 2019 beneficially owned 5% or more of the shares of the Company’s outstanding common stock
but which has beneficially owned less than 5% of the Company’s outstanding common stock since April 30, 2020, signed
a service agreement with a third-party vendor to re-develop the Company’s website. Upon completion of the project at the end of
June 2019, the Company capitalized the related website development costs of $46,500 in accordance with FASB Codification ASC 350-50 “Accounting
for Web Site Development Costs”, which was reported in other assets in the accompanying consolidated balance sheets. Beginning
with the three months ended September 30, 2019, the Company started amortizing the website development costs on a straight-line basis
over three years, the estimated useful life of the website. The Company will also review its capitalized website development costs periodically
for impairment. Website amortization expense for the three months ended September 30, 2020 was
$3,875 and for the nine months ended September 30, 2020 was $11,627 and accumulated
amortization was $19,376 as of September 30, 2020.
Impairment
of Long-Lived Assets
Office furniture and equipment, website development
costs and intangible assets with finite lives are evaluated and reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. The Company recognizes impairment of long-lived assets in the event the net book value
of such assets exceeds the estimated future undiscounted cash flows attributable to such assets. If the sum of the expected undiscounted
cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the
fair value and the carrying value of the related asset or group of assets. Such analyses necessarily involve significant judgment.
The Company did not record any impairment of long-lived
assets for the three or nine months ended September 30, 2020 or 2019.
Fair Value
of Financial Instruments
FASB ASC 820 — Fair Value Measurements
and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all financial
instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are
based on pertinent information available to the Company on September 30, 2020. Accordingly, the estimates presented in these financial
statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments.
FASB ASC 820 specifies a hierarchy of valuation
techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market
data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority
to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable
inputs (Level 3 measurement).
The three levels of the fair value hierarchy are
as follows:
-
Level 1 — Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to
access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such
as exchange-traded instruments and listed equities.
-
Level 2 — Inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly or indirectly. Level 2 includes financial instruments that are valued
using models or other valuation methodologies. These models consider various assumptions, including volatility factors, current market
prices and contractual prices for the underlying financial instruments. Substantially all of these assumptions are observable in the marketplace,
can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
-
Level 3 — Unobservable inputs for the asset or liability. Financial
instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques
and at least one significant model assumption or input is unobservable.
The carrying amounts reported in the consolidated
balance sheet for cash and cash equivalents, contracts and grants receivable, tax receivable, research and development incentives receivable,
accounts payable, accrued expenses, and accrued compensation approximate their fair value based on the short-term nature of these instruments.
Revenue
Recognition
The Company’s revenues are primarily generated
from government contracts and grants. The revenue from government contracts and grants is based upon subcontractor costs and internal
costs incurred that are specifically covered by the contracts and grants, plus a facilities and administrative rate that provides funding
for overhead expenses and management fees. These revenues are recognized when expenses have been incurred by subcontractors or when the
Company incurs reimbursable internal expenses that are related to the government contracts and grants.
Research
and Development Costs
Research and development costs are charged
to expense when incurred in accordance with FASB ASC 730, Research and Development. Research and development includes costs such
as clinical trial expenses, contracted research and license agreement fees with no alternative future use, supplies and materials, salaries,
share-based compensation, employee benefits, equipment depreciation and allocation of various corporate costs.
Share-Based
Compensation
Stock options are issued with an exercise price
equal to the market price on the date of grant. Stock options issued to directors upon re-election vest quarterly for a period of one
year (new director issuances are fully vested upon issuance). Stock options issued to employees generally vest 25% on the grant date,
then 25% each subsequent year for a period of three years. These options have a ten year life for as long as the individuals remain employees
or directors. In general, when an employee or director terminates their position, the options will expire within three months, unless
otherwise extended by the Board.
From time to time, the Company issues restricted
shares of common stock to vendors and consultants as compensation for services performed under the Company’s 2015 Equity Incentive
Plan (the “2015 Plan”). The 2015 Plan provides for the grant of stock options, restricted stock, deferred stock and unrestricted
stock to our employees and non-employees (including consultants). The shares issued under the 2015 Plan are registered on Form S-8 (SEC
File No. 333-208515). However, as shares of common stock are not covered by a reoffer prospectus, the certificates reflecting such shares
reflect a Securities Act of 1933, as amended (the “Securities Act”) restrictive legend. Stock compensation expense for equity-classified
awards to nonemployees is measured on the date of grant and is recognized when the services are performed.
The fair value of options issued during the nine
months ended September 30, 2020 and 2019 was estimated using the Black-Scholes option-pricing model and the following assumptions:
-
a dividend yield of 0%;
-
an expected life of 4 years;
-
volatility of 77.08%
- 84.57% for 2020 and 90.87%
- 92.93% for 2019
-
risk free interest rates
ranging from 0.215% - 1.66% for
2020 and 1.835% - 2.50% for
2019
The fair value of each option grant made during
the nine months ended September 30, 2020 and 2019 was estimated on the date of each grant using the Black-Scholes option pricing model
and recognized as share-based compensation expense ratably over the option vesting periods, which approximates the service period.
Foreign
Currency Transactions and Translation
In 2018, the Company changed the status of a wholly
owned subsidiary in the United Kingdom (“UK”) from inactive to active and incurred expenditures in multiple currencies including
the U.S. dollar, the British Pound and the Euro to fund its clinical trial operations in the UK and select countries in Europe. In accordance
with FASB ASC 830 Foreign Currency Matters, the UK subsidiary expresses its U.S. dollar and Euro denominated transactions in its
functional currency, the British Pound, with related transaction gains or losses included in net income. On a quarterly basis, the financial
statements of the UK subsidiary are translated into U.S. dollars and consolidated into the Company’s financials, with related translation
adjustments reported as a cumulative translation adjustment (“CTA”), which is a component of accumulated other comprehensive
loss. During the three months ended September 30, 2020 and 2019, the Company recognized a foreign currency transaction loss of $7,647
and a foreign currency transaction gain of $8,809, respectively, in the accompanying consolidated statements of operations.
During the nine months ended September 30, 2020 and 2019, the Company recognized a foreign currency transaction loss of $34,465
and a foreign currency transaction gain of $11,479, respectively, in the
accompanying consolidated statements of operations.
Income
Taxes
Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax basis. A valuation allowance is established when it is more likely than not that all or a portion of a deferred
tax asset will not be realized. A review of all available positive and negative evidence is considered, including the Company’s
current and past performance, the market environment in which the Company operates, the utilization of past tax credits, and the length
of carryback and carryforward periods. Deferred tax assets and liabilities are measured utilizing tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The Company recognized an income tax
benefit of $836,893 and $610,676 from the sale of New Jersey NOL carryforwards during the nine months ended September 30, 2020 and 2019,
respectively. The Company recognizes accrued interest and penalties associated with uncertain tax positions, if any, as part of the income
tax provision. There were no tax related interest and penalties recorded for the nine months ended September 30, 2020 or 2019. Additionally,
the Company has not recorded an asset for unrecognized tax benefits or a liability for uncertain tax positions at September 30, 2020 and
December 31, 2019.
Research
and Development Incentive Income and Receivable
The Company recognizes other income from United
Kingdom research and development incentives when there is reasonable assurance that the income will be received, the relevant expenditure
has been incurred, and the consideration can be reliably measured. The small or medium sized enterprise (“SME”) research
and development tax relief program supports companies that seek to research and develop an advance in their field and is governed through
legislative law by HM Revenue & Customs as long as specific eligibility criteria are met.
