ITEM 1. BUSINESS
We are focused on the development of a class
of biopharmaceutical drugs for treating autoimmune and inflammatory diseases including rheumatoid arthritis (RA) and Immune Thrombocytopenia
(ITP). Our lead product candidate, PRTX-100, a new generation immunomodulatory therapy, is a highly-purified form of Staphylococcal
protein A, which is a bacterial protein known to modify aspects of the human immune system. PRTX-100 has demonstrated effectiveness
in animal models of autoimmune diseases and has demonstrated activity on cultured human immune cells at very low concentrations,
although the effectiveness of PRTX-100 shown in pre-clinical studies using animal models may not be predictive of the results
that we would see in future human clinical trials. The safety, tolerability and pharmacokinetics (PK) of PTRX-100
in humans have now been characterized in six clinical studies and was granted Orphan Drug Designation (ODD) in the United States
and Europe for the treatment of ITP.
In March 2015, the FDA accepted our
Investigational New Drug (IND) application for a Phase I/II open-label, dose-escalating study of PRTX-100 in adults with
persistent/chronic ITP (the “PRTX-100-202 Study”). In June 2015, the U.S. Food and Drug Administration (FDA)
granted ODD to PRTX-100 for the treatment of ITP. In July 2015, the European Medicines Agency (EMA) granted approval for a
Phase 1b open-label, dose-escalating study of PRTX-100 in adult patients with persistent/chronic ITP (the “PRTX-100-203
Study”). In September 2015, the EMA Committee for Orphan Medicinal Products (COMP) issued a positive opinion
recommending PRTX-100 for designation as an orphan medicinal product for the treatment of ITP. In November 2015, we enrolled
our first patient in the PRTX-100-202 Study in the United States and in January 2016 we enrolled our first patient in the
PRTX-100-203 Study in Europe. We do not anticipate generating operating revenue for the foreseeable future and do not
currently have any products that are marketable.
In August 2010, we commenced a multi-center
Phase 1b clinical trial of PRTX-100 in South Africa in adult patients with active RA on methotrexate or leflunomide (the “PRTX-100-103
Study”). In January 2012, we completed patient dosing in the PRTX-100-103 Study with a total of 37 patients enrolled in
four cohorts ranging from 0.15 micrograms/kg to 1.50 micrograms/kg of PRTX-100 or placebo, administered weekly for four weeks.
Measures of safety, PK and disease activity were evaluated over 16 weeks following the first dose. The PRTX-100-103 Study results
demonstrated that PRTX-100 was generally safe and well-tolerated in patients with active RA at all tested dose levels.
In November 2012, we commenced enrollment
in the United States for a new multicenter Phase 1b randomized, multiple-dose, dose-escalation study (the “PRTX-100-104
Study”) of PRTX-100 in combination with methotrexate or leflunomide in adult patients with active RA. The sequential dose-escalation
phase of this study was expected to enroll patients into five cohorts ranging from 1.50 micrograms/kg up to 18.0 micrograms/kg
of PRTX-100 or placebo. At each dose, one quarter of patients would receive a placebo treatment. Similar to the PRTX-100-103 Study,
the primary objective of the PRTX-100-104 Study was to assess the safety and tolerability of intravenous PRTX-100 administered
weekly over five weeks in patients with active RA on methotrexate or leflunomide therapy. The secondary objectives included determining
the effects of PRTX-100 on measures of disease activity, assessing the immunogenicity and evaluating the PK parameters after repeated
doses, and determining possible relationships between the immunogenicity of PRTX-100 and safety and PK.
In August 2013, upon completion of the fourth
cohort, we expanded the 3.0 microgram, 6.0 microgram, and 12.0 micrograms/kg dose cohorts of the PRTX-100-104 Study. An additional
nine patients were enrolled in the expansion cohort that was completed in October 2013. In total, the first four dose-escalating
cohorts of the PRTX-100-104 Study, which included these three expanded cohorts, enrolled 41 patients with doses ranging from 1.5
micrograms/kg up to 12.0 micrograms/kg.
In November 2013, we initiated enrollment
of the fifth and final cohort (Cohort 5) in the PRTX 100-104 Study. The Cohort 5 sub-study enrolled 20 patients who received five
weekly fixed-weight doses of PRTX-100 followed by up to four additional monthly maintenance doses of PRTX-100 in weeks 8, 12,
16, and 20. The primary objective of the Cohort 5 sub-study was to assess safety and tolerability of these doses administered
on a modified schedule. In total, 11 out of 20 patients in Cohort 5 completed all study visits by August 2014 per protocol.
In the Cohort 5 sub-study, the amount of
PRTX-100 administered and its dosing frequency were varied from Cohorts 1 through 4 to explore effects on safety,
tolerability and measures of disease activity. The addition of four monthly maintenance doses after the five weekly doses did
not increase the rate or type of Adverse Events (AE), even in those patients who developed anti-drug antibodies (ADAs),
nor indicate any apparent correlation between the development of ADAs and effects on measures of RA disease activity.
In addition, Cohort 5 patients showed improvement in measures of disease activity, including ACR20 scores, compared to Cohort
1 through 4 patients who did not receive any monthly maintenance doses, suggesting that the addition of monthly
maintenance administration of PRTX-100 and weight-based dosing were an important aspect of the dosing protocol and should be
considered in future trials of PRTX-100.
A total of 61 patients enrolled across five
cohorts in the PRTX 100-104 Study at nine study sites in the United States. For patients in all five cohorts, PRTX-100 appeared
safe and well tolerated in all individuals, including those who developed ADAs, and the AE
profile was consistent with our prior clinical trial results.
