ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
INFORMATION AND RESULTS OF OPERATIONS
The following discussion should be read
in conjunction with the attached unaudited consolidated financial statements and notes thereto, and with our audited consolidated
financial statements and notes thereto for the fiscal year ended December 31, 2013, found in our Annual Report on Form 10-K. In
addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties
and assumptions. Where possible, we have tried to identify these forward looking statements by using words such as “anticipate,”
“believe,” “intends,” or similar expressions. Our actual results could differ materially from those anticipated
by the forward-looking statements due to important factors and risks including, but not limited to, those set forth under “Risk
Factors” in this 10-Q and as applicable in Part I, Item 1A of our Annual Report on Form 10-K.
Overview
We are a biotechnology company focused
on the development of novel anti-infective biologic and drug candidates targeting specific pathogens that cause serious infections
and diseases. We are developing an oral biologic to protect the gastrointestinal (GI) microflora from the effects of intravenous
(IV) antibiotics for the prevention of
Clostridium difficile
(
C. diff)
infection, an oral treatment to reduce the
impact of methane producing organisms on constipation-predominant irritable bowel syndrome (C-IBS), a series of monoclonal antibodies
(mAbs) for the treatment of Pertussis and
Acinetobacter
infections, and a biologic targeted at the prevention and treatment
of a root cause of a subset of IBS. In addition, we have two legacy programs. We are developing an oral estriol drug
for the treatment of relapsing-remitting multiple sclerosis (MS) and cognitive dysfunction in MS. We have also partnered the development
of a treatment for fibromyalgia.
Product Pipeline:
Summary of Pathogen-Specific Anti-Infective Biologic
and Drug Programs:
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C. diff
infections:
We are in preclinical development of a
novel second-generation oral enzyme drug candidate, SYN-004, for co-administration with commonly used IV antibiotics intended
to prevent the development of severe effects of
C. diff
infections.
C. diff
infections are a leading
cause of hospital acquired infections (HAIs), that generally occur secondary to treatment with IV antibiotics. Designed to be
given orally to protect the gut while certain IV beta-lactam antibiotics (penicillins and cephalosporins) fight the primary
infection, SYN-004 is believed to have a similar profile to its first-generation predecessor, which demonstrated favorable
protection of the gut flora (microbiome) during treatment with certain penicillins, with the potentially added ability to act
against a broader spectrum of IV beta-lactam antibiotics. Beta-lactam antibiotics are a mainstay in hospital infection
management and include the commonly used penicillin and cephalosporin classes of antibiotics. Approximately 14.4 million
patients are administered "SYN-004 target" IV beta-lactam antibiotics annually, representing an estimated target
market for SYN-004 of 117.6 million beta-lactam doses purchased by U.S. hospitals. The addressable market for SYN-004 is
significant. Currently there are no approved treatments designed to protect the microbiome from the damaging effects of IV
antibiotics. This worldwide opportunity could represent a multi-billion dollar market.* We intend to initiate Phase Ia and Ib
clinical trials during the second half of 2014, with preliminary topline data expected by year-end 2014.
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*
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This information is an estimate derived from the use of information under license from the following IMS Health Incorporated information service: CDM Hospital database for full year 2012. IMS expressly reserves all rights, including rights of copying, distribution and republication.
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C-IBS:
In December 2013, through our majority-owned subsidiary, Synthetic
Biomics, Inc., we entered into a worldwide exclusive license agreement with Cedars-Sinai Medical Center (CSMC) for the right
to develop products for therapeutic and prophylactic treatments for acute and chronic diseases. An investigational team led
by Mark Pimentel, M.D. at CSMC has discovered that these products are intended to target the production of methane gas by
certain pathogenic gastrointestinal (GI) microorganisms that are perceived as the underlying cause of gas, pain and
constipation associated with C-IBS, as well as diseases such as obesity and type 2 diabetes. Initially we will focus on the
development of an oral treatment to reduce the impact of methane producing organisms on C-IBS. We intend to initiate
in
vivo
/pharmacokinetic/pharmacodynamic studies in the first half of 2014, and to initiate a Phase II clinical trial during
the second half of 2014 under an Investigational New Drug application (IND). Expected timing of topline data is mid-2015.
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Pertussis:
In April 2014, positive preclinical research findings for
SYN-005, our proprietary monoclonal antibody (mAb) combination therapy for treating Pertussis (whooping cough), in two
non-human primate studies (n=15). In December 2012, in collaboration with Intrexon Corporation (NYSE: XON) (Intrexon), we
initiated development of a mAb therapy for the treatment of Pertussis infections, more commonly known as whooping cough. We
are developing a mAb therapy, SYN-005, designed to target and neutralize the pertussis toxin, in order to reduce the
mortality rate in infants and shorten the duration of chronic cough in afflicted adults. To further the development of this
potential therapy for Pertussis, we entered into an agreement with The University of Texas at Austin to license the rights
to certain research and pending patents related to pertussis antibodies. According to the World Health Organization,
each year,
B. pertussis
infection causes an estimated 300,000 deaths worldwide, primarily among young,
unvaccinated infants. Based on positive non-human primate and murine model findings, we intend to file an IND
application to support a Phase I clinical trial expected to initiate during the first half of 2015. Topline data is
expected to be available within approximately 90 days of the start of the trial. This is expected to be followed by a Phase
II trial, with topline results expected in the second half of 2015. We also intend to request an
Orphan Drug designation for SYN-005 for the treatment of Pertussis.
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Acinetobacter
infections:
In September 2012, in collaboration with Intrexon, we initiated efforts to develop a mAb therapy for the treatment of
Acinetobacter
infections. Many strains of
Acinetobacter
are multidrug-resistant and pose an increasing global threat to hospitalized patients, wounded military personnel and those affected by natural disasters. A treatment for
Acinetobacter
infections represents a billion dollar market opportunity. The generation of a panel of antibodies is ongoing.
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IBS:
In December 2013, in collaboration with Intrexon, and partially utilizing the intellectual property optioned from CSMC, we intend to develop biologic approaches targeted at the prevention, and acute and chronic treatment of a subset of IBS pathologies specifically caused by auto-antibodies.
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Summary of Multiple
Sclerosis Program:
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The Phase II, double-blinded,
placebo-controlled Trimesta trial randomized 158 women with relapsing-remitting MS at 16 sites across the U.S. Positive
Phase II topline efficacy and safety results were presented in April 2014 by
lead principal investigator, Dr. Rhonda Voskuhl of the University of
California, Los Angeles (UCLA) David Geffen School of Medicine at the 66th American Academy of Neurology Annual
Meeting. The UCLA-led Phase II study was designed to show statistical significance at 12 months for the MS relapse rate
reduction in patients treated with Trimesta plus Copaxone
®
compared to patients given placebo plus
Copaxone
®
. The trial was only powered to trend toward statistical significance at the 24-month time point.