Management has assessed the Company’s research
and development activities and expenditures to determine which activities and expenditures are likely to be eligible under the SME research
and development tax relief program described above. At each period end, management estimates the refundable tax offset available to the
Company based on available information at the time. As the tax incentives may be received without regard to an entity’s actual
tax liability, they are not subject to accounting for income taxes. As a result, amounts realized under the SME research and development
tax relief program are recorded as a component of other income.
The following table shows the change in the United
Kingdom research and development incentives receivable from December 31, 2019 to September 30, 2020:
Reclassifications
Certain amounts in the statement of operations
for the three and nine months ended September 30, 2019 were reclassified to conform to the current year presentation.
Earnings
Per Share
Basic earnings per share (“EPS”)
excludes dilution and is computed by dividing income (loss) available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings of
the entity. Since there is a significant number of options and warrants outstanding, fluctuations in the actual market price can have
a variety of results for each period presented.
The following table summarizes potentially dilutive
adjustments to the number of common shares which were excluded from the diluted calculation because their effect would be anti-dilutive
due to the losses in each period:
The weighted average exercise price
of the Company’s warrants and stock options outstanding at September 30, 2020 were $2.92
and $3.11 per share, respectively, and at September 30, 2019 were $4.25 and
$3.09 per share, respectively.
Use of
Estimates and Assumptions
The preparation of financial statements in
conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions such as the
fair value of warrants and stock options, accruals for clinical trials in process and the useful life of intangibles that affect the reported
amounts in the financial statements and accompanying notes. Actual results could differ from those estimates and presentation.
Note 3. Intangible Assets
The following is a summary of intangible assets
which consists of licenses and patents:
Amortization
expense was $6,117 and $6,791 for the three months ended
September 30, 2020 and 2019, respectively. Amortization expense was $19,699 and $20,373 for
each of the nine months ended September 30, 2020 and 2019, respectively.
Based
on the balance of licenses and patents at September 30, 2020, no future amortization expense is expected through December
31, 2020.
License fees and royalty payments are expensed as incurred, as the
Company does not attribute any future benefits of such payments.
Note 4. Leases
The Company classifies a lease for its office
space at 29 Emmons Drive, Suite B-10 in Princeton, New Jersey and a lease for a copier machine in the office as an operating lease and
a financing lease, respectively, and records related right-of-use lease assets and lease liabilities accordingly. Pursuant
to an amendment executed on July 7, 2020, the lease has been extended to October 2022. The
current rent of $11,883 per month, or approximately $23.00 per square foot will be reduced to $21.50 per square foot, making the monthly
payment $11,108 starting in November 2020 for the remainder of the two year lease extension. Our
office space is sufficient to satisfy our current needs. As of September 30, 2020, the Company’s consolidated
balance sheet included a right-of-use lease asset of $252,394 for the office space and $7,443 for the copier machine. Lease liabilities
in the Company’s consolidated balance sheet included corresponding lease liabilities of
$252,507 and $8,099 respectively. During the nine months ended September 30, 2020, the Company recognized lease expense of $105,893
for the operating lease, in addition to amortization expense of $5,582 and
interest expense of $842 for the financing lease in the Company’s consolidated
statement of operations.
The following represents a reconciliation of contractual
lease cash flows to the right-of-use lease assets and liabilities recognized in the financial statements:
Note 5. Accrued Expenses
The following is a summary of the Company’s accrued expenses:
Note 6. Income Taxes
The Company had gross NOLs at December 31, 2019
of approximately $107,767,000 for federal tax purposes, approximately $16,180,000 for state tax purposes and approximately $815,000 for
foreign tax purposes. Federal losses generated in 2018 or later will carry forward indefinitely. In addition, the Company has $8,315,000
of various tax credits which expire from 2020 to 2037. The Company may be able to utilize its NOLs to reduce future federal and state
income tax liabilities. However, these NOLs are subject to various limitations under Internal Revenue Code (“IRC”) Section
382. IRC Section 382 limits the use of NOLs to the extent there has been an ownership change of more than 50 percentage points. In addition,
the NOL carryforwards are subject to examination by the taxing authority and could be adjusted or disallowed due to such exams. Although
the Company has not undergone an IRC Section 382 analysis, it is likely that the utilization of the NOLs may be substantially limited.
The Company and one or more of its subsidiaries
files income tax returns in the U.S. federal jurisdiction, and various state and local jurisdictions. During 2020 and 2019, in accordance
with the State of New Jersey’s Technology Business Tax Certificate Program, which allowed certain high technology and biotechnology
companies to sell unused NOL carryforwards to other New Jersey-based corporate taxpayers, the Company sold New Jersey NOL carryforwards,
resulting in the recognition of $836,893 and $610,676 of income tax benefit, net of transaction costs, respectively. The Company has not
yet sold its 2019 New Jersey NOLs but may be able to do so in the future. There can be no assurance as to the continuation or magnitude
of this program in the future.
Note 7. Shareholders’ Equity
Preferred
Stock
The Company has 350,000 shares of preferred stock
authorized, none of which are issued or outstanding.
Common
Stock
The following items represent transactions in
the Company’s common stock for the nine months ended September 30, 2020:
-
During the nine months ended September 30, 2020, the Company issued 5,758 shares of common
stock as a result of an option exercises. The weighted average exercise price of the options was $1.19 per share. The cash exercise
price of $1,882 for 2,189 of those shares was received in December 2019.
-
The Company issued a vendor 10,000 shares of common stock with a fair value of $1.68 per share on January 8, 2020, another 10,000
shares of common stock with a fair value of $2.25 per share on February 10, 2020 and another 10,000 shares of common stock with a fair
value of $1.97 per share on March 12, 2020, in each case as partial consideration for its service performed. The shares were fully vested
on the date of grant and resulted in the recognition of $59,000 of expense during the nine months ended September 30, 2020.
-
On February 10, 2020, the Company issued 206 shares of common stock as a result of a cashless exercise of warrants. The exercise price
of the warrants was $2.50.
-
On March 23, 2020, the Company issued 1,956,182 shares of common stock for payment on an achieved milestone. The fair value of the
shares was $2.56 per share based upon a formula set forth in the asset purchase agreement.
-
During the nine months ended September 30, 2020, the Company issued 304,615 shares of common stock as a result of warrant exercises.
The exercise price of the warrants was $2.25 per share.
-
During the nine months ended September 30, 2020, the Company sold 5,797,403 shares of common stock pursuant to the FBR Sales Agreement
at a weighted average price of $2.19 per share.
The issuances of the Company’s common stock
to vendors and as a result of option exercises described above were issued under the 2015 Plan and, are registered on a Registration
Statement on Form S-8. However, as shares of common stock are not covered by a reoffer prospectus, the certificates evidencing such shares
reflect a Securities Act restrictive legend.
The issuances of the Company’s common stock
(a) as a result of warrant exercises described above, other than upon cashless exercise, were registered on a Registration Statement on
Form S-1, (b) for payment on an achieved milestone described above were registered on a Registration Statement on Form S-3 and (c) pursuant
to the FBR Sales Agreement described above were registered on a Registration Statement on Form S-3.
The Company’s common stock issued as a
result of the cashless exercise of the warrants described above were exempt from registration pursuant to Section 3(a)(9) of the Securities
Act.
FBR At
Market Issuance Sales Agreement
On August 11, 2017, the Company entered into the
FBR Sales Agreement to sell shares of the Company’s common stock from time to time, through an “at-the-market” equity
offering program under which FBR acts as sales agent. Under the FBR Sales Agreement, the Company sets the parameters for the sale of shares,
including the number of shares to be issued, the time period during which sales may be requested to be made, limitation on the number
of shares that may be sold in any one trading day and any minimum price below which sales may not be made. The FBR Sales Agreement provides
that FBR is entitled to compensation for its services in an amount equal to 3% of the gross proceeds from the sale of shares sold under
the FBR Sale Agreement. The Company has no obligation to sell any shares under the FBR Sales Agreement, and may suspend solicitation and
offers under the FBR Sales Agreement at any time.