In February 2015, we commenced enrollment,
at a single U.S. site, of a Phase I/II open-label, multiple, fixed-dose study (the “PRTX-100-105 Study”) which was
open only to PRTX-100-104 Study patients who indicated their desire for additional treatment. The PRTX-100-105 Study was an open-label,
single group study with former participants from the 104 Study who were eligible to receive a fixed dose of PRTX-100 over a 6-month
period. The primary study endpoint of the 105 Study was the safety and tolerability of a fixed dose of PRTX-100 administered over
an extended period. The secondary endpoints included immunogenicity, effects on measures of RA disease activity, evaluation of
anti-PRTX-100 antibody presence, and feasibility of joint evaluations with ultrasound and biomarkers as disease markers. A total
of eight patients completed all 105 Study visits per protocol.
In the PRTX-100-105 Study, a preliminary interim
analysis indicated that for patients who completed per protocol, PRTX-100 exhibited an acceptable safety profile and RA disease
activity was improved in a majority of patients at the end of the study as compared to baseline. No serious adverse events (SAEs)
were reported. At study day 196, one month after the final dose, patients who completed the study per protocol demonstrated a
mean reduction of the DAS28CRP score from 5.25 to 2.52, suggesting a clinically meaningful improvement in disease activity. Additionally,
clinical assessment by Ultrasound Power Doppler Joint Counts (UPD), also revealed a reduction in average disease severity by day
196, and the correlation between the UPD and the DAS28CRP was r=0.624 (p<.0005).
In November 2015, we commenced enrollment
and enrolled our first patient in the PRTX-100-202 Study. The PRTX-100-202 Study may enroll up to 36 patients in as many as six
cohorts. Each patient will receive four weekly intravenous doses of PRTX-100 and will be monitored for up to 48 weeks thereafter.
The primary study endpoint of the PRTX-100-202 Study is a platelet response to PRTX-100. Secondary endpoints include safety, immunogenicity,
and pharmacokinetics. In February 2016, following a planned interim data review by an Independent Data Safety Monitoring Committee
(the “SMC”), enrollment is continuing for patients in the PRTX-100-202 Study at an increased dose.
In January 2016, we commenced enrollment of
our first patient in the European based PRTX-100-203 Study. The PRTX-100-203 Study may enroll up to 30 patients in as many as
five cohorts at sites in France. Each patient will receive four weekly intravenous doses of PRTX-100 and will be monitored for
up to 48 weeks thereafter. The primary study endpoints of the PRTX-100-203 Study include safety, immunogenicity and pharmacokinetics.
Secondary endpoints include platelet response and duration. In May 2016, following a planned interim data review by the SMC, enrollment
is continuing for patients in the PRTX-100-203 Study at an increased dose.
We maintain an administrative office in Florham
Park, New Jersey and currently outsource all of our product development and regulatory activities, including clinical trial activities,
manufacturing and laboratory operations, to third-party contract research organizations, consultants and facilities.
In April 2009, under prior management, we
ceased all operations and terminated all employees in light of insufficient funds to continue our clinical trials and related
product development. Our business was dormant until current management took control of our operations in November 2009 following
the change in control transaction more fully described below. We are currently actively pursuing the commercial development of
PRTX-100 for the treatment of RA and ITP.
Change in Control and Incremental Financing Transactions
On November 11, 2009 (the “Effective
Date”), we consummated a financing transaction (the “Financing”) in which we raised $3,000,000 of working capital
pursuant to a Securities Purchase Agreement (the “Purchase Agreement”) with Niobe Ventures, LLC, a Delaware limited
liability company (“Niobe”). Pursuant to the Purchase Agreement, we issued to Niobe (i) 8,695,652 restricted shares
of our common stock at a purchase price of $0.23 per share (or $2 million in the aggregate) and (ii) a senior secured convertible
promissory note in the principal amount of $1 million convertible into shares of our common stock at an initial conversion price
equal to $0.23 per share (the “$1 Million Secured Note”). On February 11, 2011, Niobe converted the $1 Million Secured
Note, including $37,500 of accrued interest thereon, into 4,510,870 shares of common stock.
As contemplated by the Purchase Agreement,
all of our executive officers and all of the members of our Board of Directors (the “Board”) prior to the closing
of the Financing, with the exception of Frank M. Dougherty, resigned effective concurrently with the closing of the Financing.
Mr. Dougherty resigned effective upon the expiration of the 10-day notice period required by Rule 14f-1 under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). In addition, effective upon the closing of the Financing, our Board
appointed Arnold P. Kling as a director and then elected him as our president and elected Kirk M. Warshaw as our chief financial
officer and secretary.
On February 11, 2011, for the purpose of providing
us with additional working capital, pursuant to an existing Credit Facility Agreement dated as of December 2, 2009 (the “Facility”)
with Niobe, we issued to Niobe a senior secured convertible promissory note in the principal amount of $2 million (the “$2
Million Secured Convertible Note”). The $2 Million Secured Convertible Note provided for conversion into shares of our common
stock at a conversion price of $0.23 per share, for an aggregate of 8,695,652 shares of our common stock (net of accrued interest
thereon), bore interest at a rate of 3% per annum and matured on December 31, 2013. The original maturity was December 31, 2012
but in December 2012 Niobe agreed, for no consideration, to extend the maturity date to December 31, 2013.
The $2 Million Secured Convertible Note was
convertible at any time, by the holder, subject only to the requirement that we have sufficient authorized shares of common stock
after taking into account all outstanding shares of common stock and the maximum number of shares issuable under all issued and
outstanding convertible securities. In addition, the $2 Million Secured Convertible Note would automatically be converted if we
undertake certain Fundamental Transactions, as defined in the $2 Million Secured Convertible Note, (such as a merger, sale of
all of our assets, exchange or tender offer, or reclassification of our stock or compulsory exchange). The $2 Million Secured
Convertible Note also provided for the adjustment of the conversion price in the event of stock dividends and stock splits, and
provides for acceleration of maturity, at the holder’s option, upon an event of default, as defined in the $2 Million Secured
Convertible Note. On August 27, 2013, Niobe elected to convert the principal and accrued interest of $2,155,000 under the $2 Million
Secured Convertible Note into 9,369,565 shares of common stock.
