SOLIGENIX, INC. - Annual Report: 2008 (Form 10-K)
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
[X] ANNUAL
REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the
Fiscal Year Ended December 31,
2008
[
] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15
(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the
transition period from
____________ to ____________
Commission
File No. 000-16929
DOR
BIOPHARMA, INC.
(Exact
name of small business issuer as specified in its charter)
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DELAWARE
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41-1505029
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification Number)
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29
Emmons Drive Suite C-10
Princeton,
NJ
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08540
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(Address
of principal executive offices)
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(Zip
Code)
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(609)
538-8200
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(Issuer’s
telephone number, including area code)
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Securities
registered under Section 12 (b) of the Exchange Act:
Title of Each Class of
Securities to be
Registered
Name of Each Exchange
on Which Registered
Common Stock, par
value $.001 per
share
OTCBB
Securities
registered under Section 12 (g) of the Exchange Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes £ No R
Indicate by check mark if the registrant is not required
to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes £ No R
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes R No
£
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will
not be contained, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
10-K or any amendments to this Form 10-K. R
Indicate
by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definition of “large accelerated filer”, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
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Large accelerated filer £
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Accelerated filer £
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Non-accelerated filer £
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Smaller reporting company R
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Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes £ No R
The
aggregate market value of the common stock held by non-affiliates of the
registrant was approximately $18,000,000 (assuming, for this purpose, that
executive officers, directors and holders of 10% or more of the common stock are
affiliates), based on the closing price of the registrant’s common stock as
reported on the Over-the-Counter Bulletin Board on June 30, 2008.
At March
25, 2009, 167,070,944 shares of the registrant’s common stock were
outstanding.
DOCUMENTS INCORPORATED BY
REFERENCE: None.
2
PART
I
Item 1. Business.
This
Annual Report on Form 10-K contains statements of a forward-looking nature
relating to future events or our future financial performance. These statements
are only predictions and actual events or results may differ
materially. In evaluating such statements, you should carefully
consider the various factors identified in this report that could cause actual
results to differ materially from those indicated in any forward-looking
statements, including those set forth in “Risk Factors” in this Annual
Report. See “Cautionary Note Regarding Forward Looking
Statements.”
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A.
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Overview
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We were
incorporated in Delaware in 1987. We are a late-stage research and development
biopharmaceutical company focused on developing products to treat
life-threatening side effects of cancer treatments and serious gastrointestinal
diseases where there remains an unmet medical need; as well as several
biodefense vaccines. We maintain two active business segments: BioTherapeutics
and BioDefense. Our business strategy is to:
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(a)
initiate and execute the pivotal Phase 3 confirmatory clinical trial
for orBec® in
the treatment of acute gastrointestinal Graft-versus-Host disease (“GI
GVHD”);
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(b)
identify a development and marketing partner for orBec®
for territories outside of North America, as we have granted an exclusive
license to Sigma-Tau Pharmaceuticals, Inc. (“Sigma-Tau”) to
commercialize orBec® in
the U.S., Canada and Mexico, we will be paid a 35% royalty on net sales in
these territories by Sigma-Tau and they will be responsible for the
expense associated with all launch preparation and post-approval sales and
marketing activities;
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| (c) conduct a Phase 2 clinical trial of orBec® for the prevention of acute Graft-versus-Host disease (“GVHD”); |
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(d)
evaluate and initiate additional clinical trials to explore the
effectiveness of oral beclomethasone dipropionate (oral “BDP”) in other
therapeutic indications involving inflammatory conditions of the
gastrointestinal (“GI”) tract such as radiation enteritis, radiation
injury and Crohn’s disease;
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(e)
make orBec® available
worldwide through named patient access programs (“NPAP”) for the treatment
of acute GI GVHD;
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(f) reinitiate
development of our other biotherapeutics products, namely LPMTM
Leuprolide;
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(g)
continue to secure additional government funding for each of our
biodefense programs, RiVaxTM and
BT-VACCTM,
through grants, contracts and
procurements;
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(h)
convert our biodefense vaccine programs from early stage development to
advanced development and manufacturing with the potential to
collaborate and/or partner with other companies in the biodefense
area;
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| (i) acquire or in-license new clinical-stage compounds for development; and |
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(j) explore
other business development and acquisition strategies under which we may
be considered to be an attractive
acquisition candidate by another
company.
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1.
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BioTherapeutics
Overview
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orBec®
orBec®
represents a first-of-its-kind oral, locally acting
therapy tailored to treat the gastrointestinal manifestation of GI GVHD, the
organ system where GVHD is most frequently encountered and highly problematic.
orBec® is intended to reduce the need for systemic immunosuppressive drugs to
treat acute GI GVHD. The active ingredient in orBec® is BDP, a highly potent,
topically active corticosteroid that has a local effect on inflamed tissue. BDP
has been marketed in the U.S. and worldwide since the early 1970’s 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. orBec® is specifically
formulated for oral administration as a single product consisting of two
tablets; one tablet is intended to release BDP in the proximal portions of the
GI tract, and the other tablet is intended to release BDP in the distal portions
of the GI tract.
In
addition to issued patents and pending worldwide patent applications held by or
exclusively licensed to us, orBec® also benefits from orphan drug designations
in the U.S. and in Europe for the treatment of GI GVHD, which provide for seven
and 10 years of post-approval market exclusivity, respectively.
Clinical
and Regulatory History
Two prior
randomized, double-blind, placebo-controlled Phase 2 and 3
clinical trials support orBec’s® ability to provide clinically meaningful
outcomes when compared with the current standard of care, including a lowered
exposure to systemic corticosteroids following allogeneic transplantation.
Currently, there are no approved products to treat GI GVHD. The first trial was
a 60-patient Phase 2 single-center clinical trial conducted at the Fred
Hutchinson Cancer Research Center. The second trial was a 129-patient pivotal
Phase 3 multi-center clinical trial of orBec® conducted at 16 leading bone
marrow/stem cell transplantation centers in the US and France. Although orBec®
did not achieve statistical significance in the primary endpoint of its pivotal
trial, namely median time-to-treatment failure through Day 50 (p-value 0.1177),
orBec® did achieve statistical significance in other key secondary endpoints
such as the proportion of patients free of GVHD at Day 50 (p-value 0.05) and Day
80 (p-value 0.005) and the median time to treatment failure through Day 80
(p-value 0.0226), as well as a 66% reduction in mortality among patients
randomized to orBec® at 200 days post-transplant with only 5 patient (8%) deaths
in the orBec® group compared to 16 patient (24%) deaths in the placebo group
(p-value 0.0139). At one year post randomization in the pivotal Phase 3 trial,
18 patients (29%) in the orBec® group and 28 patients (42%) in the placebo group
died within one year of randomization (46% reduction in mortality,
p=0.04).
In the
Phase 2 study, the primary endpoint was the clinically relevant determination of
whether GI GVHD patients at Day 30 (the end of treatment) had a durable GVHD
treatment response as measured by whether or not they were able to consume at
least 70% of their estimated caloric requirement. The GVHD treatment response at
Day 30 was 22 of 31 (71%) vs. 12 of 29 (41%) in the orBec® and placebo groups,
respectively (p-value 0.02). Additionally, the GVHD treatment response at Day 40
(10 days post cessation of therapy) was 16 of 31 (52%) vs. 5 of 29 (17%) in the
orBec® and placebo groups, respectively (p-value 0.007).
Based on
the data from Phase 2 and the Phase 3 studies, on September 21, 2006, we filed a
new drug application (“NDA”) for our lead product orBec® with the
U.S. Food and Drug Administration (“FDA”) for the treatment of acute GI
GVHD. On November 3, 2006, we also filed a Marketing Authorization Application
(“MAA”) for orBec® with the
European Central Authority, the European Medicines Evaluation Agency (“EMEA”).
On October 18, 2007, we received a not approvable letter from the FDA in
response to our NDA for orBec® for
the treatment of acute GI GVHD. In the letter, the FDA requested additional
clinical trial data to demonstrate the safety and efficacy of orBec®. The
FDA also requested nonclinical and chemistry, manufacturing and controls
information as part of the not approvable letter. On October 19, 2007, we
requested an “End of Review Conference” with the FDA to further understand the
letter and gain clarity as to the next steps. On December 7, 2007, we announced
FDA guidance from that meeting in which a single, confirmatory, Phase 3 clinical
trial could provide sufficient evidence of efficacy provided that it is well
designed, well executed and provides clinically and statistically meaningful
findings, and that the FDA would be agreeable to reviewing a plan for a
Treatment Investigational New Drug (“Treatment IND”) as long as it does not
interfere with patient accrual in a confirmatory trial. In May 2008, we
voluntarily withdrew the MAA that was being reviewed by EMEA. We reached this
decision after consultation with the EMEA and determining that confirmatory
evidence of clinical efficacy will be required for approval. This is
consistent with the request made by the FDA. The withdrawal of an MAA
application does not prejudice the possibility of making a new application at a
later stage.
We
recently reached agreement with the FDA on the design of a confirmatory, pivotal
Phase 3 clinical trial evaluating our lead product orBec® for the
treatment of acute GI GVHD. The agreement was made under the FDA’s Special
Protocol Assessment (“SPA”) procedure. An agreement via the SPA procedure is an
agreement with the FDA that a Phase 3 clinical trial's design (e.g., endpoints,
sample size, control group and statistical analyses) is acceptable to support a
regulatory submission seeking new drug approval. After the study begins, the FDA
can only change a SPA for very limited reasons. Based on data from the prior
Phase 3 study of orBec®, the upcoming confirmatory Phase 3 protocol will be a
highly powered, double-blind, randomized, placebo-controlled, multi-center trial
and will seek to enroll an estimated 166 patients. The primary endpoint is the
treatment failure rate at Study Day 80. This endpoint was successfully measured
as a secondary endpoint (p-value = 0.005) in the previous Phase 3 study as a key
measure of durability following a 50-day course of treatment with orBec® (i.e.,
30 days following cessation of treatment).
We have
entered into a collaboration agreement with
Numoda Corporation (“Numoda”), for the execution of our upcoming
confirmatory, Phase 3 clinical trial of orBec®. Collaborating
with Numoda will allow us to take advantage of a scope of services including
using their industry benchmarking capabilities to develop an operational and
financial plan including the use of a
proprietary management and oversight capabilities process. Barring any
unforeseen modifications to the Phase 3 clinical program, Numoda will guarantee
the agreed clinical trial budget against cost overruns. As part of the
collaboration, Numoda has agreed to accept payment
in our common stock in exchange for a portion of its services in
connection with the conduct of the upcoming confirmatory Phase 3 clinical trial.
To date, we have issued 347,222 shares of common
stock to Numoda in partial payment for its services. Working with Numoda,
we also will be able to take full advantage of early reporting of results to
potential licensing partners and others. We expect to begin enrollment in the
confirmatory Phase 3 trial in the second half of 2009.
On February 11, 2009, we entered
into a collaboration and supply agreement with Sigma-Tau for
the commercialization of orBec®. Pursuant
to this agreement, Sigma-Tau has an exclusive license to commercialize orBec® in
the U.S., Canada and Mexico
(the Territory). Sigma-Tau is obligated to
make payments upon the attainment of significant milestones, as set forth in the
agreement. The first milestone payment, of $1 million, will be made upon
the enrollment of the first patient in our confirmatory Phase 3 clinical
trial of orBec® for the treatment of acute GI GVHD, which is expected to occur
in the second half of 2009. Total milestone
payments due from Sigma-Tau for orBec® under the agreement could reach up to $10
million. Sigma-Tau will pay us a 35%
royalty on net sales in the Territory, as well as pay for
commercialization expenses, including launch activities.
In connection with the execution of the collaboration
and supply agreement, we entered into a common stock purchase agreement with
Sigma-Tau pursuant to which we sold 25 million shares of our common stock to
Sigma-Tau for $0.18 per share, for an aggregate price of
$4,500,000. The purchase price is equal to one hundred fifty percent
(150%) of the average trading price of our common stock over the five trading
days prior to February 11, 2009. On
November 26, 2008, prior to entering the collaboration agreement, we sold
Sigma-Tau 16,666,667 common shares at $0.09 per share (the market price at the
time) for proceeds of $1,500,000 in exchange for the exclusive right to
negotiate a collaboration deal with us until March 1,
2009. As part of these
transactions, we granted Sigma-Tau certain demand and piggy-back
registration rights. Sigma-Tau is a pharmaceutical company that creates novel
therapies for the unmet needs of patients with rare diseases. They have both
prescription and consumer products in metabolic,
oncology, renal and supplements.
On
November 25, 2008, we announced that the Therapeutics Goods Administration of
Australia designated orBec® as an Orphan Drug for the treatment of patients with
GI GVHD following allogeneic hematopoietic cell transplantation.
On
September 10, 2008, we announced that we entered into a collaboration agreement
with BurnsAdler Pharmaceuticals, Inc. (“BurnsAdler”), a specialty pharmaceutical
company based in North Carolina under which BurnsAdler will act as our
distributor of a NPAP for orBec® to patients suffering from acute GI GVHD in all
countries within Central America, South America and the Caribbean (Latin
America). On October 30, 2008 we announced that we expanded our collaboration
with BurnsAdler, as our distributor of orBec® to patients suffering from acute
GI GVHD in Canada via the Special Access Programme.
On August
27, 2008, we announced that we entered into a collaboration agreement with
Pacific Healthcare Thailand Co., Ltd. (“Pacific”), a specialty pharmaceutical
company based in Bangkok, under which Pacific will act as our sponsor to
administer an NPAP for orBec® to patients suffering from acute GI GVHD in
Thailand as well as other Association of Southeast Asian Nations (ASEAN) member
countries including Brunei, Cambodia, Indonesia, Laos, Myanmar, Philippines and
Vietnam.
On July
18, 2008, we announced that we entered into collaboration agreement with Steward
Cross Pte Ltd (“Steward Cross”), a specialty pharmaceutical company based in
Singapore, under which Steward Cross will act as our Sponsor to administer an
NPAP for patients suffering from acute GI GVHD in Singapore and Malaysia. We
will manufacture and supply orBec®
to Steward Cross, while Steward Cross will be responsible for all
distribution costs in Singapore and Malaysia.
On July
15, 2008, we announced that we entered into a definitive collaborative agreement
with IDIS Limited (“IDIS”), under which IDIS will act as our sponsor to
administer an NPAP for patients suffering from acute GI GVHD in the European
Union. IDIS is the leading specialist in the management of NPAPs in
Europe.
On
February 15, 2008, we announced that we entered into a Letter of Intent with
BL&H Co. Ltd. (“BL&H”), a specialty pharmaceutical company based in
Seoul, Korea, pursuant to which BL&H will act as our sponsor with regard to
the administration of an NPAP for orBec® to
patients suffering from acute GI GVHD in South Korea.
On
November 28, 2007, we announced that we entered into a Letter of Intent with
Orphan Australia Pty Ltd. (“Orphan Australia”), a specialty pharmaceutical
company based in Melbourne, Australia, pursuant to which Orphan Australia will
act as our sponsor with regard to the administration of an NPAP for orBec® to acute
GI GVHD patients in Australia, New Zealand and South Africa.
On
September 12, 2007, we announced that our academic partner, the Fred Hutchinson
Cancer Research Center (“FHCRC”), received a $1 million grant from NIH to
conduct preclinical studies of oral beclomethasone dipropionate (oral BDP, also
the active ingredient in orBec®) for the
treatment of GI radiation injury. While we will not receive any monetary benefit
from this grant, we will benefit if this work is successful and it will enhance
the value of our orBec®/oral BDP
program. The purpose of the studies funded by the grant, entitled “Improving
Gastrointestinal Recovery after Radiation,” is to evaluate the ability of three
promising clinical-grade drugs, including oral BDP, given alone or in
combination, that are likely to significantly mitigate the damage to the
gastrointestinal epithelium caused by exposure to high doses of radiation using
a well-established dog model. The GI tract is highly sensitive to ionizing
radiation and the destruction of epithelial tissue is one of first effects of
radiation exposure. The rapid loss of epithelial cells leads to inflammation and
infection that are often the primary cause of death in acute radiation injury.
This type of therapy, if successful, would benefit cancer patients undergoing
radiation, chemotherapy, or victims of nuclear-terrorism. In most radiation
scenarios, injury to the hematopoietic (blood) system and gastrointestinal tract
are the main determinants of survival. The studies will compare overall survival
and markers of intestinal cell regeneration when the drug regimens are added to
supportive care intended to boost proliferation of blood cells. The principal
investigator of the study is George E. Georges, M.D., Associate Member of the
FHCRC.
On July
12, 2007, we announced that patient enrollment commenced in a randomized, double
blind, placebo-controlled, Phase 2 clinical trial of orBec® for the
prevention of acute GVHD after allogeneic HCT with myeloablative conditioning
regimens. The trial is being conducted by Paul Martin, M.D., at the FHCRC in
Seattle, Washington and is being supported, in large part, by an NIH grant. We
will not receive any direct monetary benefit from this grant, but if successful,
this funded trial could serve to increase the value of our orBec®/oral BDP
program. The Phase 2 trial will seek to enroll up to 138 (92
orBec® and 46
placebo) patients. The primary endpoint of the trial is the proportion of
subjects who develop acute GVHD with severity sufficient to require systemic
immunosuppressive treatment on or before day 90 after
transplantation. Patients in this study will begin dosing at the
start of the conditioning regimen and continue through day 75 following HCT.
Enrollment in this trial is expected to be completed in the second half of
2009.
200
Days Post Transplantation Mortality Results
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Phase
3 trial
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Phase
2 trial
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orBec®
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Placebo
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orBec®
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Placebo
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Number
of patients randomized
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62
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67
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31
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29
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Number
(%) who died
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5
(8%)
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16
(24%)
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3
(10%)
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6
(21%)
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Hazard
ratio (95% confidence interval)
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0.33
(0.12, 0.89)
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0.47
(0.12, 1.87)
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Death
with infection*
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3
(5%)
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9
(13%)
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2
(6%)
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5
(17%)
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Death
with relapse*
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3
(5%)
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9
(13%)
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1
(3%)
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4
(14%)
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*Some
patients died with both infection and relapse of their underlying
malignancy.
In this
Phase 3 clinical trial, survival at the pre-specified endpoint of 200 days
post-transplantation showed a clinically meaningful and statistically
significant result. According to the manuscript, “the risk of mortality during
the 200-day post-transplantation period was 67% lower with orBec®
treatment compared to placebo treatment (hazard ratio 0.33; 95% CI: 0.12, 0.89;
p=0.03, Wald chi-square test).” The most common proximate causes of death by
transplantation day-200 were relapse of the underlying malignancy and infection.
Relapse of the underlying hematologic malignancy had contributed to the deaths
of 9/67 patients (13.4%) in the placebo arm and 3/62 patients (4.8%) in the BDP
arm. Infection contributed to the deaths of 9/67 patients (13.4%) in the placebo
arm and 3/62 (4.8%) in the BDP arm. Acute or chronic GVHD was the proximate
cause of death in 3/67 patients (4.5%) in the placebo arm and in 1/62 (1.6%) in
the BDP arm.
A
retrospective analysis of survival at 200 days post-transplantation in the
supportive Phase 2 clinical trial showed consistent response rates with the
Phase 3 trial; three patients (10%) who had been randomized to orBec® had
died, compared with six deaths (21%) among patients who had been randomized to
placebo, leading to a reduced hazard of day-200 mortality, although not
statistically significantly different. Detailed analysis of the
likely proximate cause of death showed that mortality with infection or with
relapse of underlying malignancy were both reduced in the same proportion after
treatment with orBec® compared
to placebo. By transplantation day-200, relapse of hematologic
malignancy had contributed to the deaths of 1 of 31 patients (3%) in the
orBec® arm and
4 of 29 patients (14%) in the placebo arm. Infection contributed to
the deaths of 2 of 31 patients (6%) in the orBec® arm and
5 of 29 patients (17%) in the placebo arm.
In this
Phase 3 trial, orBec® achieved
these mortality results despite the fact that there were more “high risk of
underlying cancer relapse” patients in the orBec® group
than in the placebo group: 40, or 65%, versus 29, or 43%, respectively. There
was also an imbalance of non-myeloablative patients in the orBec®
treatment group, 26, or 42%, in the orBec® group
versus 15, or 22%, in the placebo group, putting the orBec® group at
a further disadvantage. In addition, a subgroup analysis also
revealed that patients dosed with orBec® who had
received stem cells from unrelated donors had a 94% reduction in the risk of
mortality 200 days post-transplantation.
orBec®
Comprehensive Long-Term Mortality Results
Among the
data reported in the January 2007 issue of Blood, the peer-reviewed
Journal of the American Society of Hematology, orBec® showed
continued survival benefit when compared to placebo one year after randomization
in the pivotal Phase 3 clinical trial. Overall, 18 patients (29%) in the
orBec® group
and 28 patients (42%) in the placebo group died within one year of randomization
(46% reduction in mortality, p=0.04). Results from the Phase 2 trial
also demonstrated enhanced long-term survival benefit with orBec® versus
placebo. In that study, at one year after randomization, 6 of 31 patients (19%)
in the orBec® group
had died while 9 of 29 patients (31%) in the placebo group had died (45%
reduction in mortality, p=0.26). Pooling the survival data from both trials
demonstrated that the survival benefit of orBec®
treatment was sustained long after orBec® was
discontinued and extended well beyond 3 years after the transplantation. As of
September 25, 2005, median follow-up of patients in the two trials was 3.5 years
(placebo patients) and 3.6 years (orBec®
patients), with a range of 10.6 months to 11.1 years. The risk of mortality was
37% lower for patients randomized to orBec® compared
with placebo (p=0.03).
Safety
and Adverse Events
The
frequencies of severe adverse events, adverse events related to study drug, and
adverse events resulting in study drug discontinuation were all comparable to
that of the placebo group in both trials. Patients who remained on orBec® until
Day 50 in the Phase 3 study had a higher likelihood of having biochemical
evidence of abnormal hypothalamic-pituitary-adrenal axis function compared to
patients on placebo.
Commercialization
and Market
We
anticipate the market potential for orBec® for the
treatment of acute GI GVHD to be approximately 50 percent of the more than
10,000 allogeneic bone marrow and stem cell transplantations that occur each
year in the U.S.
On
December 1, 2008, we received $1.5 million under a non-binding letter of intent
with Sigma-Tau, which granted Sigma-Tau an exclusive right to negotiate terms
and conditions for a possible business transaction or strategic alliance
regarding orBec® and
potentially other pipeline compounds until March 1, 2009. Sigma-Tau is a
pharmaceutical company that creates novel therapies for the unmet needs of
patients with rare diseases. Sigma-Tau has both prescription and consumer
products in the metabolic, oncology, and renal markets.
On February 11, 2009, we entered into a collaboration
and supply agreement with Sigma-Tau for the commercialization of Beclomethasone
Dipropionate (orBec®). Pursuant to this agreement, Sigma-Tau has an exclusive
license to commercialize orBec® in the U.S., Canada and
Mexico. Sigma-Tau is obligated to make payments upon the attainment of
significant milestones, as set forth in the agreement. The first
milestone payment of $1 million will be made upon the enrollment of the first
patient in our confirmatory Phase 3 clinical trial of orBec® for the
treatment of acute GI GVHD, which is expected to occur in the second half of
2009. Total milestone payments due from Sigma-Tau
for orBec® under the agreement could reach up to $10 million. Sigma-Tau
will pay us a 35% royalty on net sales, as well as pay for
commercialization expenses, including launch activities.
Research and Development Analysis for orBec®
Since 2000, we have incurred expenses of approximately
$16,000,000 in the development of orBec®. Research and development costs for orBec® totaled $933,561 for the 12 months ended
December 31, 2008 and $2,288,615 and $3,060,778 for the years ended December 31,
2007 and 2006, respectively.
About
GVHD
GVHD
occurs in patients following allogeneic bone marrow transplantation in which
tissues of the host, most frequently the gut, liver, and skin, are attacked by
lymphocytes from the donor (graft) marrow. Patients with mild to moderate GI
GVHD present to the clinic with early satiety, anorexia, nausea, vomiting and
diarrhea. If left untreated, symptoms of GI GVHD persist and can progress to
necrosis and exfoliation of most of the epithelial cells of the intestinal
mucosa, frequently a fatal condition. Approximately 50% of the more than 10,000
annual allogeneic transplantation patients in the U.S. will develop some form of
acute GI GVHD.
GI GVHD
is one of the most common causes for the failure of bone marrow transplantation.
These procedures are being increasingly utilized to treat leukemia and other
cancer patients with the prospect of eliminating residual disease and reducing
the likelihood of relapse. orBec®
represents a first-of-its-kind oral, locally acting therapy tailored to
treat the gastrointestinal manifestation of GVHD, the organ system where GVHD is
most frequently encountered and highly problematic. orBec® is
intended to reduce the need for systemic immunosuppressives to treat acute GI
GVHD. Currently used systemic immunosuppressives utilized to control GI GVHD
substantially inhibit the highly desirable Graft-versus-Leukemia (“GVL”) effect
of bone marrow transplantations, leading to high rates of aggressive forms of
relapse, as well as substantial rates of mortality due to opportunistic
infection.
About
Allogeneic Bone Marrow/Stem Hematopoietic Cell Transplantation
(HCT)
Allogeneic
HCT is considered a potentially curative option for many leukemias as well as
other forms of blood cancer. In an allogeneic HCT procedure,
hematopoietic stem cells are harvested from a closely matched relative or
unrelated person, and are transplanted into the patient following either
high-dose chemotherapy or intense immunosuppressive conditioning
therapy. The curative potential of allogeneic HCT is now partly
attributed to the GVL or Graft-versus-Tumor effects of the newly transplanted
donor cells to recognize and destroy malignant cells in the recipient
patient.
The use
of allogeneic HCT has grown substantially over the last decade due to advances
in human immunogenetics, the establishment of unrelated donor programs, the use
of cord blood as a source of hematopoietic stem cells and the advent of
non-myeloablative conditioning regimens, or mini-transplants, that avoid the
side effects of high-dose chemotherapy. Based on the latest
statistics available, it is estimated that there are more than 10,000 allogeneic
HCT procedures annually in the U.S. and a comparable number in
Europe. Estimates as to the current annual rate of increase in these
procedures are as high as 20%. High rates of morbidity and mortality occur in
this patient population. Clinical trials are also underway testing allogeneic
HCT for treatment of some metastatic solid tumors such as breast cancer, renal
cell carcinoma, melanoma and ovarian cancer. Allogeneic transplantation has also
been used as curative therapy for several genetic disorders, including
immunodeficiency syndromes, inborn errors of metabolism, thalassemia and sickle
cell disease. The primary toxicity of allogeneic HCT, however, is GVHD in which
the newly transplanted donor cells damage cells in the recipient’s
gastrointestinal tract, liver and skin.
Future
Potential Indications of orBec® and Oral
BDP
Based on
its pharmacological characteristics, orBec® may have
utility in treating other conditions of the gastrointestinal tract having an
inflammatory component. We have an issued U.S. patent 6,096,731 claiming the use
of oral BDP as a method for preventing and treating the tissue damage that is
associated with both GI GVHD following HCT, as well as GVHD which also occurs
following organ allograft transplantation. We initiated a Phase 2 trial of
orBec® in the
prevention of acute GVHD in the third quarter of 2007. In addition, we are
exploring the possibility of testing oral BDP (the active ingredient in
orBec®) for
local inflammation associated with Crohn’s Disease, Lymphocytic Colitis,
Irritable Bowel Syndrome, Ulcerative Colitis, among other
indications.