The Company’s shelf registration statement
on Form S-3 (File No. 333- 217738) filed on May 5, 2017 (the “May 2017 Registration Statement”) with the U.S. Securities
and Exchange Commission (the “SEC”) expired on August 10, 2020, but which was available to be utilized
for a period up to six months or until a new shelf registration statement was declared effective, whichever occurred first. All sales
under the FBR Sales Agreement from August 11, 2017 through August 10, 2020 were made pursuant to the May 2017 Registration Statement.
All sales of common stock made pursuant to
the FBR Sales Agreement since the expiration of the May 2017 Registration Statement have been, and future sales will be, made pursuant
to the Company’s shelf registration statement on Form S-3 (File No. 333- 239928) filed on July 17, 2020 (the "July 2020 Registration
Statement") with the SEC, and any amendments thereto, the base prospectus filed as part of such registration statement, and any prospectus
supplements. The July 2020 Registration Statement was declared effective on August 28, 2020.
Through July 28, 2020, the shares sold pursuant
to the FBR Sales Agreement were issued pursuant to General Instruction I.B.6 of Form S-3, which permits the Company to sell shelf securities
in a public primary offering with a value not exceeding one-third of the average market value of the Company’s voting and non-voting
common equity held by non-affiliates in any 12-month period as long as the aggregate market value of the Company’s outstanding
voting and non-voting common equity held by non-affiliates is less than $75 million. As of July 28, 2020, the Company’s
outstanding voting and non-voting common equity held by non-affiliates exceeded $75 million.
On August 28, 2020, the Company filed a prospectus
supplement to the FBR Sales Agreement to offer and sell shares of Company common stock having an aggregate offering price of up to $20.0
million under the July 2020 Registration Statement. As of November 09, 2020, there was $20.0
million available for the sale of common stock under the FBR Sales Agreement, as no sales have been made under the FBR Sales Agreement
since July 28, 2020.
Note 8. Commitments and Contingencies
Contractual
Obligations
The
Company has commitments of approximately $450,000 as of September 30, 2020
for several licensing agreements with consultants and universities. Additionally, the Company has collaboration and license agreements,
which upon clinical or commercialization success, may require the payment of milestones of up to $7.9 million and/or royalties up to 6%
of net sales of covered products, if and when achieved. However, there can be no assurance that clinical or commercialization success
will occur.
The Company currently leases approximately
6,200 square feet of office space at 29 Emmons Drive, Suite B-10 in Princeton, New Jersey pursuant to a lease that was amended in October
2017 and expired in October 2020. This office space currently serves as the Company’s corporate headquarters. Pursuant to an amendment
on July 7, 2020, the lease has been extended from November 2020 to October
2022. The current rent of $11,883 per month, or approximately $23.00 per square foot will be reduced to $21.50 per square foot, making
the monthly payment $11,108 starting in November 2020 for the remainder of the two year lease extension.
On September 3, 2014, the Company entered into
an asset purchase agreement with Hy Biopharma, Inc. (“Hy Biopharma”) pursuant to which the Company acquired certain intangible
assets, properties and rights of Hy Biopharma related to the development of Hy BioPharma’s synthetic hypericin product. As consideration
for the assets acquired, the Company paid $275,000 in cash and issued 184,912 shares of common stock with a fair value based on the Company’s
stock price on the date of grant of $3,750,000. These amounts were charged to research and development expense during the third quarter
of 2014 as the assets will be used in the Company’s research and development activities and do not have alternative future use
pursuant to generally accepted accounting principles in the U.S.
In March 2020, the Company filed a prospectus
supplement covering the offer and sale of up to 1,956,182 shares of the Company’s common stock which were issued to Hy Biopharma.
The Company was required to issue the shares to Hy Biopharma as payment following the achievement of a milestone under the asset purchase
agreement, specifically, the Phase 3 clinical trial of SGX301 being successful in the treatment of CTCL. The number of shares of the Company’s
common stock issued to Hy Biopharma was calculated using an effective price of $2.56 per share, based upon a formula set forth in the
asset purchase agreement, for total expense of $5 million.
Provided
all future success-oriented milestones are attained, the Company will be required to make additional payments of up to $5.0 million to Hy Biopharma,
if and when achieved. Payments will be payable in restricted securities of the Company provided they do not exceed 19.9% ownership of
the Company’s outstanding stock.
In January 2020, the Company’s Board
of Directors authorized the amendment of Dr. Schaber’s employment agreement to increase the number of shares of the Company’s
common stock from 5,000 to 500,000 issuable to Dr. Schaber immediately prior to the completion of a transaction, or series or a combination
of related transactions, negotiated by its Board of Directors whereby, directly or indirectly, a majority of its capital stock or a majority
of its assets are transferred from the Company and/or its stockholders to a third party. Dr. Schaber's employment agreement has been amended
to include the Company's obligation to issue the increased number of shares if such event occurs.
As a result of the above agreements, the Company
has the following contractual obligations:
CARES
Act Loan
On April 13, 2020, the Company was advised that
one of its principal banks, JPMorgan Chase Bank, N.A., had approved a $417,830 loan (the “Loan”) under the Paycheck Protection
Program (“PPP”) pursuant to the Coronavirus Aid, Relief and Economic Security Act that was signed into law on March 27,
2020.
As a U.S. small business, the Company qualified
for the PPP, which allows businesses and nonprofits with fewer than 500 employees to obtain loans of up to $10 million to incentivize
companies to maintain their workers as they manage the business disruptions caused by the COVID-19 pandemic. The PPP provides for loans
for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The PPP loan proceeds may be used for
eligible purposes, including payroll, benefits, rent and utilities.
The
Loan, has a term of two years, is unsecured, and is guaranteed by the Small Business Administration. The short –term portion of
the Loan is $255,341 and the long-term portion of the Loan is $162,489 with
accrued interest expense of $1,706 as of September 30, 2020. The Loan
bears interest at a fixed rate of 0.98% per annum, with the first six months of interest and principal deferred. Some or all of the Loan
may be forgiven if at least 75% of the Loan proceeds are used by the Company to cover payroll costs, including benefits and if the Company
maintains its employment and compensation within certain parameters during the eight-week or twenty-four-week period following
the Loan origination date and complies with other relevant conditions. The Company has used all proceeds for purposes consistent
with the PPP and expects to meet the conditions for forgiveness of the Loan.
Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting
for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the
Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities,
and such assessment inherently involves an exercise of judgment. A liability is only recorded if management determines that it is both
probable and reasonably estimable.
COVID-19
Based on the current outbreak of SARS-CoV-2, the
pathogen responsible for COVID-19, which has already had an impact on financial markets, there could be additional repercussions to the
Company’s operating business, including but not limited to, the sourcing of materials for product candidates, manufacture of supplies
for preclinical and/or clinical studies, delays in clinical operations, which may include the availability or the continued availability
of patients for trials due to such things as quarantines, conduct of patient monitoring and clinical trial data retrieval at investigational
study sites.
The future impact of the outbreak is highly uncertain
and cannot be predicted, and the Company cannot provide any assurance that the outbreak will not have a material adverse impact on the
Company’s operations or future results or filings with regulatory health authorities. The extent of the impact to the Company,
if any, will depend on future developments, including actions taken to contain the coronavirus.