According to the protocol, the results of topline data demonstrate that Trimesta met the pre-specified goal of the study
with rapid onset of activity observed for Trimesta plus
Copaxone
®
compared to placebo plus Copaxone
®
.
The Trimesta study also demonstrated a clinically significant near-normalization of cognitive
scores at 12 months of therapy in women taking Trimesta plus Copaxone
®
. This outcome is of high importance
for MS specialists and patients and we believe it is the result of oral
estriol’s unique neuroprotective effect. In addition, adjunctive oral
Trimesta plus injectable standard of care Copaxone
®
was generally safe and well
tolerated by women in the study. This investigator-initiated trial evaluating our drug candidate, Trimesta, is supported by
grants awarded to the UCLA exceeding $8.0 million, which should be sufficient to fund the trial through completion of patient
follow-up. Annual worldwide sales of
current MS therapies are estimated at $14.1 billion. We are engaging with the
neurology community and potential partners,
as we determine next steps for Trimesta.
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Trimesta is also being developed for the treatment of cognitive dysfunction in
female MS patients. This 12-month randomized, double-blind, placebo-controlled Phase II clinical trial is being conducted at
four sites in the United States, including UCLA. The primary endpoint is the effect on cognitive function as assessed by Paced
Auditory Serial Addition Test (PASAT). Patient enrollment is ongoing. The majority of the costs of this
trial are being funded by grants from foundations and charitable organizations and we have pledged
approximately $500,000 to UCLA to partially fund this trial payable over three years. An estimated 50-65% of
MS patients are expected to develop disabilities due to cognitive dysfunction and there is currently no
approved treatment.
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Summary of Fibromyalgia Program:
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Effirma
TM
(flupirtine) is being developed for the treatment of fibromyalgia by Meda AB (Meda), a multi-billion dollar international pharmaceutical company. On May 6, 2010, we entered into a sublicense agreement with Meda covering all of our patents’ rights on the use of flupirtine for fibromyalgia in the United States, Canada and Japan. The sublicense agreement provides that all ongoing and future development costs are to be borne by Meda and we are entitled to receive certain payments if milestones are achieved and royalties on sales. According to Meda’s 2012 Year-End Report filed in February 2013, Meda has received the go-ahead from the United States Food and Drug Administration (FDA) to conduct a Phase II proof of concept study for the treatment of fibromyalgia. Meda also announced that the randomized, double-blind, placebo and active-controlled study of patients with fibromyalgia will be conducted at 25 clinics in the United States Based on an estimated annual price of $1,200 per fibromyalgia patient, we estimate that the total market potential in the United States is $6.0 billion.
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Recent Developments
On December 11, 2013, we completed a firm
commitment underwritten public offering of 13,225,000 shares of our common stock at a closing price of $1.00 per share for gross
proceeds of $13.2 million. We paid direct offering costs of $1.0 million.
On December 5, 2013, through our newly
formed, majority owned subsidiary, Synthetic Biomics, Inc. (“SYN Biomics”), we entered into a worldwide exclusive license
agreement (the “CSMC License Agreement”) and option agreement (the “CSMC Option Agreement”) with CSMC for
the right to develop, manufacture, use, and sell products for the human and veterinary therapeutic and prophylactic treatments
for acute and chronic diseases. An investigational team lead by Mark Pimentel, M.D. at CSMC has discovered that these products
are intended to target certain pathogenic GI microorganisms that are perceived as an underlying cause of diseases such as C-IBS,
obesity and type 2 diabetes. The portfolio of intellectual property licensed to SYN Biomics under the License Agreement includes
nine issued U.S. patents, one issued European patent validated in 18 countries, one issued European patent validated in three countries,
two issued Australian patents, and one issued Japanese patent as well as 13 pending U.S. and international patent applications
for most fields of use and modalities (subject to certain agreed-upon exceptions); two pending U.S. patent applications are optioned
to SYN Biomics under the Option Agreement.”
Under the CSMC License Agreement we issued
291,569 unregistered shares of our common stock to CSMC, as payment of an initial license fee and patent reimbursement fees of
$150,000 and $220,000, respectively. The parties also entered into a Stock Purchase Agreement with respect to such stock issuance
and other issuances of our unregistered shares of common stock that may be issued to CSMC in lieu of cash, including license fees,
milestone payments expense reimbursements and options fees under the CSMC License Agreement or CSMC Option Agreement. Any and all
such stock issuances by us shall be subject to the prior approval of the NYSE MKT, LLC. The CSMC License Agreement also provides
that commencing on the second anniversary of the CSMC License Agreement, SYN Biomics will pay an annual maintenance fee, which
payment shall be creditable against annual royalty payments owed under the CSMC License Agreement. In addition to royalty payments
which are a percentage of Net Sales (as defined in the CSMC License Agreement) of Licensed Products (as defined in the CSMC License
Agreement) and Licensed Technology products (as defined in the CSMC License Agreement), SYN Biomics is obligated to pay CMSC a
percentage of any non-royalty sublicense revenues as well as additional consideration upon the achievement of the following milestones
(the first two of which are payable in cash or our unregistered shares of stock at our option): (i) successful Phase I trial completion
of the first Licensed Product or first Licensed Technology Product; (ii) successful Phase II trial completion of the first Licensed
Product or first Licensed Technology Product; (iii) initiation of Phase III dosing for each additional indication of a Licensed
Product or Licensed Technology Product; (iv) successful Phase III trial completion for each Licensed Product and each Licensed
Technology Product; (v) the FDA’s acceptance of a New Drug Application for each Licensed Product and each Licensed Technology
Product; (vi) regulatory approval for each Licensed Product and each Licensed Technology Product; and (vii) the first commercial
sale of each Licensed Product and each Licensed Technology Product. The stock issuances are subject to prior approval of the NYSE
MKT, LLC. The CSMC License Agreement automatically terminates upon the occurrence of certain events and SYN Biomics has the right
to terminate the CSMC License Agreement without cause, upon six months notice to CSMC however, upon such termination, SYN Biomics
is obligated to pay a termination fee with the amount of such fee reduced: (i) if such termination occurs after an IND submission
to the FDA but prior to completion of a Phase II clinical trial; (ii) reduced further if such termination is after completion of
Phase II clinical trial but prior to completion of a Phase III clinical trial; and (iii) reduced to zero if such termination occurs
after completion of a Phase III clinical trial.