DOR
201
On
December 8, 2008, we announced that the FDA has completed its review and cleared
the Investigational New Drug (“IND”) application for DOR201, a time-release
formulation of oral BDP, for the prevention of acute radiation enteritis.
Consequently, we are able to initiate a Phase 1/2 clinical trial in acute
radiation enteritis, expected to occur in the second half of 2009. On
January 6, 2009, we also announced that DOR201 also received “Fast Track”
designation from the FDA. 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 an NDA for DOR201 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, which implies an abbreviated review time of six
months.
DOR201
contains BDP, a highly potent, topically active corticosteroid that has a local
effect on inflamed tissue. BDP has been marketed in the U.S. and worldwide since
the early 1970s as the active pharmaceutical ingredient in inhalation products
for the treatment of patients with allergic rhinitis and asthma. BDP is
also the active ingredient in orBec®,
currently in Phase 3 and Phase 2 development by DOR for the treatment and
prevention of GI GVHD, respectively. DOR201 is time-release
formulation of BDP specifically designed for oral use. We plan to initiate a
Phase 1/2 clinical trial in acute radiation enteritis in the second half of
2009.
About
Acute Radiation Enteritis
External
radiation therapy is used to treat most types of cancer, including cancer of the
bladder, uterine, cervix, rectum, prostate, and vagina. During
delivery of treatment, some level of radiation will also be delivered to healthy
tissue, including the bowel, leading to acute and chronic
toxicities. The large and small bowels are very sensitive to
radiation and the larger the dose of radiation the greater the damage to normal
bowel tissue. Radiation enteritis is a condition in which the lining of the
bowel becomes swollen and inflamed during or after radiation therapy to the
abdomen, pelvis, or rectum. Most tumors in the abdomen and pelvis
need large doses, and almost all patients receiving radiation to the abdomen,
pelvis, or rectum will show signs of acute enteritis.
Patients
with acute enteritis may have nausea, vomiting, abdominal pain and bleeding,
among other symptoms. Some patients may develop dehydration and
require hospitalization. With diarrhea, the gastrointestinal tract does not
function normally, and nutrients such as fat, lactose, bile salts, and vitamin
B12
are not well absorbed.
Symptoms
will usually resolve within 2-6 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.
There are
over 100,000 patients in the U.S. annually who receive abdominal or pelvic
external beam radiation treatment for cancer who are at risk of developing acute
and chronic radiation enteritis.
|
2.
|
BioDefense
Overview
|
RiVax™
RiVax™ is
our proprietary vaccine developed to protect against exposure to ricin toxin,
and is the first and only ricin toxin vaccine to be clinically tested in humans.
Ricin is a potent glycoprotein toxin derived from the beans of castor plants. It
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 Centers for Disease Control (“CDC”) has classified ricin
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. 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.
We have
announced positive Phase 1 clinical trial results for RiVax™ which demonstrated
that the vaccine is well tolerated and induces antibodies in humans that
neutralize the ricin toxin. The functional activity of the antibodies was
confirmed by animal challenge studies in mice which survived exposure to ricin
toxin after being injected with serum samples from the volunteers. The outcome
of the study was published in the Proceedings of the National Academy of
Sciences. A second Phase 1 trial is currently underway, utilizing the adjuvanted
formulation.
The
initial Phase 1 clinical trial was conducted by Dr. Ellen Vitetta at the
University of Texas Southwestern Medical Center (“UTSW”) at Dallas, DOR's
academic partner on the RiVax™ program. The National Institutes of Health
(“NIH”) has awarded us two grants one for $6.4 million and one for $5.2 million
for a total of $11.6 million for the development of RiVax™ covering process
development, scale-up and cGMP manufacturing, and preclinical toxicology testing
pursuant to the FDA’s “animal rule.”
The
development of RiVaxTM has
progressed significantly. In September 2006, we received a grant of
approximately $5.2 million from NIAID, a division of the NIH, for the
continued development of RiVax™, a recombinant vaccine against ricin toxin. This
RiVax™ grant will provide approximately $5.2 million over a three year period to
fund the development of animal models which will be used to correlate human
immune response to the vaccine with protective efficacy in animals. This is
necessary for ultimate licensure by the FDA, when human efficacy vaccine trials
are not possible. This new grant also supports the further biophysical
characterization of the vaccine containing a well-characterized adjuvant that is
needed to enhance the immune response to recombinant proteins. These studies
will be required to assure that the vaccine is stable and potent over a period
of years. A prototype version of RiVax™ has been evaluated in a Phase 1 clinical
trial and was shown to be safe and effective, while also inducing ricin
neutralizing antibodies as confirmed in subsequent animal studies.
On April
29, 2008, we announced the initiation of a comprehensive program to evaluate the
efficacy of RiVax™, in non-human primates. This study is taking place at the
Tulane University Health Sciences Center and will provide data that will further
aid in the interpretation of immunogenicity data obtained in the human
vaccination trials. The study was initiated in the second quarter of
2008.
On
January 29, 2008, we announced that we successfully achieved a two-year
milestone in the long-term stability program of the key ingredient of RiVax™, a
recombinant subunit vaccine against ricin toxin. The results of the two-year
analysis, undertaken as part of the formal stability program, demonstrate that
the immunogen component of RiVax™, a recombinant derivative of the ricin A
chain, is stable under storage conditions for at least two years without loss of
its natural configuration or the appearance of any detectable degradation
products. A vaccine is considered by many to be the best way to prospectively
protect populations at risk of exposure against ricin toxin. As this vaccine
would potentially be added to the Strategic National Stockpile and dispensed in
the event of a terrorist attack, the activity of the vaccine must be maintained
over a period of years under stockpile storage conditions.
On
November 15, 2007, we announced that we entered into a Cooperative Research and
Development Agreement with the Walter Reed Army Institute of Research (“WRAIR”)
to provide additional means to characterize the immunogenic protein subunit
component of RiVax™, our preventive vaccine against ricin toxin. The agreement
will be carried out at the Division of Biochemistry at WRAIR and will encompass
basic studies to reveal the underlying protein structure that is important in
inducing human immune responses to ricin toxin. Ricin toxin is an easy to
manufacture toxin that poses a serious threat as a bioweapon, primarily by
inhalation. Some of the features that are critical to induce protective immune
responses by vaccination with RiVax™ include structural determinants in the core
and the surface of the protein. The purpose of the agreement is to obtain data
to correlate protein structure with induction of protective immunity and
long-term stability of the protein. These studies will involve comparison to
structures of similar natural and recombinant proteins. RiVax™ induces
antibodies that appear primarily in the blood of animals and humans. Some of
these antibodies recognize determinants on the protein that are dependent on the
conformation of the protein and may be involved in biological activity. Overall,
antibodies in the blood are correlated to protection against exposure when the
toxin enters the circulatory system or when it comes into contact with lung
surfaces, where the major effects lead to severe inflammation, tissue necrosis
and death. RiVax™ induces such antibodies in humans as well as other animal
species. Lieutenant Colonel Charles B. Millard, Ph.D., Director of the Division
of Biochemistry at WRAIR, will lead the studies to be conducted at WRAIR, which
will include X-ray crystal analysis to determine the structural parameters of
the RiVax™ vaccine. We will not receive any monetary benefits from this
agreement. We will take part in evaluating the data that is found by WRAIR’s
studies, which they are funding. If successful, this will enhance the value of
our RiVax™ product and assist with continuing the progression of the
program.
In July
2007, we announced that the Office of Orphan Products Development ("OOPD") of
the FDA has awarded a development grant for the further clinical evaluation of
RiVaxTM. The
grant was awarded to UTSW to further the development of RiVaxTM. We
will not receive any monetary benefits from this grant; however, the successful
completion of this work will enhance the value of our RiVaxTM program
and continue to move it forward. The principal investigator for the project is
Dr. Vitetta, Director of the Cancer Immunobiology Center at UTSW. The award
totals approximately $940,000 for three years and is to be used for the
evaluation of an adjuvant for use with the vaccine. Typically, awards made by
the OOPD are to support clinical trials for development of products that address
rare diseases or medicines that would be used in numerically small populations.
UTSW began a second Phase 1 human clinical trial with RiVaxTM in
August of 2008.
Research and Development Analysis for
RiVax™
The costs that we have incurred to develop RiVax™ since
2002 total approximately $6,900,000. Research and development costs for RiVax™
totaled $312,486 for the 12 months ended December 31, 2008 and $1,350,364 and
$2,130,516 for the years ended December 31, 2007 and 2006,
respectively. Of the amount spent during the years ended December 31,
2007 and 2006, $897,470 and $1,128,257 were for costs
reimbursed under the NIH grant, respectively.
BT-VACC™
Our
botulinum toxin vaccine, called BT-VACC™, originated from the research of Dr.
Lance Simpson at Thomas Jefferson University in Philadelphia,
Pennsylvania. The vaccine is being developed as an oral or intranasal
formulation to be given as a primary immunization series or as oral or nasal
booster to individuals who have been primed with an injected
vaccine. Botulinum toxin is the product of the bacteria Clostridium botulinum.
Botulinum toxin is the most poisonous natural substance known to man. Botulinum
toxin causes acute, symmetric, descending flaccid paralysis due to its action on
peripheral cholinergic nerves. Paralysis typically presents 12 to 72 hours after
exposure. Death results from paralysis of the respiratory muscles. Current
treatments include respiratory support and passive immunization with antibodies
which must be administered before symptoms occur, which leaves little time
post-exposure for effective treatment.
In the
context of oral and nasal formulations, we are developing a multivalent vaccine
against botulinum neurotoxins serotypes A, B and E, which account for almost all
human cases of disease. We have identified lead antigens against Serotypes A, B
and E consisting of the Hc50 fragment of the botulinum toxin. Typically,
vaccines given by mucosal routes are not immunogenic because they do not attach
to immune inductive sites. In the case of the combination BT-VACCTM, both
the A and the B antigens were capable of attaching to cells in the mucosal
epithelium and inducing an immune response with similar magnitude to the
injected vaccine. Our preclinical data suggests that a bivalent formulation of
serotypes A and B is completely effective at low, mid and high doses as an
intranasal vaccine and completely effective at the higher dose level orally in
animal models. The animals were given a small quantity of the bivalent
combination vaccine containing each of the type A and type B antigens (10
micrograms) three times a day at two week intervals. All of the animals
developed equivalent immune responses to A and B types in the serum.
Importantly, they were then protected against exposure to each of the native
toxin molecules given at 1000 fold the dose that causes lethality. The immune
responses were also comparable to the same vaccines when given by intramuscular
injection.
In July
2007, we announced that the first results from testing of a multivalent form of
BT-VACCTM were
published in the journal Infection and Immunity
(Ravichandran et al., 2007, Infection and Immunity, v.
75, p. 3043). These results are the first to describe the protective immunity
elicited by a multivalent vaccine that is active by the mucosal route. The
vaccine consists of a combination of three non-toxic subunits of botulinum toxin
that induced protection against the corresponding versions of the natural
toxins. The results published in Infection and Immunity show
that non-toxic subunits (protein components of the natural toxin) of three of
the serotypes of botulinum toxin that cause almost all instances of human
disease, namely serotypes A, B, and E, can be combined and delivered via nasal
administration. The combination vaccine induced antibodies in the serum of mice
and protected against subsequent exposure to high doses of a combination of the
natural A, B, and E serotype neurotoxins. The combination vaccine also can
induce protection when given mucosally as a booster to animals that have been
given a primary vaccine injection.
In
September 2006, we were awarded a NIAID Phase 1 SBIR grant totaling
approximately $500,000 to conduct further work to combine antigens from
different serotypes of botulinum toxin for a prototype multivalent vaccine. This
program is currently ongoing and the grant funding has supported further work in
characterizing antigen formulations that induce protective immunity to the three
most common botulinum toxin types that may be encountered naturally or in the
form of a bioweapon. This work will continue the research conducted by Dr. Lance
Simpson and colleagues who originally showed that recombinant non-toxic segments
of the botulinum toxin can be given by the oral as well as the intranasal route
to induce a strong protective immune response in animals. This observation forms
the basis for development of an oral or intranasal vaccine for botulinum toxin
that can be used in humans. Currently, the recombinant vaccines under
development are given by intramuscular injections. The alternate oral or
intranasal route that we are developing potentially provides a self
administration option, which would offer the distinct advantage of bypassing the
requirement for needles and personnel to administer the vaccine.
Research and Development Analysis for
BT-VACC™
The costs that we have incurred to develop BT-VACC™ from
2002 total approximately $2,300,000. Research and development costs for
BT-VACC™ totaled $201,529 for the 12 months ended
December 31, 2008 and $360,997 and $130,381 for the years
ended December 31, 2007 and 2006, respectively. Of the amount spent
during the years ended December 31, 2007 and 2006, $45,915 and $4,000 were for
costs reimbursed under the under the SBIR grant,
respectively.
Anthrax
Vaccine Option
On May 8,
2008, we entered into a one-year exclusive option with the President and Fellows
of Harvard College to license analogues of anthrax toxin for prospective use in
vaccines against anthrax, a potentially fatal disease caused by the
spore-forming, gram-positive bacterium Bacillus anthracis. The option, which was
obtained through negotiation with Harvard University’s Office of Technology
Development, encompasses an issued U.S. patent that covers engineered variants
of protective antigen (“PA”) developed in the Harvard Medical School laboratory
of Dr. John Collier. PA is the principal determinant of protective immunity to
anthrax and is being developed for second- and third-generation anthrax
vaccines. There has been a major effort on the part of the federal government to
develop vaccines for use both pre- and post-exposure to improve upon the vaccine
currently in use. This vaccine, known as AVA (for anthrax vaccine adsorbed),
consists of a defined, but impure mixture of bacterial components. AVA is FDA
approved, but requires multiple injections followed by annual boosters. Vaccines
such as AVA or those based on the purified, recombinant anthrax toxin component
PA (“rPA”) induce antibodies that neutralize anthrax holotoxin and can strongly
protect animals from inhaled anthrax spores. Several of the protein variants
developed by Dr. Collier have been shown to be more immunogenic than native rPA,
perhaps because they are processed more efficiently by cellular antigen
processing pathways. We believe that with government funding we will be able to
develop the Collier anthrax vaccine into one with an improved stability profile,
an issue that has proven challenging in the development of other anthrax
vaccines. We do not intend to conduct any new research and development or commit
any funds to this program until we receive grant funding.
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3.
|
Additional
Programs
|
LPMTM -
Leuprolide
Our Lipid
Polymer Micelle (“LPM™”) oral drug delivery system is a proprietary platform
technology designed to allow for the oral administration of peptide drugs that
are water-soluble but poorly permeable through the gastrointestinal tract. We
have previously demonstrated in preclinical animal models that the LPM™
technology is adaptable to oral delivery of peptide drugs and that high systemic
levels after intestinal absorption can be achieved with the peptide hormone drug
leuprolide. The LPM™ system utilizes a lipid based delivery system that can
incorporate the peptide of interest in a thermodynamically stable configuration
called a “reverse micelle” that, through oral administration, can promote
intestinal absorption. Reverse micelles are structures that form when certain
classes of lipids come in contact with small amounts of water. This
results in a drug delivery system in which a stable clear dispersion of the
water soluble drug can be evenly dispersed within the lipid phase. LPM™ is
thought to promote intestinal absorption due to the ability of the micelles to
open up small channels through the epithelial layer of the intestines that allow
only molecules of a certain dimension to pass through while excluding extremely
large molecules such as bacteria and viruses. The reverse micelles
also structurally prevent the rapid inactivation of peptides by enzymes in the
upper gastrointestinal tract via a non-specific enzyme inhibition by
surfactant(s) in the formulation.
In
preclinical studies, the LPM™ delivery technology significantly enhanced the
ability of leuprolide to pass through the intestinal epithelium in comparison to
leuprolide alone. Leuprolide is a synthetic peptide agonist of gonadotropin
releasing hormone, which is used in the treatment of prostate cancer in men and
endometriosis in women. Leuprolide exhibits poor intestinal absorption from an
aqueous solution with the oral bioavailability being less than 5%. Utilizing
LPM™ in rats and dogs, the bioavailability of leuprolide averaged 30% compared
to 2.2% for the control oral solution. Based on these promising preclinical
data, we anticipate preparing for a Phase 1 study in humans in 2009 to confirm
these findings.
An oral
version of leuprolide may provide a significant advantage over the currently
marketed “depot” formulations. Leuprolide is one of the most widely used
anti-cancer agents for advanced prostate cancer in men. Injectable
forms of leuprolide marketed under trade names such as Lupron® and
Eligard® had
worldwide sales of approximately $1.8 billion in 2006. Injectable leuprolide is
also widely used in non-cancer indications, such as endometriosis in women (a
common condition in which cells normally found in the uterus become implanted in
other areas of the body), uterine fibroids in women (noncancerous growths in the
uterus) and central precocious puberty in children (a condition causing children
to enter puberty too soon). Leuprolide is currently available only in
injectable, injectable depot and subcutaneous implant routes of delivery which
limits its use and utility.
Research and Development Analysis for LPM™
Leuprolide
The costs that we have incurred to develop
LPM™-Leuprolide since 2000 total
approximately $1,400,000. Research and development costs for LPM™-Leuprolide totaled $112,246 for the 12 months ended
December 31, 2008 and $38,254 and $5,679 for the years ended December 31, 2007
and 2006, respectively. These costs are mainly legal costs in
connection with maintenance of our patent positions and for preclinical
formulation work.
OraprineTM
We
anticipate that an orally administered version of the immunosuppressant drug
azathioprine may have a significant role in treating inflammatory diseases of
the oral cavity. Further, an orally administered drug may provide a
niche in the current transplant medicine market for an alternative to solid
dosage forms of azathioprine that would have utility in elderly patients.
OraprineTM
is an oral suspension of azathioprine, which we believe may be
bioequivalent to the oral azathioprine tablet currently marketed in the U.S. as
Imuran®.
We conducted a Phase 1 bioequivalence trial following a trial conducted by Dr.
Joel Epstein at the University of Washington that established the feasibility of
the oral drug to treat oral ulcerative lesions resulting from GVHD. Oral GVHD
can occur in up to 70% of patients who have undergone bone marrow/stem cell
transplantation despite treatment with other immunosuppressive drugs such as
prednisone, methotrexate, tacrolimus, and cyclosporine. Azathioprine is one of
the most widely used immunosuppressive medications in clinical
medicine. Azathioprine is commonly prescribed to organ transplant patients
to decrease their natural defense mechanisms to foreign bodies (such as the
transplanted organ). The decrease in the patient’s immune system increases
the chances of preventing rejection of the transplanted organ in the
patient.
On
September 25, 2007, we announced a Notice of Allowance of patent claims based on
U.S. Patent Application #09/433,418 entitled “Topical Azathioprine for the
Treatment of Oral Autoimmune Diseases.” Concurrently, the patent has
also been issued by the European Patent Office with the serial number EP 1 212
063 B1. This patent family specifically includes claims for treatment and
prevention of oral GVHD with locally or topically applied azathioprine. We
anticipate filing an ANDA; however this program is suspended pending further
funding from financing or partnerships.
Research and Development Analysis for
OraprineTM
The costs that we have incurred to develop Oraprine™
since 2000 total approximately $400,000. Research and development costs for
Oraprine™ totaled $4,500 for the 12 months ended
December 31, 2008 and $5,100 and $6,996 for the years ended December 31, 2007
and 2006, respectively. These costs are mainly legal costs in
connection with maintenance of our patent positions.
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4.
|
Summary of Our Products in
Development
|
The
following tables summarize the products that we are currently
developing:
BioTherapeutic
Products
|
Product
|
Therapeutic
Indication
|
Stage
of Development
|
|
|
|
|
|
orBec®
|
Treatment
of Acute GI GVHD
|
PIvotal
Phase 3 confirmatory trial to be initiated in 2009
|
|
orBec®
|
Prevention
of Acute GI GVHD
|
Phase
2 trial enrolling
|
|
orBec®
|
Treatment
of Chronic GI GVHD
|
Phase
2 trial potentially to be initiated in 2009
|
|
Oral
BDP
|
Radiation
Enteritis and Radiation Exposure
|
Phase
1/2 trial potentially to be initiated in 2009
|
|
LPMTM –
Leuprolide
|
Endometriosis
and Prostate Cancer
|
Phase
1 trial potentially to be initiated in 2009
|
|
OraprineTM
|
Oral
lesions resulting from GVHD
|
Ready
for Phase 1/2 trial
|
Biodefense
Products
|
Select
Agent
|
Currently
Available Countermeasure
|
DOR
Biodefense Product
|
|
|
|
|
|
Ricin
Toxin
|
No
vaccine or antidote currently FDA approved
|
Injectable
Ricin Vaccine
Phase
1 Clinical Trial Successfully Completed
Second Phase 1 trial enrolling
|
|
Botulinum
Toxin
|
No
vaccine or antidote currently FDA approved
|
Oral/Nasal
Botulinum Vaccine
|
|
5.
|
The Drug Approval
Process
|
|
|
General
|
Before
marketing, each of our products must undergo an extensive regulatory approval
process conducted by the FDA and applicable agencies in other countries.
Testing, manufacturing, commercialization, advertising, promotion, export and
marketing, among other things, of the proposed products are subject to extensive
regulation by government authorities in the U.S. and other countries. All
products must go through a series of tests, including advanced human clinical
trials, which the FDA is allowed to suspend as it deems necessary to protect the
safety of subjects.
Our
products will require regulatory clearance by the FDA and by comparable agencies
in other countries, prior to commercialization. The nature and extent of
regulation differs with respect to different products. In order to test, produce
and market certain therapeutic products in the U.S., mandatory procedures and
safety standards, approval processes, manufacturing and marketing practices
established by the FDA must be satisfied.
An IND
application is required before human clinical testing in the U.S. of a new drug
compound or biological product can commence. The INDA includes results of
pre-clinical animal studies evaluating the safety and efficacy of the drug and a
detailed description of the clinical investigations to be
undertaken.
Clinical
trials are normally done in three Phases, although the phases may overlap. Phase
1 trials are smaller trials concerned primarily with metabolism and
pharmacologic actions of the drug and with the safety of the product. Phase 2
trials are designed primarily to demonstrate effectiveness and safety in
treating the disease or condition for which the product is indicated. These
trials typically explore various doses and regimens. Phase 3 trials are expanded
clinical trials intended to gather additional information on safety and
effectiveness needed to clarify the product’s benefit-risk relationship and
generate information for proper labeling of the drug, among other things. The
FDA receives reports on the progress of each phase of clinical testing and may
require the modification, suspension or termination of clinical trials if an
unwarranted risk is presented to patients. When data is required from long-term
use of a drug following its approval and initial marketing, the FDA can require
Phase 4, or post-marketing, studies to be conducted.
With
certain exceptions, once successful clinical testing is completed, the sponsor
can submit an NDA for approval of a drug. The process of completing clinical
trials for a new drug is likely to take a number of years and require the
expenditure of substantial resources. Furthermore, the FDA or any foreign health
authority may not grant an approval on a timely basis, if at all. The FDA may
deny the approval of an NDA, in its sole discretion, if it determines that its
regulatory criteria have not been satisfied or may require additional testing or
information. Among the conditions for marketing approval is the requirement that
the prospective manufacturer’s quality control and manufacturing procedures
conform to good manufacturing practice regulations. In complying with standards
contained in these regulations, manufacturers must continue to expend time,
money and effort in the area of production, quality control and quality
assurance to ensure full technical compliance. Manufacturing facilities, both
foreign and domestic, also are subject to inspections by, or under the authority
of, the FDA and by other federal, state, local or foreign agencies.
Even
after initial FDA or foreign health authority approval has been obtained,
further studies, including Phase 4 post-marketing studies, may be required to
provide additional data on safety and will be required to gain approval for the
marketing of a product as a treatment for clinical indications other than those
for which the product was initially tested. Also, the FDA or foreign regulatory
authority will require post-marketing reporting to monitor the side effects of
the drug. Results of post-marketing programs may limit or expand the further
marketing of the products. Further, if there are any modifications to the drug,
including any change in indication, manufacturing process, labeling or
manufacturing facility, an application seeking approval of such changes will
likely be required to be submitted to the FDA or foreign regulatory
authority.
In the
U.S., the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act,
the Federal Trade Commission Act, and other federal and state statutes and
regulations govern or influence the research, testing, manufacture, safety,
labeling, storage, record keeping, approval, advertising and promotion of drug,
biological, medical device and food products. Noncompliance with applicable
requirements can result in, among other things, fines, recall or seizure of
products, refusal to permit products to be imported into the U.S., refusal of
the government to approve product approval applications or to allow the Company
to enter into government supply contracts, withdrawal of previously approved
applications and criminal prosecution. The FDA may also assess civil penalties
for violations of the Federal Food, Drug, and Cosmetic Act involving medical
devices.
For the
development of biodefense vaccines such as RiVaxTM and
BT-VACCTM, the
FDA has instituted policies that are expected to result in shorter pathways to
market. This potentially includes approval for commercial use using the results
of animal efficacy trials, rather than efficacy trials in humans. However, the
Company will still have to establish that the vaccine and countermeasures it is
developing are safe in humans at doses that are correlated with the beneficial
effect in animals. Such clinical trials will also have to be completed in
distinct populations that are subject to the countermeasures; for instance, the
very young and the very old, and in pregnant women, if the countermeasure is to
be licensed for civilian use. Other agencies will have an influence over the
risk benefit scenarios for deploying the countermeasures and in establishing the
number of doses utilized in the Strategic National Stockpile. We may not be able
to sufficiently demonstrate the animal correlation to the satisfaction of the
FDA, as these correlates are difficult to establish and are often
unclear. Invocation of the animal rule may raise issues of confidence
in the model systems even if the models have been validated. For many of the
biological threats, the animal models are not available and the Company may have
to develop the animal models, a time-consuming research effort. There are few
historical precedents, or recent precedents, for the development of new
countermeasure for bioterrorism agents. Despite the animal rule, the FDA may
require large clinical trials to establish safety and immunogenicity before
licensure and it may require safety and immunogenicity trials in additional
populations. Approval of biodefense products may be subject to post-marketing
studies, and could be restricted in use in only certain
populations.
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1.
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Marketing
Strategies
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Pursuant to the collaboration and supply agreement with
Sigma-Tau, we granted an exclusive license to Sigma-Tau to commercialize orBec®
in the U.S., Canada and Mexico.
We are
actively seeking a commercialization partner for orBec® and oral
BDP outside of North America as well as for our LPMTM –
Leuprolide and OraprineTM
programs.
We have
had and are having strategic discussions with a number of pharmaceutical
companies regarding the partnering or sale of our biodefense vaccine products.
We may market our biodefense vaccine products directly to government agencies.
We believe that both military and civilian health authorities of the U.S. and
other countries will increase their stockpiling of therapeutics and vaccines to
treat and prevent diseases and conditions that could ensue following a
bioterrorism attack.
Competition
Our
competitors are pharmaceutical and biotechnology companies, most of whom have
considerably greater financial, technical, and marketing resources than we
currently have. Another source of competing technologies is universities and
other research institutions, including the U.S. Army Medical Research Institute
of Infectious Diseases, and we face competition from other companies to acquire
rights to those technologies.