Emergent BioSolutions Legal Proceedings
On July 1, 2020, the Company filed a demand
for arbitration against Emergent BioSolutions, Inc. ("Emergent") and certain of its subsidiaries with the American Arbitration Association
in Mercer County, New Jersey. The Company alleges in the arbitration various breaches of contracts and warranties as well as acts of fraud.
Emergent has answered that demand for arbitration denying the allegations and asserting affirmative defenses. (see Part II, Item 1 –
Legal Proceeding)
The Company is seeking to
recover damages in excess of $19 million from Emergent. While the Company
intends to vigorously pursue this arbitration, the Company cannot offer any
assurances that it will recover any damages from Emergent.
The Company has received invoices from Emergent related to the above matter. No accrual has been made
for these invoices as management deems them invalid because Emergent failed to perform under the applicable contracts, and not probable
of being required to pay them based on the numerous breaches sited in the pending arbitration. These invoices total approximately $331,000.
Note 9. Operating Segments
The Company maintains two active operating segments:
Specialized BioTherapeutics and Public Health Solutions. Each segment includes an element of overhead costs specifically associated with
its operations, with its corporate shared services group responsible for support functions generic to both operating segments.
ITEM
2 – Management’s Discussion and Analysis OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides
information to explain our results of operations and financial condition. You should also read our unaudited consolidated interim financial
statements and their notes included in this Form 10-Q, and our audited consolidated financial statements and their notes, Risk Factors
and other information included in our Annual Report on Form 10-K for the year ended December 31, 2019. We provide addresses to internet
sites solely for the information to investors. We do not intend any addresses to be active links or to otherwise incorporate the contents
of any website into this report.
Cautionary Note Regarding Forward-Looking
Statements
This Quarterly Report on Form 10-Q contains
forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that reflect our current expectations
about our future results, performance, prospects and opportunities. These forward-looking statements are not guarantees of future performance
and are subject to significant risks, uncertainties, assumptions and other factors, which are difficult to predict and may cause actual
results to differ materially from those expressed in, or implied by, any forward-looking statements. The forward-looking statements within
this report may be identified by words such as “believes,” “anticipates,” “expects,” “intends,”
“may,” “would,” “will” and other similar expressions. However, these words are not the exclusive
means of identifying these statements. Statements that are not historical facts are based on our current expectations, beliefs, assumptions,
estimates, forecasts and projections for our business and the industry and markets related to our business and are forward-looking statements.
Actual outcomes and results may differ materially
from what is expressed in such forward-looking statements. Important factors which may affect these actual outcomes and results include,
without limitation:
-
uncertainty as to whether our product candidates will be sufficiently safe and
effective to support regulatory approvals;
-
uncertainty inherent in developing vaccines, and manufacturing and conducting
preclinical and clinical trials of vaccines;
-
our ability to obtain future financing or funds when needed, either through
the raising of capital, the incurrence of convertible or other indebtedness or through strategic financing or commercialization partnerships;
-
that product development and commercialization efforts will be reduced or discontinued
due to difficulties or delays in clinical trials or a lack of progress or positive results from research and development efforts;
-
maintenance and progression of our business strategy;
-
the possibility that our products under development may not gain market acceptance;
-
our expectations about the potential market sizes and market participation potential
for our product candidates may not be realized;
-
our expected revenues (including sales, milestone payments and royalty revenues)
from our product candidates and any related commercial agreements of ours may not be realized;
-
the ability of our manufacturing partners to supply us or our commercial partners
with clinical or commercial supplies of our products in a safe, timely and regulatory compliant manner and the ability of such partners
to timely address any regulatory issues that have arisen or may in the future arise; and
-
competition existing today or that may arise in the future, including the possibility
that others may develop technologies or products superior to our products;
-
the effect that global pathogens could have on financial markets, materials
sourcing, patients, governments and population (e.g. COVID-19); and
-
other factors, including those “Risk Factors” set forth under
Part II, Item 1A. “Risk Factors” in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December
31, 2019.
Except as expressly required by the federal
securities laws, we undertake no obligation to publicly update or revise any forward-looking statements to reflect events or circumstances
occurring subsequent to the filing of this Form 10-Q with the United States Securities and Exchange Commission (the "SEC”) or for
any other reason. You should carefully review and consider the various disclosures we make in this report and our other reports filed
with the SEC that attempt to advise interested parties of the risks, uncertainties and other factors that may affect our business.
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: Specialized BioTherapeutics and Public Health Solutions.
Our Specialized BioTherapeutics business segment
is developing a novel photodynamic therapy (SGX301) utilizing topical synthetic hypericin activated with safe visible light for the treatment
of cutaneous T-cell lymphoma (“CTCL”), our first-in-class innate defense regulator 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 Public Health Solutions 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, and our vaccine programs targeting filoviruses (such as Marburg and Ebola) and
CiVaxTM, our vaccine candidate for the prevention of COVID-19 (caused by SARS-CoV-2). The
development of our vaccine programs currently is supported by our heat stabilization technology, known as ThermoVax®.
To date, this business segment has been supported with government grant and contract funding from the National Institute of Allergy and
Infectious Diseases (“NIAID”), the Biomedical Advanced Research and Development Authority and the Defense Threat Reduction
Agency (“DTRA”).
An outline of our business strategy follows:
-
Following positive primary endpoint topline analysis for the Phase 3 clinical trial of SGX301, as well as further statistically significant
improvement in response rates with longer treatment (18 weeks compared to 12 and 6 weeks of treatment), continue to
explore partnership and commercialization while pursuing New Drug Application (“NDA”) filing;
-
Following positive interim analysis and completion of enrollment in June 2020, report final topline results in our pivotal Phase 3
clinical trial of SGX942 for the treatment of oral mucositis in head and neck cancer;
-
Continue development of RiVax® (ricin toxin vaccine) and CiVaxTM (COVID-19 vaccine) in
combination with our ThermoVax® technology to develop new heat stable vaccines in biodefense and public health with
NIAID funding support;
-
Continue development of our therapeutic SGX943 and our vaccine programs targeting filoviruses (such as Marburg and Ebola) with DTRA
and NIAID funding support;
-
Continue to apply for and secure additional government funding for each of our Specialized BioTherapeutics and Public Health Solutions
programs through grants, contracts and/or procurements;
-
Pursue business development opportunities for our pipeline programs, as well as explore all strategic alternatives, including but not limited to merger/acquisition
strategies; and
-
Acquire or in-license new clinical-stage compounds for development.
Corporate
Information
We were incorporated in Delaware in 1987 under
the name Biological Therapeutics, Inc. In 1987, 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:
Specialized
BioTherapeutics Product Candidates*
Soligenix
Product Candidate
|
|
Therapeutic
Indication
|
|
Stage
of Development
|
|
|
|
|
|
SGX301
|
|
Cutaneous T-Cell Lymphoma
|
|
Phase 2 trial completed; demonstrated
significantly higher response rate compared to placebo; Phase 3 trial completed; demonstrated statistical significance in primary endpoint
in March 2020 (Cycle 1) and demonstrated continued improvement in treatment response with extended treatment in April 2020 (Cycle 2) and October 2020 (Cycle 3)
|
|
|
|
|
|
SGX942
|
|
Oral Mucositis in Head and Neck Cancer
|
|
Phase 2 trial completed; demonstrated
significant response compared to placebo with positive long-term (12 month) safety also reported; Phase 3 clinical trial enrollment completed
in June 2020, with positive interim analysis received in August 2019; final results expected in the fourth quarter of 2020
|
|
|
|
|
|
SGX203†
|
|
Pediatric Crohn’s disease
|
|
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
|
|
|
|
|
|
SGX201†
|
|
Acute Radiation Enteritis
|
|
Phase 1/2 clinical trial completed;
safety profile and preliminary efficacy demonstrated; further clinical development contingent upon additional funding, such as through
partnership
|
Public
Health Solutions*†
* Timelines subject to potential disruption due to COVID-19
outbreak.