Prior to the execution of the License Agreement,
we issued shares of common stock of SYN Biomics to each of CSMC and Mark Pimentel, M.D. (the primary inventor of the intellectual
property), representing 11.5% and 8.5%, respectively, of the outstanding shares of SYN Biomics (the “SYN Biomics Shares”).
The Stock Purchase Agreements for the SYN Biomics Shares provide for certain anti-dilution protection until such time as an aggregate
of $3.0 million in proceeds from equity financings are received by SYN Biomics as well as a right, under certain circumstances
in the event that the SYN Biomics Shares are not then freely tradeable, and subject to NYSE MKT, LLC approval, as of the 18 and
36 month anniversary date of the effective date of the Stock Purchase Agreements, for each of CSMC and Dr. Pimentel to exchange
up to 50% of their SYN Biomics shares for unregistered shares of our common stock, with the rate of exchange based upon the relative
contribution of the valuation of SYN Biomics to our public market valuation at the time of each exchange. The Stock Purchase Agreements
also provide for tag-along rights in the event of the sale by us of our shares of SYN Biomics.
Pursuant to the terms of the CSMC Option
Agreement, SYN Biomics has a period of six months to negotiate an exclusive license to develop, manufacture, use, and sell biologic
products relating to the prevention, acute treatment and chronic treatment of IBS or other indications utilized or derived from
certain optioned patent applications pending completion of certain limited testing of technology embodied in the patents applications.
Under terms of the CSMC Option Agreement we issued 43,342 shares of our unregistered stock to CSMC, as payment of a non-refundable
option fee of $55,000. In addition, SYN Biomics has the right to extend the option period for an additional six months, for an
additional non-refundable extension fee of $25,000, payable in our unregistered shares of common stock having a market value of
110% of such amount, subject to approval of NYSE MKT, LLC, or in cash. At any time during the 6 or 12 month option period (if so
extended) SYN Biomics has the right to exercise the option and negotiate an exclusive license to be optioned patent applications,
which shall provide for (i) a $50,000 license issue fee plus reimbursement of patent expenses incurred by CSMC prior to the exclusive
license payable to CSMC in our unregistered shares of stock having a market value of 110% of such amount, subject to approval of
the NYSE MKT, LLC, or in cash, (ii) the same milestone payments, royalties and sublicense fees as are payable under the CSMC License
Agreement, and (iii) such other customary terms and conditions CSMC typically includes in its license agreements.
In collaboration with Intrexon, and partially
utilizing the intellectual property optioned or licensed from CSMC described in the CSMC Option Agreement, we and SYN Biomics intend
to develop biologic approaches for the prevention, and acute and chronic treatment of a subset of IBS pathologies specifically
caused by auto-antibodies. During the option period, we, SYN Biomics and Intrexon will seek to create and test a variety of biologic
candidates for the treatment of IBS. This biologic program has been selected as the third target under our Exclusive Channel Collaboration
Agreement with Intrexon dated August 6, 2012.
Since our inception in January 2001,
our efforts and resources have been focused primarily on acquiring and developing our product candidates, our clinical
trials, raising capital, manufacturing and recruiting personnel. As of June 30, 2010, we emerged from the development stage
after entering into a sublicense agreement with Meda AB and receiving an up-front payment of $2.5 million. We consider
this sublicense agreement to be an indication that we commenced our principal operations.
To date, we have financed our operations
primarily through public and private sales of our common stock, and we expect to continue to seek to obtain the required capital
in a similar manner. We have incurred an accumulated deficit of $85.1 million through March 31, 2014. We cannot provide any assurance
that we will be able to achieve profitability on a sustained basis, if at all, obtain the required funding, obtain the required
regulatory approvals, or complete additional corporate partnering or acquisition transactions.
Pipeline Programs and Therapeutic Areas
Pathogen-Specific Anti-Infective
Biologic and Drug Programs
We are a biotechnology company focused
on the development of novel anti-infective biologic and drug candidates targeting specific pathogens that cause serious infections
and other diseases. Infectious disease outbreaks are increasing while intervention options are declining due to widespread multidrug-resistant
bacteria, increasing numbers of immuno-compromised patients (e.g., the elderly and cancer patients), and the isolation of new pathogens.
We are developing an oral biologic to protect the gastrointestinal microflora from the effects of IV antibiotics for the prevention
of
C. diff
infection, an oral treatment to reduce the impact of methane producing organisms on C-IBS, a series of monoclonal
antibodies for the treatment of Pertussis and
Acinetobacter
infections, and a biologic targeted at the prevention and treatment
of a root cause of a subset of IBS.
Several of our programs are focused on
protecting the microbiome, or our gut flora, which is home to millions of bacteria, composed of a natural balance of both “good”
beneficial bacteria and “bad” pathogenic bacteria. When that natural balance of all of these bacteria is disrupted,
a person’s health is compromised.
C. difficile
:
According to the Agency for Healthcare
Research and Quality, aggregate costs associated with
C. diff
infection (CDI)-related stays in the hospital were $8.2 billion
in the U.S. during 2009. CDI is a rising global HAI problem in which the toxins produced by
C. difficile
bacteria result
in diarrhea antibiotic-associated diarrhea (AAD), and in the most serious cases, pseudomembranous colitis (erosion of the lower
GI tract) that can lead to death. The Centers for Disease Control and Prevention (CDC) recently identified
C. diff
as an
“urgent public health threat,” particularly given its resistance to many drugs used to treat other infections. CDI
is a major, unintended risk associated with the prophylactic or therapeutic use of IV antibiotics, which may alter the natural
balance of microflora that normally protect the GI tract, leading to
C. difficile
overgrowth and infection. Other risk factors
for CDI include hospitalization, prolonged length of stay, underlying illness, immune-compromising conditions including the administration
of chemotherapy, and advanced age.
CDI is a widespread and often drug resistant
infectious disease, and it is estimated that 1.1 million patients are infected with
C. diff
annually in the U.S.*, and it
has been reported that 30,000 patients die with a
C. diff
infection each year. CDI has surpassed methicillin-resistant staphylococcus
aureus (MRSA) as the most frequent infection acquired in the hospital. Controlling the spread of CDI has proven challenging, as
the
C. difficile
spores are easily transferred to patients via normal contact with healthcare personnel and other inanimate
objects. There is currently no vaccine or approved product for the prevention of
C. diff
infection.
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This information is an estimated derived from the use of information under license from the following IMS Health Incorporated information service: CDM Hospital database for full year 2012. IMS expressly reserves all rights, including rights of copying, distribution and republication.