Biodefense
Vaccine Competition
We face
competition in the area of biodefense vaccines from various public and private
companies, universities and governmental agencies, such as the U.S. Army, some
of whom may have their own proprietary technologies which may directly compete
with the our technologies. Acambis, Inc., Dynavax, Emergent Biosolutions
(formerly Bioport Corporation), VaxGen, Inc., Chimerix, Inc., Human Genome
Sciences, Inc., Coley Pharmaceuticals, Inc., Avanir Pharmaceuticals, Inc.,
Dynport Vaccine Company, LLC., Pharmathene, SIGA Pharmaceuticals and
others have announced vaccine or countermeasure development programs for
biodefense. Some of these companies have substantially greater human and
financial resources than we do, and many of them have already received grants or
government contracts to develop anti-toxins and vaccines against bioterrorism.
For example, Avecia Biotechnology, Inc. has received NIH contracts to develop a
next generation injectable anthrax vaccine. VaxGen received an approximately
$900 million procurement order from the U.S. government to produce and deliver
75 million doses of Anthrax vaccine. This contract was rescinded in January 2007
by the HHS because of the inability of Vaxgen to enter into Phase 2 clinical
trials according to contract timelines. Several companies have received
development grants from the NIH for biodefense products. For example, Coley
Pharmaceuticals, Inc. has received a $6 million Department of Defense grant to
develop vaccine enhancement technology. Dynport Vaccine Company, LLC, a prime
contractor with the DOD, currently has a $200 million contract to develop
vaccines for the U.S. Military, including a multivalent botulinum toxin vaccine.
Although we have received significant grant funding to date for product
development, we have not yet been obtained contract awards for government
procurement of products.
orBec®
Competition
Competition
is intense in the gastroenterology and transplant areas. Companies are
attempting to develop technologies to treat GVHD by suppressing the immune
system through various mechanisms. Some companies, including Sangstat, Abgenix,
and Protein Design Labs, Inc., are developing monoclonal antibodies to treat
GVHD. Novartis, Medimmune, and Ariad are developing both gene therapy products
and small molecules to treat GVHD. All of these products are in various stages
of development. For example, Novartis currently markets Cyclosporin, and
Sangstat currently markets Thymoglobulin for transplant related therapeutics. We
face potential competition from Osiris Therapeutics if their product Prochymal
for the treatment of GVHD is successful in ongoing Phase 3 clinical trials and
reaches market. Kiadis Pharma is also developing products for the treatment of
GVHD. In addition, there are investigator-sponsored clinical trials
exploring the use of approved drugs such as Enbrel®, which
has been approved by the FDA for the treatment of rheumatoid arthritis, in the
treatment of GVHD. We believe that orBec®’s unique
release characteristics, intended to deliver topically active therapy to both
the upper and lower gastrointestinal systems, should make orBec® an
attractive alternative to existing therapies for inflammatory diseases of the
gastrointestinal tract.
Competition
is also intense in the therapeutic area of inflammatory bowel disease. Several
companies, including Centocor, Immunex, and Celgene, have products that are
currently FDA approved. For example, Centocor, a subsidiary of Johnson &
Johnson, markets the drug product RemicadeTM for
Crohn’s disease. Other drugs used to treat inflammatory bowel disease include
another oral locally active corticosteroid called budesonide, which is being
marketed by AstraZeneca in Europe and Canada and by Prometheus Pharmaceuticals
in the U.S. under the tradename of Entocort®. Entocort®
is structurally similar to beclomethasone dipropionate, and the FDA approved
Entocort for Crohn’s disease late in 2001. In addition, Salix Pharmaceuticals,
Inc. markets an FDA approved therapy for ulcerative colitis called Colazal®.
Chiesi Pharmaceuticals (“Chiesi”) markets a delayed release oral formulation of
beclomethasone dipropionate, the active ingredient of orBec®,
called CLIPPERTM for
ulcerative colitis and may seek marketing approval in Italy and other European
countries. In the U.S., Eurand N.V. (“Eurand”) has licenses from Chiesi to the
same formulation as CLIPPERTM and
is developing it for ulcerative colitis. Eurand has also received Orphan
Drug Designation for the compound in pediatric ulcerative colitis
patients.
Several
companies have also established various colonic drug delivery systems to deliver
therapeutic drugs to the colon for treatment of Crohn’s disease. These companies
include Ivax Corporation, Inkine Pharmaceutical Corporation, and Elan
Pharmaceuticals, Inc. Other approaches to treat gastrointestinal disorders
include antisense and gene therapy. Isis Pharmaceuticals, Inc. is in the process
of developing antisense therapy to treat Crohn’s disease.
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2.
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Patents and Other Proprietary
Rights
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Our goal
is to obtain, maintain and enforce patent protection for our products,
formulations, processes, methods and other proprietary technologies, preserve
our trade secrets, and operate without infringing on the proprietary rights of
other parties, both in the U.S. and in other countries. Our policy is to
actively seek to obtain, where appropriate, the broadest intellectual property
protection possible for our product candidates, proprietary information and
proprietary technology through a combination of contractual arrangements and
patents, both in the U.S. and elsewhere in the world.
We also
depend upon the skills, knowledge and experience of our scientific and technical
personnel, as well as that of our advisors, consultants and other contractors,
none of which is patentable. To help protect our proprietary knowledge and
experience that is not patentable, and for inventions for which patents may be
difficult to enforce, we rely on trade secret protection and confidentiality
agreements to protect our interests. To this end, we require all employees,
consultants, advisors and other contractors to enter into confidentiality
agreements, which prohibit the disclosure of confidential information and, where
applicable, require disclosure and assignment to us of the ideas, developments,
discoveries and inventions important to our business.
We are
the exclusive licensee of an issued U.S. patent that covers the use of
orBec® for
the prevention and treatment of GI GVHD. We also have “Orphan Drug” designations
for orBec® in the
U.S. and in Europe. Our Orphan Drug designations provide for seven years of post
approval marketing exclusivity in the U.S. and ten years exclusivity in Europe
for the use of orBec® in the
treatment of GI GVHD. We have pending patent applications for this indication
that, if granted, may extend our anticipated marketing exclusivity beyond the
seven year post-approval exclusivity provided by the Orphan Drug Act of
1983.
orBec® License
Agreement
In
November 1998, our wholly-owned subsidiary, Enteron Pharmaceuticals, Inc.
(“Enteron”), entered into an exclusive, worldwide, royalty bearing license
agreement with George B. McDonald, M.D., including the right to grant
sublicenses, for the rights to the intellectual property and know-how relating
to orBec®. In
addition, Dr. McDonald receives $80,000 per annum as a consultant.
Enteron
also executed an exclusive license to patent applications for “Use of
Anti-Inflammatories to Treat Irritable Bowel Syndrome” from the University of
Texas Medical Branch-Galveston. Under the license agreements, we will be
obligated to make performance-based milestone payments, as well as royalty
payments on any net sales of oral BDP.
Ricin Vaccine Intellectual
Property
In
January 2003, we executed a worldwide exclusive option to license patent
applications with UTSW for the nasal, pulmonary and oral uses of a non-toxic
ricin vaccine. In June 2004, we entered into a license agreement with UTSW for
the injectable rights to the ricin vaccine for initial license fees of $200,000
of our common stock and $100,000 in cash. Subsequently, in October 2004, we
negotiated the remaining oral rights to the ricin vaccine for additional license
fees of $150,000 in cash. Our license obligates us to pay $50,000 in
annual license fees.
We have
sponsored research agreements with UTSW funded by two NIH grants. On December 7,
2006, we announced that the U.S. Patent and Trademark Office issued a Notice of
Allowance of patent claims based on U.S. Patent Application #09/698,551 entitled
“Ricin A chain mutants lacking enzymatic activity as vaccines to protect against
aerosolized ricin.” This patent includes methods of use and composition claims
for RiVax™.
Botulinum Toxin Vaccine Intellectual
Property
In 2003,
we executed an exclusive license agreement with Thomas Jefferson University for
issued U.S. Patent No. 6,051,239 and corresponding international patent
applications broadly claiming the oral administration of nontoxic modified
botulinum toxins as vaccines. The intellectual property also includes patent
applications covering the inhaled and nasal routes of delivery of the vaccine.
This license agreement required that we pay a license fee of $160,000, payable
in $130,000 in common stock and $30,000 in cash. In 2003, we entered into a
one-year sponsored research agreement with the execution of the license
agreement with Thomas Jefferson University, renewable on an annual basis, under
which we have provided $300,000 in annual research support. In addition, we also
executed a consulting agreement with Dr. Lance Simpson, the inventor of the
botulinum toxin vaccine for a period of three years. Under this agreement, Dr.
Simpson received options to purchase 100,000 shares of our common stock, vesting
over two years. We are also required to pay a $10,000 non-refundable license
royalty fee no later than January 1 of each calendar year, which increased to
$15,000 in 2006 and every year thereafter.
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3.
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Employees
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As of
December 31, 2008, we had seven full-time employees, three of whom are
Ph.D.s.
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4.
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Research and Development
Spending
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We spent
approximately $1,600,000 and $3,100,000 in the years ended December 31, 2008 and
2007, respectively, on research and development.
Cautionary Note
Regarding Forward-Looking Statements
This Annual Report contains
forward-looking statements that reflect our current expectations about our
future results, performance, prospects and opportunities. These forward-looking
statements are subject to significant risks, uncertainties, and other factors,
including those identified in "Risk Factors" below, which may cause actual
results to differ materially from those expressed in, or implied by, any
forward-looking statements. The forward-looking statements within this Form 10-K
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. In addition,
any statements that refer to expectations, projections or other
characterizations of future events or circumstances are forward-looking
statements. Except as expressly required by the federal securities laws, we
undertake no obligation to publicly update or revise any forward-looking
statements to reflect events or circumstances occurring subsequent to the filing
of this Form 10-K with 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.
Risk
Factors
You should carefully consider the
risks, uncertainties and other factors described below before you decide whether
to buy shares of our common stock. Any of the factors could materially and
adversely affect our business, financial condition, operating results and
prospects and could negatively impact the market price of our common stock.
Below are the significant risks and uncertainties of which we are aware.
Additional risks and uncertainties that we do not yet know of, or that we
currently think are immaterial, may also impair our business operations. You
should also refer to the other information contained in and
incorporated by reference into this Annual Report, including our financial statements
and the related notes.
Risks Related to our
Industry
We
have had significant losses and anticipate future losses; if additional funding
cannot be obtained, we may reduce or discontinue our product development and
commercialization efforts.
We have
experienced significant losses since inception and have a significant
accumulated deficit. We expect to incur additional operating losses in the
future and expect our cumulative losses to increase. As of December 31, 2008, we
had $1,475,466 in cash available. Since December 31, 2008, we have issued a
total of 62,580,702 shares of common stock and warrants to purchase up to
20,914,035 shares of common stock raising a sum of $8,384,200. Based
on our projected budgetary needs and funding from the existing grants over the
next 18 months, we expect to be able to maintain the current level of our
operations into the third quarter of 2010 and conduct the pivotal Phase 3
confirmatory clinical trial of orBec® for the
treatment of acute GI GVHD.
We have
sufficient funds through our existing, biodefense grant facilities from the
National Institute of Allergy and Infectious Diseases (“NIAID”), a division of
the National Institute of Health (“NIH”) to finance our biodefense projects. On
September 29, 2006, we announced that we had received approximately $5,300,000
in grants for the development of our biodefense programs. Our biodefense grants
have an overhead component that allows us an agency approved percentage over our
incurred costs. We estimate that the overhead component, (which is approximately
21% above our subcontracted expenses and includes funds for direct employees
working on the grants), from our existing NIH biodefense grants will generate
approximately $600,000 over the next four quarters.
Our
products are positioned for or are currently in preclinical studies or clinical
trials, and we have not yet generated any significant revenues from sales or
licensing of them. Through December 31, 2008, we had expended approximately
$24,200,000 developing our current product candidates for preclinical research
and development and clinical trials, and we currently expect to spend at least
$9 million over the next two years in connection with the development and
commercialization of our therapeutic and vaccine products, licenses, employment
agreements, and consulting agreements. Unless and until we are able to generate
sales or licensing revenue from orBec®, our lead product candidate, or another
one of our product candidates, we will require additional funding through our
existing equity facility with Fusion Capital Fund II, LLC (“Fusion Capital”) or
another financing source to meet these commitments, sustain our research and
development efforts, provide for future clinical trials, and continue our
operations. There can be no assurance we can raise such funds. If additional
funds are raised through the issuance of equity securities, stockholders may
experience dilution of their ownership interests, and the newly issued
securities may have rights superior to those of the common stock. If additional
funds are raised by the issuance of debt, we may be subject to limitations on
our operations.
If we are unsuccessful in developing
our products, our ability to generate revenues will be significantly
impaired.
To be
profitable, our organization must, along with corporate partners and
collaborators, successfully research, develop and commercialize our technologies
or product candidates. Our current product candidates are in various stages of
clinical and preclinical development and will require significant further
funding, research, development, preclinical and/or clinical testing, regulatory
approval and commercialization, and are subject to the risks of failure inherent
in the development of products based on innovative or novel technologies.
Specifically, each of the following is possible with respect to any of our
product candidates:
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·
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we
may not be able to maintain our current research and development
schedules;
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we
may be unsuccessful in our efforts to secure profitable procurement
contracts from the U.S. government or others for our biodefense
products;
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we
may encounter problems in clinical trials or Named Patient Access
programs; or
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·
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the
technology or product may be found to be ineffective or
unsafe.
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If any of
the risks set forth above occurs, or if we are unable to obtain the necessary
regulatory approvals as discussed below, we may not be able to successfully
develop our technologies and product candidates and our business will be
seriously harmed. Furthermore, for reasons including those set forth below, we
may be unable to commercialize or receive royalties from the sale of any other
technology we develop, even if it is shown to be effective, if:
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·
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it
is uneconomical or the market for the product does not develop or
diminishes;
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·
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we
are not able to enter into arrangements or collaborations to manufacture
and/or market the product;
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·
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the
product is not eligible for third-party reimbursement from government or
private insurers;
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·
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others
hold proprietary rights that preclude us from commercializing the
product;
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·
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others
have brought to market similar or superior products;
or
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·
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the
product has undesirable or unintended side effects that prevent or limit
its commercial use.
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We received a not
approvable letter from the FDA for our lead product candidate orBec®.
Our
business is subject to very stringent U.S., federal, foreign, state and local
government laws and regulations, including the Federal Food, Drug and Cosmetic
Act, the Environmental Protection Act, the Occupational Safety and Health Act,
and state and local counterparts to these acts. These laws and regulations may
be amended, additional laws and regulations may be enacted, and the policies of
the FDA and other regulatory agencies may change.
On
October 18, 2007, we received a not approvable letter from the FDA for our lead
product candidate, orBec®, for the
treatment of acute GI GVHD. The letter stated that the FDA requested
data from additional clinical trials to demonstrate the safety and efficacy of
orBec®. The FDA
also requested nonclinical and chemistry, manufacturing and controls information
as part of the not approvable letter. On October 19, 2007, we requested an “End
of Review Conference” with the FDA to further understand the letter and gain
clarity as to the next steps. On December 7, 2007, we announced the following
guidance from that meeting: (1) a single, confirmatory, Phase 3 clinical trial
could provide sufficient evidence of efficacy provided that it is well designed,
well executed and provides clinically and statistically meaningful findings; (2)
we anticipated working quickly with the FDA to finalize the design of the
confirmatory trial under the Agency’s “Special Protocol Assessment” process; and
(3) the FDA would be agreeable to reviewing a plan for a
Treatment IND as long as it does not interfere with patient accrual
in a confirmatory trial, such as potentially enrolling patients that would not
be eligible for the Phase 3 study.
On
January 5, 2009, we reached an agreement with the FDA on the design of a
confirmatory, pivotal Phase 3 clinical trial evaluating our lead product
orBec®
for the treatment of acute GI GVHD. The agreement was made under the
FDA’s Special Protocol Assessment procedure. We expect to begin enrollment in
the new confirmatory Phase 3 clinical trial for the treatment of acute GI GVHD
in the second half of 2009.
Although
we intend to obtain FDA approval for orBec®, there
can be no assurances that the FDA will ever approve orBec® for
market launch. Furthermore, the FDA may mandate additional testing or data,
which may take additional time and expense to provide.
Our business is subject to extensive
governmental regulation, which can be costly, time consuming and subjects us to
unanticipated delays.
The
regulatory process applicable to our products requires pre-clinical and clinical
testing of any product to establish its safety and efficacy. This testing can
take many years and require the expenditure of substantial capital and other
resources. We may not be able to obtain, or we may experience difficulties and
delays in obtaining, necessary domestic and foreign governmental clearances and
approvals to market a product. Also, even if regulatory approval of a product is
granted, that approval may entail limitations on the indicated uses for which
the product may be marketed.
Following
any regulatory approval, a marketed product and its manufacturer are subject to
continual regulatory review. Later discovery of problems with a product or
manufacturer may result in restrictions on such product or manufacturer. These
restrictions may include withdrawal of the marketing approval for the product.
Furthermore, the advertising, promotion and export, among other things, of a
product are subject to extensive regulation by governmental authorities in the
U.S. and other countries. If we fail to comply with applicable regulatory
requirements, we may be subject to fines, suspension or withdrawal of regulatory
approvals, product recalls, seizure of products, operating restrictions and/or
criminal prosecution.
There
may be unforeseen challenges in developing our biodefense products.
For
development of biodefense vaccines and therapeutics, the FDA has instituted
policies that are expected to result in accelerated approval. This includes
approval for commercial use using the results of animal efficacy trials, rather
than efficacy trials in humans. However, we will still have to
establish that the vaccines we are developing are safe in humans at doses that
are correlated with the beneficial effect in animals. Such clinical trials will
also have to be completed in distinct populations that are subject to the
countermeasures; for instance, the very young and the very old, and in pregnant
women, if the countermeasure is to be licensed for civilian
use. Other agencies will have an influence over the risk benefit
scenarios for deploying the countermeasures and in establishing the number of
doses utilized in the Strategic National Stockpile. We may not be able to
sufficiently demonstrate the animal correlation to the satisfaction of the FDA,
as these correlates are difficult to establish and are often
unclear. Invocation of the animal rule may raise issues of confidence
in the model systems even if the models have been validated. For many of the
biological threats, the animal models are not available and we may have to
develop the animal models, a time-consuming research effort. There are few
historical precedents, or recent precedents, for the development of new
countermeasure for bioterrorism agents. Despite the animal rule, the FDA may
require large clinical trials to establish safety and immunogenicity before
licensure and it may require safety and immunogenicity trials in additional
populations. Approval of biodefense products may be subject to
post-marketing studies, and could be restricted in use in only certain
populations.
We will be dependent on government
funding, which is inherently uncertain, for the success of our biodefense
operations.
We are
subject to risks specifically associated with operating in the biodefense
industry, which is a new and unproven business area. We do not anticipate that a
significant commercial market will develop for our biodefense products. Because
we anticipate that the principal potential purchasers of these products, as well
as potential sources of research and development funds, will be the U.S.
government and governmental agencies, the success of our biodefense division
will be dependent in large part upon government spending decisions. The funding
of government programs is dependent on budgetary limitations, congressional
appropriations and administrative allotment of funds, all of which are
inherently uncertain and may be affected by changes in U.S. government policies
resulting from various political and military developments.
If
the parties we depend on for supplying our drug substance raw materials and
certain manufacturing-related services do not timely supply these products and
services, it may delay or impair our ability to develop, manufacture and market
our products.
We rely
on suppliers for our drug substance raw materials and third parties for certain
manufacturing-related services to produce material that meets appropriate
content, quality and stability standards, which material will be used in
clinical trials of our products and, after approval, for commercial
distribution. To succeed, clinical trials require adequate supplies of drug
substance and drug product, which may be difficult or uneconomical to procure or
manufacture. We and our suppliers and vendors may not be able to (i) produce our
drug substance or drug product to appropriate standards for use in clinical
studies, (ii) perform under any definitive manufacturing, supply or service
agreements with us or (iii) remain in business for a sufficient time to
successfully produce and market our product candidates. If we do not maintain
important manufacturing and service relationships, we may fail to find a
replacement supplier or required vendor or develop our own manufacturing
capabilities which could delay or impair our ability to obtain regulatory
approval for our products and substantially increase our costs or deplete profit
margins, if any. If we do find replacement manufacturers and vendors, we may not
be able to enter into agreements with them on terms and conditions favorable to
us and, there could be a substantial delay before a new facility could be
qualified and registered with the FDA and foreign regulatory
authorities.
The
manufacture of our products is a highly exacting process, and if we or one of
our materials suppliers encounter problems manufacturing our products, our
business could suffer.
The FDA
and foreign regulators require manufacturers to register manufacturing
facilities. The FDA and foreign regulators also inspect these facilities to
confirm compliance with cGMP or similar requirements that the FDA or foreign
regulators establish. We, or our materials suppliers, may face manufacturing or
quality control problems causing product production and shipment delays or a
situation where we or the supplier may not be able to maintain compliance with
the FDA’s cGMP requirements, or those of foreign regulators, necessary to
continue manufacturing our drug substance. Any failure to comply with cGMP
requirements or other FDA or foreign regulatory requirements could adversely
affect our clinical research activities and our ability to market and develop
our products.
We
do not have sales and marketing experience and our lack of experience may
restrict our success in commercializing some of our product
candidates.
We do not
have experience in marketing or selling pharmaceutical products whether in the
U.S. or internationally. Although we have a collaboration agreement with
Sigma-Tau for the sales and marketing of orBec® in North
America, we may be unable to establish additional satisfactory arrangements for
marketing, sales and distribution capabilities necessary to commercialize and
gain market acceptance for orBec® or our
other product candidates. In Addition, Sigma-Tau may not be able to effectively
commercialize orBec® if it is
approved. To obtain the expertise necessary to successfully market and sell
orBec®, or any
other product, potentially will require the development of our own commercial
infrastructure and/or collaborative commercial arrangements and partnerships.
Our ability to make that investment and also execute our current operating plan
is dependent on numerous factors, including, the performance of third party
collaborators with whom we may contract.
Our
products, if approved, may not be commercially viable due to change in health
care practice and third party reimbursement limitations.
Recent
initiatives to reduce the federal deficit and to change health care delivery are
increasing cost-containment efforts. We anticipate that Congress, state
legislatures and the private sector will continue to review and assess
alternative benefits, controls on health care spending through limitations on
the growth of private health insurance premiums and Medicare and Medicaid
spending, price controls on pharmaceuticals, and other fundamental changes to
the health care delivery system. Any changes of this type could negatively
impact the commercial viability of our products, if approved. Our ability to
successfully commercialize our product candidates, if they are approved, will
depend in part on the extent to which appropriate reimbursement codes and
authorized cost reimbursement levels of these products and related treatment are
obtained from governmental authorities, private health insurers and other
organizations, such as health maintenance organizations. In the absence of
national Medicare coverage determination, local contractors that administer the
Medicare program may make their own coverage decisions. Any of our product
candidates, if approved and when commercially available, may not be included
within the then current Medicare coverage determination or the coverage
determination of state Medicaid programs, private insurance companies or other
health care providers. In addition, third-party payers are increasingly
challenging the necessity and prices charged for medical products, treatments
and services.
We may not be able to retain rights
licensed to us by third parties to commercialize key products or to develop the
third party relationships we need to develop, manufacture and market our
products.
We
currently rely on license agreements from the University of Texas Southwestern
Medical Center, the University of Texas Medical Branch at Galveston, Thomas
Jefferson University, and George B. McDonald MD for the rights to commercialize
key product candidates. We may not be able to retain the rights granted under
these agreements or negotiate additional agreements on reasonable terms, or at
all.
Furthermore,
we currently have very limited product development capabilities and no
manufacturing, marketing or sales capabilities. For us to research, develop and
test our product candidates, we need to contract or partner with outside
researchers, in most cases with or through those parties that did the original
research and from whom we have licensed the technologies. If products are
successfully developed and approved for commercialization, then we will need to
enter into additional collaboration and other agreements with third parties to
manufacture and market our products. We may not be able to induce the third
parties to enter into these agreements, and, even if we are able to do so, the
terms of these agreements may not be favorable to us. Our inability to enter
into these agreements could delay or preclude the development, manufacture
and/or marketing of some of our product candidates or could significantly
increase the costs of doing so. In the future, we may grant to our development
partners rights to license and commercialize pharmaceutical and related products
developed under the agreements with them, and these rights may limit our
flexibility in considering alternatives for the commercialization of these
products. Furthermore, third-party manufacturers or suppliers may not be able to
meet our needs with respect to timing, quantity and quality for the
products.
Additionally,
if we do not enter into relationships with additional third parties for the
marketing of our products, if and when they are approved and ready for
commercialization, we would have to build our own sales force. If our
collaboration agreement with Sigma-Tau were to be terminated, we would need to
establish and build our own sales force in North America. Development of an
effective sales force in any part of the world would require significant
financial resources, time and expertise. We may not be able to obtain the
financing necessary to establish a sales force in a timely or cost effective
manner, if at all, and any sales force we are able to establish may not be
capable of generating demand for our product candidates, if they are
approved.
We may suffer product and other
liability claims; we maintain only limited product liability insurance, which
may not be sufficient.
The
clinical testing, manufacture and sale of our products involves an inherent risk
that human subjects in clinical testing or consumers of our products may suffer
serious bodily injury or death due to side effects, allergic reactions or other
unintended negative reactions to our products. As a result, product and other
liability claims may be brought against us. We currently have clinical trial and
product liability insurance with limits of liability of $5 million, which may
not be sufficient to cover our potential liabilities. Because liability
insurance is expensive and difficult to obtain, we may not be able to maintain
existing insurance or obtain additional liability insurance on acceptable terms
or with adequate coverage against potential liabilities. Furthermore, if any
claims are brought against us, even if we are fully covered by insurance, we may
suffer harm such as adverse publicity.
We may not be able to compete
successfully with our competitors in the biotechnology
industry.
The
biotechnology industry is intensely competitive, subject to rapid change and
sensitive to new product introductions or enhancements. Most of our existing
competitors have greater financial resources, larger technical staffs, and
larger research budgets than we have, as well as greater experience in
developing products and conducting clinical trials. Our competition is
particularly intense in the gastroenterology and transplant areas and is also
intense in the therapeutic area of inflammatory bowel diseases. We face intense
competition in the area of biodefense from various public and private companies
and universities as well as governmental agencies, such as the U.S. Army, which
may have their own proprietary technologies that may directly compete with our
technologies. In addition, there may be other companies that are currently
developing competitive technologies and products or that may in the future
develop technologies and products that are comparable or superior to our
technologies and products. We may not be able to compete successfully with our
existing and future competitors.
We may be unable to commercialize
our products if we are unable to protect our proprietary rights, and we may be
liable for significant costs and damages if we face a claim of intellectual
property infringement by a third party.