On February 1, 2012, we raised $1,000,000
of working capital pursuant to a loan from Niobe. We issued to Niobe a secured promissory note in the principal amount of $1,000,000
(the “February 2012 Secured Note”). The February 2012 Secured Note bore interest at a rate of 3% per annum and had
a maturity date of February 1, 2014.
On June 5, 2012, we raised an additional $1,000,000
of working capital pursuant to an incremental loan from Niobe and issued to Niobe a secured promissory note in the principal amount
of $1,000,000, which bore interest at a rate of 3% per annum and had a maturity date of May 31, 2014 (the “June 2012 Secured
Note”).
On October 1, 2012, we raised $800,000 of
additional working capital pursuant to an incremental loan from Niobe and issued to Niobe a secured promissory note in the principal
amount of $800,000, which bore interest at a rate of 3% per annum and had a maturity date of October 1, 2014 (the “October
2012 Secured Note”).
On December 3, 2012, we raised $700,000 of
additional working capital pursuant to an incremental loan from Niobe and issued to Niobe a secured promissory note in the principal
amount of $700,000, which bore interest at a rate of 3% per annum and had a maturity date of October 1, 2014 (the “December
2012 Secured Note”).
Collectively, the February 2012 Secured Note,
the June 2012 Secured Note, the October 2012 Secured Note and the December 2012 Secured Note are hereinafter referred to as the
“2012 Secured Notes.”
On January 18, 2013, we raised $2,500,000
of additional working capital pursuant to an incremental loan from Niobe and issued to Niobe a secured promissory note in the
principal amount of $2,500,000, which bore interest at a rate of 3% per annum and had a maturity date of January 15, 2015 (the
“January 2013 Secured Note”).
On May 13, 2013, we raised $2,000,000 of additional
working capital pursuant to an incremental loan from Niobe and issued to Niobe a secured promissory note in the principal amount
of $2,000,000, which bore interest at a rate of 3% per annum and had a maturity date of May 13, 2015 (the “May 2013 Secured
Note”).
On August 27, 2013, we raised $1,000,000 of
additional working capital pursuant to an incremental loan from Niobe and issued to Niobe a secured promissory note in the principal
amount of $1,000,000, which bears interest at a rate of 3% per annum and matures on August 27, 2015 (the “August 2013 Secured
Note”).
Collectively, the January 2013 Secured Note,
the May 2013 Secured Note, and the August 2013 Secured Note are hereinafter referred to as the “2013 Secured Notes.”
Collectively, the 2012 Secured Notes and the
2013 Secured Notes represent a total of $9,000,000 in principal amount of loans from Niobe and are hereinafter referred to as
the “Secured Notes.”
On October 11, 2013, we issued a Consolidated,
Amended and Restated Promissory Note to Niobe in the principal amount of $9,219,366 (the “Consolidated Note”). The
face amount of the Consolidated Note reflects the $9.0 million aggregate principal amount of the Secured Notes plus interest accrued
at 3% per annum on each note from its respective date of issuance. The terms of the Consolidated Note were identical to the Secured
Notes except that: (a) the maturity date was September 1, 2015, which is after the latest maturity date of any of the Secured
Notes; and (b) it provided for partial mandatory repayment in the event that the Company received aggregate gross proceeds in
excess of $7.5 million from a single or multiple “Liquidity Events” in an amount equal to twenty-five (25%) percent
of such gross proceeds (the “Mandatory Repayment”). A “Liquidity Event” means (a) the sale of any of our
equity, or equity-linked, securities, and (b) the receipt of proceeds, directly or indirectly related to a development and/or
commercialization relationship entered into with an unaffiliated third party. In the Secured Notes, the entire principal amount
of each note was due, at Niobe’s election, upon the consummation of an equity financing of $7.5 million or greater. Consistent
with the terms of the Secured Notes and related security agreements entered into, our obligations under the Consolidated Note
are secured by a first priority perfected security interest in all of our assets pursuant to a Consolidated, Amended and Restated
Security Agreement dated October 11, 2013. Effective as of October 1, 2014, the maturity date of the Consolidated Note was extended
until September 1, 2016. All other terms and provisions of the Consolidated Note remained unchanged and in full force and effect.
On January 23, 2014, we consummated a private
placement financing to accredited investors of 471,334 shares of common stock at $6.00 per share, yielding gross proceeds of $2,828,000.
No commissions were payable in connection with the financing transaction. Proceeds of the financing have been, and will continue
to be, used for working capital purposes, principally to fund ongoing clinical trials and studies and related activities. The
investors in the offering were granted piggy-back registration rights in connection with certain registration statements filed
by us, subject to certain exceptions, including a registration statement filed in connection with a primary offering.
On November 4, 2014, we entered into a new
Credit Facility Agreement (the “2014 Credit Facility Agreement”) pursuant to which we may borrow up to an additional
$5 million from Niobe in the form of secured loans of up to $300,000 on the last day of each calendar month, subject to certain
conditions which may be waived by Niobe, at any time prior to the December 31, 2015 expiration date. Each loan made under the
2014 Credit Facility Agreement will be represented by a senior secured promissory note bearing interest at a rate of 3% per annum
and maturing on September 1, 2016 (each a “Note”). Our obligations under each Note will be secured by a first priority
perfected security interest in all of our assets pursuant to the Second Consolidated, Amended and Restated Security Agreement
between us and Niobe, entered into at the same time as the 2014 Credit Facility Agreement (the “Security Agreement”).