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C. difficile: Acquisition of Clinical-Stage
Program
In November 2012, we acquired a series
of oral beta-lactamase enzymes (P1A, P2A and P3A) and related assets targeting the prevention of CDI, the leading cause of HAIs
that generally occurs secondary to treatment with IV antibiotics. The acquired assets include a pre-IND package for P3A (SYN-004),
Phase I and Phase II clinical data for P1A, manufacturing processes and data, and a portfolio of issued and pending U.S. and international
patents intended to support an IND and Biologics License Application (BLA) with the FDA. Utilizing this portfolio of assets, we
intend to develop a proprietary oral beta-lactamase enzyme product candidate, SYN-004, previously known as P3A. When co-administered
with certain IV beta-lactam antibiotics, it is expected that SYN-004 can degrade the antibiotic that is excreted in the GI tract,
thus preserving the natural balance of the patient's microflora, and preventing opportunistic infections including CDI. Beta-lactam
antibiotics are a mainstay in hospital infection management and include the commonly used penicillin and cephalosporin classes
of antibiotics. Approximately 14.4 million patients are administered "SYN-004 target" IV beta-lactam antibiotics annually,
representing an estimated target market for SYN-004 of 117.6 million beta-lactam doses purchased by U.S. hospitals. The addressable
market is significant and currently there are no approved treatments designed to protect the microbiome from the damaging effects
of IV antibiotics. This worldwide opportunity could represent a multi-billion dollar market.*
*
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This information is an estimated derived from the use of information under license from the following IMS Health Incorporated information service: CDM Hospital database for full year 2012. IMS expressly reserves all rights, including rights of copying, distribution and republication.
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C. difficile: Oral Enzyme Background
We acquired a series of oral beta-lactamase
enzymes. Beta-lactamase enzymes have the ability to degrade beta-lactam antibiotics that may be excreted into the GI tract. P1A
(the first generation candidate) showed acceptable safety and tolerability in a Phase I study. In addition, two Phase II clinical
studies demonstrated that P1A had the ability to preserve GI microflora in hospitalized patients treated with intravenous ampicillin
or the combination of piperacillin and tazobactam.
C. difficile: Preclinical and Clinical Development
Compared to the first generation oral enzyme
candidate, P1A, we believe that the second generation candidate, SYN-004 (formerly P3A), will have activity against a broader spectrum
of beta-lactam antibiotics, including both penicillins and certain cephalosporins. Due to the structural similarities between P1A
and SYN-004, and based on previous discussions with the FDA, it is anticipated that certain preclinical data collected on P1A may
be used in support of an IND for our new product candidate, SYN-004.
In October 2013, we initiated manufacturing
of SYN-004 material to support our planned preclinical and clinical studies. We intend to initiate Phase Ia and Ib clinical
trials during the second half of 2014, with preliminary topline data expected by year-end 2014.
C-IBS:
Irritable Bowel Syndrome (IBS) is a functional
GI disorder characterized by gas, abdominal pain, bloating and diarrhea or constipation, or alternating episodes of both. According
to reports published by The International Foundation for Functional Gastrointestinal Disorders (IFFGD),
IBS affects an estimated 10 to 15 percent of the population, or as many as 40 million Americans. The illness affects both men and
women; two-thirds of diagnosed sufferers are women. The onset of IBS can begin anytime from adolescence to adulthood.
Four
bowel patterns may be seen with IBS, including: C-IBS (constipation predominant), D-IBS (diarrhea predominant), M-IBS (mixed diarrhea
and constipation) and A-IBS (alternating diarrhea and constipation).
It has been reported that one-third of
all IBS patients have C-IBS.
Current FDA-approved therapies for the treatment of C-IBS include
AMITIZA
®
(lubiprostone) and LINZESS
®
(linaclotide). Prescription and over-the-counter laxatives are
also used by C-IBS patients for symptomatic relief. According to GlobalData, sales of approved drugs to treat C-IBS in seven major
markets are projected to reach $1.3 billion by 2018.
C-IBS: Acquisition of Clinical-Stage
Program
In December 2013, we entered into a worldwide
exclusive license agreement with CSMC for the right to develop products for therapeutic and prophylactic treatments for acute and
chronic diseases. We licensed and optioned from CSMC a portfolio of intellectual property comprised of several U.S. and international
patents and pending patent applications for various fields of use, including C-IBS, obesity and diabetes. An investigational team
led by Mark Pimentel, M.D. at CSMC has discovered that these products are intended to target the production of methane gas by certain
pathogenic gastrointestinal microorganisms that are perceived as the underlying cause of gas, pain and constipation associated
with C-IBS, as well as diseases such as obesity and type 2 diabetes. Initially we will focus on the development of an oral treatment
to reduce the impact of methane producing organisms on C-IBS.
IBS: Gas Producing Organisms Background
In the 1990’s, research showed that
IBS patients (over a given time) produced five times more gas than did people without IBS. Since the only source of those gases
was bacterial, the initial presumption was that IBS patients had excessive bacteria in the colon. Subsequent studies showed that
IBS patients had excessive quantities of gas in the small bowel; these data were the catalyst for studying small bowel bacteria
in IBS. Normally the small intestine contains a very small quantity of bacteria. In published studies, indirect measures of small
bowel bacteria suggest that 84% of IBS sufferers have excessive quantities of bacteria typically found in the colon.
The CSMC investigational team led by Dr.
Pimentel is researching a recent theory that defines IBS as a bacterial disease. Gut microflora that should normally be confined
to the large intestine inappropriately colonize the small intestine. This process is referred to as small intestine bacterial overgrowth
(SIBO), which results in gas, bloating, abdominal pain and altered stool habits characterized by IBS.
C-IBS: Methane Producing Organisms Background
Further research by the CSMC investigational
team led by Dr. Pimentel is focused on the C-IBS patient population. The theory that defines this patient set is that the constipation
associated with C-IBS is due to an infectious disease. Overgrowth of certain gut microflora may lead to overproduction of methane
gas resulting in pain, bloating and constipation. CSMC investigators have discovered that inhibiting intestinal methane production
may treat the underlying cause of major diseases, including constipation associated with C-IBS.
C-IBS: Preclinical and Clinical Development
Ongoing efforts led by Dr. Pimentel include
formulating and testing non-antibiotic FDA-approved oral drug candidates for ultimate product registration via potential expedited
pathways. Such candidates are intended for the specific elimination of methane gas production within the intestines, with the goal
of having little or no unintended impact on a patient's normal intestinal microflora. Initially we will focus on the development
of an oral treatment to reduce the impact of methane producing organisms on C-IBS.
We intend to initiate
in
vivo
/pharmacokinetic/pharmacodynamic studies in the first half of 2014, and to initiate a Phase II clinical trial during
the second half of 2014 under an IND. Expected timing of topline data is mid-2015.