Our
success depends in part on our ability to obtain and maintain patents, protect
trade secrets and operate without infringing upon the proprietary rights of
others. In the absence of patent and trade secret protection, competitors may
adversely affect our business by independently developing and marketing
substantially equivalent or superior products and technology, possibly at lower
prices. We could also incur substantial costs in litigation and suffer diversion
of attention of technical and management personnel if we are required to defend
ourselves in intellectual property infringement suits brought by third parties,
with or without merit, or if we are required to initiate litigation against
others to protect or assert our intellectual property rights. Moreover, any such
litigation may not be resolved in our favor.
Although
we and our licensors have filed various patent applications covering the uses of
our product candidates, patents may not be issued from the patent applications
already filed or from applications that we might file in the future. Moreover,
the patent position of companies in the pharmaceutical industry generally
involves complex legal and factual questions, and recently has been the subject
of much litigation. Any patents we have obtained, or may obtain in the future,
may be challenged, invalidated or circumvented. To date, no consistent policy
has been developed in the U.S. Patent and Trademark Office regarding the breadth
of claims allowed in biotechnology patents.
In
addition, because patent applications in the U.S. are maintained in secrecy
until patents issue, and because publication of discoveries in the scientific or
patent literature often lags behind actual discoveries, we cannot be certain
that we and our licensors are the first creators of inventions covered by any
licensed patent applications or patents or that we or they are the first to
file. The Patent and Trademark Office may commence interference proceedings
involving patents or patent applications, in which the question of first
inventorship is contested. Accordingly, the patents owned or licensed to us may
not be valid or may not afford us protection against competitors with similar
technology, and the patent applications licensed to us may not result in the
issuance of patents.
It is
also possible that our patented technologies may infringe on patents or other
rights owned by others, licenses to which may not be available to us. We may not
be successful in our efforts to obtain a license under such patent on terms
favorable to us, if at all. We may have to alter our products or processes, pay
licensing fees or cease activities altogether because of patent rights of third
parties.
In
addition to the products for which we have patents or have filed patent
applications, we rely upon unpatented proprietary technology and may not be able
to meaningfully protect our rights with regard to that unpatented proprietary
technology. Furthermore, to the extent that consultants, key employees or other
third parties apply technological information developed by them or by others to
any of our proposed projects, disputes may arise as to the proprietary rights to
this information, which may not be resolved in our favor.
Our business could be harmed if we
fail to retain our current personnel or if they are unable to effectively run
our business.
We have
only nine employees and we depend upon these employees to manage the day-to-day
activities of our business. Because we have such limited personnel, the loss of
any of them or our inability to attract and retain other qualified employees in
a timely manner would likely have a negative impact on our operations. Dr.
Christopher J. Schaber, our Chief Executive Officer, was hired in August 2006;
Evan Myrianthopoulos, our Chief Financial Officer, was hired in November 2004,
although he was a member of our Board of Directors for two years prior to that;
Dr. Robert Brey, our Chief Scientific Officer was hired in 1996; Dr. Brian L.
Hamilton, our Chief Medical Officer, was hired in March 2009; and James Clavijo,
our Controller, Treasurer and Corporate Secretary was hired in October 2004. In
August 2006, Dr. James S. Kuo was appointed Chairman of the Board. In
June 2007, Cyrille F. Buhrman was appointed to the Board of Directors. In March
2009, Gregg Lapointe was appointed to the Board of Directors. We will not be
successful if this management team cannot effectively manage and operate our
business. Several members of our board of directors are associated with other
companies in the biopharmaceutical industry. Stockholders should not expect an
obligation on the part of these board members to present product opportunities
to us of which they become aware outside of their capacity as members of our
board of directors.
Instability
and volatility in the financial markets could have a negative impact on our
business, financial condition, results of operations, and cash
flows
During
recent months, there has been substantial volatility and a decline in financial
markets due at least in part to the deteriorating global economic environment.
In addition, there has been substantial uncertainty in the capital markets and
access to additional financing is uncertain. Moreover, customer spending habits
may be adversely affected by the current economic crisis. These conditions could
have an adverse effect on our industry and business, including our financial
condition, results of operations, and cash flows.
To the
extent that we do not generate sufficient cash from operations, we may need to
incur indebtedness to finance our plans for growth. Recent turmoil in the credit
markets and the potential impact on the liquidity of major financial
institutions may have an adverse effect on our ability to fund our business
strategy through borrowings, under either existing or newly created instruments
in the public or private markets on terms we believe to be reasonable, if at
all.
Risks
Related to our Common Stock
Our stock price is highly
volatile.
The
market price of our common stock, like that of many other research and
development public pharmaceutical and biotechnology companies, has been highly
volatile and may continue to be so in the future due to a wide variety of
factors, including:
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·
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announcements
by us or others of results of pre-clinical testing and clinical
trials;
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·
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announcements
of technological innovations, more important bio-threats or new commercial
therapeutic products by us, our collaborative partners or our present or
potential competitors;
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·
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our
quarterly operating results and
performance;
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·
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developments
or disputes concerning patents or other proprietary
rights;
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·
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acquisitions;
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·
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litigation
and government proceedings;
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·
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adverse
legislation;
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·
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changes
in government regulations;
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·
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economic
and other external factors; and
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·
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general
market conditions.
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In
addition, potential dilutive effects of future sales of shares of common stock
by the Company, and subsequent sale of common stock by the holders of warrants
and options, could have an adverse effect on the market price of our
shares.
Our stock
price has fluctuated between January 1, 2005 through December 31, 2008 with the
per share price of our common stock ranging between a high of $0.95 per share to
a low of $0.04 per share. As of March 25, 2009, our common stock traded at
$0.11. The fluctuation in the price of our common stock has sometimes been
unrelated or disproportionate to our operating performance.
Our stock trades on the
Over-the-Counter Bulletin Board.
On April
18, 2006, our stock was delisted from the American Stock Exchange (“AMEX”) and
began trading on the OTCBB securities market on April 18, 2006 under the ticker
symbol DORB. Our stock was delisted from the AMEX because we did not
maintain stockholder equity above $6,000,000, as required under the maintenance
requirement for continued listing. The OTCBB is a decentralized market regulated
by the Financial Industry Regulatory Authority in which securities are traded
via an electronic quotation system that serves more than 3,000 companies. On the
OTCBB, securities are traded by a network of brokers or dealers who carry
inventories of securities to facilitate the buy and sell orders of investors,
rather than providing the order matchmaking service seen in specialist
exchanges. OTCBB securities include national, regional, and foreign equity
issues. Companies traded on the OTCBB must be current in their reports filed
with the Securities and Exchange Commission (the “SEC”) and other regulatory
authorities.
If our
common stock is not listed on a national exchange or market, the trading market
for our common stock may become illiquid. Our common stock is subject to the
penny stock rules of the SEC, which generally are applicable to equity
securities with a price of less than $5.00 per share, other than securities
registered on certain national securities exchanges or quoted on the NASDAQ
system, provided that current price and volume information with respect to
transactions in such securities is provided by the exchange or system. The penny
stock rules require a broker-dealer, before a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document prepared by the SEC that provides information about penny stocks and
the nature and level of risks in the penny stock market. The broker-dealer also
must provide the customer with bid and ask quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customer’s account. In addition, the penny stock rules require that, before
a transaction in a penny stock that is not otherwise exempt from such rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser’s written
agreement to the transaction. As a result of these requirements, our common
stock could be priced at a lower price and our stockholders could find it more
difficult to sell their shares.
Shareholders may suffer substantial
dilution.
We have a
number of agreements or obligations that may result in dilution to investors.
These include:
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·
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warrants
to purchase a total of approximately 43,500,000 shares of our common stock
at a current weighted average exercise price of approximately $0.20;
and
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·
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options
to purchase approximately 16,370,039 shares of our common stock at a
current weighted average exercise price of approximately
$0.27.
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During
2009, outstanding warrants to purchase approximately 10,580,000 shares of our
common stock will expire.
To the
extent that warrants or options are exercised, our stockholders will experience
dilution and our stock price may decrease.
Shareholders
are also subject to the risk of substantial dilution to their interests as a
result of our issuance of shares under the common stock purchase agreement with
Fusion Capital. Under the agreement, we have the right, but not the
obligation, under certain conditions, to sell shares of common stock to Fusion
Capital up to an aggregate amount of $8.5 million from time to time over a 25
month period. The purchase price of the shares will be determined
based upon the market price of our shares without any fixed discount at the time
of each sale.
We
already have sold 3,864,987 shares of common stock to Fusion Capital (together
with a warrant to purchase 1,388,889 shares of our common stock) under the
agreement for total proceeds of $627,500. Additionally, we issued
Fusion Capital 1,275,000 shares of common stock as a commitment fee. In addition
to the shares already sold to Fusion Capital, we have filed a registration
statement with respect to approximately 18.8 million shares that are available
to be sold to Fusion Capital. We may ultimately sell all, some or
none of the 18.8 million shares of common stock. If such 18.8 million
shares were issued and outstanding as of March 25, 2009, the 18.8 million shares
would have represented approximately 13.5% of the total outstanding common
stock.
The
sale of our common stock to Fusion Capital may cause dilution and the sale of
the shares of common stock acquired by Fusion Capital could cause the price of
our common stock to decline.
On February 14, 2008, we entered into an $8,500,000 common stock purchase agreement with
Fusion Capital. The Fusion Capital facility allows us to
require Fusion Capital to purchase between $80,000 and $1.0 million, depending
on certain conditions, of our common stock up to an aggregate of $8.5 million
over approximately a 25-month period. As part of that agreement, we issued
Fusion Capital 1,275,000 shares of common stock as a commitment fee. In
connection with the execution of the common stock purchase agreement, Fusion
Capital purchased 2,777,778 common shares and a four year warrant to purchase
1,388,889 shares of common stock at $0.22 per share, for an aggregate price of
$500,000. To date, we have issued an additional 1,012,209 shares
of common stock and received an additional $127,500 from the Fusion Capital
facility.
In
connection with entering into the agreement, we authorized the sale to Fusion
Capital of up to 25,327,778 shares of our common stock. The number of
shares ultimately offered for sale by Fusion Capital is dependent upon the
number of shares purchased by Fusion Capital under the agreement. The purchase
price for the common stock to be sold to Fusion Capital pursuant to the common
stock purchase agreement will fluctuate based on the price of our common stock.
All 25,327,778 shares registered for sale by Fusion Capital are freely
tradable. It is anticipated that those shares will be sold over a
period of up to 25 months from the date of the prospectus pertaining to those
shares. Depending upon market liquidity at the time, a sale of shares
under the registration statement at any given time could cause the trading price
of our common stock to decline. Fusion Capital may ultimately purchase all, some
or none of the approximately 18.8 million shares of common stock not yet
issued. After it has acquired such shares, it may sell all, some or
none of such shares. Therefore, sales to Fusion Capital by us under the
agreement may result in substantial dilution to the interests of other holders
of our common stock. The sale of a substantial number of shares of our common
stock, or anticipation of such sales, could make it more difficult for us to
sell equity or equity-related securities in the future at a time and at a price
that we might otherwise wish to effect sales. However, we have the right to
control the timing and amount of any sales of our shares to Fusion Capital and
the agreement may be terminated by us at any time at our discretion without any
cost to us.
The common stock purchase agreement with Fusion Capital
also may be terminated in the event of a default under the
agreement. In addition, we cannot require Fusion Capital to purchase
any shares of our common stock if the purchase price is less than $0.10 per
share. Thus, we may be unable to sell shares of our common
stock to Fusion Capital when we need the
funds, and that could severely harm our business and financial condition and our
ability to continue to develop and commercialize our products. The
closing price of our common stock on March 25, 2009, was $0.11.
Our
shares of common stock are thinly traded, so stockholders may be unable to sell
at or near ask prices or at all if they need to sell shares to raise money or
otherwise desire to liquidate their shares.
Our
common stock has from time to time been “thinly-traded,” meaning that the number
of persons interested in purchasing our common stock at or near ask prices at
any given time may be relatively small or non-existent. This situation is
attributable to a number of factors, including the fact that we are a small
company that is relatively unknown to stock analysts, stock brokers,
institutional investors and others in the investment community that generate or
influence sales volume, and that even if we came to the attention of such
persons, they tend to be risk-averse and would be reluctant to follow an
unproven company such as ours or purchase or recommend the purchase of our
shares until such time as we become more seasoned and viable. As a consequence,
there may be periods of several days or more when trading activity in our shares
is minimal or non-existent, as compared to a seasoned issuer which has a large
and steady volume of trading activity that will generally support continuous
sales without an adverse effect on share price. We cannot give stockholders any
assurance that a broader or more active public trading market for our common
shares will develop or be sustained, or that current trading levels will be
sustained.
Fusion
Capital's purchase and sale into the market of our common stock could cause our
common stock price to decline due to the additional shares available in the
market, particularly in light of the relatively thin trading volume of our
common stock. The market price of our common stock could decline given our
minimal average trading volume compared to the number of shares potentially
issuable to Fusion Capital, and the voting power and value of your investment
would be subject to continual dilution if Fusion Capital purchases the shares
and resells those shares into the market, although there is no obligation for
Fusion Capital to sell such shares. Any adverse affect on the market price of
our common stock would increase the number of shares issuable to Fusion Capital
which would increase the potential dilution of your investment.
Item 2.
Properties
We
currently lease approximately 2,500 square feet of office space at 850 Bear
Tavern Road, Suite 201, Ewing, New Jersey 08628. The office space currently
serves as our corporate headquarters. We pay rent of approximately $5,800 per
month, or $28 per square foot, on a month-to-month lease, which was entered into
on October 1, 2008. We anticipate that we will move into a new facility in the
second quarter of 2009.
Item 3. Legal
Proceedings
From
time-to-time, we are a party to claims and legal proceedings arising in the
ordinary course of business. Our management evaluates our exposure to these
claims and proceedings individually and in the aggregate and allocates
additional monies for potential losses on such litigation if it is possible to
estimate the amount of loss and if the amount of the loss is
probable.
Item 4. Submission of Matters to a
Vote of Security Holders.
None.
21
PART
II
Item 5. Market for
Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Our
common stock is quoted on the Over-the-Counter-Bulletin-Board (“OTCBB”) under
the symbol "DORB." The amounts represent inter-dealer quotations without
adjustment for retail markup, markdowns or commissions and do not represent the
prices of actual transactions.
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Period
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Price Range
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High
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Low
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Fiscal
Year Ended December 31, 2007:
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First
Quarter
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$0.71
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$0.23
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Second
Quarter
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$0.95
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$0.20
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Third
Quarter
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$0.40
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$0.26
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Fourth
Quarter
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$0.61
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$0.15
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Fiscal
Year Ended December 31, 2008:
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First
Quarter
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$0.25
|
$0.16
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Second
Quarter
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$0.19
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$0.11
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Third
Quarter
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$0.15
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$0.09
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Fourth
Quarter
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$0.12
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$0.04
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As of
March 25, 2009, the last reported price of our common stock quoted on the OTCBB
was $0.11 per share. The OTCBB price quoted reflects inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions. We have approximately 1,076 registered holders of
record.
Dividend
Policy
We have
never declared nor paid any cash dividends, and currently intend to retain all
our cash and any earnings for use in our business and, therefore, do not
anticipate paying any cash dividends in the foreseeable future. Any
future determination to pay cash dividends will be at the discretion of the
Board of Directors and will be dependent upon our consolidated financial
condition, results of operations, capital requirements and such other factors as
the Board of Directors deems relevant.
Item
6. Selected Financial Data.
Not
applicable.
Item 7. Management’s Discussion and
Analysis of Financial
Condition and Results of Operations.
The following discussion and
analysis provides information that we believe is relevant
to an assessment and understanding of our results of operation and financial
condition. You should read this analysis in conjunction with our audited
consolidated financial statements and related notes. This discussion and
analysis contains statements of a forward-looking nature relating to future
events or our future financial performance. These statements are only
predictions, and actual events or results may differ materially. In evaluating
such statements, you should carefully consider the various factors identified in
this Annual Report which could cause actual results to differ materially from
those expressed in, or implied by, any forward-looking statements, including
those set forth in "Item1. Business-Risk Factors" in this Annual Report. See
"Item 1. Business-Cautionary Note Regarding
Forward-Looking Statements."
Business Overview and
Strategy
We are a
research and development biopharmaceutical company focused on developing
products to treat life-threatening side effects of cancer treatments and serious
gastrointestinal diseases where there remains an unmet medical need; as well as
several biodefense vaccines. We were incorporated in Delaware in
1987. We maintain two active business segments: BioTherapeutics and
BioDefense.
Our
business strategy is to:
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(a)
initiate and execute the pivotal Phase 3 confirmatory clinical trial
for orBec® in
the treatment of acute gastrointestinal Graft-versus-Host disease (“GI
GVHD”);
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(b)
identify a development and marketing partner for orBec®
for territories outside of North America, as we have granted an exclusive
license to Sigma-Tau Pharmaceuticals, Inc. (“Sigma-Tau”) to
commercialize orBec® in
the U.S., Canada and Mexico, Sigma-Tau will pay us a 35% royalty on
net sales in these territories and they will be responsible for the
expense associated with all launch preparation and post-approval sales and
marketing activities;
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(c)
conduct a Phase 2 clinical trial of orBec®
for the prevention of acute Graft-versus-Host
disease (“GVHD”);
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(d)
evaluate and initiate additional clinical trials to explore the
effectiveness of oral beclomethasone dipropionate (oral “BDP”) in other
therapeutic indications involving inflammatory conditions of the
gastrointestinal (“GI”) tract such as radiation enteritis, radiation
injury and Crohn’s disease;
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(e)
make orBec® available
worldwide through named patient access programs (“NPAP”) for the treatment
of acute GI GVHD;
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(f) reinitiate
development of our other biotherapeutics products, namely LPMTM
Leuprolide;
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(g)
continue to secure additional government funding for each of our
biodefense programs, RiVaxTM and
BT-VACCTM,
through grants, contracts and
procurements;
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(h)
convert our biodefense vaccine programs from early stage development to
advanced development and manufacturing with the potential to
collaborate and/or partner with other companies in the biodefense
area;
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| (i) acquire or in-license new clinical-stage compounds for development; and |
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(j) explore
other business development and acquisition strategies under which we may
be considered to be an attractive acquisition candidate by another
company.
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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.
Intangible
Assets
One of
the most significant estimates or judgments that we make is whether to
capitalize or expense patent and license costs. We make this judgment based on
whether the technology has alternative future uses, as defined in SFAS 2,
“Accounting for Research and Development Costs”. Based on this consideration, we
capitalized all outside legal and filing costs incurred in the procurement and
defense of patents.
These
intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable or if the
underlying program is no longer being pursued. If the sum of the expected
undiscounted cash flows is less than the carrying value of the related asset or
group of assets, a loss is recognized for the difference between the fair value
and the carrying value of the related asset or group of assets.
We
capitalize and amortize intangibles over a period of 11 to 16 years. We
capitalize legal costs associated with the protection and maintenance of our
patents and rights for our current products in both the domestic and
international markets. As a late stage research and development company with
drug and vaccine products in an often lengthy clinical research process, we
believe that patent rights are one of our most valuable assets. Patents and
patent applications are a key currency of intellectual property, especially in
the early stage of product development, as their purchase and maintenance gives
us access to key product development rights from our academic and industrial
partners. These rights can also be sold or sub-licensed as part of our strategy
to partner our products at each stage of development. The legal costs incurred
for these patents consist of work designed to protect, preserve, maintain and
perhaps extend the lives of the patents. Therefore, our policy is to capitalize
these costs and amortize them over the remaining useful life of the patents. We
capitalize intangible assets’ alternative future use as referred to in SFAS
No.142 and in paragraph 11 c. of SFAS No. 2.
We
capitalize intangible assets that have alternative future uses as this is common
practice in the pharmaceutical development industry. Of our intangible asset
balance, our purchase of the RiVaxTM vaccine
license from the University of Texas Southwestern Medical Center for $462,234
was for up-front license costs. We capitalize license costs because they have
alternative future use as referred to in paragraph 11 c. of SFAS No.2. We
believe that both of these intangible assets purchased have alternative future
uses.
Research
and Development Costs
Research
and Development costs are charged to expense when incurred. 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 and 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.
Revenue
Recognition
Our
revenues are generated from U.S. government grants and from NPAP sales of
orBec®. The
government grants are based upon subcontractor costs and internal costs covered
by the grant, plus a facilities and administrative rate that provides funding
for overhead expenses. These revenues are recognized when expenses have been
incurred by subcontractors or when we incur internal expenses that are related
to the grant. The NPAP revenues are recorded when orBec® is
shipped.
Stock
Based Compensation
From time
to time we issue common stock to vendors, consultants, and employees as
compensation for services performed. These shares are typically issued as
restricted stock, unless issued to non-affiliates under the 2005 Equity
Incentive Plan, where the stock may be issued as unrestricted. The restricted
stock can only have the restrictive legend removed if the shares underlying the
certificate are sold pursuant to an effective registration statement, which we
must file and have approved by the SEC, if the shares underlying the certificate
are sold pursuant to Rule 144, provided certain conditions are satisfied, or if
the shares are sold pursuant to another exemption from the registration
requirements of the Securities Act of 1933, as amended.
Stock
based compensation expense recognized during the period is based on the value of
the portion of share-based payment awards that is ultimately expected to vest
during the period.
Material Changes in Results of Operations
Year
Ended December 31, 2008 Compared to Year Ended December 31, 2007.
For the
12 months ended December 31, 2008, we had a net loss of $3,422,027 as compared
to a net loss of $6,164,643 for the 12 months ended December 31, 2007, for a
decrease of $2,742,616, or 44%. This decrease is primarily attributed to lower
research and development costs and lower costs associated with preparation of
FDA and European regulatory matters as well as a reduction in general and
administrative expenses, such as, public and investor relation expenses, a
reduction in employee, travel and consultant expenses, lower expenses for stock
based compensation in the amount of $291,785, and the dilution expense taken for
stock issued to investors from the April 2006 private placement in the amount of
$308,743 in 2007.
The 2008
revenues and associated expenses were from NIH Grants awarded in September 2004
and September 2006 and from Orphan Australia for NPAP sales of orBec®. The NIH
grants support the research and development of our ricin and botulinum
vaccines.
For the
12 months ended December 31, 2008, we had revenues of $2,310,265 as compared to
$1,258,017 in the 12 months ended December 31, 2007, for an increase of
$1,052,248, or 84%. During 2008, we progressed with our September 2006 NIH grant
and achieved certain research and development milestones with our
subcontractors. In addition, we had revenue of $40,618 from Orphan Australia for
NPAP sales of orBec®. We also
incurred expenses related to that revenue in the 12 months ended December
31, 2008 and 2007 of $1,886,431 and $943,385, respectively, for an increase
of $943,046, or 100%. This difference is in part due to the increased
payments made to subcontractors and universities in connection with the grants.
Costs of goods associated with NPAP sales of orBec® were
$10,551. We also recorded a $100,000 allowance as a reserve for our orBec®
inventory.
Our gross
profit for the 12 months ended December 31, 2008 was $423,834 as compared to
$314,632 in the 12 months ended December 31, 2007, for an increase of
$109,202, or 35%. A portion of this difference relates to the aforementioned
reclassification of expenses. In the third quarter of 2008, we also capitalized
inventory in the net amount of $147,545, as compared to $60,311 in 2007,
for certain orBec® costs
that were expensed as research and development expenses and, in 2008 we recorded
a $100,000 allowance as a reserve for our orBec®
inventory.
Research
and development spending decreased by $1,547,621, or 50%, to $1,552,323, for the
12 months ended December 31, 2008 as compared to $3,099,944 for the year
ended December 31, 2007. During 2008, we incurred expenses for FDA and
European regulatory matters, for clinical preparation of orBec® and
LPMTM
formulation work. The majority of research and development expenses in 2007 were
related to FDA and European regulatory matters with respect to the FDA ODAC
meeting and the EMEA applications for orBec®, which
we did not have in 2008.
General
and administrative expenses decreased $922,651, or 32%, to $1,941,719 for the 12
months ended December 31, 2008, as compared to $2,864,370 for the
corresponding period ended December 31, 2007. The decrease was primarily
due to the dilution expense taken in the first quarter of 2007 for stock issued
to investors in the April 2006 private placement in the amount of $308,743.
Additionally, the decrease was due to a reduction in employee and consultant
expenses, travel expenses and expenses for public and investor relations of
approximately $230,000.
Stock
based compensation expenses for research and development decreased $48,500, or
21%, to $182,168 for the 12 months ended December 31, 2008, as compared to
$230,668 for the corresponding period ended December 31, 2007. The stock
based compensation expense for the 12 months ended December 31, 2008 for
BioDefense was $92,822 and for BioTherapeutics was $89,346, compared to $69,591
and $161,077, for the corresponding 12 month period in 2007,
respectively.
Stock
based compensation expenses for general and administrative decreased $243,285,
or 54%, to $203,448 for the 12 months ended December 31, 2008, as compared
to $446,733 for the corresponding period ended December 31, 2007. This
decrease was due to having more initial option grants in 2007 requiring a larger
expenditure for the initially vested options.
Interest
income for the 12 months ended December 31, 2008 was $37,073 as compared to
$164,847 for the 12 months ended December 31, 2007, representing a decrease
of $127,774, or 78%. This decrease was due to lower cash balances in 2008 as
compared to 2007.
Interest
expense for the 12 months ended December 31, 2008 was $3,276 as compared to
$1,020 for the 12 months ended December 31, 2007. This increase was the
result of higher balances that were short-term financed for insurance premiums
due.
We had
two active segments for the year ended December 31, 2008 and December 31,
2007: BioDefense and BioTherapeutics. Loss from operations for
BioDefense for the 12 months ended December 31, 2008 was $132,272 as compared to
$109,698 for the 12 months ended December 31, 2007, representing an increase of
$22,574. Loss from operations for BioTherapeutics for the 12 months ended
December 31, 2008 was $1,556,429 as compared to $2,748,764 for the 12 months
ended December 31, 2007, representing a decrease of $1,192,335. This decrease is
primarily attributed to lower research and development costs and lower costs
associated with preparation of FDA and European regulatory matters as well as a
reduction in general and administrative expenses, such as, public and investor
relation expenses, a reduction in employee, travel and consultant expenses,
lower expenses for stock based compensation in the amount of $291,785, and the
dilution expense taken for stock issued to investors from the April 2006 private
placement in the amount of $308,743 in 2007. Loss from operations for Corporate
for the 12 months ended December 31, 2008 was $1,767,123 as compared to
$3,468,621 for the 12 months ended December 31, 2007, representing a decrease of
$1,701,498.
Revenues
for BioDefense for the 12 months ended December 31, 2008 were $2,269,647 as
compared to $1,258,017 for the 12 months ended December 31, 2007, representing
an increase of $1,011,630. During 2008, we progressed with our September 2006
NIH grant and achieved certain research and development milestones with our
subcontractors. Revenues for BioTherapeutics for the 12 months ended December
31, 2008 were $40,618 as compared to zero for the 12 months ended December 31,
2007.
Amortization
and depreciation expense for BioDefense for the 12 months ended December 31,
2008 was $85,354 as compared to $90,185 for the 12 months ended December 31,
2007, representing a decrease of $4,831. Amortization and depreciation expense
for BioTherapeutics for the 12 months ended December 31, 2008 was $58,829 as
compared to $24,312 for the 12 months ended December 31, 2007, representing a
decrease of $34,517. Amortization and depreciation expense for Corporate for the
12 months ended December 31, 2008 was $5,000 as compared to $5,068 for the 12
months ended December 31, 2007, representing a decrease of $68.