In addition, on November 4, 2014, we entered
into a Note Modification Agreement (the “Note Modification Agreement”) with Niobe pursuant to which the Consolidated
Note, as modified in October 2014, was further amended to increase the threshold amount requiring a Mandatory Prepayment from
$7.5 Million to more than $10 Million. As a result, partial prepayment will now be triggered in the event of a Liquidity Event
in which we receive gross proceeds in excess of $10 million. All other terms and provisions of the Consolidated Note remained
unchanged and in full force and effect.
On December 1, 2015, the 2014 Credit Facility
was amended to increase the funds available for loans to us to $7.5 million and to extend the expiration date of such credit facility
to December 31, 2016 pursuant to which we entered into and an Amended and Restated 2014 Credit Facility Agreement (the “Amended
and Restated Agreement”). Each loan under the Amended and Restated Agreement has been and will be represented by a senior
secured promissory note bearing interest at a rate of 3% per annum which matures on September 1, 2017 (each a “New Note”).
Collectively, the Note and the New Note are hereinafter referred to as the “Notes”. In addition, the Security Agreement
was also amended and restated to secure our obligations under all the Notes.
As of May 31, 2016, the outstanding principal
balance under the 2014 Credit Facility totaled $7,100,000. During the fiscal year ended May 31, 2016, we borrowed an aggregate
of $3,795,000, $345,000 on each of July 1, 2015, July 31, 2015, August 31, 2015, October 6, 2015, November 10, 2015, December
1, 2015, January 4, 2016, February 1, 2016, March 4, 2016, April 1, 2016 and May 3, 2016. Payment of the principal and accrued
interest on the Notes will, at Niobe’s election, automatically become immediately due and payable if we undertake certain
Fundamental Transactions or upon an Event of Default, both as defined in the Notes. Our obligations under the Notes are secured
by the Security Agreement, as amended.
All of the securities issued in the aforementioned
financings were issued in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended
(the “Act”) pursuant to Section 4(a)(5) and Rule 506 of Regulation D thereof. The offer, sale and issuance of such
securities were made without general solicitation or advertising. The securities were offered and issued only to “accredited
investors” as such term is defined in Rule 501 under the Act.
About PRTX-100
PRTX-100 is a proprietary, highly purified
form of the Staphylococcal bacterial protein known as Protein A which is a bacterial protein known to modify aspects of the human
immune system. PRTX-100 has the ability, at very low concentrations, to bind to human B-lymphocytes and macrophages and to modulate
immune processes. Pre-clinical studies also demonstrate that low doses of PRTX-100 have potent therapeutic effects in certain
models of immune-mediated inflammatory diseases. Both the PRTX-100-103 and the PRTX-100-104 studies demonstrated that PRTX-100
was generally safe and well tolerated at all dose levels, and at certain higher doses, more patients showed improvement in measures
of disease activity than did patients at the lower dose or placebo cohorts.
Animal Studies
Protalex’s lead product candidate, PRTX-100,
has demonstrated positive results in several standard mouse models of autoimmunity, including the following:
Collagen-Induced Arthritis
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PRTX-100 has demonstrated reproducible efficacy in this well-established animal model of RA. Mice received two injections of collagen
in order to stimulate an inflammatory response. One group was treated with various doses of PRTX-100, a second group received
Enbrel®, a leading commercially available treatment for RA, and the control group was injected with vehicle saline solution.
The mice were observed for clinical symptoms, joint size and loss of function. The results showed that low doses of PRTX-100 and
standard doses of Enbrel® suppressed clinical symptoms including joint swelling over the first two to three weeks of treatment,
and slowed disease progression as compared with the control group. Thereafter, the PRTX-100-treated mice continued to remain disease-free
whereas the mice treated with Enbrel® showed a resumption of joint inflammation and tissue damage. This response to Enbrel®
was expected because the mice developed immune response to it because it is a foreign protein. Overall, these results indicate
that PRTX-100 is a potential treatment for RA in humans. The data from these studies has served as a rationale for conducting
clinical trials in human patients.
BXSB Mice
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These animals are
genetically predisposed to autoimmune diseases. This model is used to evaluate drugs for autoimmune diseases such as Lupus and
other autoimmune diseases. This genetic model more closely approximates the human condition in that it is complex, multi-factorial
and usually treated by multiple drug regimens. In these studies, mice were treated with PRTX-100 and sacrificed at regular intervals.
Their organs were weighed and sectioned for histological analysis and their spleens were used for immunological assays. Spleen
enlargement, or splenomegaly, was significantly reduced in treated animals compared with the controls at almost every time point,
demonstrating the ability of PRTX-100 to delay the onset and severity of this disease.
Completed pre-clinical safety studies in animals
showed no drug-related toxicity at doses up to 5-fold the highest currently planned clinical trial dose. These studies were conducted
on New Zealand white rabbits and on cynomolgus monkeys. No differences were observed in body weight gain or food consumption,
nor in hematology, clinical chemistry, urinalysis, or organ weight data in animals treated with PRTX-100 compared with controls
treated with vehicle. These study results represent a necessary component of our IND application with the FDA.
Additional studies in monkeys have further
characterized the PK, toxicity, and pharmacodynamics of PRTX-100 with up to 12 weekly doses.
Clinical Trials
Favorable pre-clinical safety and efficacy
studies for our lead compound, PRTX-100, laid the foundation for the IND for treating RA. We submitted the IND to the FDA in March
2005 and later in March 2005 the FDA verbally disclosed to us that it had placed our IND on clinical hold, pending additional
product characterization. In August 2005, we formally replied to the FDA and in September 2005, the FDA notified us that it had
lifted the clinical hold on our IND and that our proposed study could proceed. We have completed four clinical trials and are
in the process of completing a fifth clinical trial under this IND. Our first Phase I single-dose clinical trial commenced in
December 2005 and was completed in March 2006. This trial was performed in healthy volunteers and was designed primarily to assess
the safety and tolerability of a single intravenous dose of PRTX-100. This study demonstrated that PRTX-100 appears safe and well-tolerated
at the doses administered. There were no deaths or serious adverse events. The PK profile was determined and found consistent
with that projected from pre-clinical models.