† Contingent upon continued government contract/grant
funding or other funding source.
Specialized
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 visible 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 or UVB light can 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 United States (“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 an 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 U.S. 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.
In October 2019, the U.S. Patent Office allowed
the divisional patent application titled “Systems and Methods for Producing Synthetic Hypericin”. The allowed claims are
directed to unique, proprietary methods to produce a novel, highly purified form of synthetic hypericin. This new divisional claim set
expands on the previous issued claims in the parent U.S. patent.
In April 2020, the European patent office granted
the divisional patent application titled “Formulations and Methods of Treatment of Skin Conditions” (No. 2932973). The granted
claims are directed to the therapeutic use of synthetic hypericin in the treatment of CTCL. This new patent expands on our comprehensive
patent estate, which includes protection on the composition of the purified synthetic hypericin, methods of synthesis and therapeutic
methods of use in both CTCL and psoriasis, and is being pursued worldwide.
Based on the positive and previously published
Phase 2 results, 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 (Fluorescent Light
Activated Synthetic Hypericin),
aims to evaluate the response to SGX301 as a skin directed therapy to treat early stage CTCL. We have completed patient enrollment with
approximately 35 CTCL centers across the U.S. participating in this pivotal trial. The Phase 3 protocol is a highly powered, double-blind,
randomized, placebo-controlled, multicenter trial that enrolled 169 subjects (166 evaluable). 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 66% of subjects received SGX301 and 33% received placebo treatment
of their index lesions. In the second cycle, all subjects received SGX301 treatment of their index lesions, and in the third cycle, all
subjects received or are receiving SGX301 treatment of all of their lesions. The majority of subjects enrolled 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. This grant was exhausted as of
December 2019.
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.
Positive primary endpoint analysis for the Phase
3 study for SGX301 was completed in March 2020. The study enrolled 169 patients (166 evaluable) randomized 2:1 to receive either SGX301
(116 patients) or placebo (50 patients) and demonstrated a statistically significant treatment response (p=0.04) in the CAILS primary
endpoint assessment at 8 weeks for Cycle 1. A total of 16% of the patients receiving SGX301 achieved at least a 50% reduction in their
index lesions compared to only 4% of patients in the placebo group at 8 weeks. SGX301 treatment in the first cycle was safe and well tolerated.
During October 2020, analysis of the optional third open-label treatment
cycle (“Cycle 3”) was completed. Cycle 3 was focused
on safety and all patients could elect to receive SGX301 treatment of all their lesions for an additional 6 weeks or up to 18 weeks in
total. Of note, 66% of patients elected to continue with this optional safety cycle of the study. Of the subset of patients that received
SGX301 throughout all 3 cycles of treatment (18 weeks), 49% of them demonstrated a treatment response (p=0.046 vs. patients completing
12 weeks of SGX301 treatment in Cycle 2; p<0.0001 vs. patients receiving placebo in Cycle 1). Moreover, in a subset of patients evaluated
in this cycle, it was demonstrated that SGX301 is not systemically available, consistent with the general safety of this topical product
observed to date. At the end of Cycle 3, SGX301 continued to be well tolerated despite extended and increased use of the product
to treat multiple lesions.
In addition, continued analysis of results from the protocol mandated
efficacy cycles (Cycles 1 and 2) of the study revealed that 12 weeks of treatment (Cycle 2) with SGX301 is equally effective on both patch
(response 37%, p=0.0009) and plaque (response 42%, p<0.0001) lesions CTCL when compared to Cycle 1 placebo lesion responses, further
demonstrating the unique benefits of the more deeply penetrating visible light activation of hypericin.
During April 2020, analysis of the second open-label
treatment cycle (“Cycle 2”) was completed, showing that continued treatment with SGX301 twice weekly for an additional 6
weeks (12 weeks total) increased the positive response rate to 40% (p<0.0001 compared to placebo and p<0.0001 compared to 6-weeks
treatment). After the subsequent additional 6-week treatment, the response rate in patients receiving a total of 12 weeks treatment increased
two and a half-fold. Treatment responses were assessed at Week 8 (after 6 weeks of treatment) and at week 16 (after 12 weeks of treatment).
A positive response was defined as an improvement of at least 50% in the CAILS for three index lesions evaluated in both Cycles 1 and
2. The data continues to indicate that SGX301 is safe and well tolerated.
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 GI 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: https://www.sciencedirect.com/science/article/pii/S0168165616315668?via%3Dihub.
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 (Dusquetide treatment in Oral Mucositis
– 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 enrolled 268 subjects with squamous cell carcinoma of the oral cavity and oropharynx who
were 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/m2 every third week. Subjects were 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. Approximately 50 U.S. and
European oncology centers are participating in this pivotal Phase 3 study.
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. This grant was exhausted as of August 2019.
On April 9, 2019, the U.S. Patent Office issued
a new patent No. 10,253,068 titled “Novel Peptides for Treating and Preventing Immune-Related Disorders, Including Treating and
Preventing Infection by Modulating Innate Immunity” for our dusquetide related analogs.
In April 2019, the Paediatric Committee of the
EMA approved our Paediatric Investigation Plan (“PIP”) for SGX942, a prerequisite for filing a Marketing Authorization Application
(“MAA”) for any new medicinal product in Europe. The EMA also agreed that we may defer conducting the PIP until successful
completion of our ongoing pivotal Phase 3 clinical trial of SGX942, which allows us to file the adult indication MAA prior to completion
of the PIP.
In August 2019, the NIDCR, part of the NIH, awarded us a
Phase 1 SBIR grant of approximately $150,000 to support the evaluation of SGX942 (dusquetide) in pediatric indications. This award will
facilitate the assessment of SGX942 safety in juvenile animals, supporting future studies in pediatric populations, including oral mucositis
indications in pediatric patients undergoing stem cell transplants and treatments for head and neck cancer.
During August 2019, an independent DMC completed
an unblinded interim analysis with data from approximately 90 subjects, including an assessment of the Phase 3 DOM-INNATE study’s
primary efficacy endpoint. The DMC provided a positive recommendation to randomize approximately 70 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.
In February 2020, the Japanese Patent Office granted
the patent titled “Novel Peptides and Analogs for Use in the Treatment of Oral Mucositis.” This allowance builds on similar
intellectual property in the U.S., New Zealand, Australia and Singapore and patent applications pending in other jurisdictions worldwide.
The new claims cover therapeutic use of dusquetide (active ingredient in SGX942) and related IDR analogs, and add to composition of matter
claims for dusquetide and related analogs that have been granted in the U.S. and worldwide.
In
June 2020, enrollment of 268 subjects was completed. We currently anticipate final top-line results during the fourth quarter 2020.
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 GI 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 acute radiation syndrome pending further
grant funding. We are also exploring the possibility of testing oral BDP for local inflammation associated with ulcerative colitis, among
other indications.
In July 2019, the European Patent Office issued
two patents, both titled “Topically Active Steroids for use in Radiation and Chemotherapeutic Injury”, following the expiration
of the objection period. The new patents (#2,373,160 and #2,902,031) claim use of oral beclomethasone 17,21-dipropionate (BDP) for treatment
of damage to the GI tract as a result of acute radiation injury, including total body irradiation in the accidental or biodefense context.
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 GI
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 GI 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 GI 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.
Public
Health Solutions Overview
ThermoVax® – Thermostability
Technology
ThermoVax® is a novel method for
thermostabilizing vaccines with a variety of adjuvants, resulting in a single vial which can be reconstituted with water for injection
immediately prior to use.