Monoclonal Antibodies:
Monoclonal Antibodies for Infectious
Diseases
Acting as the body's army, antibodies are
proteins, generally found in the bloodstream, that provide immunity in detecting and destroying pathogens, such as viruses and
bacteria and their associated toxins. MAbs can also be designed and produced as therapeutic agents, utilizing protein engineering
and recombinant production technologies. The mAbs being developed under our collaboration with Intrexon are intended to supplement
a patient's own immune system by providing the means to specifically and rapidly neutralize and/or clear specific pathogens and
toxins of interest in a process known as “passive immunity”. Many pathogens that cause infectious diseases are innately
resistant to, or over time have developed increased resistance to, antibiotics and other drugs.
Intrexon Collaboration: Monoclonal Antibodies
for Infectious Diseases
In August 2012, we entered into a worldwide
exclusive channel collaboration (“Second ECC”) with Intrexon through which we intend to develop a series of mAb therapies
for the treatment of certain infectious diseases not adequately addressed by existing therapies. Utilizing Intrexon’s comprehensive
suite of proprietary technologies, including the mAbLogix
TM
platform for rapid
discovery of fully human mAbs and the LEAP
TM
cell processing station, our initial
efforts will target three infectious disease indications.*** We also have the option to target an additional five infectious
disease indications under this collaboration. To date, we have initiated development of a mAb therapy for the treatment of Pertussis
and
Acinetobacter
infections.
***mAbLogix
TM
and LEAP
TM
are registered trademarks of Intrexon Corporation.
Pertussis:
Bordetella pertussis (B. pertussis)
is a gram-negative bacterium that infects the upper respiratory tract, causing uncontrollable, and violent coughing. Antibiotic
treatment does not have a major effect on the course of Pertussis, because while it can eliminate the
B. pertussis
bacteria
from the respiratory tract, it does not neutralize the pertussis toxin. Infants with Pertussis often require hospitalization in
pediatric intensive care units, frequently requiring mechanical ventilation. Pertussis in adults generally leads to a chronic cough
referred to as the "cough of 100 days." The incidence of Pertussis is increasing due to a less effective acellular vaccine
introduced in the 1990s, exposure of unvaccinated and under-vaccinated individuals including infants who are not yet fully vaccinated,
exposure of individuals whose immunity has diminished over time, as well as asymptomatic carriers.
According to the World Health
Organization there are 50 million cases of whooping cough and
B. pertussis
infection that causes an estimated 300,000
deaths each year worldwide, primarily among young, unvaccinated infants. Recent news reports throughout the U.S. indicate
that the pertussis vaccine introduced in the 1990s does not provide long-term protection and, as a result, whooping cough
cases have increased to a 60-year high. There is no approved treatment for Pertussis, and antibiotic treatment does not have
a major effect on the course of Pertussis, because while it can eliminate the
B. pertussis
bacteria from the
respiratory tract, it does not neutralize the pertussis toxin.
Pertussis: Intrexon Collaboration and
The University of Texas at Austin Agreement
In December 2012, we initiated mAb development
for the treatment of Pertussis focusing on toxin neutralization pursuant to our August 2012 collaboration with Intrexon. Unlike
antibiotics, we are developing a mAb therapy, SYN-005, to target and neutralize the pertussis toxin, in order to reduce the mortality
rate in infants and shorten the duration of chronic cough in afflicted adults.
To further the development of this potential
therapy for pertussis, we have entered into an agreement with The University of Texas at Austin to license the rights to certain
research and pending patents related to pertussis antibodies. These research efforts are being conducted at the Cockrell School
of Engineering in the laboratory of Assistant Professor, Jennifer A. Maynard, Ph.D., the Laurence E. McMakin, Jr. Centennial Faculty
Fellow in the McKetta Department of Chemical Engineering. Dr. Maynard brings to the project her expertise in defining the key neutralizing
epitopes of pertussis toxin to optimize the potential efficacy of antibody therapeutics.
Pertussis: Preclinical and Clinical Development
Working with our collaborator, Intrexon,
and our academic collaborator, The University of Texas at Austin, we have established a combination of two humanized antibodies
designed to neutralize pertussis toxin, a major cause of pertussis-mediated infant morbidity and mortality. Benchtop studies demonstrated
high affinity binding to the toxin, as well as potent neutralization of the toxin. In addition, the antibodies were highly efficacious
in a murine model of pertussis in which they completely mitigated elevations of the white blood cell count that is characteristic
of the illness.
In April 2014, positive preclinical research
findings for SYN-005, our proprietary monoclonal antibody (mAb) combination therapy for treating Pertussis (whooping cough), in
two non-human primate studies (n=15). In the second pertussis study in particular, SYN-005 was associated with favorable decreases
in white blood cell counts within two days and the achievement of nearly normal levels within one week.
Based on positive non-human primate
and murine model findings, we have filed an additional patent application around pertussis antibodies, intend to move into
cGMP manufacturing of SYN-005, and intend to file an IND application to support a Phase I clinical trial expected to initiate
during the first half of 2015. Topline data is expected to be available within approximately 90 days of the start of the
trial. This is expected to be followed by a Phase II trial, with topline results expected in the second half of 2015. We
also intend to request an Orphan Drug designation for SYN-005 for the treatment of Pertussis.
Acinetobacter Infections:
Acinetobacter baumanii
is a difficult
to treat pathogen due to its rapid and well-established development of resistance to most antibiotics, making it a multidrug-resistant
pathogen. In addition, as a biofilm-forming pathogen,
Acinetobacter baumanii
has the ability to survive up to twice as long
as non-biofilm-forming pathogens. In the U.S.,
Acinetobacter baumanii
has been reported to be the cause of up to 2.6% of
hospital acquired infections, 1.3% of bloodstream infections and 7.0% of ICU respiratory tract infections, and more than half of
the
Acinetobacter baumanii
isolates are multidrug-resistant. According to published articles, mortality rates associated
with
Acinetobacter
infections as high as 43.0% are reported in hospitals and ICU settings. While
Acinetobacter baumanii
is a well-documented pathogen in the hospital setting, this pathogen also poses an increasing danger to wounded servicemen and
women in military treatment centers and to those treated in trauma centers following natural disasters.
A treatment for
Acinetobacter
infections
represents a billion dollar market opportunity.
Acinetobacter: Intrexon Collaboration
In August 2012, we initiated a mAb discovery
and development program for
Acinetobacter
infections pursuant to our August 2012 collaboration with Intrexon. Discovery
efforts for the development of a mAb are currently underway.