In May 2007, we filed an amendment to the
IND with the FDA. This amendment included the final Phase I safety study report from the 2006 trial, changes to our techniques
for purification and characterization of PRTX-100, a Chemistry, Manufacturing and Controls update, and a protocol for a
second single-dose Phase I clinical trial. In July and August 2007 a second Phase I study was performed under the IND, to further
characterize the safety, PK, and pharmacodynamic profile of a single-dose of PRTX-100 in healthy volunteers at doses in the projected
therapeutic range. Final results indicated that the drug appears safe and well-tolerated. In August 2009, a Phase 1b randomized,
double-blind, placebo-controlled, multiple dose, dose-escalation and tolerability study of PRTX-100 in combination with methotrexate
or leflunomide in patients with active RA, (the “PRTX 100-103 Study”) was approved by the South African Medicines
Control Agency. The PRTX-100-103 Study commenced in August 2010 at three sites in South Africa and was completed in January 2012
as detailed below.
In November 2012, we commenced enrollment
and dosing of patients at a total of nine sites in the United States for the PRTX-100-104 Study, a second multicenter Phase 1b
randomized, multiple-dose, dose-escalation study of PRTX-100 in combination with methotrexate or leflunomide in adults with active
RA which is still in progress as detailed below. The PRTX-100-104 Study sequentially escalated the weekly dose of PRTX-100 from
1.5 micrograms/kg, the highest dose in the prior RA patient study, to doses of 3.0, 6.0, and 12.0 micrograms/kg. of PRTX-100.
In July 2014, the last patient in the PRTX-100-104 Study received their last dose in the fifth and final cohort.
In February 2015, we commenced enrollment,
at a single U.S. site, of a Phase I/II open-label, multiple, fixed-dose study (the “PRTX-100-105 Study”) which was
open only to PRTX-100-104 Study patients who indicated their desire for additional treatment. The PRTX-100-105 Study was an open-label,
single group study with former participants from the 104 Study who were eligible to receive a fixed dose of PRTX-100 over a 6-month
period. The primary study endpoint of the 105 Study was the safety and tolerability of a fixed dose of PRTX-100 administered over
an extended period. The secondary endpoints included immunogenicity, effects on measures of RA disease activity, evaluation of
anti-PRTX-100 antibody presence, and feasibility of joint evaluations with ultrasound and biomarkers as disease markers. A total
of eight patients completed all 105 Study visits per protocol.
Immune Thrombocytopenia (ITP)
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ITP is an uncommon autoimmune bleeding disorder characterized by insufficient platelets in the blood. The affected individuals
make antibodies against their own platelets leading to the platelets' destruction, which in turn leads to the abnormal bleeding.
A small clinical trial in adult patients with chronic ITP was designed to provide safety data on repeated weekly dosing with PRTX-100
(the “PRTX-100b-103 Study”). This clinical study was to be conducted under the Australian and New Zealand Clinical
Trial Notification procedure, not under a U.S. IND, and was initiated, but not completed. A leading Australian clinical research
organization was contracted to manage and monitor this clinical trial. After the approval of the clinical protocol by ethics committees
at six sites in Australia and one in New Zealand, the PRTX-100b-103 Study began enrolling patients in the second quarter of 2008.
The PRTX-100b-103 Study was designed to evaluate the safety and PK of up to four doses of PRTX-100, starting at the lowest dose,
and escalating upwards after safety review of the prior dose.
The PRTX-100b-103 Study proved difficult to
enroll due to other on-going ITP Phase III studies and subsequent availability of two new and effective medicines for ITP. Nine
patients were dosed at the first two dose levels by the end of the first quarter of 2009. At this point further recruitment of
patients was suspended. No side effects or toxicities were noted with repeated weekly doses of PRTX-100 at doses of 0.075 and
0.15 micrograms per kg that were not seen with single doses in healthy volunteer trials. This repeated-dose safety data from the
PRTX-100b-103 Study was included in the clinical trial application to evaluate PRTX-100 in patients with RA.
In March 2015, the FDA accepted our IND application for a Phase I/II open-label, dose-escalating study of PRTX-100 in adults with persistent/chronic ITP
(the “PRTX-100-202 Study”). In June 2015, the FDA granted ODD to PRTX-100 for the treatment of ITP. In July 2015, the EMA granted approval for a Phase 1b
open-label, dose-escalating study of PRTX-100 in adult patients with persistent/chronic ITP (the “PRTX-100-203 Study”).
In September 2015, COMP issued a positive opinion recommending PRTX-100 for
designation as an orphan medicinal product for the treatment of ITP. In November 2015, we enrolled our first patient in the PRTX-100-202
Study in the United States and in January 2016 enrolled our first patient in the PRTX 100-203 Study in Europe.
Rheumatoid arthritis
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RA
is a highly inflammatory polyarthritis often leading to joint destruction, deformity and loss of function. In addition to characteristic
symmetric swelling of peripheral joints, systemic symptoms related to chronic inflammation can commonly occur. Chronic pain, disability
and excess mortality are unfortunate sequelae. RA is the most common autoimmune disease, affecting 1% to 2% of the world’s
population, with prevalence rising with age to about 5% in women over 55.
PRTX-100
shows measurable activity in a standard mouse model of autoimmune arthritis. A substantial body of published literature and proprietary
data delineate the immunomodulatory activities of PRTX-100, which are distinct from those of current major biologic treatments
for rheumatoid arthritis. Accordingly, we believe that RA represents a potentially important clinical indication for treatment
with PRTX-100. While recent advances in biologic treatments for RA have improved the prognosis for many patients, many others
continue to live with debilitating RA disease activity due either to the cost, side-effects, or limited effectiveness of these
newer therapies.