One of the adjuvants utilized in ThermoVax®
is aluminum salts (known colloquially as Alum). 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 many vaccines need to be maintained either between
2 and 8 degrees Celsius (“C”), frozen below -20 degrees C, or frozen below -60 degrees C, and even brief excursions from
these temperature ranges usually necessitate 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, specifically
in the context of an Alum adjuvant, was supported pursuant to our $9.4 million NIAID grant enabling development of thermo-stable ricin
(RiVax®) and anthrax 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 Alum-adjuvanted
ricin toxin vaccine, RiVax® and our Alum-adjuvanted anthrax vaccine. 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 the anthrax vaccine 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 Hawaiʻi 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
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.
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 filovirus vaccine (including protection against Zaire
ebolavirus, Sudan
ebolavirus and Marburg
Marburgvirus),
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. Based on current U.S. government needs, efforts have recently been
expanded to focus on a monovalent or bivalent vaccine to specifically address Marburg
marburgvirus.
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, which was amended and restated on October
14, 2020, 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. Under the amended 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) $25,000 upon initiation of a Phase 2 clinical trial
of the sublicensed product, (b) $100,000 upon initiation of a Phase 3 clinical trial of the sublicensed product, (b) $100,000 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.
On February 7, 2019, European Journal of Pharmaceutics
and Biopharmaceutics published a scientific article demonstrating the successful thermostabilization of an Alum-adjuvanted Ebola subunit
vaccine candidate.
On July 31, 2019, we and our collaborators presented
two posters on the trivalent vaccine program. The first poster outlined the stability of the lyophilized formulations of the Ebola virus
glycoprotein upon lyophilization and storage at temperatures as high as 40 degrees C (104 degrees F) and identified potential stability
assays. The second poster further demonstrated the ability to co-lyophilize multiple antigens in the presence of an emulsion forming adjuvant,
facilitating the development of a thermostable trivalent vaccine.
On March 11, 2020, we entered into a research
collaboration with the Axel Lehrer, PhD of the Department of Tropical Medicine, Medical Microbiology and Pharmacology, John A. Burns School
of Medicine, UH Manoa to further expand the filovirus collaboration to investigation of potential coronavirus vaccines, including for
SARS-CoV-2 (causing COVID-19). This research collaboration will utilize the technology platform developed in the search for filovirus
vaccines and will use well-defined surface glycoprotein(s) from one or more coronaviruses, which are expected to be protective for COVID-19.
On April 16, 2020, we obtained an exclusive worldwide
license for CiVaxTM, a novel vaccine adjuvant, from BTG Specialty Pharmaceuticals (“BTG”), a division of Boston
Scientific Corporation, for the fields of coronavirus infection (including SARS-CoV-2, the cause of COVID-19), and pandemic flu. CiVaxTM
is a novel adjuvant, which has been shown to enhance both cell-mediated and antibody-mediated immunity. We and our collaborators,
including UH Manoa and Dr. Axel Lehrer, have successfully demonstrated the utility of CiVaxTM in the development of our heat
stable filovirus vaccine program, with vaccine candidates against Ebola and Marburg virus disease. Given this previous success, CiVaxTM
will potentially be an important component of our vaccine technology platform currently being assessed for use against coronaviruses including
SARS-CoV-2, the cause of COVID-19. The license agreement was executed between us and Protherics Medicines Development, one of the companies
that make up the BTG specialty pharmaceutical business, which owns the CiVaxTM intellectual property.
On July 28, 2020, we announced
the availability of a pre-print manuscript (available at https://doi.org/10.1101/2020.07.24.220715),
followed by the peer-reviewed publication on October 30, 2020 (https://www.frontiersin.org/articles/10.3389/fimmu.2020.599587/full),
describing CiVax™, a prototype COVID-19 vaccine, using the novel CoVaccine HT™ adjuvant and demonstrating significant
immunogenicity, including strong total and neutralizing antibody responses, with a balanced Th1 response, as well as enhancement of cell
mediated immunity. These are all considered to be critical attributes of a potential COVID-19 vaccine.
On
September 15, 2020 we announced the publication of a paper detailing the thermostabilization of the filovirus GP proteins and key assays
describing their stability (available at: https://www.jpharmsci.org/article/S0022-3549(20)30509-8/fulltext )
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 Alum adjuvant. 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® pursuant
to which we have been awarded an additional $21.2 million of funding in the aggregate. The development agreements with Emergent BioSolutions
and IDT are specifically funded under this NIH contract.
In 2017, NIAID exercised options to fund additional
animal efficacy studies and 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 options
provide us with approximately $4.5 million in additional non-dilutive funding, bringing the total amount awarded to date under this contract
to $21.2 million, of which $1.1 million is still available. The total award of up to $21.2 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 $21.2 million for the development of RiVax®, biomarkers for RiVax® testing have been successfully identified,
facilitating potential approval under the FDA Animal Rule.
During December 2019, we initiated a third Phase
1 double-blind, placebo-controlled, randomized study in eight healthy adult volunteer subjects designed to evaluate the safety and immunogenicity
of RiVax® utilizing ThermoVax®. During January 2020, we suspended the study after Emergent Manufacturing
Operations Baltimore LLC (“EMOB”), the manufacturer of the drug substance, notified us that, after releasing of the final
drug product to us, EMOB identified that the active drug substance tested outside the established specification parameters. Two subjects
had received doses as part of the study before the manufacturer provided this notice. Those two subjects will continue to be monitored
and data captured in accordance with the study protocol; however, they will not receive further doses of study drug. A clinical safety
report will be generated at study completion.
During April 2020, we received notification from
NIAID that they would not be exercising the final contract option to support the conduct of a Phase 1/2 clinical study in healthy volunteers.
As a result, the total contract award will not exceed $21.2 million.
In connection with failures relating to the manufacture
of RiVax® bulk drug substance, on July 1, 2020, we filed a demand for arbitration against Emergent Biosolutions, Inc.
(“EBS”), Emergent Product Development Gaithersburg, Inc. (“EPDG”); and EMOB (together with EBS and EPDG, “Emergent”)
with the American Arbitration Association in Mercer County, New Jersey. We have alleged that (a) EPDG breached contracts, an express warranty,
a warranty of merchantability, and a warranty of fitness for a particular purpose, (b) EMOB breached a contract; (c) EPDG was unjustly
enriched; (d) EPDG and EMOB were negligent in the performance of their work; and (e) EBS fraudulently induced us into entering into the
contracts with EPDG and EMOB. We are seeking to recover damages in excess of $19 million from Emergent. Emergent has answered the demand
for arbitration denying the allegations and asserting affirmative defenses. While we intend to vigorously pursue this arbitration, we
cannot offer any assurances as to any result from the arbitration or that we will recover any damages from Emergent. For more details
regarding the arbitration against Emergent, see Part II – Item 1. “Legal Proceedings” in this Quarterly Report.
RiVax® has been granted Orphan
Drug designation as well as Fast Track designation by the FDA for the prevention of ricin intoxication. In addition, RiVax®
has also been granted Orphan Drug designation in the European Union 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 in excess of $100 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 ($2.2 million for fiscal year 2020).
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 U.S. President, a Senator and a judge tested positive for ricin. As recently as September 2020, ricin-laced letters addressed to
the White House and others addressed to Texas law enforcement agencies were intercepted before delivery raising fresh concerns about the
deadly toxin.
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.
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:
-
before the infectious organism and/or its antibiotic
susceptibility is known; or
-
in at-risk populations prior to infection.