IBS:
Existing IBS therapies, which are primarily
focused on supportive care, are unlikely to address the treatment needs of the patient population with auto-antibodies, an underlying
immune-specific pathology. Through our collaboration with Intrexon, we intend to address the unmet medical need in these patients
with personalized medicine and target the root causes of a subset of IBS-associated pathologies.
IBS: Intrexon Collaboration
In December 2013, in collaboration with
Intrexon, and partially utilizing the intellectual property optioned from CSMC, we announced an intent to develop biologic approaches
targeted at the prevention, and acute and chronic treatment of a subset of IBS pathologies specifically caused by auto-antibodies.
We intend to utilize intellectual property
optioned from CSMC. According to an increasing body of recent work conducted by CSMC, a subset of IBS cases appear to be causally
initiated by one or more encounters with acute infectious gastroenteritis, such as the foodborne illness
, Campylobacter jejuni
.
CSMC has identified a novel autoimmune target for this subset of IBS cases because of the development of cross-reacting antibodies
between a bacterial toxin and a protein important for controlling GI motility. This program is in the discovery stage.
Multiple Sclerosis Program
Relapsing-Remitting MS:
MS is a progressive neurological disease
in which the body loses the ability to transmit messages along the central nervous system, leading to pain, loss of muscle control,
paralysis, cognitive impairment and in some cases death. According to the National Multiple Sclerosis Society (NMSS), more than
2.3 million people worldwide (approximately 400,000 patients in the U.S. of which approximately 65% are women) have been diagnosed
with MS. The diagnosis is typically made in young adults, ages 20 to 50. According to the NMSS, approximately 85% of MS patients
are initially diagnosed with the relapsing-remitting form, and 10-15% with other progressive forms.
There are nine FDA-approved therapies for
the treatment of relapsing-remitting MS: Betaseron
®
, Rebif
®
,
Avonex
®
, Copaxone
®
, Tysabri
®
,
Gilenya
®
, Extavia
®
, Aubagio
®
and Tecfidera
TM
. Many of these therapies provide only a modest
benefit for patients with relapsing-remitting MS. All of these drugs except Gilenya
®
,
Aubagio
®
and Tecfidera
TM
require
frequent (daily, weekly & monthly) injections (or infusions) on an ongoing basis and can be associated with unpleasant side
effects (such as flu-like symptoms) and high rates of non-compliance among users. Despite the availability of therapies for the
treatment of relapsing-remitting MS, the disease is highly underserved and exacts a heavy personal and economic toll. Annual worldwide
sales of current MS therapies are estimated at $14.1 billion.
Relapsing-Remitting MS: Background
Research has shown that pregnant women
with MS tend to experience a spontaneous reduction of disease symptoms during pregnancy, particularly in the third trimester. The
PRIMS (Pregnancy In MS) study published in 1998, a landmark observational clinical study published in the
New England Journal
of Medicine
followed 254 women with MS during 269 pregnancies and for up to one year after delivery. The PRIMS study demonstrated
that relapse rates were significantly reduced by 71% (p < 0.001) through the third trimester of pregnancy compared to pre-pregnancy-rates,
and that relapse rates increased by 120% (p < 0.001) during the first three months after birth (post-partum) and then return
to pre-pregnancy rates. It has been hypothesized that the female hormone, estriol, produced by the placenta during pregnancy, plays
a role in “fetal immune privilege”, a process that prevents a mother’s immune system from attacking and
rejecting the fetus. The maternal levels of estriol increase linearly through the third trimester of pregnancy until birth, whereupon
it abruptly returns to low circulating levels. The anti-autoimmune effects of estriol are thought to be responsible for the therapeutic
effects of pregnancy on MS.
Rhonda Voskuhl, M.D., Director, UCLA MS
program, UCLA Department of Neurology, has found that plasma levels of estriol achieved during pregnancy have potent immunomodulatory
effects. She further postulated and tested in a pilot clinical study that oral doses of estriol may have a therapeutic benefit
when administered to non-pregnant female MS patients by, in essence, mimicking the spontaneous reduction in relapse rates
seen in MS patients during pregnancy.
Estriol has been approved and marketed
for over 40 years throughout Europe and Asia for the oral treatment of post-menopausal symptoms. It has never been approved by
the U.S. FDA for any indication.
Relapsing-Remitting MS: Clinical Development
Trimesta (oral estriol) is being developed
as an adjunctive oral once-daily treatment for relapsing-remitting MS in women. An investigator-initiated, 10-patient, 22-month,
single-agent, crossover clinical trial to study the therapeutic effects of 8 mg. of oral Trimesta taken daily in non-pregnant
female relapsing-remitting MS patients was completed in the U.S. The total volume and number of gadolinium-enhancing lesions were
measured by brain magnetic resonance imaging (an established neuroimaging measure of disease activity in MS). Over the next three
months of treatment with Trimesta, the median total enhancing lesion volumes decreased by 79% (p = 0.02) and the number of lesions
decreased by 82% (p = 0.09). They remained decreased during the next 3 months of treatment, with lesion volumes decreased by 82%
(p = 0.01), and numbers decreased by 82% (p =0.02). Following a six-month drug holiday during which the patients were not on any
drug therapies, median lesion volumes and numbers returned to near baseline pretreatment levels. Trimesta therapy was reinitiated
during a four-month retreatment phase of this clinical trial. The relapsing-remitting MS patients again demonstrated a decrease
in enhancing lesion volumes of 88% (p = 0.008) and a decrease in the number of lesions by 48% (p = 0.04) compared with original
baseline scores.
The Phase II, double-blinded,
placebo-controlled trial randomized 158 women with relapsing-remitting MS at 16 sites across the U.S. The study evaluated
Trimesta as an oral, once-daily dose of 8 mg per day plus Copaxone
®
in women with relapsing-remitting MS, aged
18-50 years. Positive topline efficacy and safety results were presented in April 2014 by lead principal investigator, Dr.
Rhonda Voskuhl of UCLA David Geffen School of Medicine at the 66th American Academy of Neurology Annual Meeting. The UCLA-led
Phase II study was designed to show statistical significance at 12 months for the MS relapse rate reduction in patients
treated with Trimesta plus Copaxone
®
compared to patients given placebo plus Copaxone
®
. The
trial was only powered to trend toward statistical significance at the 24-month time point. According to the protocol,
the results of topline data demonstrate that Trimesta met the pre-specified goal of the study with rapid onset of activity
observed for Trimesta plus Copaxone
®
compared to placebo plus Copaxone
®
. Dr. Voskuhl and her
team anticipated an approximately 29% reduction in MS relapse rate, per the study protocol. A statistically significant 47%
decrease in relapse rate was observed at 12 months of therapy (p-value = 0.03 / powered for significance level of 0.05), as
well as a clear trend toward a 32% reduction at 24 months (p-value = 0.15 / powered for significance level of 0.10), which
far surpassed the investigator’s expectations. The Trimesta study also demonstrated a clinically significant
near-normalization of cognitive scores at 12 months of therapy in women taking Trimesta plus Copaxone
®
. This
outcome is of high importance for MS specialists and patients and we believe it is the result of oral estriol’s unique
neuroprotective effect. In addition, adjunctive oral Trimesta plus injectable standard of care Copaxone
®
was
generally safe and well tolerated by women in the study.