The PRTX-100-103 Study
In August 2010, we commenced a multi-center
Phase 1b clinical trial of PRTX-100 in South Africa on adult patients with active RA on methotrexate or leflunomide. The PRTX-100-103
Study served to evaluate safety and potential efficacy of PRTX-100 in patients with active RA and was approved to enroll up to
40 patients in four dose-escalating cohorts. In January 2012, we completed patient dosing in the fourth cohort of the PRTX-100-103
Study. A total of 37 patients were enrolled in four cohorts ranging from 0.15 micrograms/kg to 1.50 micrograms/kg of PRTX-100
or placebo, administered weekly for four weeks. Measures of safety, PK, and disease activity were evaluated over 16 weeks following
the first dose. The PRTX-100-103 Study results demonstrated that PRTX-100 was generally safe and well-tolerated in patients with
active RA at all tested dose levels and at the higher doses, decreased RA activity as scored by the CDAI.
The number of patients with a DAS28-CRP <
3.2 (Disease Activity Score) at six weeks was the predefined disease activity endpoint of the study. The results showed that the
patients receiving PRTX-100 were more likely to respond than those receiving placebo at all times, the number of responders increased
over time during the 16 week study evaluation period, and that the maximum tolerated dose was not reached at the highest dose
level.
Additionally, the results indicate that PRTX-100
did not change CRP (C-Reactive Protein) levels, even in those patients whose swollen and tender joint count and global VAS (Visual
Analogue Scale) scores had decreased to low levels after treatment. Because of the influence of the CRP component on the DAS28-CRP
score, a post-hoc analysis was performed examining changes in the CDAI scores in all patients. The CDAI score does not evaluate
CRP as a component, but instead comprises physician and patient-assessed chemical markers of disease activity. In the placebo,
0.15 micrograms/kg, and 0.45 micrograms/kg dose groups, one out of eight patients in each group attained low disease activity
(CDAI ≤ 10) on two or more consecutive visits. In the 0.90 micrograms/kg and 1.50 micrograms/kg dose groups, two of eight and
two of five patients, respectively, attained this same endpoint, and maintained a CDAI < 10 until the week 16 final visit.
Of the four apparent responders in the 1.50 micrograms/kg group, two attained a CDAI ≤ 6 (remission), one attained a CDAI ≤
10 (low activity), and one achieved a CDAI of 10.1 at one or more visits. The mean time to peak response in this group occurred
six weeks after their last dose.
The disease activity results from the PRTX-100-103
Study demonstrated an acceptable safety profile, and suggested treatment with PRTX-100 could affect disease activity, although
these effects were not statistically significant. In November 2012 we commenced the PRTX-100-104 Study to provide a better understanding
of safety and potential treatment effect on RA disease activity measurements as well as to help define the optimal dose.
The PRTX-100-104 Study
In November 2012, we commenced enrollment
in the United States for a new multicenter Phase 1b randomized, multiple-dose, dose-escalation study (the “PRTX-100-104
Study”) of PRTX-100 in combination with methotrexate or leflunomide in adult patients with active RA. The sequential dose-escalation
phase of this study was expected to enroll up to 40 patients into five cohorts ranging from 1.50 micrograms/kg up to 18.0 micrograms/kg
of PRTX-100 or placebo. At each dose, one quarter of patients would receive a placebo treatment. Similar to the PRTX-100-103 Study,
the primary objective of the PRTX-100-104 Study was to assess the safety and tolerability of intravenous PRTX-100 administered
weekly over five weeks in patients with active RA on methotrexate or leflunomide therapy. The secondary objectives included determining
the effects of PRTX-100 on measures of disease activity, assessing the immunogenicity and evaluating the PK parameters after repeated
doses, and determining possible relationships between the immunogenicity of PRTX-100 and safety and PK.
In August 2013, following a planned interim
safety review by our SMC and upon completion of the fourth cohort, we expanded
the 3.0 microgram, 6.0 microgram, and 12.0 micrograms/kg dose cohorts of the PRTX-100-104 Study. An additional nine patients were
enrolled in the expansion cohort that was completed in October 2013. In total, the first four dose-escalating cohorts of the PRTX-100-104
Study, which included these three expanded cohorts, enrolled 41 patients at five U.S. clinical centers with doses ranging from
1.5 micrograms/kg up to 12.0 micrograms/kg. Five patients withdrew from the study prior to their day 85 visit.
In November 2013, following completion of
the Cohort 4 expansion cohorts, we initiated enrollment of the fifth and final cohort (Cohort 5) in the PRTX 100-104 Study. The
Cohort 5 sub-study enrolled 20 patients who received five weekly fixed-weight doses of PRTX-100 followed by up to four additional
monthly maintenance doses of PRTX-100 in weeks 8, 12, 16, and 20. The primary objective of the Cohort 5 sub-study was to assess
safety and tolerability of these doses administered on a modified schedule. Secondary objectives included determining the effects
of PRTX-100 on measures of disease activity, assessing the immunogenicity and evaluating the PK parameters after repeated doses,
and determining possible relationships between the immunogenicity of PRTX-100 and safety, PK and efficacy parameters. In total,
11 out of 20 patients in Cohort 5 completed all study visits by August 2014 per protocol.
In November 2014, we announced final data
from Cohorts 1 through 4 and an interim analysis of pooled data from Cohort 5 of the 104 Study. For patients in all five cohorts
of the 104 Study, PRTX-100 appeared safe and well tolerated in all individuals, including those who developed ADAs, and the AE profile was consistent with our prior clinical trial results.
In the Cohort 5 sub-study, the amount of PRTX-100
administered and its dosing frequency were varied from Cohorts 1 through 4 to explore effects on safety, tolerability and measures
of disease activity. In total, twenty patients were randomized to 420 µg PRTX-100 (12 patients), 240 µg PRTX-100 (3
patients) or placebo (5 patients). The addition of four monthly maintenance doses after the five weekly doses did not increase
the rate or type of AEs, even in those patients who developed ADAs nor indicate any apparent correlation between the development
of ADAs and effects on measures of RA disease activity.