-
An ability to be used as an additive, complementary treatment with antibiotics,
thereby
-
enhancing efficacy of sub-optimal antibiotic regimens (e.g., partially antibiotic-resistant
infections);
-
enhancing clearance of infection, thereby minimizing the generation of antibiotic
resistance (e.g., in treating melioidosis); and
-
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.
In May 2019, we were awarded a DTRA subcontract
of approximately $600,000 over three years to participate in a biodefense contract for the development of medical countermeasures against
bacterial threat agents. As of September 30, 2020, there was negligible revenue earned or expense incurred related to the DTRA subcontract.
Critical Accounting Policies
Our discussion and analysis of our financial condition
and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities and expenses, and related disclosure of contingent assets and liabilities. We evaluate
these estimates and judgments on an on-going basis.
Revenue
Recognition
Our revenues are primarily generated from government
contracts and grants. The revenue from government contracts and grants is based upon subcontractor costs and internal costs incurred that
are specifically covered by the contracts and grants, plus a facilities and administrative rate that provides funding for overhead expenses
and management fees. These revenues are recognized when expenses have been incurred by subcontractors or when we incur reimbursable internal
expenses that are related to the government contracts and grants.
Research
and Development Costs
Research and development costs are charged to
expense when incurred in accordance with FASB ASC 730, Research and Development. Research and development includes costs such as
clinical trial expenses, contracted research and license agreement fees with no alternative future use, supplies and materials, salaries,
share-based compensation, employee benefits, equipment depreciation and allocation of various corporate costs. Purchased in-process research
and development expense represents the value assigned or paid for acquired research and development for which there is no alternative
future use as of the date of acquisition.
Use of
Estimates and Assumptions
The preparation of financial statements in conformity
with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions such as the fair value
of warrants and stock options and the useful life of intangibles that affect the reported amounts in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Material
Changes in Results of Operations
Three and Nine Months Ended September 30,
2020 Compared to September 30, 2019
For the three months ended September
30, 2020, we had a net loss of $1,790,160 as compared to a net loss of $2,720,783 for the same period in the prior year, representing
an decrease in the net loss of $930,623 or 35%. This decrease in net loss was
primarily the result of decreased research and development spending due to the completion of the CTCL trial.
For the nine months ended September 30, 2020, we had a net loss of $12,148,257 as compared to a net loss of $6,483,931 for the same period
in the prior year, representing an increase in the net loss of $5,664,326 or 87%. This increase in net loss was primarily the result of
the issuance of $5,000,000 of common stock as a milestone payment to Hy Biopharma, Inc. (“Hy Biopharma”) triggered by the
successful Phase 3 clinical trial of SGX301 for the treatment of CTCL and increased research and development spending.
Our
revenues and associated costs incurred relate to the government contracts and grants awarded in support of RiVax®, our
ricin toxin vaccine candidate; grants received to support the development of SGX943 for treatment of emerging and/or antibiotic-resistant
infectious diseases; ThermoVax®, our thermostabilization technology; and the assessment of SGX942 safety in juvenile animals.
For the three months ended September 30, 2020, we had revenues of $608,811 as compared
to $1,254,904 for the same period in the prior year, representing a decrease of
$646,093 or 51%. For the nine months ended September 30, 2020, we had revenues of $2,038,653
as compared to $3,944,655 for the same period in the prior year, representing
a decrease of $1,906,002 or 48%. We also incurred costs related to those revenues
for the three months ended September 30, 2020 and 2019 of $386,641 and $965,453, respectively,
representing a decrease of $578,812 or 60%. We also incurred cost related to those revenues for the nine months ended September
30, 2020 and 2019 of $1,579,485 and $2,980,191, respectively, representing a decrease
of $1,400,706 or 47%. Our gross profit for the three months ended September 30, 2020 was
$222,170 or 36% of revenues, as compared to $289,451 or 23% of revenues for the same period in 2019, representing a decrease of
$67,281 or 23%. Our gross profit from the nine months ended September 30, 2020 was $459,168
or 23% of revenues, as compared to $964,464 or 24% of revenues for the same period in 2019, representing a decrease of $505,296 or
52%. The decrease in revenues and gross profit were primarily the result of the closing of the CTCL study.
Research
and development expenses were $1,266,527 for the three months ended September 30,
2020 as compared to $2,266,799 for the same period in 2019, representing a decrease of $1,000,272 or 44%. Research and development
expenses were $6,136,743 for the nine months ended September 30, 2020 as compared
to $5,763,467 for the same period in 2019, representing an increase of $373,276 or 6%. The decrease in research and development
spending for the three months ended September 30, 2020 was primarily attributable to the reduction in expense due to the completion
of the CTCL trial. The increase in research and development spending for the nine months ended September 30, 2020 was due to an increase of activity for the two
Phase 3 clinical trials.
General
and administrative expenses were $768,420 for the three months ended September 30,
2020, as compared to $789,251 for the same period in 2019, representing a decrease of $20,831 or 3%. General and administrative expenses
were $2,422,863 for the nine months ended September 30, 2020, as compared to $2,432,550 for the same period in 2019, representing a decrease
of $9,687 or 0%.
Research and development expense - milestone expense
was $5,000,000 for the nine months ended September 30, 2020. The expense was due to the issuance of 1,956,182
shares of common stock to Hy Biopharma during the three months ended March 31, 2020 following the achievement of a milestone under the
asset purchase agreement, specifically, the Phase 3 clinical trial of SGX301 being successful in the treatment of CTCL. No milestones
were achieved during the three and nine months ended September 30, 2019.
Interest
income, net for the three months ended September 30, 2020 was $486 as compared to interest income of $37,007
for the same period in 2019, representing a decrease of $36,521 or 99%. Interest income for the nine months ended September 30, 2020 was
$24,450 as compared to $125,467 for the same period in 2019, representing a decrease of $101,017 or 81%. The decrease is due to
lower interest and dividend rates on our cash and cash equivalents investments for the three and nine months ended September 30, 2020
as compared to the same periods in 2019.
Financial Condition
Cash and Working Capital
As of September 30, 2020, we had cash and cash equivalents of $11,342,794 as compared to $5,420,708 as of December 31, 2019,
representing an increase of $5,922,086 or 109%. As of September 30, 2020, we had working capital of $7,193,758 as compared
to working capital of $1,181,249 as of December 31, 2019, representing an increase of $6,012,509 or 508%. The increase in cash and
working capital was primarily related to proceeds received from the sale of shares of our common stock via the At Market Issuance
Sales Agreement (“FBR Sales Agreement”) with B. Riley FBR, Inc., the warrant exercises completed during the nine months
ended September 30, 2020 and management of our cash burn, partially offset by cash used in operations.
Based on our current rate of cash outflows, cash
on hand, proceeds from government contract and grant programs and proceeds available from the FBR Sales Agreement, management believes
that its current cash will be sufficient to meet the anticipated cash needs for working capital and capital expenditures for at least
the next twelve months from issuance of the financial statements.
Our plans with respect to our liquidity management
include, but are not limited to, the following:
-
We have up to $0.9 million
in active government contract funding still available as of September 30, 2020 to
support our associated research programs through 2020 and beyond. We plan to submit additional contract and grant applications for further
support of our programs with various funding agencies.
-
We have continued to use equity instruments to provide a portion of the compensation due to vendors
and collaboration partners and expect to continue to do so for the foreseeable future.
-
We will continue to pursue NOL sales in the state of New Jersey pursuant to its Technology Business
Tax Certificate Transfer Program if the program is available.
-
We plan to pursue potential partnerships for pipeline programs; however, there can be no assurances
that we can consummate such transactions.