Financial Condition
Cash
and Working Capital
The
accompanying consolidated financial statements have been prepared assuming we
will continue as a going concern. As of December 31, 2008, we had cash of
$1,475,466 as compared to $2,220,128 as of December 31, 2007. As of
February 28, 2009, we had cash of approximately $7,100,000. The increase
was the result of the sale of our common stock to our commercialization partner
Sigma-Tau of $4.5 million and approximately $2.3 million from the sale of our
common stock and warrants to accredited investors. As of December 31, 2008, we
had working capital of $537,183 as compared to working capital of $1,243,638 as
of December 31, 2007, representing a decrease of $706,455. For the 12
months ended December 31, 2008, our cash used in operating activities was
approximately $2,800,000, compared to approximately $6,000,000 for the
year ended December 31, 2007, reflecting both an increase in grant revenues
and reduced costs as we conscientiously slowed our spending in response to
difficult conditions in raising funding and progress of our clinical programs.
We continue to use equity instruments to provide a portion of the compensation
due to our employees, vendors and collaboration partners, and expect to continue
to do so in the future.
Based on
the our current rate of cash outflows and cash in the bank, we believe that
our current cash will be sufficient to meet our anticipated cash needs for
working capital and capital expenditures into the third quarter of 2010. We have
approximately $2.0 million in grant funding still available to support our
programs in 2009 and beyond. Additionally, we have several grants for several of
our programs that have been submitted for government funding.
Management’s
plan is as follows:
|
|
We
are exploring out-licensing opportunities for orBec®
and oral BDP in territories outside North America, and for LPMTM
-Leuprolide and BioDefense programs in the U.S. and in
Europe.
We
have and will utilize NPAPs wherever possible in countries outside the
U.S. to generate revenues from orBec®.
|
|
|
We
intend to utilize our existing $8 million equity line of credit with
Fusion Capital (approximately $7.8 million of which is still available to
us through June 2010) when we deem market conditions to be
appropriate.
We
expect to receive new government grants intended to support existing and
new research and development over the next twelve months. In addition to
research and development funding, these grants would provide additional
support for our overhead expenditures as well as defray certain costs
intended to cover portions of our upcoming confirmatory Phase 3 trial of
our lead product orBec®. Therefore
these grants would have the effect of extending our cash resources. We
routinely file for government grants which support our biotherapeutic and
biodefense programs.
We
may obtain additional funds through the issuance of equity or
equity-linked securities through private placements or rights offerings.
We are currently evaluating additional equity financing opportunities and
will continue to execute them when appropriate.
|
If we
obtain additional funds through the issuance of equity or equity-linked
securities, shareholders may experience significant dilution and these equity
securities may have rights, preferences or privileges senior to those of our
common stock. The terms of any debt financing may contain restrictive covenants
which may limit our ability to pursue certain courses of action. We may not be
able to obtain such financing on acceptable terms if at all. If we are unable to
obtain such financing when needed, or to do so on acceptable terms, we may be
unable to develop our products, take advantage of business opportunities,
respond to competitive pressures or continue our operations.
In the
event that such growth is less than forecasted in our 2009-2010 operating plan,
management has developed contingency plans to reduce operating expenses.
However, in any case, there can be no assurance that we will be able to maintain
adequate liquidity to allow us to continue to operate the business or prevent
the possible impairment of our assets.
Should
the financing we require to sustain our working capital needs be unavailable or
prohibitively expensive when we require it, the consequences could cause a material adverse effect on our business,
operating results, financial condition and prospects.
Since December
31,
2008, we have issued a total of 45,914,035 shares
of common stock and warrants to purchase 20,914,035 shares of common stock for
gross proceeds of $6,884,200.
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
expenditures for the next 12 months to be approximately $6,000,000. We
anticipate grant revenues in the next 12 months to offset research and
development expenses for the development of our ricin toxin vaccine and
botulinum toxin vaccine in the amount of approximately $2,000,000, with $600,000
contributing towards our overhead expenses.
The table
below details our costs by program for the 12 months ended December
31:
|
2008
|
2007
|
|
|
Program
- Research & Development Expenses
|
||
|
orBec®
|
$
921,562
|
$ 2,288,614
|
|
RiVax™
|
312,486
|
452,894
|
|
BT-VACC™
|
201,529
|
315,082
|
|
Oraprine™
|
4,500
|
5,100
|
|
LPMTM-Leuprolide
|
112,246
|
38,254
|
|
Research
& Development Expense
|
$ 1,552,323
|
$ 3,099,944
|
|
Program
- Cost of Goods Sold and Reimbursed under Grants
|
||
|
orBec®
|
$ 122,551
|
$ -
|
|
RiVax™
|
1,681,274
|
897,470
|
|
BT-VACC™
|
82,606
|
45,915
|
|
Cost
of Goods Sold and Reimbursed under Grant
|
$ 1,886,431
|
$
943,385
|
|
TOTAL
|
$ 3,438,754
|
$
4,043,329
|
Debt
We had no
debt at December 31, 2008 or at December 31, 2007.
Equity
Transactions
On February 11, 2009, in connection with a collaboration and supply agreement,
we entered into a common stock purchase
agreement with Sigma-Tau pursuant to which we sold 25 million shares of our
common stock to Sigma-Tau for $0.18 per
share, for an aggregate price of $4,500,000. The purchase price was equal to one
hundred fifty percent (150%) of the average trading price of our common stock
over the five trading days prior to February 11,
2009.
On
January 20, 2009, we received $2,384,200 from the completed private placement of
common stock and warrants to accredited investors. Under the terms of the
agreement, we sold 20,914,035 shares at $0.114, together with five year warrants
to purchase up to 20,914,035 shares of our common stock at $0.14 per share. The
expiration date of the warrants will be accelerated if the Company's common
stock meets certain price thresholds, and we would receive additional gross
proceeds of approximately $2.9 million if exercised.
During
the 12 months ended December 31, 2008, we issued 758,082 shares of common stock
as payment to vendors for consulting services. An expense of $111,500 was
recorded which approximated the shares’ fair market value on the date of
issuance, respectively.
During
the 12 months ended December 31, 2008, we also issued 993,084 shares of
common stock under its existing Fusion Capital Equity facility. The Company
received $127,500 in proceeds which approximated the shares’ fair market value
on the date of issuance.
During
the 12 months ended December 31, 2008, we issued 168,309 shares of common stock
as compensation and severance for employees. An expense of $26,000 was recorded
which approximated the shares’ fair market value on the date of issuance,
respectively.
On
December 1, 2008, we entered into a non-binding letter of intent with Sigma-Tau,
which granted Sigma-Tau an exclusive right to negotiate terms and conditions for
a possible business transaction or strategic alliance regarding orBec® and
potentially other pipeline compounds until March 1, 2009. Under the terms of the
letter of intent, Sigma-Tau purchased $1.5 million of our common stock at the
market price of $0.09 per share, representing 16,666,667 shares.
On
February 14, 2008, we entered into a common stock purchase agreement with Fusion
Capital. The Fusion Capital facility allows us to require Fusion Capital to
purchase between $20,000 and $1.0 million depending on certain conditions of our
common stock up to an aggregate of $8.0 million over approximately a 25-month
period. As part of that agreement, we issued Fusion Capital 1,275,000 shares of
common stock as a commitment fee. In connection with the execution of the common
stock purchase agreement, Fusion Capital purchased 2,777,778 shares and a four
year warrant to purchase 1,388,889 shares of common stock for $0.22 per share,
for an aggregate price of $500,000. We issued 75,000 shares as a pro rata
commitment fee in connection with the purchase of $500,000 of our common stock.
If our stock price exceeds $0.15, then the amount required to be purchased may
be increased under certain conditions as the price of our common stock
increases. We cannot require Fusion Capital to purchase any shares of our common
stock on any trading days that the market price of our common stock is less than
$0.10 per share. Furthermore, for each additional purchase by Fusion, additional
commitment shares in commensurate amounts up to a total of 1,275,000 shares will
be issued based upon the relative proportion of purchases compared to the total
commitment maximum of 18.5 million shares.
On
February 14, 2008, we sold 881,112 shares of our common stock to accredited
investors for an aggregate purchase price of approximately $158,600. The
investors also received four year warrants to purchase an aggregate of 440,556
shares of our common stock at an exercise price of $0.22 per share.
The total
issuance of common stock from private placement for 2008 was 3,658,890 shares;
which consisted of the 881,112 shares sold to an institutional investor and
other accredited investors for $158,600 and Fusion Capital of 2,777,778 shares
for $500,000.
The total
issuance of common stock for commitment shares for 2008 was 1,369,125 shares;
which were issued to Fusion Capital and consisted of 1,275,000 shares as a
commitment fee, 75,000 shares as a commitment fee for the $500,000 invested, and
19,125 shares for the commitment fee on the equity line draws of
$127,500.
During
2007 the Company issued 373,607 shares of common stock as part of severance
payments to employees. An expense of $85,000 was recorded, which approximated
the shares’ fair market value on the date of issuance.
For the
12 months ended December 31, 2007, 1,737,200 stock options were exercised to
purchase shares of common stock which provided $633,895.
For the
12 months ended December 31, 2007, 6,458,287 common stock warrants were
exercised to purchase of common stock which provided $1,592,264.
The total
issuance of common stock upon exercise of options and warrants for 2007 was
8,195,487 shares; which consisted of the 1,737,200 stock option exercises and
6,458,287 warrant exercises.
On
February 9, 2007, we sold 11,680,850 shares of our common stock to institutional
investors and certain of our officers and directors for a purchase price of
$5,490,000. These shares have been registered.
On
January 3, 2007, in consideration for entering into an exclusive letter of
intent, Sigma-Tau agreed to purchase $1,000,000 of the Company’s common stock at
the market price of $0.246 per share, representing 4,065,041 shares of common
stock, and contributed an additional $2 million in cash. The $2 million
contribution was to be considered an advance payment to be deducted from future
payments due to the Company by Sigma-Tau pursuant to any future orBec®
commercialization arrangement reached between the two parties. Because of this
transaction’s dilutive nature, all investors in the April 2006 private placement
had their warrants repriced to $0.246. Additionally, certain shareholders who
still held shares of the Company’s common stock from that placement were issued
additional shares as a cost basis adjustment from $0.277 to $0.246 per share of
the Company’s common stock. Neither these investors, nor any other investors,
hold any further anti-dilution rights. Because no agreement was reached by March
1, 2007, we were obligated to return the $2 million to Sigma-Tau by April 30,
2007 which was completed on June 1, 2007.
The total
issuance of common stock from private placement for 2007 was 15,745,891 shares;
which consisted of the 11,860,850 shares sold to institutional investors and
certain of our officers and directors for $5,490,000, less the $254,596 payable
as placement agent fees, and 4,065,041 shares to Sigma-Tau for $1,000,000. The
total net proceeds from the private placement were $6,235,404.
Off-Balance Sheet
Arrangements
We
currently have no off-balance sheet arrangements.
Effects of Inflation and
Foreign Currency Fluctuations
We do not
believe that inflation or foreign currency fluctuations significantly affected
our financial position and results of operations as of and for the fiscal year
ended December 31, 2008 or the fiscal year ended December 31, 2007.
See Item
15(a) of this Annual Report.
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure.
None.
Disclosure Controls and
Procedures
Disclosure controls and procedures are the
Company’s controls and
other procedures that are designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is
recorded, processed, summarized and reported within the time periods specified in the
SEC’s
rules and forms. Disclosure controls and
procedures include, without limitation,
controls and procedures designed to ensure that information required to
be disclosed by us in the reports that we file
under the Exchange Act is
accumulated and communicated to our
management, including our principal
executive officer and principal financial officer, as appropriate, to
allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed
and operated, can only provide reasonable assurance of achieving their
objectives and management necessarily applies its judgment in evaluating the
possible controls and procedures.
Our management has evaluated, with the participation of our principal
executive officer and principal financial officer, the effectiveness of our
disclosure controls and procedures (as such term is defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act) as of the end of
the period covered by this report. Based
upon that evaluation, our management, including our principal executive officer
and principal financial officer, has concluded that, as of the end of the period
covered by this report, the Company’s disclosure
controls and procedures were
effective.
Management’s
Report on Internal Control over Financial
Reporting
Company management is responsible for
establishing and maintaining adequate internal control over financial
reporting. Internal control over
financial reporting is a process designed
by, or under the supervision of, our principal executive and principal financial
officers and effected by the Company’s Board of
Directors, management and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures
that:
|
|
•
|
pertain to the maintenance of records that in
reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the
Company;
|
|
|
•
|
provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company
are being made only in accordance with authorizations of management and
directors of the Company;
and
|
|
|
•
|
provide reasonable assurance regarding prevention
or timely detection of unauthorized
acquisition, use or disposition of the Company’s assets
that could have a material effect on the financial
statements.
|
Because of inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to
future periods are subject to the risks that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2008. In making
this assessment, management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated
Framework.
Based on our assessment, management has concluded
that, as of December 31, 2008, the
Company’s internal control over financial reporting is
effective.
This
report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management's report in this report.
Changes
in Internal Control over Financial
Reporting
There were no changes in the Company’s internal control
over financial reporting identified in connection with the evaluation of such
internal control that occurred during the Company’s last fiscal quarter that have materially affected, or
are reasonably likely to materially affect, the Company’s internal control
over financial reporting.
Item 9B. Other
Information
None.
PART
III
Item 10.
Directors, Executive Officers, and Corporate
Governance.
The
following table contains information regarding the current members of the Board
of Directors and executive officers:
|
Name
|
Age
|
Position
|
|
James
S. Kuo, M.D., M.B.A.
|
45
|
Chairman
of the Board
|
|
Cyrille
F. Buhrman
|
36
|
Director
|
|
Gregg
A. Lapointe, C.P.A., M.B.A.
|
50
|
Director |
|
Christopher J. Schaber,
Ph.D.
|
42
|
Chief
Executive Officer, President, and Director
|
|
Evan
Myrianthopoulos
|
44
|
Chief
Financial Officer, Senior Vice President, and Director
|
| Brian L. Hamilton, M.D., Ph.D. | 61 |
Chief
Medical Officer, and Senior Vice President
|
| Robert N. Brey, Ph.D. | 58 |
Chief
Scientific Officer, and Senior Vice President
|
|
James
Clavijo, C.P.A., M.A.
|
43
|
Controller,
Treasurer, and Corporate Secretary
|
James S. Kuo, M.D., M.B.A.,
has been
a director since 2004 and currently serves as the non-executive Chairman of the
Board. He has served as Chairman of the Board of Directors of Cordex Pharma,
Inc. (formerly Duska Therapeutics, Inc.), a public biopharmaceutical company,
since June 2007 and has been Chief Executive Officer since September 2007. From
2006 to September 2007, he served as Chairman and Chief Executive Officer of
Cysteine Pharma, Inc. From 2003 to 2006, he served as founder,
Chairman and Chief Executive Officer of BioMicro Systems, Inc., a private
venture-backed, microfluidics company. Prior to that time, Dr. Kuo was
co-founder, President and Chief Executive Officer of Discovery Laboratories,
Inc., a public specialty pharmaceutical company developing respiratory
therapies, where he raised over $22 million in initial private funding and took
the company public. He further has been a founder and a Board Director of
Monarch Labs, LLC, a private medical device company. Dr. Kuo is the former
Managing Director of Venture Analysis for HealthCare Ventures, LLC, which
managed $378 million in venture funds. He has also been a senior licensing and
business development executive at Pfizer, Inc., where he was directly
responsible for cardiovascular licensing and development. Dr. Kuo is also a
director of Adeona Pharmaceuticals, Inc. (formerly Pipex Pharmaceuticals, Inc.),
a public company. After studying molecular biology and receiving his B.A. degree
at Haverford College, Dr. Kuo simultaneously received his M.D. degree from The
University of Pennsylvania School of Medicine and his M.B.A. degree from The
Wharton School of Business at the University of
Pennsylvania.
Cyrille F. Buhrman has been a
director since June 2007. Mr. Buhrman is Chairman and President of the Pacific
Healthcare Group of Companies, a full-service marketing, sales, distribution and
regulatory affairs company based in Thailand where he has served for
approximately ten years. Mr. Buhrman is also a Director of International
Pharmaceuticals Ltd., a company focused on marketing niche pharmaceuticals and
other medical products in Thailand, Vision Care (Thailand) Co., Ltd., and Canyon
Pharmaceuticals, Inc., a private biotechnology company focused on the
commercialization of therapeutics to prevent and treat thrombosis and related
conditions. Mr. Buhrman is owner of Markle Holdings Ltd., an investment fund
specializing in biotech and pharmaceutical investments. Mr. Buhrman is also one
of our largest shareholders.
Gregg Lapointe, C.P.A.,
M.B.A., has been a director since March 10, 2009. Mr. Lapointe also
serves on the Board of Directors of the Pharmaceuticals Research and
Manufacturers of America (PhRMA) and is a member of the Corporate Council of the
National Organization for Rare Diseases (NORD). He has served in varying roles
for Sigma-Tau, a private biopharmaceutical company, since September 2001,
including Chief Operating Officer from November 2003 to April 2008 and Chief
Executive Officer since April 2008. From May, 1996 to August, 2001, he served as
Vice President of Operations and Vice President, Controller of AstenJohnson,
Inc. (formerly JWI Inc.). Prior to that Mr. Lapointe spent several years
in the Canadian medical products industry in both distribution and
manufacturing. Mr. Lapointe began his career at Price Waterhouse. From his
extensive background, Mr. Lapointe has significant experience in the areas of
global strategic planning and implementation, business development, corporate
finance, and acquisitions. Mr. Lapointe received his B.A. degree in
Commerce from Concordia University in Montreal, Canada, a graduate diploma in
Accountancy from McGill University and his M.B.A. degree from Duke University.
He is a C.P.A. in the state of Illinois and a Chartered Accountant in Ontario,
Canada.
Christopher J. Schaber, Ph.D.,
has been our President and Chief Executive Officer and a director since August
2006. Dr. Schaber also currently serves on the boards of both the Alliance for
BioSecurity and BioNJ, Inc. Prior to joining DOR, Dr. Schaber served from
1998 to 2006 as Executive Vice President and Chief Operating Officer of
Discovery Laboratories, Inc., where he was responsible for overall pipeline
development and key areas of commercial operations, including regulatory
affairs, quality control and assurance, manufacturing and distribution,
preclinical and clinical research, and medical affairs, as well as coordination
of commercial launch preparation activities. During his tenure at Discovery
Laboratories, Inc., Dr. Schaber played a significant role in raising in excess
of $150 million through both public offerings and private placements. From 1996
to 1998, Dr. Schaber was a co-founder of Acute Therapeutics, Inc., and served as
its Vice President of Regulatory Compliance and Drug Development. From 1994 to
1996, Dr. Schaber was employed by Ohmeda PPD, Inc., as Worldwide Director of
Regulatory Affairs and Operations. From 1989 to 1994, Dr. Schaber held a variety
of regulatory, development and operations positions with The Liposome Company,
Inc., and Elkins-Sinn Inc., a division of Wyeth-Ayerst Laboratories. Dr. Schaber
received his B.A. degree from Western Maryland College, his M.S. degree in
Pharmaceutics from Temple University School of Pharmacy and his Ph.D. degree in
Pharmaceutical Sciences from The Union Graduate School.
Evan Myrianthopoulos has been
a director since 2002 and is currently our Chief Financial Officer and Senior
Vice President, after joining us in November of 2004 as President and Acting
Chief Executive Officer. From November 2001 to November 2004, he was President
and founder of CVL Advisors Group Inc., a financial consulting firm specializing
in the biotechnology sector. Prior to founding CVL Advisors Group, Inc., Mr.
Myrianthopoulos was a co-founder of Discovery Laboratories, Inc. During his
tenure at Discovery Laboratories, Inc. from June 1996 to November 2001, Mr.
Myrianthopoulos held the positions of Chief Financial Officer and Vice President
of Finance, where he was responsible for raising approximately $55 million in
four private placements. He also helped negotiate and manage Discovery
Laboratories, Inc.’s mergers with Ansan Pharmaceuticals and Acute Therapeutics,
Inc. Prior to co-founding Discovery Laboratories, Inc., Mr. Myrianthopoulos was
a Technology Associate at Paramount Capital Investments, L.L.C., a New York City
based biotechnology venture capital and investment banking firm. Prior to
joining Paramount Capital Investments, LLC, Mr. Myrianthopoulos was a managing
partner at a hedge fund and also held senior positions in the treasury
department at the National Australia Bank where he was employed as a spot and
derivatives currency trader. Mr. Myrianthopoulos holds a B.S. degree in
Economics and Psychology from Emory University.
Brian L. Hamilton, M.D.,
Ph.D., has been Chief Medical Officer and Senior Vice President since
March 11, 2009. His academic career at the University of Washington
and the University of Miami focused on the use of bone marrow transplantation to
treat children with congenital immune deficiency, with research in the
immunobiology of GVHD. In the pharmaceutical industry, he has worked with both
large pharmaceutical companies (Astra, USA and Wyeth) and several biotechnology
companies. From December 2001 to June 2004, he was Senior Director of Clinical
Research with Wyeth Research. From June 2004 to March 2006, he was
Vice President for Clinical and Regulatory Affairs at Merrimack
Pharmaceutical. He was Chief Medical Officer with BioVex from
September 2006 to March 2007. He was a consultant in clinical
development as Medical Director with Biopharm Solutions, Inc. from March 2007 to
October 2008. From October 2008 to March 2009, he was Acting Vice
President of Medical Affairs with Ziopharm Oncology. He has expertise
in clinical development and regulatory affairs with small molecules, biologics,
vaccines, and genetically modified oncolytic viruses in oncology, hematology,
rheumatology, and immunology. At Astra, USA, he had a significant
role in the clinical development and registration of both Pulmicort Turbuhaler
for the treatment of patients with asthma and Rhinocort Aqua for the treatment
of patients with allergic rhinitis. Dr. Hamilton received his M.D.
and Ph.D. degrees from the University of Washington, with post-graduate training
in Pediatrics, Allergy, Immunology, and Oncology.
Robert N. Brey, Ph.D., has
been with the Company since January 1996, and is currently our Chief Scientific
Officer and Senior Vice President. He has also held the positions of Vice
President Vaccine Development and Vice President of Research and
Development. He also has held Scientific, Management and Project
Management positions in the Lederle-Praxis division of American Cyanamid, now a
division of Wyeth, in which he participated in the successful development a of a
vaccine for Haemophilius
influenzae meningitis, and a vaccine for pneumonia. While at
Lederle-Praxis, Dr. Brey was Manager of Molecular Biology Research for vaccines
and Project Manager for development of oral vaccines from 1985 through 1993.
From 1993 through 1994, Dr. Brey served as Director of Research and Development
of Vaxcel, in which he was responsible for developing adjuvant technology and
formulations for improved vaccines. From 1994 through 1996, Dr. Brey established
an independent consulting group, Vaccine Design Group, to identify and develop
novel vaccine technologies and platforms. Before entering into drug and vaccine
delivery, he held senior scientific positions at Genex Corporation from 1982
through 1986. Dr. Brey received a B.S. degree in Biology from Trinity College in
Hartford, Connecticut, his Ph.D. degree in Microbiology from the University of
Virginia and performed postdoctoral studies at MIT with Nobel Laureate Salvador
Luria.
James Clavijo, C.P.A., M.A.,
has been with the Company since October 2004 and is currently our Controller,
Treasurer, and Corporate Secretary. He brings 15 years of senior financial
management experience, involving both domestic and international entities, and
participating in over $100 million in equity and debt
financing. Prior to joining us, Mr. Clavijo held the position of
Chief Financial Officer for Cigarette Racing Team (Miami, FL), from July 2003 to
October 2004. During his time with Cigarette he was instrumental in developing a
cost accounting manufacturing tracking system and managed the administration and
development of an IRB Bond related to a 10 acre, 100,000 square foot facility
purchase. Prior to joining Cigarette Racing Team, Mr. Clavijo held positions as
Chief Financial Officer for Gallery Industries, from November 2001 to July 2003,
a retail and manufacturing garment company. Prior to Gallery Industries, as
Corporate Controller for A Novo Broadband, he managed several mergers and
acquisitions and corporate restructuring. He also, held the position of Finance
Manager for Wackenhut Corporation in the U.S. Governmental Services
Division. In addition, he served in the U.S. Army from 1983 to 1996
in both a reserve and active duty capacity for personnel and medical units. Mr.
Clavijo holds an M.A. degree in Accounting from Florida International
University, a B.A. degree in Accounting from the University of Nebraska, and a
B.S. degree in Chemistry from the University of Florida. Mr. Clavijo
is a licensed Certified Public Accountant in the state of Florida.
Section 16(a) Beneficial Ownership
Reporting Compliance
We are
required to identify each person who was an officer, director or beneficial
owner of more than 10% of our registered equity securities during our most
recent fiscal year and who failed to file on a timely basis reports required by
Section 16(a) of the Securities Exchange Act of 1934.
To our
knowledge, based solely on review of these filings and written representations
from the certain reporting persons, we believe that during the fiscal year ended
December 31, 2008, our officers, directors and significant stockholders have
timely filed the appropriate form under Section 16(a) of the Exchange
Act..
Code
of Ethics
We have
adopted a code of ethics that applies to all of our executive officers and
senior financial officers (including our chief executive officer, chief
financial officer, chief accounting officer, controller, and any person
performing similar functions). A copy of our code of ethics is publicly
available on our website at http://www.dorbiopharma.com under the caption
"Investors." If we make any substantive amendments to our code of ethics or
grant any waiver, including any implicit waiver, from a provision of the code to
our chief executive officer, chief financial officer, chief accounting officer
or controller, we will disclose the nature of such amendment or waiver in a
report on Form 8-K.
We have
an audit committee comprised of independent directors Dr. Kuo, Mr. Buhrman and
Mr. Lapointe. Mr. Lapointe was appointed on March 27, 2009. The board of
directors has determined that each of Dr. Kuo, Mr. Buhrman and Mr. Lapointe
qualify as an “audit committee financial expert,” as defined under the rules of the Securities and Exchange
Commission. The board of directors has also determined that the members of the
Audit Committee are qualified to serve on the committee and have the experience
and knowledge to perform the duties required of the committee.
Summary
Compensation
The
following table contains information concerning the compensation paid during our
fiscal years ended December 31, 2008 and 2007 to the persons who served as our
Chief Executive Officer, and each of the two other most highly compensated
executive officers during 2008 (collectively, the “Named Executive
Officers”).
Summary Compensation Table
|
Name
|
Position
|
Year
|
Salary
|
Bonus
|
Option
Awards
|
All
Other Compensation
|
Total
|
|
Christopher
J. Schaber (1)
|
C.E.O.
& President
|
2007
|
$300,000
|
$100,000
|
$155,409
|
$47,798
|
$603,207
|
|
|
2008
|
$300,000
|
$100,000
|
$185,721
|
$24,844
|
$610,565
|
|
|
Evan
Myrianthopoulos (2)
|
C.F.O.
& Sr. V.P.
|
2007
|
$200,000
|
$ 50,000
|
$146,938
|
$44,786
|
$441,724
|
|
|
2008
|
$200,000
|
$ 50,000
|
$
66,033
|
$23,474
|
$339,507
|
|
|
Robert
N. Brey (3)
|
C.S.O.