In addition, Cohort 5 patients showed improvement
in measures of disease activity, including ACR20 scores, compared to Cohort 1 through 4 patients who did not receive any monthly
maintenance doses, suggesting that the addition of monthly maintenance administration of PRTX-100 and weight-based dosing were
an important aspect of the dosing protocol and should be considered in future trials of PRTX-100. A total of 61 patients enrolled
across the five cohorts in the PRTX 100-104 Study at nine study sites in the United States
The PRTX-100-105 Study
In February 2015, we commenced enrollment,
at a single U.S. site, of a Phase I/II open-label, multiple, fixed-dose study (the “PRTX-100-105 Study”) which was
open only to PRTX-100-104 Study patients who indicated their desire for additional treatment. The PRTX-100-105 Study was an open-label,
single group study with former participants from the 104 Study who were eligible to receive a fixed dose of PRTX-100 over a 6-month
period. The primary study endpoint of the 105 Study was the safety and tolerability of a fixed dose of PRTX-100 administered over
an extended period. The secondary endpoints included immunogenicity, effects on measures of RA disease activity, evaluation of
anti-PRTX-100 antibody presence, and feasibility of joint evaluations with ultrasound and biomarkers as disease markers. A total
of eight patients completed all 105 Study visits per protocol.
In the PRTX-100-105 Study, a preliminary interim
analysis indicated that for patients who completed per protocol, PRTX-100 exhibited an acceptable safety profile and RA disease
activity was improved in a majority of patients at the end of the study as compared to baseline. No SAEs
were reported. At study day 196, one month after the final dose, patients who completed the study per protocol demonstrated a
mean reduction of the DAS28CRP score from 5.25 to 2.52, suggesting a clinically meaningful improvement in disease activity. Additionally,
clinical assessment by UPD, also revealed a reduction in average disease severity by day
196, and the correlation between the UPD and the DAS28CRP was r=0.624 (p<.0005).
The PRTX-100-202 Study
In November 2015, we commenced enrollment
and enrolled our first patient in the PRTX-100-202 Study. The PRTX-100-202 Study may enroll up to 36 patients in as many as
six cohorts. Each patient will receive four weekly intravenous doses of PRTX-100 and will be monitored for up to 48 weeks
thereafter. The primary study endpoint of the PRTX-100-202 Study is a platelet response to PRTX-100. Secondary endpoints
include safety, immunogenicity, and pharmacokinetics. In February 2016, following a planned interim data review by the SMC,
enrollment is continuing for patients in the PRTX-100-202 Study at an increased dose.
The PRTX-100-203 Study
In January 2016, we commenced enrollment of
our first patient in the European based PRTX-100-203 Study. The PRTX-100-203 Study may enroll up to 30 patients in as many as
five cohorts at sites in France. Each patient will receive four weekly intravenous doses of PRTX-100 and will be monitored for
up to 48 weeks thereafter. The primary study endpoints of the PRTX-100-203 Study include safety, immunogenicity and pharmacokinetics.
Secondary endpoints include platelet response and duration. In May 2016, following a planned interim data review by the SMC, enrollment
is continuing for patients in the PRTX-100-203 study at an increased dose.
Manufacturing
We currently contract the manufacturing
of our lead drug substance PRTX-100 to Eurogentec S.A. in Belgium where it is produced under Current Good Manufacturing
Practice, or cGMP, conditions. In July 2014, we contracted with Eurogentec for the manufacture of additional bulk drug
substance (our “active pharmaceutical ingredients”) (“API”), which we believe will be sufficient
supply for completion of our current clinical studies. The stability testing and packaging of the final drug product for
clinical supplies is performed by Eurogentec. The packaging of the final drug product is conducted at separate FDA-approved
facilities. These companies, in the aggregate, have provided the drug product for both toxicological testing and clinical
supplies. We believe that this entire process is scaleable to commercial production but will require additional manufacturing
resources. The original three clinical trials of PRTX-100 were conducted with a liquid formulation and all subsequent studies
have utilized a newer lyophilized formulation designed to achieve better stability and longer product shelf-life. Compared to
therapeutic doses of other biologic products used to treat RA and ITP, we believe the overall costs for these proposed
therapeutic doses of PRTX-100 are significantly less due to the low dose and the simplicity of drug substance
manufacture.
Markets
RA is our most advanced primary indication.
RA is a serious autoimmune disorder that causes the body’s immune system to produce antibodies that attack the lining of
the joints, resulting in inflammation and pain. RA can lead to joint deformity or destruction, organ damage, disability and premature
death. According to both the Arthritis Foundation and the American College of Rheumatology websites, approximately 1.5 million
people in the United States have RA, which is approximately 1% of the nation’s adult population. There are nearly three
times as many women as men with the disease. The disease occurs in all ethnic groups and in every part of the world.
RA was chosen as a target disease because
it represents a well-defined, rapidly growing market for which there is no current uniformly effective treatment. Sixty percent
of people with inadequately treated RA are unable to work 10 years after onset. It is estimated that despite treatment with current
approved RA therapeutics, at least one-third of patients continue to have significant disability and limitations due to their
disease. Current treatments are costly, some are associated with increased risk of cancer and opportunistic infections, and in
most cases must be continued for decades. The market for the existing biologic RA drugs is primarily limited to those countries
that have a high per capita income because treatment can cost tens of thousands of dollars per patient per year. Thus, a large
portion of the world’s patient population cannot afford the existing biologic RA drugs. In contrast, we believe that PRTX-100
could potentially provide patients with a therapy that is efficacious, cost-effective, and has a highly favorable benefit-risk
ratio.