-
We have $20.0 million
remaining from the FBR Sales Agreement as of November 09, 2020 under the prospectus
supplement updated August 28, 2020, as no sales have been made under the FBR Sales Agreement since July 28, 2020.
-
We have obtained a Paycheck Protection Program Loan through financial stimulus packages authorized
by both the federal and state governments based on the current outbreak of SARS-CoV-2, the pathogen responsible for COVID-19. The loan amount
totaling $417,830 was granted by the SBA and administered through JPMorgan Chase Bank, N.A. to
fund our payroll costs and other expenses allowed by the program. We will continue to explore and evaluate additional funding options
through financial stimulus packages afforded by both the federal and state governments based on the current outbreak of SARS-CoV-2, the
pathogen responsible for COVID-19 if and as they become available.
-
We may seek additional capital in the private and/or public equity markets, pursue government contracts
and grants as well as business development activities, to continue our operations, respond to competitive pressures, develop new
products and services, and to support new strategic partnerships. We are currently evaluating additional equity/debt financing opportunities
on an ongoing basis and may execute them when appropriate. However, there can be no assurances that we can consummate such a transaction,
or consummate a transaction at favorable pricing.
Expenditures
Under
our budget and based upon our existing product development agreements and license agreements pursuant to letters of intent and option
agreements, we expect our total research and development expenditures for the next 12 months to be approximately $14.1
million before any contract or grant reimbursements, of which $13.2 million relates to the Specialized BioTherapeutics
business and $0.9 million relates to the Public Health Solutions business. We anticipate contract and grant reimbursements in the
next 12 months of approximately $1 million to offset research and development expenses in both the Specialized BioTherapeutics and
the Public Health Solutions business segments.
The table below details our costs for research
and development by program and amounts reimbursed for the nine months ended September 30:
Contractual Obligations
We have licensing fee commitments of approximately
$450,000 as of September 30, 2020 for several licensing agreements with entities, consultants and universities. Additionally, we have
collaboration and license agreements, which upon clinical or commercialization success may require the payment of milestones of up to
$7.9 million and/or royalties up to 6% of net sales of covered products, if and when achieved. However, there can be no assurance that
clinical or commercialization success will occur.
We currently lease approximately 6,200 square
feet of office space at 29 Emmons Drive, Suite B-10 in Princeton, New Jersey pursuant to a lease that was amended in October 2017 and
expired in October 2020. Pursuant to an amendment executed on July 7, 2020, the lease has been extended to October 2022. The
current rent of $11,883 per month, or approximately $23.00 per square foot will be reduced to $21.50 per square foot, making the monthly
payment $11,108 starting in November 2020 for the remainder of the two year lease extension. Our
office space is sufficient to satisfy our current needs.
On September 3, 2014, we entered into an asset
purchase agreement with Hy Biopharma pursuant to which we acquired certain intangible assets, properties and rights of Hy Biopharma related
to the development of Hy BioPharma’s synthetic hypericin product. As consideration for the assets acquired, we initially paid $275,000
in cash and issued 184,912 shares of common stock with a fair value based upon our stock price on the date of grant of $3,750,000. These
amounts were charged to research and development expense during the third quarter of 2014 as the assets will be used in our research and
development activities and do not have alternative future use pursuant to generally accepted accounting principles in the U.S.
On March 20, 2020, we filed a prospectus supplement
covering the offer and sale of up to 1,956,182 shares of our common stock which were issued to Hy Biopharma. We were required to issue
the shares to Hy Biopharma as payment following the achievement of a milestone under the asset purchase agreement, specifically, the Phase
3 clinical trial of SGX301 being successful in the treatment of CTCL. The number of shares of our common stock issued to Hy Biopharma
was calculated using an effective price of $2.56 per share, based upon a formula set forth in the asset purchase agreement.
Provided the final success-oriented milestone
is attained, we will be required to make a payment of up to $5.0 million, if and when achieved to Hy Biopharma. The potential
future payment will be payable in our common stock not to exceed 19.9% of our outstanding stock.
In January 2020, our Board of Directors authorized
an amendment to Dr. Schaber’s employment agreement to increase the number of shares of common stock from 5,000 to 500,000, issuable
to Dr. Schaber immediately prior to the completion of a transaction, or series or a combination of related transactions, negotiated by
our Board of Directors whereby, directly or indirectly, a majority of our capital stock or a majority of our assets are transferred from
us and/or our stockholders to a third party. Dr. Schaber's employment agreement was amended to include our obligation to issue the increased
number of shares if such event occurs.
As a result of the above agreements, we have future
contractual obligations as follows:
CARES
Act Loan
On April 13, 2020, we were advised that one of
our principal banks, JPMorgan Chase Bank, N.A., had approved a $417,830 loan (the “Loan”) under the Paycheck Protection
Program (“PPP”) pursuant to the Coronavirus Aid, Relief and Economic Security Act that was signed into law on March 27,
2020.
As a U.S. small business, we qualified for the
PPP, which allows businesses and nonprofits with fewer than 500 employees to obtain loans of up to $10 million to incentivize companies
to maintain their workers as they manage the business disruptions caused by the COVID-19 pandemic. The PPP provides for loans for amounts
up to 2.5 times of the average monthly payroll expenses of the qualifying business. The PPP loan proceeds may be used for eligible purposes,
including payroll, benefits, rent and utilities.
The Loan, has a term of two years, is unsecured,
and is guaranteed by the Small Business Administration. The Loan bears interest at a fixed rate of 0.98% per annum, with the first six
months of interest and principal deferred. Some or all of the Loan may be forgiven if at least 75% of the Loan proceeds are used by us
to cover payroll costs, including benefits and if we maintain our employment and compensation within certain parameters during the eight-week or twenty-four-week
period following the Loan origination date and comply with other relevant conditions. We have used the proceeds for purposes consistent
with the PPP and expect to meet the conditions for forgiveness of the Loan.
Contingencies
We follow subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies.
Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to us but which will only
be resolved when one or more future events occur or fail to occur. We assesses such contingent liabilities, and such assessment inherently
involves an exercise of judgment. A liability is only recorded if we determine that it is both probably and reasonably estimable.
COVID-19
Based on the current outbreak of SARS-CoV-2, the
pathogen responsible for COVID-19, which has already had an impact on financial markets, there could be additional repercussions in our
operating business, including but not limited to, the sourcing of materials for product candidates, manufacture of supplies for preclinical
and/or clinical studies, delays in clinical operations, which may include the availability or the continued availability of patients for
trials due to such things as quarantines, conduct of patient monitoring and clinical trial data retrieval at investigational study sites.
The future impact of the outbreak is highly uncertain
and cannot be predicted, and we cannot provide any assurance that the outbreak will not have a material adverse impact on our operations
or future results or filings with regulatory health authorities. The extent of the impact, if any, we will depend on future developments,
including actions taken to contain the coronavirus.
Emergent BioSolutions Legal Proceedings
On July 1, 2020, we filed a demand for arbitration against Emergent BioSolutions, Inc. ("Emergent")
and certain of its subsidiaries with the American Arbitration Association in Mercer County, New Jersey. We allege in the arbitration various
breaches of contracts and warranties as well as acts of fraud. Emergent has answered that demand for arbitration denying the allegations
and asserting affirmative defenses. (see Part II, Item 1 – Legal Proceeding)
We are seeking to recover damages in excess of $19 million from Emergent. While we intend to vigorously
pursue this arbitration, we cannot offer any assurances that we will recover any damages from Emergent.
We have received invoices from Emergent related to the above matter. No accrual has been made for these
invoices as we deem them invalid because Emergent failed to perform under the applicable contracts,
and not probable of being required to pay them based on the numerous breaches sited in the pending arbitration. These invoices total approximately
$331,000.