& Sr. V.P.
|
2007
|
$190,000
|
$ 15,000
|
$ 48,252
|
$18,325
|
$271,577
|
|
|
2008
|
$190,000
|
$ 20,000
|
$ 55,133
|
$18,405
|
$283,538
|
(1) Dr.
Schaber deferred payment of his 2008 annual bonus of $100,000 until February 28,
2009. Option Awards include the value of stock option awards of vested shares of
common stock as required by FASB No. 123R. Other Compensation for 2008 includes
$24,844 for insurance costs. Other Compensation for 2007 includes $19,000 for
insurance costs, $2,301 for transportation costs, $7,263 for travel expenses and
$19,234 for lodging costs.
(2) Mr.
Myrianthopoulos deferred payment of his 2008 annual bonus of $50,000 until
February 28, 2009. Option Awards include the value of stock option awards of
vested shares of common stock as required by FASB No. 123R. Other Compensation
for 2008 includes $23,474 for insurance costs. Other Compensation for 2007
includes $17,000 for insurance costs, $2,895 for transportation costs, $6,787
for travel expenses and $18,104 for lodging costs.
(1) Dr. Brey
deferred payment of his 2008 annual bonus of $20,000 until January 31, 2009.
Option Awards include the value of stock option awards of vested shares of
common stock as required by FASB No. 123R. Other Compensation for 2008 includes
$18,405 for insurance costs. Other Compensation for 2007 includes $18,325
for insurance costs.
Potential Issuance of
Shares
On
February 28, 2007, our Board of Directors approved the issuance of 2,700,000
shares of our common stock to certain employees and a consultant to be issued
immediately prior to the completion of a transaction, or series or 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 (an “Acquisition
Event”). Of the shares of common stock to be issued upon an Acquisition Event,
1,000,000 shares will be issued to Christopher J. Schaber, a director and our
Chief Executive Officer and President; 750,000 shares will be issued to Evan
Myrianthopoulos, a director and our Chief Financial Officer; and 300,000 shares
will be issued to James Clavijo, our Controller, Treasurer, and Corporate
Secretary.
During
August 2006, we entered into a three-year employment agreement with Christopher
J. Schaber, Ph.D. Pursuant to this employment agreement we agreed to pay Dr.
Schaber a base salary of $300,000 per year and a minimum annual bonus of
$100,000. This employment agreement was renewed in December 27, 2007 for a term
of three years. We agreed to issue him options to purchase 2,500,000 shares of
our common stock, with one third immediately vesting and the remainder vesting
over three years. Upon termination without “Just Cause” as defined by this
agreement, we would pay Dr. Schaber nine months severance, as well as any
accrued bonuses, accrued vacation, and we would provide health insurance and
life insurance benefits for Dr. Schaber and his dependants. No unvested options
shall vest beyond the termination date.
Dr.
Schaber’s monetary compensation (base salary of $300,000 and bonus of $100,000)
remained unchanged from 2006. He will be paid nine months severance
upon termination of employment. Upon a change in control of the
Company due to merger or acquisition, all of Dr. Schaber’s options shall become
fully vested, and be exercisable for a period of five years after such change in
control (unless they would have expired sooner pursuant to their
terms). In the event of his death during term of the agreement, all
of his unvested options shall immediately vest and remain exercisable for the
remainder of their term and become the property of Dr. Schaber’s immediate
family.
In
December 2004, we entered into a three-year employment agreement with Mr.
Myrianthopoulos. Pursuant to this employment agreement we agreed to pay Mr.
Myrianthopoulos a base salary of $185,000 per year. After one year of service
Mr. Myrianthopoulos would be entitled to a minimum annual bonus of $50,000. This
employment agreement was renewed in December 27, 2007 for a term of three years.
We agreed to issue him options to purchase 500,000 shares of our common stock,
with the options vesting over three years. This option grant is subject to
shareholder approval. Upon termination without “Just Cause” as defined by this
agreement, we would pay Mr. Myrianthopoulos six months severance subject to set
off, as well as any unpaid bonuses and accrued vacation would become payable. No
unvested options shall vest beyond the termination date. Mr. Myrianthopoulos
also received 150,000 options, vested immediately when he was hired in November
2004, as President and Acting Chief Executive Officer.
Mr.
Myrianthopoulos’ monetary compensation (base salary of $200,000 and bonus of
$50,000) remained unchanged from 2006. He will be paid six months
severance upon termination of employment. Upon a change in control of the
Company due to merger or acquisition, all of Mr. Myrianthopoulos’ options shall
become fully vested, and be exercisable for a period of three years after such
change in control (unless they would have expired sooner pursuant to their
terms). In the event of his death during term of contract, all of his
unvested options shall immediately vest and remain exercisable for the remainder
of their term and become property of Mr. Myrianthopoulos’ immediate
family.
On March
27, 2009, the Compensation Committee approved the increase in salaries for: Dr.
Schaber to $350,000; Mr. Myrianthopoulos to $230,000; and Dr. Brey to
$200,000. Dr. Brey does not have an employment agreement.
In
February 2007, our Board of Directors authorized the issuance of the following
number of shares to each of Dr. Schaber, Mr. Myrianthopoulos and Dr. Brey
immediately prior to the completion of a transaction, or series or a combination
of related transactions negotiated by our Board of Directors whereby, directly
or indirectly, a majority of our capital stock or a majority of our assets are
transferred from the Company and/or our stockholders to a third
party: 1,000,000 common shares to Dr. Schaber; 750,000 common shares to Mr.
Myrianthopoulos; and 200,000 common shares to Dr. Brey. The amended
agreements include our obligation to issue such shares to the executives if such
event occurs.
Outstanding Equity Awards at
Fiscal Year-End
The
following table contains information concerning unexercised options, stock that
has not vested, and equity incentive plan awards for the Named Executive
Officers outstanding at December 31, 2008. We have never issued Stock
Appreciation Rights.
Outstanding
Equity Awards at Fiscal Year-End
|
Name
|
Number
of Securities
Underlying
Unexercised
Options
(#)
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
Option
Exercise Price ($)
|
Option
Expiration Date
|
|
|
Exercisable
|
Unexercisable
|
||||
|
Christopher
J. Schaber
|
2,083,343
|
416,657
|
416,657
|
$0.27
|
8/28/2016
|
|
506,250
|
393,750 | 393,750 | $0.47 | 8/29/2017 | |
|
|
700,000
|
2,100,000
|
2,100,000
|
$0.06
|
12/17/2018
|
|
Evan
Myrianthopoulos
|
150,000
|
-
|
-
|
$0.35
|
11/14/2012
|
|
|
50,000
|
-
|
-
|
$0.90
|
9/15/2013
|
|
|
50,000
|
-
|
-
|
$0.58
|
6/11/2014
|
|
|
150,000
|
-
|
-
|
$0.47
|
11/10/2014
|
|
|
500,000
|
-
|
-
|
$0.49
|
12/13/2014
|
|
|
375,000
|
25,000
|
25,000
|
$0.35
|
5/10/2016
|
|
309,375
|
240,625 | 240,625 | $0.47 | 8/29/2017 | |
|
|
300,000
|
900,000
|
900,000
|
$0.06
|
12/17/2018
|
|
Robert
N. Brey
|
10,000
|
-
|
-
|
$2.00
|
2/23/2009
|
|
|
9,000
|
-
|
-
|
$3.94
|
2/08/2010
|
|
|
562,500
|
37,500
|
37,500
|
$0.33
|
5/10/2016
|
|
125,000
|
75,000 | 75,000 | $0.47 | 8/29/2017 | |
|
|
200,000
|
600,000
|
600,000
|
$0.06
|
12/17/2018
|
Compensation
of Directors
The
following table contains information concerning the compensation of the
non-employee directors during the fiscal year ended December 31,
2008.
Director
Compensation
|
Name
|
Fees
Earned of Paid in Cash ($) (1)
|
Option
Awards ($) (2)
|
Total
($)
|
|
James
S. Kuo
|
$16,000
|
$-
|
$16,000
|
|
Cyrille
F. Buhrman
|
$9,000
|
$-
|
$9,000
|
|
(1)
|
Directors
who are compensated as full-time employees receive no additional
compensation for service on our Board of Directors. Each independent
director who is not a full-time employee is paid $2,000 for each board or
committee meeting attended ($1,000 if such meeting was attended
telephonically).
|
|
(2)
|
We
maintain a stock option grant program pursuant to the nonqualified stock
option plan, whereby members of our Board of Directors or its committees
who are not full-time employees receive an initial grant of fully vested
options to purchase 300,000 shares of common stock, and subsequent
prorated annual grants of fully vested options to purchase 150,000 shares
of common stock after re-election to our Board of Directors. During 2008,
we did not hold an annual meeting. As a result there were no stock options
granted to the Board of Directors in 2008. Option Awards include the value
of stock option awards of vested shares of Common Stock as required by
FASB No. 123R.
|
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
The table
below provides information regarding the beneficial ownership of the common
stock as of March 25, 2009 of (1) each person or entity who owns beneficially 5%
or more of the shares of our outstanding common stock, (2) each of our
directors, (3) each of the Named Executive Officers, and (4) our directors and
officers as a group. Except as otherwise indicated, and subject to applicable
community property laws, we believe the persons named in the table have sole
voting and investment power with respect to all shares of common stock held by
them.
|
Name
of Beneficial Owner
|
Shares
of Common Stock Beneficially Owned
|
Percent
of Class
|
|
Sigma-Tau
Pharmaceuticals, Inc. (1)
|
41,666,667
|
25.0%
|
|
Biotex
Pharmaceuticals, LLC (2)
|
40,000,000 |
21.4%
|
|
Cyrille
F. Buhrman (3)
|
5,125,020 | 3.1% |
|
Christopher
J. Schaber (4)
|
4,108,749
|
2.4%
|
|
Evan
Myrianthopoulos (5)
|
2,368,125
|
1.4%
|
|
Robert
N. Brey (6)
|
1,019,000 | * |
|
James
Clavijo (7)
|
950,691
|
*
|
|
James
S. Kuo (8)
|
630,000
|
*
|
|
Gregg
A. Lapointe (9)
|
300,000 | * |
|
Brian
L. Hamilton (10)
|
250,000 | * |
|
All
directors and executive officers as a group (8 persons)
|
14,751,585
|
8.8%
|
*
Indicates less than 1%.
**
Beneficial ownership is determined in accordance with the rules of the SEC.
Shares of common stock subject to options or warrants currently exercisable or
exercisable within 60 days of March 25, 2009 are deemed outstanding for
computing the percentage ownership of the stockholder holding the options or
warrants, but are not deemed outstanding for computing the percentage ownership
of any other stockholder. Percentage of ownership is based on
167,070,944 shares of common stock outstanding as of March 25,
2009.
(1) Includes 41,666,667 shares of
common stock. The amount does not include 1,546,870 shares of common stock held
by Paolo Cavazza, one of the principal owners of Sigma-Tau. The address of
Sigma-Tau Pharmaceuticals, Inc. is c/o Sigma-Tau Pharmaceuticals, Inc., 800
South Frederick Avenue, Suite 300, Gaithersburg, Maryland 20877.
(2) Includes 20,000,000 shares of
common stock and warrants to purchase 20,000,000 shares of common stock within
60 days of March 25, 2009. The address of Biotex Pharma Investments, LLC is c/o
Biotex Pharma Investments, LLC, 220 West 42nd Street
6th
Floor New York, NY 10036.
(3) Includes 4,900,020 shares of
common stock and options to purchase 225,000 shares of common stock within 60
days of March 25, 2009. The address of Mr. Buhrman is c/o DOR BioPharma, 850
Bear Tavern Road, Suite 201, Ewing, New Jersey 08628.
(4) Includes
392,766 shares of common stock owned by Dr. Schaber and options to purchase
3,715,983 shares of common stock within 60 days of March 25, 2009. The address
of Dr. Schaber is c/o DOR BioPharma, 850 Bear Tavern Road, Suite 201, Ewing, New
Jersey 08628.
(5) Includes
224,780 shares of common stock owned by Mr. Myrianthopoulos and his wife,
options to purchase 2,053,125 shares of common stock and warrants to purchase
90,220 shares of common stock within 60 days of March 25, 2009. The address of
Mr. Myrianthopoulos is c/o DOR BioPharma, 850 Bear Tavern Road, Suite 201,
Ewing, New Jersey 08628.
(6) Includes
options to purchase 1,019,000 shares of common stock within 60 days of March 25,
2009. The address of Dr. Brey is c/o DOR BioPharma, 850 Bear Tavern Road, Suite
201, Ewing, New Jersey 08628.
(7) Includes
88,191 shares of common stock owned by Mr. Clavijo and options to purchase
862,500 shares of common stock within 60 days of March 25, 2009. The address of
Mr. Clavijo is c/o DOR BioPharma, 850 Bear Tavern Road, Suite 201, Ewing, New
Jersey 08628.
(8) Includes
options to purchase 625,000 shares of common stock and warrants to purchase
5,000 shares of common stock within 60 days of March 25, 2009. The address of
Dr. Kuo is c/o DOR BioPharma, 850 Bear Tavern Road, Suite 201, Ewing, New Jersey
08628.
(9) Includes
options to purchase 300,000 shares of common stock within 60 days of March 25,
2009. The address of Mr. Lapointe is c/o DOR BioPharma, 850 Bear Tavern Road,
Suite 201, Ewing, New Jersey 08628.
(10) Includes
options to purchase 250,000 shares of common stock within 60 days of March 25,
2009. The address of Dr. Hamilton is c/o DOR BioPharma, 850 Bear Tavern Road,
Suite 201, Ewing, New Jersey 08628.
Equity Compensation Plan
Information
In
December 2005, our Board of Directors approved the 2005 Equity Incentive Plan,
which was approved by stockholders on December 29, 2005. In September 2007, our
stockholders approved an amendment to the 2005 Equity Incentive Plan to increase
the maximum number of shares of our common stock available for issuance under
the plan by 10,000,000 shares, bringing the total shares reserved for issuance
under the plan to 20,000,000 shares. The following table provides information,
as of December 31, 2008, with respect to options outstanding under our 1995
Amended and Restated Omnibus Incentive Plan and our 2005 Equity Incentive
Plan.
|
Plan
Category
|
Number
of Securities to be issued upon exercise of outstanding options, warrants
and rights
|
Weighted-Average
Exercise Price Outstanding options, warrants and rights
|
Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans (excluding securities reflected in the first
column)
|
|
Equity
compensation plans approved by security holders (1)
|
16,370,039
|
$
0.27
|
3,547,331
|
|
Equity
compensation plans not approved by security holders
|
-
|
-
|
-
|
|
TOTAL
|
16,370,039
|
$0.27
|
3,547,331
|
(1)
Includes our 1995 Amended and Restated Omnibus Incentive Plan and our 2005
Equity Incentive Plan. Our 1995 Plan expired in 2005 and thus no
securities remain available for future issuance under that plan. Under the
amended 2005 equity incentive plan, we have issued 1,482,669 shares to
individuals as payment for services in the amount of $380,342 as allowed in the
plan.
Item 13. Certain Relationships and Related
Transactions and
Director Independence.
Related Party
Transactions
Other than the employment agreements and compensation
paid to our directors, we did not engage in
any transactions with related parties since January 1, 2008. For a
discussion of our employment agreements and compensation paid to our directors,
see “Item 11. Executive
Compensation.”
Director
Independence
The Board of Directors has determined that Cyrille F. Buhrman
and James S. Kuo are "independent" as such term is defined by the applicable
listing standards of American Stock Exchange. Our Board of Directors based this
determination primarily on a review of the
responses of the Directors to questionnaires
regarding their employment, affiliations and family and other
relationships.
Item 14. Principal Accountant Fees and Services
December
31,
| 2008 | 2007 | ||
| Audit fees |
$107,302
|
$82,311 | |
| Audit related fees | 6,254 | 4,000 | |
| Tax fees | 9,229 | 10,202 | |
| Total | $122,785 | $96,513 |
The
preceding table highlights the aggregate fees billed during the years ended
December 31, 2008 and 2007 by Sweeney, Matz & Co., LLC, our principal
accountants in 2008 and 2007 for services performed during the audit for each of
those years and reviews of our financial statements included in our Quarterly
Reports on Form 10-Q during those fiscal years. Although Amper was engaged for
the December 31, 2008 audit our fees related to them will be incurred in
2009.
Audit
Related Fees
The
aggregate fees billed for audit related fees such as registration statements and
related services during the years ended December 31, 2008 and 2007 were $6,254
and $4,000, respectively.
Tax
Fees
Sweeney,
Matz & Co., LLC billed us $9,229 and $10,202 for tax compliance for the year
ended December 31, 2008 and 2007, respectively. We have engaged Gentile, Pismeny
& Brengel, LLP as our new tax advisors. Our fees associated with our 2008
tax returns will be incurred in 2009.
Other
Fees
Our
principal accountant did not bill us for any services or products other than as
reported above in this Item 14 during our fiscal years ended December 31, 2008
and 2007.
Pre Approval Policies and
Procedures
The audit
committee has adopted a policy that requires advance approval of all audit
services and permitted non-audit services to be provided by the independent
auditor as required by the Exchange Act. The audit committee must approve the
permitted service before the independent auditor is engaged to perform
it.
The audit
committee approved all of the services described above in accordance with its
pre-approval policies and procedures.
Part
IV
Item 15. Exhibits, Financial Statements and
Schedules.
The
following financial statements and exhibits are filed as part of this Annual
Report beginning on page 42:
(a) Financial
Statements:
|
(i)
|
Reports
of Independent Registered Public Accounting Firm.
|
| (ii) |
Consolidated
Balance Sheets as of December 31, 2008 and 2007.
|
| (iii) |
Consolidated
Statements of Operations for the years ended December 31, 2008 and
2007.
|
| (iv) |
Consolidated
Statements of Stockholders’ Deficiency for the years December 31, 2008 and
2007.
|
| (v) |
Consolidated
Statements of Cash Flows for the years ended December 31, 2008 and
2007.
|
| (vi) | Notes to Consolidated Financial Statements. |
(b) Exhibits:
|
2.1
|
Agreement
and Plan of Merger, dated May 10, 2006 by and among the Company, Corporate
Technology Development, Inc., Enteron Pharmaceuticals, Inc. and CTD
Acquisition, Inc. (incorporated by reference to Exhibit 2.1 included in
our Registration Statement on Form SB-2 (File No. 333-133975) filed on May
10, 2006).
|
|
3.1
|
Amended
and Restated Certificate of Incorporation (incorporated by reference to
Exhibit 3.1 included in our Quarterly Report on Form 10-QSB, as amended,
for the fiscal quarter ended September 30, 2003).
|
|
3.2
|
Certificate
of Amendment to Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 4.2 included in our Registration
Statement on Form S-8 (File No. 333-130801) filed on December 30,
2005).
|
|
3.3
|
Certificate
of Amendment to Amended and Restated Certificate of Incorporation
(incorporated by reference to Annex A to our Proxy Statement filed
December 12, 2006).
|
|
3.4
|
By-laws
(incorporated by reference to Exhibit 3.1 included in our Quarterly
Report on Form 10-QSB, as amended, for the fiscal quarter ended June 30,
2003).
|
|
3.5
|
Certificate
of Designations of Series A Junior Participating Preferred Stock
(incorporated by reference to Exhibit 3.1 included in our current
report on Form 8-K filed on June 22, 2007).
|
|
4.1
|
Form
of Warrant issued to each investor in the February 2005 private placement
(incorporated by reference to Exhibit 10.2 included in our current
report on Form 8-K filed on February 3, 2005).
|
|
4.2
|
Form
of Warrant issued to each investor in the April 2006 private placement
(incorporated by reference to Exhibit 10.2 included in our current
report on Form 8-K filed on April 7, 2006).
|
|
4.3
|
Form
of Warrant issued to finders in connection with the February 2007 private
placement. (incorporated by reference to Exhibit 4.14 included in our
registration statement on Form SB-2 filed on April 16, 2007).
|
|
4.4
|
Rights
Agreement dated June 22, 2007, between the Company and American Stock
Transfer & Trust Company, as Rights Agent (incorporated by reference
to Exhibit 4.1 included in our current report on Form 8-K filed on
June 22, 2007).
|
|
4.5
|
Form
of Right Certificate (incorporated by reference to Exhibit 4.2 included
in our current report on Form 8-K filed on June 22,
2007).
|
|
4.6
|
Warrant
dated February 14, 2008, issued to Fusion Capital Fund II, LLC
(incorporated by reference to Exhibit 4.17 included in our Registration
Statement on Form S-1 (File No. 333-149239) filed on February 14,
2008).
|
|
4.7
|
Form
of Warrant issued to each investor in the February 2008 private placement
(incorporated by reference to Exhibit 10.2 in our current report on Form
8-K filed on January 21, 2009).
|
|
4.8
|
Form
of Warrant issued to each investor in the January 2009 private placement
(incorporated by reference to Exhibit 4.18 included in our Registration
Statement on Form S-1 (File No. 333-149239) filed on February 14,
2008).
|
|
10.1
|
Amended
and Restated 1995 Omnibus Incentive Plan (incorporated by reference to
Exhibit 10.1 included in our Quarterly Report on Form 10-QSB, as amended,
for the fiscal quarter ended September 30, 2003).**
|
|
10.2
|
Noncompetition
and Nonsolicitation Agreement entered into by and among the Company, CTD
and Steve H. Kanzer dated as of November 29, 2001 (incorporated by
reference to Exhibit 10.30 included in our Annual Report on Form 10-KSB as
amended for the fiscal year ended December 31, 2002).
|
|
10.3
|
Termination
of the Endorex Newco joint venture between the Company, Élan Corporation,
Élan International Services, and Elan Pharmaceutical Investments dated
December 12, 2002 (incorporated by reference to Exhibit 10.37 included in
our Annual Report on Form 10-KSB as amended for the fiscal year ended
December 31, 2002).
|
|
10.4
|
Option
Agreement with General Alexander M. Haig Jr. (incorporated by reference to
Exhibit 10.39 included in our Annual Report on Form 10-KSB as amended for
the fiscal year ended December 31, 2002).**
|
|
10.5
|
Separation
agreement and General Release between the Company and Ralph Ellison dated
July 9, 2004 (incorporated by reference to Exhibit 10.7 included in our
Annual Report on Form 10-KSB, as amended, for the fiscal year ended
December 31, 2004).**
|
|
10.6
|
License
Agreement between the Company and the University of Texas Southwestern
Medical Center (incorporated by reference to Exhibit 10.8 included in our
Annual Report on Form 10-KSB, as amended, for the fiscal year ended
December 31, 2004).
|
|
10.7
|
License
Agreement between the Company and Thomas Jefferson University
(incorporated by reference to Exhibit 10.9 included in our Annual Report
on Form 10-KSB, as amended, for the fiscal year ended December 31,
2004).
|
|
10.8
|
License
Agreement between the Company and the University of Texas Medical Branch
(incorporated by reference to Exhibit 10.10 included in our Annual Report
on Form 10-KSB, as amended, for the fiscal year ended December 31,
2004).
|
|
10.9
|
Consulting
Agreement between the Company and Lance Simpson of Thomas Jefferson
University. (incorporated by reference to Exhibit 10.43 included in our
Annual Report on Form 10-KSB as amended for the fiscal year ended December
31, 2002).
|
|
10.10
|
Form
of Securities Purchase Agreement between the Company and each investor
dated March 4, 2004 (incorporated by reference to Exhibit 99.3 included in
our current report on Form 8-K filed on March 4, 2004).
|
|
10.11
|
Employment
agreement between the Company and Mike Sember dated December 7, 2004
(incorporated by reference to Exhibit 10.16 included in our Annual Report
on Form 10-KSB, as amended, for the fiscal year ended December 31,
2004).**
|
|
10.12
|
Employment
agreement between the Company and Evan Myrianthopoulos dated December 7,
2004 (incorporated by reference to Exhibit 10.17 included in our Annual
Report on Form 10-KSB, as amended, for the fiscal year ended December 31,
2004).**
|
|
10.13
|
Employment
agreement between the Company and James Clavijo dated February 18, 2005
(incorporated by reference to Exhibit 10.18 included in our Annual Report
on Form 10-KSB, as amended, for the fiscal year ended December 31,
2004).**
|
|
10.14
|
Form
of Securities Purchase Agreement between the Company and each investor
dated February 1, 2005 (incorporated by reference to Exhibit 10.1 included
in our current report on Form 8-K filed on February 3,
2005).
|
|
10.15
|
Amendment
No. 1 dated February 17, 2005 to the Securities Purchase Agreement between
the Company and each investor dated February 1, 2005 (incorporated by
reference to Exhibit 10.20 included in our Annual Report on Form 10-KSB,
as amended, for the fiscal year ended December 31, 2004).
|
|
10.16
|
Form
Registration Rights agreement between the Company and each investor dated
February 1, 2005 (incorporated by reference to Exhibit 10.3 included
in our current report on Form 8-K filed on February 3,
2005).
|
|
10.17
|
2005
Equity Incentive Plan (incorporated by reference to Appendix D to our
Proxy Statement filed December 12, 2005).**
|
|
10.18
|
Form
S-8 Registration of Stock Options Plan dated December 30, 2005
(incorporated by reference to our registration statement on Form S-8 filed
on December 30, 2005).
|
|
10.19
|
Form
of Securities Purchase Agreement between the Company and each investor
dated January 17, 2006 (incorporated by reference to Exhibit 10.1 included
in our current report on Form 8-K filed on January 20, 2006)
|
|
10.20
|
Form
of Registration Rights agreement between the Company and each investor
dated January 17, 2006 (incorporated by reference to Exhibit 4.1 included
in our current report on Form 8-K filed on January 20,
2006).
|
|
10.21
|
Securities
Purchase Agreement dated as of April 6, 2006 among the Company and the
investors named therein (incorporated by reference to Exhibit 10.1
included in our current report on Form 8-K filed on April 7,
2006).
|
|
10.22
|
Registration
Rights Agreement dated as of April 6, 2006 among the Company and the
investors named therein (incorporated by reference to Exhibit 10.3
included in our current report on Form 8-K filed on April 7,
2006).
|
|
10.23
|
Employment
Agreement, dated as of August 29, 2006, between Christopher J. Schaber,
Ph.D., and the Company (incorporated by reference to Exhibit 10.1 included
in our current report on Form 8-K filed on August 30,
2006).**
|
|
10.24
|
Letter
of Intent dated January 3, 2007 by and between DOR BioPharma, Inc. and
Sigma-Tau Pharmaceuticals, Inc. (incorporated by reference to Exhibit 10.1
included in our current report on Form 8-K filed on January 4,
2007).
|
|
10.25
|
January
17, 2007 letter from Cell Therapeutics, Inc. to DOR BioPharma, Inc.
(incorporated by reference to Exhibit 10.1 included in our current
report on Form 8-K filed on January 19, 2007).
|
|
10.26
|
Securities
Purchase Agreement dated February 7, 2007 by and among the Company and the
investors named therein (incorporated by reference to Exhibit 10.1
included in our current report on Form 8-K filed on February 12,
2007).
|
|
10.27
|
Registration
Rights Agreement dated February 7, 2007 by among the Company and the
investors named therein (incorporated by reference to Exhibit 10.2
included in our current report on Form 8-K filed on February 12,
2007).
|
|
10.28
|
Letter
from Sigma-Tau Pharmaceuticals, Inc. dated February 21, 2007 (incorporated
by reference to Exhibit 10.1 included in our current report on Form 8-K
filed on February 23, 2007).
|
|
10.29
|
Letter
dated May 3, 2007 between the Company and Sigma-Tau Pharmaceuticals, Inc.