By demonstrating the therapeutic potential and safety of Trimesta in the Phase II exploratory trial, we
achieved a key goal of the Trimesta program, which is providing further support to enable us to attract a strategic partner to
accelerate development of this innovative therapy for MS. We are engaging with the neurology community and potential partners,
as we determine next steps for Trimesta.
With over $8 million in grant funding awarded
to UCLA to date, from organizations such as the National Institutes for Health and the National Multiple Sclerosis Society, the
ongoing Trimesta clinical trial should be funded to its completion of patient follow-up.
Relapsing-Remitting MS: Patents
In March 2014, we announced that the U.S.
Patent & Trademark Office issued U.S. Patent No. 8,658,627 entitled,
Pregnancy Hormone Combination for Treatment of Autoimmune
Diseases
, to the Regents of the University of California. The patent includes claims to the use of our drug candidate, Trimesta
(oral estriol), in conjunction with a gestagen for the treatment of multiple sclerosis (MS) and other autoimmune diseases. The
patent also includes a claim for the administration of Trimesta, a gestagen and a third standard of care MS agent, such as glatiramer
acetate injection (Copaxone
®
), interferon beta-1a (Avonex
®
,
Rebif
®
), interferon beta-1b (Betaseron
®
,
Extavia
®
) or sphingosine-1-phosphate receptor modulator (Gilenya
®
).
In April 2013, we announced that the U.S.
Patent & Trademark Office issued U.S. Patent No. 8,372,826 entitled,
Estriol Therapy for Multiple Sclerosis and Other Autoimmune
Diseases
, to the Regents of the University of California which includes claims to the use of our drug candidate, Trimesta
(oral estriol), in combination with glatiramer acetate injection (Copaxone®). According to Teva Pharmaceutical Industries Ltd.’s
Form 20-F for the year ended December 31, 2012, filed with the SEC on February 12, 2013. Copaxone
®
is the number
one selling drug for multiple sclerosis with approximately $4 billion in annual sales. Currently marketed exclusively by Teva Pharmaceutical
Industries Ltd., Copaxone
®
is expected to face generic competition as certain patent terms begin to expire in 2014.
Through our wholly owned subsidiary, we
hold the exclusive worldwide license to issued U.S. Patents 8,658,627, 8,372,826 and 6,936,599 and pending patents for multiple
sclerosis and other autoimmune diseases covering the uses of our drug candidate, Trimesta.
Cognitive Dysfunction in MS:
According to the NMSS and the Multiple
Sclerosis Society of Canada publication,
Hold that Thought! Cognition and MS
, it is fairly common for people with MS to
complain of cognitive difficulties, such as remembering things, finding the right words and the ability to concentrate. Among MS
patients, 50-65% have some degree of cognitive dysfunction.
The major areas of cognition that may be
affected include complex attention and executive functions
.
Complex attention involves multitasking, the speed with which
information can be processed, learning and memory, and perceptual skills; executive functions include problem solving, organizational
skills, the ability to plan, and word finding. Just as the nature, frequency, and severity of MS-related physical problems can
widely vary, not all people with MS will have cognitive dysfunction, and no two people will experience exactly the same type or
severity.
Cognitive Dysfunction in MS: Background
In the investigator-initiated, 10-patient,
22-month, single-agent, crossover clinical trial conducted by Dr. Rhonda Voskuhl, a statistically significant 14% improvement from
baseline in the PASAT cognitive testing scores (p = 0.04) was observed in relapsing-remitting MS patients after six months of Trimesta
therapy. PASAT is a routine cognitive test performed in patients with a wide variety of neuropsychological disorders such as MS.
The PASAT scores are expressed as a mean percent change from baseline.
Cognitive Dysfunction in MS: Clinical Development
Our Trimesta (oral estriol)
drug candidate is also being developed for the treatment of cognitive dysfunction in female MS patients. This
randomized, double-blind, placebo-controlled Phase II clinical trial to evaluate Trimesta’s potential neuroprotective
and therapeutic effect on cognitive dysfunction in female MS patients is currently enrolling relapsing-remitting
or secondary-progressive female MS patients at four clinical sites in the United States, including UCLA. Up to 64 patients
between the ages of 18 and 50 will be randomized 1:1 into the treatment and placebo groups. Dr. Voskuhl will administer
either oral Trimesta or a matching placebo, in addition to an FDA-approved MS treatment, including Copaxone
®
, Avonex
®
, Betaseron
®
, Extavia
®
,
Rebif
®
, Gilenya
®
, Aubagio
®
and Tecfidera
®
. Each patient will be dosed and
monitored for one year after being enrolled. The primary endpoint in this clinical trial being run under an
investigator-initiated IND application is expected to be improvement in PASAT cognitive testing scores versus matching
placebo. We and a private foundation have pledged to equally support this new clinical trial, and we will also provide
Trimesta drug supply. The trial also received contributions from several other supporters. Patient recruitment and enrollment
into this trial is ongoing.
Fibromyalgia Program
Fibromyalgia is a chronic and debilitating
condition characterized by widespread pain and stiffness throughout the body, often accompanied by severe fatigue, insomnia and
alterations in mood. According to the National Fibromyalgia Association, fibromyalgia affects an estimated 3-6% of the population
worldwide, including an estimated 10 million people in the U.S. There are presently three FDA products approved for the treatment
of fibromyalgia - Lyrica
®
, Cymbalta
®
and Savella
®
.
Based on an estimated annual price of $1,200 per fibromyalgia
patient, we estimate that the total market potential in the U.S. is $6 billion.
Fibromyalgia
:
Meda Corporate
Partnership
On May 6, 2010, we entered into a sublicense
agreement with Meda, a multi-billion dollar international pharmaceutical company, pursuant to which Meda assumed all future development
costs and may commercialize flupirtine, a molecular entity with a unique mode of action for the treatment of fibromyalgia in the
U.S. As consideration for such sublicense, we received an up-front payment of $2.5 million and are entitled to milestone payments
of $5.0 million upon the FDA’s acceptance of the New Drug Application (NDA) for flupirtine for fibromyalgia and $10.0 million
upon FDA approval of such NDA. Pursuant to the sublicense agreement, we will also receive a 7% royalty on net sales of flupirtine
for fibromyalgia in the U.S., Canada and Japan, with such royalties being shared equally with our licensor, McLean Hospital, a
Harvard teaching hospital.