(incorporated by reference to Exhibit 10.1 included in our current
report on Form 8-K filed on May 4, 2007).
|
40
|
10.30
|
Employment
Agreement dated December 27, 2007, between Christopher
J. Schaber, PhD and the Company.* **
|
|
10.31
|
Employment
Agreement dated December 27, 2007, between Evan Myrianthopoulos and the
Company.* **
|
|
10.32
|
Employment
Agreement dated December 27, 2007, between James Clavijo, CPA and the
Company.* **
|
|
10.33
|
Common
Stock Purchase Agreement dated February 14, 2008, between the Company and
Fusion Capital Fund II, LLC (incorporated by reference to Exhibit 10.35
included on Form S-1 filed on February 14, 2008).
|
|
10.34
|
Registration
Rights Agreement dated February 14, 2008, between the Company and Fusion
Capital Fund II, LLC (incorporated by reference to Exhibit 10.35 included
in our Registration Statement on Form S-1
(File No. 333-149239) on Form S-1 filed on February 14,
2008).
|
|
10.35
|
Letter
dated December 1, 2008, between the Company and Sigma-Tau Pharmaceuticals,
Inc. (incorporated by reference to Exhibit 10.1 included in our current
report on Form 8-K filed on December 1, 2008).
|
|
10.36
|
Form of Securities Purchase Agreement between the
Company and each investor dated February 14, 2008 (incorporated by
reference to Exhibit 10.37 included
in our Registration Statement on Form
S-1 (File No. 333-149239) filed on
February 14, 2008).
|
|
10.37
|
Common
Stock Purchase Agreement dated January 12, 2009, between the Company and
accredited investors (incorporated by reference to Exhibit 10.1 included
in our current report on Form 8-K filed on January 21, 2009).
|
|
10.38
|
Registration
Rights Agreement dated January 12, 2009, between the Company and
accredited investors (incorporated by reference to Exhibit 10.3 included
in our current report on Form 8-K filed on January 21, 2009).
|
|
10.39
10.40
10.41
10.42
|
Registration
Rights Agreement dated January 12, 2009, between the Company and accredited investors (incorporated by
reference to Exhibit 10.3 included in our current report on Form 8-K filed
on January 21, 2009).
Exclusive License Agreement dated November 24,
1998, between Enteron Pharmaceuticals, Inc. and George B. McDonald,
M.D. and amendments (incorporated by reference to Exhibit
10.42 included on Form S-1 filed on February 13, 2009).
Collaboration and Supply Agreement dated February
11, 2009, between the Company and Sigma-Tau Pharmaceuticals,
Inc. (incorporated by
reference to Exhibit 10.43 included on Form S-1 filed on February 13,
2009).
Common
Stock Purchase Agreement dated February 11, 2009, between the Company and
Sigma Tau Pharmaceuticals, Inc. (incorporated by reference to Exhibit
10.44 included on Form S-1 filed on February 13, 2009).
|
|
21.1
|
Subsidiaries
of the Company.*
|
| 31.1 |
Certification
of the Chief Executive Officer pursuant to Section 302 of the Sarbanes
Oxley Act of 2002.*
|
| 31.2 |
Certification
of the Chief Financial Officer pursuant to Section 302 of the Sarbanes
Oxley Act of 2002.*
|
| 32.1 |
Certiifcation
of the Chief Executive Officer pursuant to Section 906 of the Sarbanes
Oxley Act of 2002. *
|
| 32.2 | Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes Oxley Act of 2002. * |
_____________
|
*
**
|
Filed herewith
Indicates management contract or compensatory
plan.
|
DOR BIOPHARMA, Inc. AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Table
of Contents
Page
|
Consolidated Financial Statements-December 31,
2008 and 2007:
|
||
|
Reports
of Independent Registered Public Accounting Firm
|
F-1
|
|
|
Consolidated
Balance Sheets as of December 31, 2008 and 2007
|
F-3
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2008 and
2007
|
F-4
|
|
|
Consolidated
Statements of Changes in Shareholders’ Equity for the years ended December
31, 2008 and 2007
|
F-5
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2008 and
2007
|
F-6
|
|
|
Notes
to Financial Statements
|
F-7
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors of DOR BioPharma, Inc.,
We have
audited the accompanying consolidated balance sheet of DOR BioPharma, Inc. and
subsidiaries as of December 31, 2007 and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for the year ended
December 31, 2007. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (U.S.). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company at
December 31, 2007, and the results of its operations and its cash
flows for the year ended December 31, 2007, in conformity with U.S.
generally accepted accounting principles.
/s/
Sweeney, Matz & Co., LLC
Fort
Lauderdale, Florida
March 8,
2008
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors of DOR BioPharma, Inc.,
We have
audited the accompanying consolidated balance sheet of DOR BioPharma, Inc. and
subsidiaries as of December 31, 2008 and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for the year ended
December 31, 2008. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company at
December 31, 2008, and the results of its operations and its cash
flows for the year ended December 31, 2008, in conformity with U.S.
generally accepted accounting principles.
/s/
Amper, Politziner & Mattia, LLP
Edison,
New Jersey
March 27,
2009
DOR BioPharma, Inc.
Consolidated
Balance Sheets
December
31,
|
2008
|
2007
|
|||||||||
|
Assets
Current
assets:
|
||||||||||
|
Cash
and cash equivalents
|
$
|
1,475,466
|
$
|
2,220,128
|
||||||
|
Grants
receivable
|
278,316
|
97,845
|
||||||||
| Inventory, net | 82,182 | - | ||||||||
|
Prepaid
expenses
|
86,837
|
119,178
|
||||||||
|
Total
current assets
|
1,922,801
|
2,437,151
|
||||||||
|
Office
and laboratory equipment, net
|
21,217
|
25,941
|
||||||||
|
Intangible
assets, net
|
1,418,717
|
1,320,787
|
||||||||
|
Total
assets
|
$
|
3,362,735
|
$
|
3,783,879
|
||||||
|
Liabilities and shareholders’
equity
|
||||||||||
|
Current
liabilities:
|
||||||||||
|
Accounts
payable
|
$
|
1,015,005
|
$
|
847,610
|
||||||
|
Accrued
compensation
|
370,614
|
345,903
|
||||||||
|
Total
current liabilities
|
1,385,619
|
1,193,513
|
||||||||
| Commitments and contingencies | ||||||||||
|
Shareholders’
equity:
|
|
|||||||||
|
Common
stock, $.001 par value. Authorized 250,000,000
|
|
|||||||||
|
shares;
118,610,704 and 94,996,547, respectively issued and
outstanding
|
118,610
|
94,996 | ||||||||
|
Additional
paid-in capital
|
104,176,253
|
101,391,090 | ||||||||
|
Accumulated
deficit
|
(
102,317,747
|
) |
(
98,895,720
|
) | ||||||
|
Total
shareholders’ equity
|
1,977,116
|
2,590,366
|
||||||||
|
Total
liabilities and shareholders’ equity
|
$
|
3,362,735
|
$ | 3,783,879 | ||||||
|
|
The
accompanying notes are an integral part of these financial
statements
DOR BioPharma, Inc.
Consolidated
Statements of Operations
For
the years ended December 31,
| 2008 |
2007
|
||||||
|
Revenues
|
$
|
2,310,265
|
$
|
1,258,017
|
|||
|
Cost
of revenues
|
(
1,886,431
|
)
|
(
943,385
|
)
|
|||
|
Gross profit
|
423,834
|
314,632
|
|||||
|
Operating
expenses:
|
|||||||
|
Research and development
|
1,552,323
|
3,099,944
|
|||||
| General and administrative | 1,941,719 | 2,864,370 | |||||
| Stock based compensation research and development | 182,168 | 230,668 | |||||
| Stock based compensation general and administrative | 203,448 | 446,733 | |||||
|
Total operating expenses
|
3,879,658
|
6,641,715
|
|||||
|
Loss
from operations
|
(
3,455,824
|
)
|
(
6,327,083
|
)
|
|||
|
Other
income (expense):
|
|||||||
|
Interest income
|
37,073
|
164,847
|
|||||
| Interest (expense) | ( 3,276 | ) | ( 1,020 | ) | |||
|
Other (expense)
|
-
|
|
(
1,387
|
) | |||
|
Total other income (expense)
|
33,797
|
162,440
|
|||||
|
Net
loss
|
$
|
(
3,422,027
|
)
|
$
|
(
6,164,643
|
)
|
|
|
BasicnBasic
and diluted net loss per share
|
$
|
(
0.03
|
)
|
$
|
(
0.07
|
)
|
|
|
Basic Basic
and diluted weighted average common shares outstanding
|
101,881,991
|
90,687,677
|
The
accompanying notes are an integral part of these financial
statements
DOR BioPharma, Inc.
Consolidated
Statements of Changes in Shareholders’ Equity
For
the years ended December 31, 2008 and 2007
|
Common
Stock
|
Additional
Paid-In capital
|
Accumulated
Deficit
|
|||||||||||
|
Shares
|
Par
Value
|
||||||||||||
|
Balance,
January
1, 2007
|
68,855,794
|
$68,855
|
$91,553,766
|
(
$92,731,077
|
)
|
||||||||
|
Issuance
of common stock
|
15,745,891
|
15,746
|
6,219,658
|
-
|
|||||||||
|
Issuance
of common stock upon exercise of options and warrants
|
8,195,487
|
|
8,195
|
|
2,128,088
|
|
-
|
||||||
| Issuance of common stock to vendors | 829,821 | 830 | 329,670 | - | |||||||||
| Issuance of common stock to investors by contract as dilution protection | 995,947 | 996 | 307,747 | - | |||||||||
| Issuance of common stock as payment to employees | 373,607 | 374 | 84,759 | - | |||||||||
|
Stock
option expense
|
-
|
-
|
677,401
|
|
-
|
||||||||
|
Net
loss
|
-
|
-
|
-
|
(
6,164,643
|
)
|
||||||||
|
Balance,
December
31, 2007
|
94,996,547
|
$94,996
|
$101,391,090
|
(
$98,895,720
|
)
|
||||||||
|
Issuance
of common stock from private placement
|
3,658,890
|
3,659
|
654,940
|
-
|
|||||||||
|
Issuance
of common stock for commitment shares
|
1,369,125
|
1,369
|
(1,369
|
) |
-
|
||||||||
| Issuance of common stock for execution of letter of intent | 16,666,667 | 16,667 | 1,483,333 | - | |||||||||
|
Issuance
of common stock for equity line
|
993,084
|
993
|
126,507
|
-
|
|||||||||
|
Issuance
of common stock to vendors
|
758,082
|
758
|
110,440
|
-
|
|||||||||
|
Issuance
of common stock as payment to employees
|
168,309
|
168
|
25,696
|
-
|
|||||||||
|
Stock
option expense
|
-
|
-
|
385,616
|
-
|
|||||||||
|
Net
loss
|
-
|
-
|
-
|
(
3,422,027
|
)
|
||||||||
|
Balance,
December
31, 2008
|
118,610,704
|
$118,610
|
$104,176,253
|
(
$102,317,747
|
)
|
||||||||
The
accompanying notes are an integral part of these financial statements
DOR BioPharma, Inc.
Consolidated
Statements of Cash Flows
For
the years ending December 31,
|
2008
|
2007
|
||||||
|
Operating
activities
|
|||||||
|
Net loss
|
$
|
(
3,422,027
|
)
|
$
|
(
6,164,643
|
)
|
|
|
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
|||||||
|
Amortization and depreciation
|
149,183
|
119,565
|
|||||
| Inventory reserve | 100,000 | - | |||||
|
Non-cash stock compensation
|
522,678
|
1,401,777
|
|
||||
|
Change
in operating assets and liabilities:
|
|||||||
|
Grants receivable
|
(
180,471
|
) |
(7,912
|
) | |||
| Inventory | ( 182,182 | ) | - | ||||
|
Prepaid expenses
|
32,341
|
(24,708
|
)
|
||||
|
Accounts payable
|
167,396
|
(1,264,868
|
)
|
||||
|
Accrued compensation
|
24,710
|
(57,044
|
) | ||||
|
Total
adjustments
|
633,655
|
166,810
|
|||||
|
Net cash used by operating activities
|
(
2,788,372
|
)
|
(
5,997,833
|
)
|
|||
|
Investing
activities:
|
|||||||
|
Purchases
of office and laboratory equipment
|
(
5,277
|
)
|
(
7,170
|
)
|
|||
|
Acquisition
of intangible assets
|
(
237,113
|
)
|
(
356,192
|
)
|
|||
|
Net cash used by investing activities
|
(
242,390
|
)
|
(
363,362
|
)
|
|||
|
Financing
activities:
|
|||||||
|
Net
proceeds from issuance of common stock
|
2,158,600
|
6,235,404
|
|||||
| Proceeds from equity line | 127,500 | - | |||||
|
Proceeds
from exercise of warrants
|
-
|
1,592,263
|
|
||||
|
Proceeds
from exercise of stock options
|
-
|
634,020
|
|||||
|
Net cash provided by financing activities
|
2,286,100
|
8,461,687
|
|||||
|
Net
increase (decrease) in cash and cash equivalents
|
(744,662
|
)
|
2,100,492
|
|
|||
|
Cash and cash equivalents at beginning of period
|
2,220,128
|
119,636
|
|||||
|
Cash and cash equivalents at end of period
|
$
|
1,475,466
|
$
|
2,220,128
|
|||
|
Supplemental
disclosure of cash flow:
|
|||||||
|
Cash paid for interest
|
$
|
3,276
|
$
|
1,020
|
|||
|
Non-cash
transactions:
|
|||||||
| Issuance of commitment shares | $ | 272,484 | $ | - | |||
|
Issuance of shares for anti-dilution
|
$ |
-
|
$
|
308,743
|
|||
The
accompanying notes are an integral part of these financial
statements
DOR BioPharma, Inc.
Notes
to Consolidated Financial Statements
1. Nature of
Business
Basus of
Presentations
The
Company is a late stage biopharmaceutical company incorporated in 1987, focused
on the development of biotherapeutic products and biodefense vaccines intended
for areas of unmet medical need. DOR’s biotherapeutic business segment intends
to develop orBec®, oral
BDP, and other biotherapeutic products namely LPMTM-Leuprolide.
DOR’s biodefense business segment intends to convert its ricin toxin, botulinum
toxin, and anthrax vaccine programs from early stage development to advanced
development and manufacturing.
During
the 12 months ended December 31, 2008, the Company had two customers, the U.S.
Federal Government and Orphan Australia Pty Ltd. (“Orphan Australia”), a
specialty pharmaceutical company based in Melbourne, Australia, through a Named
Patient Access Program (“NPAP”) for orBec®. Revenues
from the U.S. Federal Government were generated from three active grants. As of
December 31, 2008 outstanding receivables were from the U.S. Federal Government,
the National Institutes of Health and The U.S. Food and Drug Administration and
Orphan Australia.
The
Company is subject to risks common to companies in the biotechnology industry,
including, but not limited to, litigation, product liability, development of new
technological innovations, dependence on key personnel, protections of
proprietary technology, and compliance with FDA regulations.
Liquidity
As of
December 31, 2008, the Company had cash of $1,475,466 as compared to $2,220,128
as of December 31, 2007. As of December 31, 2008, the Company had working
capital of $537,183 as compared to working capital of $1,243,638 as of December
31, 2007, representing a decrease of $706,455.
As of
February 28, 2009, the Company had cash of approximately $7,100,000. The
increase was the result of the sale of the Company’s common stock to its
commercialization partner Sigma-Tau of $4.5 million and $2.3 million from the
sale of the Company’s common stock to accredited investors. For the 12 months
ended December 31, 2008, the Company’s cash used in operating activities was
approximately $2,800,000, compared to $6,000,000 for the corresponding period
ended December 31, 2007, reflecting both an increase in grant revenues and
reduced costs as the Company conscientiously slowed its spending in response to
difficult conditions in raising funding and regulatory progress. The Company
continues to use equity instruments to provide a portion of the compensation due
to employees, vendors and collaboration partners, and expect to continue to do
some in the future.
Based on
the Company’s current rate of cash outflows and cash in the bank, the
Company believes that its current cash will be sufficient to meet the
anticipated cash needs for working capital and capital expenditures into the
third quarter of 2010. The Company has $2.0 million in grant funding still
available to support its programs in 2009 and beyond. Additionally, the Company
has several grants for several of its programs that have been submitted for
government funding.
Management’s
plan is as follows:
|
|
The
Company is exploring out-licensing opportunities for orBec®
and oral BDP in territories outside North America, and for LPMTM-Leuprolide
and BioDefense programs in the United States and in Europe.
The
Company has and will utilize NPAPs wherever possible in countries outside
the United States to generate revenues from orBec®.
The
Company intends to utilize its existing $8 million equity line of credit
with Fusion Capital (approximately $7.8 million of which is still
available to the Company through June 2010) when it deems market
conditions to be appropriate.
The
Company expects to receive new government grants intended to support
existing and new research and development over the next twelve months. In
addition to research and development funding, these grants would provide
additional support for its overhead expenditures as well as defray certain
costs intended to cover portions of its upcoming confirmatory Phase 3
trial of its lead product orBec®. Therefore
these grants would have the effect of extending its cash resources. The
Company routinely files for government grants which support its
biotherapeutic and biodefense programs.
The Company may obtain additional funds through
the issuance of equity or equity-linked securities through private
placements or rights offferings. The Company is currently evaluating
additional equity financings opportunities and will continue to execute
them when appropriate.
|
It is
possible that the Company will seek additional capital in the private and/or
public equity markets to continue its operations, respond to competitive
pressures, and develop new products and services and to support new strategic
partnerships.
In the
event that such growth is less than forecasted in our 2009-2010 operating plan,
management has developed contingency plans to reduce the Company operating
expenses. However, in any case, there can be no assurance that the Company will
be able to maintain adequate liquidity to allow the Company to continue to
operate its business or prevent the possible impairment of its
assets.
2. Summary of Significant Accounting
Policies
Principles of
Consolidation
The
consolidated financial statements include DOR BioPharma, Inc., and its wholly
and majority owned subsidiaries (“DOR” or the “Company”). All significant
intercompany accounts and transactions have been eliminated as a result of
consolidation.
Segment
Information
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.
Grants
Receivable
Receivables
consist of unbilled amounts due from grants from the National Institute of
Health of the U.S. Federal Government for costs incurred prior to the
period. The amounts were billed in the month subsequent to period end
and collected shortly thereafter. The Company considers the grants receivable to
be fully collectible; accordingly, no allowance for doubtful amounts has been
established. If amounts become uncollectible, they are charged to
operations.
Intangible
Assets
One of
the most significant estimates or judgments that the Company makes is whether to
capitalize or expense patent and license costs. The Company makes this judgment
based on whether the technology has alternative future uses, as defined in SFAS
2, “Accounting for Research and Development Costs”. Based on this consideration,
all outside legal and filing costs incurred in the procurement and defense of
patents are capitalized.
The
Company capitalizes and amortizes intangibles over a period of 11 to 16 years.
The Company capitalizes payments made to legal firms that are engaged in filing
and protecting rights to intellectual property and rights for our current
products in both the domestic and international markets. The Company believes
that patent rights are one of its most valuable assets. Patents and patent
applications are a key component of intellectual property, especially in the
early stage of product development, as their purchase and maintenance gives the
Company access to key product development rights from DOR’s academic and
industrial partners. These rights can also be sold or sub-licensed as part of
its strategy to partner its products at each stage of development. The legal
costs incurred for these patents consist of work designed to protect, preserve,
maintain and perhaps extend the lives of the patents. Therefore, DOR capitalizes
these costs and amortizes them over the remaining useful life of the patents.
DOR capitalizes intangible assets based on alternative future use.
The
Company capitalized $237,113 and $356,192
in patent related costs during the year ended December 31, 2008 and the year ended December 31, 2007,
respectively. These amounts are represented in
the cash flow statements, in the section for investing activities presented in
the financial statements. On the balance sheet as of December 31, 2008 and
December 31, 2007, these amounts are presented on the line intangible assets,
net in the amount of $1,418,717 and $1,320,787, respectively.
Impairment of Long-Lived
Assets
Office
and laboratory equipment and intangible assets are evaluated and reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. The Company recognizes impairment of
long-lived assets in the event the net book value of such assets exceeds the
estimated future undiscounted cash flows attributable to such assets. If the sum
of the expected undiscounted cash flows is less than the carrying value of the
related asset or group of assets, a loss is recognized for the difference
between the fair value and the carrying value of the related asset or group of
assets. Such analyses necessarily involve significant judgment.
The
Company did not record an impairment of intangible assets for the 12 months
ended December 31, 2008 or 2007.
Inventory
Inventories
are stated at the lower of cost or market. Cost is determined using the
first-in, first-out (“FIFO”) method and includes the cost of materials and
overhead. The Company records an allowance as needed for excess inventory. For
the three months ended December 31, 2008 an allowance of $100,000 was provided.
This allowance will be evaluated on a quarterly basis and adjustments will be
made as required. All inventory for this period is finished goods and consists
of orBec®
treatments.
Fair
Value of Financial Instruments
Accounting
principles generally accepted in the U.S. require that fair values be disclosed
for the Company’s financial instruments. The carrying amounts of the Company’s
financial instruments, which include grants receivable and current liabilities,
are considered to be representative of their respective fair
values.
Revenue
Recognition
The
Company’s revenues are from government grants and NPAP sales of orBec® from
Orphan Australia. The revenue from government grants are based upon
subcontractor costs and internal costs incurred that are specifically covered by
the grants, plus a facilities and administrative rate that provides funding for
overhead expenses. Revenues are recognized when expenses have been incurred by
subcontractors or when DOR incurs internal expenses that are related to the
grant. The revenues from the NPAP sales of orBec® are
recognized when the product is shipped. NPAP sales are FOB
shipping.
Research and Development
Costs
Research
and Development costs are charged to expense when incurred. 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 and employee benefits, equipment depreciation and allocation
of various corporate costs.
Stock Based
Compensation
The fair
value of options in accordance with SFAS 123 was estimated using the
Black-Scholes option-pricing model and the following weighted-average
assumptions: dividend yield 0%, expected life of four years, volatility of 115%
and 99% in 2008 and 2007, respectively, and average risk-free interest rates of
1.1% and 4.5% in 2008 and 2007, respectively. The Company estimates these values
based on the assumptions that have been historically available. The fair value
of each option grant at the 12 months ended December 31, 2008 and December 31,
2007 was estimated on the date of each grant using the Black-Scholes option
pricing model and amortized ratably over the option’s vesting periods. The
Company awarded 6,800,000 stock options for the 12 months ended December
31, 2008 while 3,375,000 stock options were granted during the 12 months
ended December 31, 2007. The weighted average fair value of options granted with
an exercise price equal to the fair market value of the stock was $0.06, and
$0.27 for the 12 months ended December 31, 2008 and 2007,
respectively.
Stock
compensation expense for options granted to non-employees has been determined in
accordance with SFAS 123R and Emerging Issues Task Force (“EITF”) 96-18, and
represents the fair value of the consideration received, or the fair value of
the equity instruments issued, whichever may be more reliably measured. For
options that vest over future periods, the fair value of options granted to
non-employees is amortized as the options vest. The option’s price is
re-measured using the Black-Scholes model at the end of each three month
reporting period.
As stock
options are exercised, common stock share certificates are issued via electronic
transfer or physical share certificates by the Company’s transfer agent. Upon
exercise, shares are issued from the amended 2005 equity incentive plan and
increase the number of shares the Company has outstanding.
Income
Taxes
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. A valuation allowance is established when it is more likely than not that
all or a portion of a deferred tax asset will not be realized. A review of all
available positive and negative evidence is considered, including the Company’s
current and past performance, the market environment in which the Company
operates, the utilization of past tax credits, length of carryback and
carryforward periods. Deferred tax assets and liabilities are
measured utilizing tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. No
current or deferred income taxes have been provided through December 31, 2008
due to the net operating losses incurred by the Company since its inception.
Additionally, the Company has not recorded a liability for unrecognized tax
benefits for December 31, 2008 and 2007.
Basic earnings per share
Earnings Per
Share
Basic
earnings per share (“EPS”) excludes dilution and is computed by dividing income
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 large number
of options and warrants outstanding, fluctuations in the actual market price can
have a variety of results for each period presented.
A
reconciliation of the applicable numerators and denominators of the income
statement periods presented is as follows (millions, except earnings per share
amounts):
|
Year
Ended
|
Year
Ended
|
||||||
|
December
31, 2008
|
December
31, 2007
|
||||||
|
Loss
|
Shares
|
EPS
|
Loss
|
Shares
|
EPS
|
||
|
Basic
EPS Dilutives:
|
($3.42)
|
101.88
|
($0.03)
|
($6.16)
|
90.69
|
($0.07)
|
|
|
Options
and Warrants
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
Diluted
EPS
|
($3.42)
|
101.88
|
($0.03)
|
($6.16)
|
90.69
|
($0.07)
|
|
Options
and warrants outstanding at December 31, 2008 and 2007 were 16,370,039 and
10,349,839 options, and 20,350,148 and 29,209,341 warrants, respectively. No
options and warrants were included in the 2008 and 2007 computations of diluted
earnings because the effect would be anti-dilutive due to losses in the
respective years.
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 that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those
estimates.
New
Accounting Pronouncements
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits entities to
choose to measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected are reported in earnings. SFAS 159 is effective for fiscal years
beginning after November 15, 2007. In January 2008 the Company adopted SFAS 159
to determine the fair value on its financial assets and financial liabilities.
This adoption had no material impact on the Company’s consolidated financial
position, results of operations or cash flows.
EITF
07-05, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an
Entity's Own Stock,” addresses the first part of paragraph 11A of SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” as to
whether or not a derivative is indexed to an entity’s own stock. EITF 07-05 will
require many awards to be accounted for as liabilities under SFAS No. 133 that
may have previously been accounted for as equity. EITF 07-05 becomes
effective for fiscal years, including those interim periods, beginning after
December 15, 2008. The EITF is thus applicable starting January 1, 2009, for the
Company. The EITF
is applicable to all instruments outstanding at the beginning of the period of
adoption. The Company is currently evaluating the applicability of the
guidance in EITF 07-05 and analyzing the impact on its financial
statements.
In
December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations” (“SFAS 141(R)”). This Statement provides greater consistency
in the accounting and financial reporting of business combinations. It requires
the acquiring entity in a business combination to recognize all assets acquired
and liabilities assumed in the transaction, establishes the acquisition-date
fair value as the measurement objective for all assets acquired and liabilities
assumed, and requires the acquirer to disclose the nature and financial effect
of the business combination. The Company will adopt SFAS 141(R) in conjunction
with SFAS No. 160
In
December 2007, the FASB issued SFAS No. 160, “Non-controlling
Interests in Consolidated Financial Statements” (“SFAS 160”). This
Statement amends Accounting Research Bulletin No. 51, Consolidated
Financial Statements, to establish accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. The adoption of this standard is not expected to have a significant
impact on the Company’s consolidated financial position, results of operations
or cash flows.