Flupirtine is approved and marketed by
Meda and its distributors in Europe and other countries for indications other than fibromyalgia and has been prescribed to millions
of patients worldwide. We believe that such substantial human experience with flupirtine should greatly assist the FDA in its evaluation
of the safety of flupirtine upon review of an NDA of flupirtine for fibromyalgia.
Fibromyalgia
:
Clinical Development
Our Effirma (flupirtine) drug candidate
for the treatment of fibromyalgia, has been partnered to Meda (see “Fibromyalgia: Meda Corporate Partnership” section
above). Effirma is a selective neuronal potassium channel opener that also has N-methyl-D-aspartic (NMDA) receptor antagonist properties.
Effirma is a non-opioid, non-NSAID, non-steroidal, analgesic. Preclinical data and clinical experience suggest that Effirma should
also be effective for neuropathic pain since it acts in the central nervous system via a mechanism of action distinguishable from
most marketed analgesics. Effirma is especially attractive because it operates through non-opiate pain pathways, exhibits no known
abuse potential, and lacks withdrawal effects. In addition, no tolerance to its antinocioceptive effects has been observed. One
common link between neuroprotection, nocioception and Effirma may be the N-methyl-D-aspartic acid glutamate system, a major receptor
subtype for the excitotoxic neurotransmitter, glutamate. Effirma has strong inhibitory actions on N-methyl-D-aspartic acid-mediated
neurotransmission. Flupirtine was originally developed by Asta Medica (subsequently acquired by Meda) and has been approved and
is marketed by Meda in Europe since 1984, as well as other countries, for the treatment of pain. It has never been approved by
the FDA for any indication.
According to Meda’s 2012 Year-End
Report filed in February 2013, Meda has received the go-ahead from the FDA to conduct a Phase II proof of concept study for the
treatment of fibromyalgia. Meda also announced that the randomized, double-blind, placebo and active-controlled study of patients
with fibromyalgia will be conducted at 25 clinics in the U.S.
Critical Accounting Policies
The consolidated financial statements are
prepared in conformity with U.S. GAAP, which require the use of estimates, judgments and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses in the periods presented. We believe that the accounting estimates employed are appropriate
and resulting balances are reasonable; however, due to inherent uncertainties in making estimates, actual results could differ
from the original estimates, requiring adjustments to these balances in future periods. The critical accounting estimates that
affect the consolidated financial statements and the judgments and assumptions used are consistent with those described in the
MD&A section in our 2013 Form 10-K.
Results of Operations
Three Months Ended March 31, 2014
and 2013
General and Administrative Expenses
General and administrative expenses
for both the three months ended March 31, 2014 and 2013, were $1.1 million. The charge relating to stock-based
compensation expense was $255,000 for the three months ended March 31, 2014, compared to $353,000 for the three months ended
March 31, 2013.
Research and Development Expenses
Research and development
expenses increased by 143% to $2.7 million for the three months ended March 31, 2014, from $1.1 million for the three
months ended March 31, 2013. This increase is primarily the result of increased program costs associated with expanded
research, development and manufacturing activities in our anti-infective pipeline, including our
C. diff,
C-IBS
and Pertussis programs. Research and development expenses also include a charge relating to non-cash stock-based
compensation expense of $107,000 for the three months ended March 31, 2014, compared to $104,000 for the three months ended
March 31, 2013.
Other Income
Other income was $1,000 for the three months
ended March 31, 2014, compared $12,000 for the three months ended March 31, 2013.
Net Loss
Our net loss was $3.8 million, or $0.07
per common share for the three months ended March 31, 2014, compared to a net loss of $2.2 million, or $0.05 per common share for
the three months ended March 31, 2013.
Liquidity and Capital Resources
We have financed our operations since inception
primarily through proceeds from equity financings, corporate partnering license fees, laboratory revenues and miscellaneous equipment
sales.
Our cash totaled $11.2 million as of March
31, 2014, a decrease of $3.4 million from December 31, 2013. During the three months ended March 31, 2014, the primary use
of cash was for working capital requirements and operating activities which resulted in a net loss of $3.8 million for the three
months ended March 31, 2014.
Our continued operations will primarily
depend on our ability to raise additional capital from various sources including equity and debt financings, as well as, license
fees from potential corporate partners, joint ventures and grant funding. Such additional funds may not become available on acceptable
terms and there can be no assurance that any additional funding that we do obtain will be sufficient to meet our needs in the long
term. We will continue to fund operations from cash on hand and through the similar sources of capital previously described. We
can give no assurance that any additional capital that we are able to obtain will be sufficient to meet our needs.
Current and Future Financing Needs
We have incurred an accumulated deficit
of $85.1 million through March 31, 2014. With the exception of the quarter ended June 30, 2010, we have incurred negative cash
flow from operations since we started our business. We have spent, and expect to continue to spend, substantial amounts in connection
with implementing our business strategy, including our planned product development efforts, our clinical trials, and our research
and discovery efforts.
However, the actual amount of funds we
will need to operate is subject to many factors, some of which are beyond our control. These factors include the following:
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the progress of our research activities;
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the number and scope of our research programs;
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the progress of our preclinical and clinical development activities;
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the progress of the development efforts of parties with whom we have entered into research and development agreements;
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our ability to maintain current research and development licensing arrangements and to establish new research and
development and licensing arrangements;
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our ability to achieve our milestones under licensing arrangements;
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the costs involved in prosecuting and enforcing patent claims and other intellectual property rights; and
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the costs and timing of regulatory approvals.
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We have based our estimate on assumptions
that may prove to be wrong. We may need to obtain additional funds sooner or in greater amounts than we currently anticipate. Potential
sources of financing include strategic relationships, public or private sales of our shares or debt and other sources. We may seek
to access the public or private equity markets when conditions are favorable due to our long-term capital requirements. We do not
have any committed sources of financing at this time, and it is uncertain whether additional funding will be available when we
need it on terms that will be acceptable to us, or at all. If we raise funds by selling additional shares of common stock or other
securities convertible into common stock, the ownership interest of our existing stockholders will be diluted. If we are not able
to obtain financing when needed, we may be unable to carry out our business plan. As a result, we may have to significantly limit
our operations and our business, financial condition and results of operations would be materially harmed.