In
January 2008, the Company adopted the provisions of SFAS No. 157,
“Fair Value Measurements,” for financial assets and financial liabilities.
SFAS 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures about
fair value measurements. The company will delay the application of
SFAS 157 for non-financial assets and non-financial liabilities, except
those recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually), in accordance with Financial Accounting
Standards Board Staff Position (FSP) No. SFAS 157-2, “Effective Date
of FASB Statement No. 157,” until January 2009.
In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles". SFAS 162 identifies the sources of accounting principles
and the framework for selecting the principles to be used in the preparation of
financial statements of nongovernmental entities that are presented in
conformity with generally accepted accounting principles in the United States.
SFAS No. 162 became effective in September 2008. The adoption of this statement
did not have a material effect on the Company's financial
statements.
3. Office and Laboratory
Equipment
Office
and laboratory equipment are stated at cost. Depreciation is computed on a
straight-line basis over five years. Office and laboratory equipment consisted
of the following at December 31:
|
|
2008 | 2007 | ||||
|
Office
equipment
|
$ 130,605
|
$ 125,328
|
||||
|
Laboratory
equipment
|
23,212
|
23,212
|
||||
|
Total
|
153,817
|
148,540
|
||||
|
Accumulated
depreciation
|
( 132,600
|
)
|
( 122,599
|
)
|
||
|
$
21,217
|
$
25,941
|
|||||
Depreciation
expense was $10,001 and $10,781 for the years ended December 31, 2008 and
2007.
4. Intangible
Assets
The
following is a summary of intangible assets which consists of licenses and
patents:
|
Weighted
Average Amortization period
(years)
|
Cost
|
Accumulated
Amortization
|
Net Book Value
|
|||
|
December
31, 2008
|
||||||
|
Licenses
|
11.7
|
$
462,234
|
$ 142,994
|
$
319,240
|
||
|
Patents
|
9.0
|
1,870,603
|
771,126
|
1,099,477
|
||
|
Total
|
9.5
|
$
2,332,837
|
$
914,120
|
$
1,418,717
|
||
|
December
31, 2007
|
||||||
|
Licenses
|
12.7
|
$
462,234
|
$ 115,681
|
$
346,553
|
||
|
Patents
|
9.7
|
1,633,490
|
659,256
|
974,234
|
||
|
Total
|
10.4
|
$
2,095,724
|
$ 774,937
|
$
1,320,787
|
Amortization
expense was $139,183 in 2008 compared to $108,784 for 2007.
Based on
the balance of licenses and patents at December 31, 2008, the annual
amortization expense for each of the succeeding five years is estimated to be as
follows:
| Year |
Amortization Amount
|
|
2009
|
$ 150,000
|
|
2010
|
151,000
|
|
2011
|
152,000
|
|
2012
|
153,000
|
|
2013
|
154,000
|
License
fees and royalty payments are expensed annually as incurred as the Company does
not attribute any future benefits other than within that period.
5.
Inventory
In the
third quarter of 2008, the Company purchased and recorded inventory for the
first time, because of the development of the NPAP programs which provided the
Company the ability to sell orBec® for the
first time. Inventory consists of finished goods. For the 12 month
period ended December 31, 2008 the Company also recorded an allowance for excess
inventory of $100,000.
6. Income Taxes
Deferred
tax assets as of December 31:
| 2008 | 2007 | |||||
|
Deferred tax assets:
|
||||||
| Net operating loss carry forwards | $ 26,300,000 | $25,000,000 | ||||
|
Orphan
drug and research and development credit carry forwards
|
2,000,000
|
2,000,000
|
||||
|
Other
|
3,300,000
|
3,000,000
|
||||
|
Total
|
31,600,000
|
30,000,000
|
||||
|
Valuation
allowance
|
( 31,600,000
|
) |
( 30,000,000
|
) | ||
|
Net
deferred tax assets
|
$
-
|
$ -
|
||||
At
December 31, 2008, the Company had net operating loss carry forwards of
approximately $76,000,000 for Federal and state tax purposes, portions of which
are currently expiring each year until 2028. In addition, the Company had
$2,000,000 of various tax credits that start expiring from December 2009 to
December 2028. The Company may be able to utilize their 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 possible that the utilization
of the NOLs may be 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. The Company is
no longer subject to income tax assessment for years before 2004. However, since
the Company has incurred net operating losses in every tax year since inception,
all its income tax returns are subject to examination by the Internal Revenue
Service and state authorities for purposes of determining the amount of net
operating loss carryforward that can be used to reduce taxable
income.
The net
change in the valuation allowance for the year ended December 31, 2008 and
December 31, 2007 was an increase of approximately $1,600,000 and decrease of
$1,000,000 respectively, resulting primarily from net operating losses
generated. As a result of the Company’s continuing tax losses, the Company has
recorded a full valuation allowance against a net differed tax
asset.
Reconciliations of the difference between income tax benefit computed at the federal and state statutory tax rates and the provision for income tax benefit for the years ended December 31, 2008 and 2007 was as follows:
|
2008
|
2007
|
||
|
Income
tax loss at federal statutory rate
|
(34.00)%
|
(34.00)%
|
|
|
State
taxes, net of federal benefit
|
(6.50)
|
(4.29)
|
|
|
Valuation
allowance
|
40.50
|
38.29
|
|
|
Provision
for income taxes (benefit)
|
-
%
|
-
%
|
Effective
January 1, 2007, the Company adopted Financial Interpretation (“FIN”) No. 48,
Accounting for Uncertainty in
Income Taxes – An Interpretation of FASB Statement No. 109. This
interpretation prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The adoption did not have an effect on the
consolidated financial statements.
7. Shareholders’
Equity
Preferred
Stock
The
Company has 5 million authorized shares of preferred stock, none are issued or
outstanding.
Common
Stock
During
the 12 months ended December 31, 2008, the Company issued 758,082 shares of
common stock as payment to vendors for consulting services. An expense of
$111,500 was recorded which approximated the shares’ fair market value on the
date of issuance, respectively.
During
the 12 months ended December 31, 2008 the Company also issued 993,084 shares of
common stock under its existing Fusion Capital Equity facility. The Company
received $127,500 in proceeds which approximated the shares’ fair market value
on the date of issuance.
During
the 12 months ended December 31, 2008, the Company issued 168,309 shares of
common stock as compensation and severance for employees. An expense of $26,000
was recorded which approximated the shares’ fair market value on the date of
issuance.
On
December 1, 2008, the Company entered into a non-binding letter of intent
with Sigma-Tau, which granted Sigma-Tau an exclusive right to negotiate terms
and conditions for a possible business transaction or strategic alliance
regarding orBec® and
potentially other pipeline compounds until March 1, 2009. Under the terms of the
letter of intent, Sigma-Tau purchased $1.5 million of the Company’s common stock
at the then market price of $0.09 per share, representing 16,666,667
shares.
On
February 14, 2008, the Company entered into a common stock purchase agreement
with Fusion Capital Fund II, LLC (“Fusion Capital”). The Fusion Capital facility
allows the Company to require Fusion Capital to purchase between $20,000 and
$1.0 million every two business days, of the Company’s common stock up to an
aggregate of $8.0 million over approximately a 25-month period depending on
certain conditions including the quoted market price of the Company’s common
stock on such date. As part of the agreement, the Company issued Fusion Capital
1,275,000 shares of common stock as a commitment fee. In connection with the
execution of the common stock purchase agreement, Fusion Capital made an initial
purchase of 2,777,778 common shares and received a four year warrant to purchase
1,388,889 shares of common stock for $0.22 per share, for an aggregate price of
$500,000. The Company issued an additional 75,000 shares of common stock as a
commitment fee in connection with this $500,000 purchase. If the Company’s
stock price exceeds $0.15, then the amount required to be purchased may be
increased under certain conditions as the price of the Company’s common stock
increases. The Company cannot require Fusion Capital to purchase any shares of
the Company’s common stock on any trading days that the market price of the
Company’s common stock is less than $0.10 per share. Furthermore, for each
additional purchase by Fusion, additional commitment shares in commensurate
amounts up to a total of 1,275,000 shares will be issued based upon the relative
proportion of purchases compared to the total commitment maximum of 18.5 million
shares.
On
February 14, 2008, the Company sold 881,112 shares of its common stock to an
institutional and other accredited investors for an aggregate purchase price of
approximately $158,600. The investors received four year warrants to purchase an
aggregate of 440,556 shares of our common stock at an exercise price of $0.22
per share.
The total
issuance of common stock from private placement for 2008 was 3,658,890; which
consisted of the 881,112 sold to an institutional investor and other accredited
investors for $158,600 and Fusion Capital of 2,777,778 for
$500,000.
The total
issuance of common stock for commitment shares for 2008 was 1,369,125; which
were issued to Fusion Capital and consisted of 1,275,000 as a commitment fee,
75,000 as a commitment fee for the $500,000 invested, and 19,125 for the
commitment fee shares on the equity line draws of $127,500.
During
the year ended December 31, 2007, the Company issued 829,821 shares of common
stock as payment to vendors for consulting services. An expense of $330,500 was
recorded, which approximated the shares’ fair market value on the date of
issuance.
During
2007 the Company issued 373,607 shares of common stock as part of severance
payments to employees. An expense of $85,000 was recorded, which approximated
the shares’ fair market value on the date of issuance.
For the
12 months ended December 31, 2007, 1,737,200 stock options were exercised to
purchase shares of common stock which provided $633,895.
For the
12 months ended December 31, 2007, 6,458,287 common stock warrants were
exercised to purchase of common stock which provided $1,592,264.
The total
issuance of common stock upon exercise of options and warrants for 2007 was
8,195,487; which consisted of the 1,737,000 stock option exercises and 6,458,287
warrant exercises.
On
February 9, 2007, the Company sold 11,680,850 shares of its common stock to
institutional investors and certain of the Company’s officers and directors for
a purchase price of $5,490,000.
On
January 3, 2007, in consideration for entering into an exclusive letter of
intent, Sigma-Tau agreed to purchase $1,000,000 of the Company’s common stock at
the market price of $0.246 per share, representing 4,065,041 shares of common
stock, and contributed an additional $2 million in cash. The $2 million
contribution was to be considered an advance payment to be deducted from future
payments due to the Company by Sigma-Tau pursuant to any future orBec®
commercialization arrangement reached between the two parties. Because of this
transaction’s dilutive nature, all investors in the April 2006 private placement
had their warrants repriced to $0.246. Additionally, certain shareholders in
that placement who still held shares of the Company’s common stock were issued
995,947 shares as a cost basis adjustment from $0.277 to $0.246 per share of the
Company’s common stock and the Company recorded dilution expense of $308,743.
Additionally. The dilutive nature of the Sigma-Tau transaction on January 3,
2007 required that all prior investors in the April 2006 private placement had
their warrants repriced to $0.246. Neither these investors, nor any others for
that matter, hold any further anti-dilution rights. Because no agreement
was reached by March 1, 2007, DOR was obligated to return the $2 million to
Sigma-Tau by April 30, 2007 and on June 1, 2007, the Company returned the $2
million to Sigma-Tau.
The total
issuance of common stock from private placement for 2007 was 15,745,891; which
consisted of the 11,860,850 sold to institutional investors and certain
Company’s officers and directors for $5,490,000 less the $254,596 payable as
placement agent fees, and to 4,065,041 to Sigma-Tau for
$1,000,000.
8.
Stock Option Plans and Warrants to Purchase Common Stock
Stock
Options
The 2005
Equity Incentive Plan is divided into four separate equity programs: 1) the
Discretionary Option Grant Program, under which eligible persons may, at the
discretion of the Plan Administrator, be issued common stock or granted options
to purchase shares of common stock, 2) the Salary Investment Option Grant
Program, under which eligible employees may elect to have a portion of their
base salary invested each year in options to purchase shares of common stock, 3)
the Automatic Option Grant Program, under which eligible nonemployee Board
members will automatically receive options at periodic intervals to purchase
shares of common stock, and 4) the Director Fee Option Grant Program, under
which non-employee Board members may elect to have all, or any portion, of their
annual retainer fee otherwise payable in cash applied to a special option grant.
In addition under the plan the Board may elect to pay certain consultants,
directors, and employees in common stock. The Plan was amended in September 2007
to increase the number of options available under the plan to 20,000,000. The
table below only accounts for transactions occurring as part of the amended 2005
Equity Incentive Plan.
December 31,
|
2008
|
2007
|
||||
|
Shares
available for grant at beginning of year
|
10,612,961
|
3,236,032
|
|||
|
Increase
in shares available
|
-
|
10,000,000
|
|||
|
Options
granted
|
( 6,800,000
|
)
|
( 3,375,000
|
)
|
|
|
Options
forfeited or expired
|
100,000
|
1,140,000
|
|||
|
Common
stock payment for services
|
( 365,630
|
)
|
( 388,071
|
)
|
|
|
Shares
available for grant at end of year
|
3,547,331
|
10,612,961
|
|||
The
Amended and Restated 1995 Omnibus Plan is divided into four separate equity
programs: 1) the Discretionary Option Grant Program, under which eligible
persons may, at the discretion of the Plan Administrator, be granted options to
purchase shares of common stock, 2) the Salary Investment Option Grant Program,
under which eligible employees may elect to have a portion of their base salary
invested each year in options to purchase shares of common stock, 3) the
Automatic Option Grant Program, under which eligible nonemployee Board members
will automatically receive options at periodic intervals to purchase shares of
common stock, and 4) the Director Fee Option Grant Program, under which
non-employee Board members may elect to have all, or any portion, of their
annual retainer fee otherwise payable in cash applied to a special option
grant.
In 2008
there were no stock option exercises. In 2007, 1,487,200 stock options were
exercised under the 1995 plan and 250,000 stock options were exercised under the
2005 plan, for a total of 1,737,200 stock option exercises.
The total
option activity for the 1995 plan and the amended 2005 plan for the years ended
December 31, 2008 and 2007 was as follows:
|
Options
|
Weighted
Average
Options Exercise Price
|
||||
|
Balance
at January 1, 2007
|
11,639,339
|
$ 0.59
|
|||
|
Granted
|
3,375,000
|
0.46
|
|||
|
Forfeited
|
( 2,927,300
|
)
|
0.73
|
||
|
Exercised
|
( 1,737,200
|
)
|
0.36
|
||
|
Balance
at December 31, 2007
|
10,349,839
|
0.44
|
|||
|
Granted
|
6,800,000
|
0.06
|
|||
|
Forfeited
|
( 779,800
|
)
|
0.81
|
||
|
Balance
at December 31, 2008
|
16,370,039
|
$ 0.27
|
|||
The
weighted-average exercise price, by price range, for outstanding options at
December 31, 2008 was:
|
Price
Range
|
Weighted
Average Remaining
Contractual Life in Years
|
Outstanding
Options
|
Exercisable
Options
|
||||
|
$0.06-$0.20
|
9.8
|
6,950,000
|
1,887,500
|
||||
|
$0.22-$0.49
|
7.3
|
8,770,000
|
7,155,935
|
||||
|
$0.50-$4.00
|
2.9
|
650,039
|
650,039
|
||||
|
Total
|
8.2
|
16,370,039
|
9,693,474
|
| Intrinsic Value | - | - |
Stock
options are issued at the market price on the date of issuance. Stock options
issued to directors are fully vested upon issuance. Stock options issued to
employees generally vest 25% upfront, then 25% each year for a period of three
years. Stock options vest over each three month period from the date of issuance
to the end of the three year period. These options have a ten year life for as
long as the individuals are employees or directors. In general when an employee
or director terminates employment the options will expire within six
months.
The
intrinsic value was calculated as the difference between the Company’s common
stock closing price on the OTC BB at December 31, 2008 and the exercise price of
the stock option issued multiplied by the number of stock options. The Company’s
common stock price at December 31, 2008 was $0.06.
The
Company’s share-based compensation for the 12 months ended December 31, 2008 and
2007 was $385,616 and $677,401 respectively. For the 12 months ended December
31, 2008, $182,168 of the $385,616 was for Research and Development personnel
and $203,448 was for General and Administrative personnel. For the
same period in 2007, $230,668 of the $677,401 was for Research and Development
personnel and $446,733 was for General and Administrative personnel. At December
31, 2008, the total compensation cost for stock options not yet recognized was
approximately $490,000 and will be expensed over the next three
years.
From time
to time, the Company grants warrants to consultants and grants warrants to
purchase common stock in connection with private placements. Warrants
issued to consultants during 2008 and 2007 were 250,000 and zero shares,
respectively, and resulted in expense charges of $21,000 and zero,
respectively.
Warrants to purchase common
stock
Warrant
activity for the years ended December 31, 2008 and 2007 was as
follows:
|
Warrants
|
Weighted
Average
Warrant Exercise Price
|
||||
|
Balance
at January 1, 2007
|
37,128,790
|
$ 0.65
|
|||
|
Granted
|
560,106
|
0.59
|
|||
| Expired | (2,021,268 | ) | 1.93 | ||
| Exercised | (6,458,287 | ) | 0.25 | ||
|
Balance
at December 31, 2007
|
29,209,341
|
0.69
|
|||
|
Granted
|
2,079,444
|
0.20
|
|||
|
Expired
|
(
10,938,637
|
) |
1.13
|
||
|
Balance
at December 31, 2008
|
20,350,148
|
$ 0.41
|
|||
During
2009, warrants to purchase approximately 10,500,000 of the Company’s common
stock will expire.
The
weighted-average exercise price, by price range, for outstanding warrants at
December 31, 2008 was:
|
Price
Range
|
Weighted
Average Remaining
Contractual Life in Years
|
Outstanding
Warrants
|
Exercisable
Warrants
|
||||
|
$0.06-$0.25
|
0.8
|
10,120,330
|
10,120,330
|
||||
|
$0.26-$0.51
|
1.6
|
6,359,575
|
6,359,575
|
||||
|
$0.52-$0.88
|
1.2
|
3,870,243
|
3,870,243
|
||||
|
Total
|
1.1
|
20,350,148
|
20,350,148
|
9.
Concentrations
At
December 31, 2008 and 2007, the Company had deposits in financial institutions
that exceeded the amount under protection by the Securities Investor Protection
Corporation (“SIPC”). Currently we are covered by $1,000,000 by the SIPC. The
excess amounts at December 31, 2008 and December 31, 2007 were approximately,
$475,000 and $1,200,000, respectively. These funds are held at a major Banking
Institution.
10.
Commitments and Contingencies
The
Company has commitments of approximately $5.6 million at December 31, 2008 in
connection with a collaboration agreement
with Numoda for the execution of our upcoming confirmatory, Phase 3
clinical trial of orBec®
that will began in November 2008 and is expected to continue through November
2010.
The
Company has several licensing agreements with consultants and universities,
which upon clinical or commercialization success may require the payment of
milestones and/or royalties if and when achieved. However, there can be no
assurance that clinical or commercialization success will occur.
Certain
operating leases for office and warehouse space maintained by the Company
resulted in rent expense for the years ended December 31, 2008 and 2007 of
$75,467 and $79,941, respectively.
The
Company has approximate future obligations over the next five years as
follows:
|
Year
|
Research
and Development
|
Property
and Other Leases
|
Public
and Investor Relations
|
Total
|
|
2009
|
$3,300,000
|
$92,000
|
$53,000
|
3,445,000
|
|
2010
|
2,900,000
|
95,000
|
-
|
2,995,000
|
|
2011
|
200,000
|
96,000
|
-
|
296,000
|
|
2012
|
200,000
|
105,000
|
-
|
305,000
|
|
2013
|
200,000
|
115,000
|
-
|
315,000
|
|
Total
|
$6,800,000
|
$503,000
|
$53,000
|
$7,356,000
|
On
February 2007, the Company’s Board of Directors authorized the issuance of the
following shares to Dr. Schaber, Mr. Myrianthopoulos, Dr. Brey and certain other
employees and a consultant, upon the completion of a transaction, or series or a
combination of related transactions negotiated by the Company’s Board of
Directors whereby, directly or indirectly, a majority of the Company’s capital
stock or a majority of its assets are transferred from the Company and/or its
stockholders to a third party: 1,000,000 common shares to Dr. Schaber;
750,000 common shares to Mr. Myrianthopoulos; 200,000 common shares to Dr. Brey;
and 750,000 to employees and a consultant shall be
issued.
Employees
with employment contracts have severance agreements that will provide separation
benefits from the Company if they are involuntarily separated from
employment.
11. Subsequent Events
On April
1, 2009, the Company will occupy office space in Princeton, New Jersey. The
Company entered into a sub-lease agreement thru March 31, 2012. The Company is
required to provide; 4 months of rent as a security deposit, the rent for the
first 18 months will be $7,437.50 per month, or $17.00 per square foot. This
increases to $7,656.25 per month of rent, or $17.50 per square foot for the
remaining 18 months.
On March 12, 2009, the Company entered into a two-year
employment agreement with Dr. Hamilton. Pursuant to this employment
agreement the Company agreed to pay Dr. Hamilton a base salary of $270,000 per
year. After one year of service Dr. Hamilton would be entitled to a minimum
annual bonus of $70,000. The Company agreed to issue him options to purchase
1,000,000 shares of its common stock, with the options vesting over three years.
All vested options shall be exercisable for a period of one year following
termination, subject to extension in the discretion of the Stock Option
Administrator. Upon a change in control due to merger or acquisition, all of Dr.
Hamilton’s options shall become fully vested, and be exercisable for a period of
three years after such change in control (unless they would have expired sooner
pursuant to their terms). In the event of his death during term of
the agreement, all of his unvested options shall immediately vest and remain
exercisable for the remainder of their term and become the property of Dr.
Hamilton’s immediate family. Upon termination without “Just Cause” as defined by
this agreement, the Company would pay Dr. Hamilton six months severance subject
to set off if termination occurs during first full year of
employment, as well as any accrued bonuses and accrued vacation would become
payable.
On March
6, 2009, the Company entered into a $400,000 common stock equity investment
agreement priced at market with its clinical trials management partner,
Numoda. One hundred thousand dollars of this investment will be
completed in January 2010. The investment follows and enhances the
collaboration between the Company and Numoda announced on June 30, 2008 and
represents partial payment by the Company under the collaboration agreement.
On February 11, 2009,
the Company entered into a collaboration and supply agreement with
Sigma-Tau for the commercialization of orBec®. Pursuant to this agreement, Sigma-Tau has an exclusive
license to commercialize orBec® in the U.S., Canada and
Mexico (the Territory). Sigma-Tau is obligated to make payments upon the
attainment of significant milestones, as set forth in the agreement. The
first milestone payment, a $1 million payment, will be made upon the enrollment
of the first patient in the Company’s confirmatory Phase 3 clinical trial
of orBec® for the
treatment of acute GI GVHD, which is expected to occur in the second half of
2009. Total
milestone payments due from Sigma-Tau for orBec® under the agreement could reach up to $10 million.
Sigma-Tau will pay the Company a 35% royalty on net sales
in the Territory, as well as pay for commercialization expense, including launch
activities.
In connection with the execution of the collaboration
and supply agreement, the
Company entered into a common stock
purchase agreement with Sigma-Tau pursuant to which the Company sold 25
million shares of common stock to Sigma-Tau for $0.18 per share, for an
aggregate price of $4,500,000. The purchase price is equal to one
hundred fifty percent (150%) of the average trading price of the Company’s
common stock over the five trading days prior to February 11, 2009. As part of
the transaction, the Company granted Sigma-Tau certain demand and piggy-back
registration rights.
On
January 20, 2009, the Company received $2,384,200 from the completed private
placement of common stock and warrants to accredited investors. Under the terms
of the agreement, the Company sold 20,914,035 common shares together with five
year warrants to purchase up to 20,914,035 shares of the Company’s common stock
at $0.14 per share, for an aggregate price of $2,384,200 representing a price of
$0.114 per share. The expiration date of the warrants can be accelerated if the
Company's common stock meets certain price thresholds and the Company would
receive additional gross proceeds of approximately $2.9 million if they are all
exercised.
12.
Business Segments
The
Company had two active segments for the year ended December 31, 2008 and
December 31, 2007: BioDefense and BioTherapeutics. Summary
data:
|
December
31,
|
|||||||
|
2008
|
2007
|
||||||
|
Net
Revenues
|
|||||||
|
BioDefense
|
$
|
2,269,647
|
$
|
1,258,017
|
|||
|
BioTherapeutics
|
40,618
|
-
|
|||||
|
Total
|
$
|
2,310,265
|
$
|
1,258,017
|
|||
|
Loss
from Operations
|
|||||||
|
BioDefense
|
$
|
(
132,272
|
)
|
$
|
(
109,698
|
)
|
|
|
BioTherapeutics
|
(
1,556,429
|
)
|
(
2,748,764
|
)
|
|||
|
Corporate
|
(
1,767,123
|
)
|
(
3,468,621
|
)
|
|||
|
Total
|
$
|
(
3,455,824
|
)
|
$
|
(
6,327,083
|
)
|
|
|
Identifiable
Assets
|
|||||||
|
BioDefense
|
$
|
1,076,854
|
$
|
896,383
|
|||
|
BioTherapeutics
|
650,179
|
552,248
|
|||||
|
Corporate
|
1,635,702
|
2,335,248
|
|||||
|
Total
|
$
|
3,362,735
|
$
|
3,783,879
|
|||
|
Amortization
and Depreciation Expense
|
|||||||
|
BioDefense
|
$
|
85,354
|
$
|
90,185
|
|||
|
BioTherapeutics
|
58,829
|
24,312
|
|||||
|
Corporate
|
5,000
|
5,068
|
|||||
|
Total
|
$
|
149,183
|
$
|
119,565
|
|||
| Interest Income | |||||||
| Corporate | $ | 37,073 | $ | 164,847 | |||
| Total | $ | 37,073 | $ | 164,847 | |||
| Stock Option Compensation | |||||||
| BioDefense | $ | 92,822 | $ | 69,591 | |||
| BioTherapeutic | 89,346 | 161,077 | |||||
| Corporate | 203,448 | 446,733 | |||||
| Total | $ | 385,616 | $ | 677,401 | |||
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DOR
BIOPHARMA, INC.
By: /s/ Christopher J.
Schaber
Christopher
J. Schaber, Ph.D. Chief Executive Officer and President
Date:
March 27, 2009
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated,
on March 27, 2009.
|
Signature
|
Title
|
Date
|
||
|
/s/ Christopher J.
Schaber
Christopher
J. Schaber, Ph.D.
|
Director,
President and Chief Executive Officer (Principal Executive
Officer)
|
March
27, 2009
|
||
|
/s/ Evan
Myrianthopoulos
Evan
Myrianthopoulos
|
Director,
Senior Vice President, Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
|
March
27, 2009
|
||
|
/s/ James
S. Kuo
James
S. Kuo, M.D., M.B.A.
|
Chairman
of the Board
|
March
27, 2009
|
||
|
__________________________________
Cyrille
F. Buhrman
|
Director
|
|
||
|
/s/ Gregg A.
Lapointe
Gregg
A. Lapointe, C.P.A., M.B.A.
|
Director
|
March
27, 2009
|
||
|
/s/ James
Clavijo
James
Clavijo, C.P.A., M.A.
|
Controller,
Treasurer, and Corporate Secretary
|
March
27,
2009
|
48