Once further developed and approved, we believe
that PRTX-100 could be used to treat patients with moderate to severe cases of RA, and particularly those individuals for whom
other treatments failed. Given the differences in the regulatory approval process in different parts of the world, it is reasonable
to believe that PRTX-100 might first be used in the developing world and then in Europe and North America.
In addition, we believe ITP also represents
a potential indication for PRTX-100. ITP or Immune thrombocytopenia is a bleeding disorder in which the immune system destroys
platelets, which are necessary for normal blood clotting. Persons with the disease have too few platelets in the blood. ITP affects
women more often than men, and it is more common in children than in adults. In children, the disease usually resolves without
treatment. Adults are usually treated with an anti-inflammatory steroid medicine (prednisone). In some cases, surgery to remove
the spleen (splenectomy) is recommended which increases the platelet count in about half of patients.
ITP has no known cure, and relapses may occur
years after seemingly successful medical or surgical management. If the patient’s condition does not improve with the use
of prednisone, a corticosteroid drug that is the first line therapy for ITP, other treatments may include: danazol (Danocrine),
a drug taken by mouth; infusions of high-dose gamma globulin (an immune factor); drugs that suppress the immune system; anti-RhD
therapy for people with certain blood types; and newer agents like romiplostim (Nplate) and eltrombopag (Promacta) that stimulate
the bone marrow to make more platelets. Global sales of Nplate and Promacta were approximately $525 million and $400 million,
respectively, in 2015. Neither romiplostim nor eltrombopag impact the principal pathological mechanism of ITP, namely immune-mediated
plated destruction, and we believe that PRTX-100 may have a more direct impact on ITP disease processes. Thus, we believe that
PRTX-100 may complement or reduce the use of thrombopoeitic agents in adult patients with ITP.
Preliminary information gained in the laboratory
on the mechanism of action of PRTX-100 also suggests potential efficacy in a range of autoimmune and inflammatory diseases, including,
but not limited to psoriasis, myasthenia gravis, chronic idiopathic demyelinating polyneuropathy, and pemphigus.
Our long-term strategy contemplates
the pursuit of FDA approval of PRTX-100 to treat other autoimmune and inflammatory diseases in addition to RA and ITP.
Competition
We believe, based on the pre-clinical
trials and the results to date of our five Phase I RA clinical studies, that PRTX-100 has a potential competitive advantage
as it may be safer and more efficacious than existing RA therapies, and may cost less to manufacture than competing
biologic-based therapies. Current RA treatments are characterized by complex manufacturing methods and, in 2015, resulted in
an average annual retail cost of approximately $13,000 to $30,000 per patient, if the newer disease-modifying anti-rheumatic
drugs approved in the last 20 years were used. The cost can increase according to the size/weight of a patient and the number
of doses required. Additionally, patients are faced with the cost of the infusion itself and blood tests which are often not
included in those cost estimates. A number of pharmaceutical agents are currently being used, with varying degrees of
success, to control the signs and symptoms of RA and slow its progression. Available treatment options include:
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Analgesic/anti-inflammatory
preparations, ranging from simple aspirin to the COX-2 inhibitors;
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Immunosuppressive/antineoplastic
drugs, including azathioprine and methotrexate;
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TNF (Tumor Necrosis
Factor) inhibitors, also known as anti-TNF therapy, currently represented by etanercept
(Enbrel®), infliximab (Remicade®), and adalimumab (Humira®) and the newer
entries, certolizumab (Cimzia®) and golimumab (Simponi®);
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Soluble Interleukin-l
(IL-I) Receptor Therapy, Anakinra (Kineret®) and (Il-6) tocilizumab (Actemra®);
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Costimulatory
molecule inhibitor abatacept (Orencia®);
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Anti CD20 B-cell-directed
therapy, rituximab (Rituxan®); and
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Janus Kinase
(JAK) inhibitor, tofacitinib citrate (Xeljanz).
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Many large and small pharmaceutical companies
are active in this market, with Amgen Corporation (with Pfizer), Johnson & Johnson, Inc. (with Merck) and Abbott Laboratories
dominating the market for biologic therapies with their respective products, Enbrel®, Remicade® and Humira®. According
to each company’s 2015 annual reports, Enbrel generated revenues of approximately $8.7 billion combined for Amgen and Pfizer,
Remicade generated revenues of more than $9.3 billion combined for Johnson & Johnson and Merck, and AbbVie reported generated
revenues of $14 billion for Humira. For other TNF inhibitors, Cimzia generated revenues of $1.2 billion for UCB; Simponi generated
revenues of $2 billion for Johnson & Johnson and Merck; and Orencia generated revenues of $1.9 billion for Bristol Myers Squibb.
Kineret generated revenues of $94 million in sales for SOBI, which acquired from Amgen the rights to develop and commercialize
Kineret in 2014. Actemra generated revenues of $1.5 billion and Rituxan $5.6 billion, respectively, for Roche. Xeljanz earned
$523 million for Pfizer in 2015. Revenue figures above reflect the use of these drugs for RA, other indications and off label
uses.
Post–marketing experience has indicated
that current and newly-marketed disease modifying anti-rheumatic drugs (DMARDs) subject patients to an increased risk of certain SAEs. Products which inhibit the action of TNF-alpha, being the longest on the market and the most studied,
have demonstrated an increased incidence of certain SAEs. Due to suppression of the immune system by these products, these SAEs
include serious and opportunistic infections such as tuberculosis, fungal infections, and listeria infection, and increased risk
of lymphomas. Transient neutropenia and other blood dyscrasias have been reported. TNF inhibitors are also not recommended in
patients with demyelinating disease or with congestive heart failure. Rituxan (anti-CD20) use increases the potential for Hep
B reactivation and multifocal leukoencephalopathy, a fatal viral disease. Kineret (IL-1) also shows an increased the risk of infection.
Actemra (IL-6) use has led to increased liver enzyme levels, hypertension, transient neutropenia, and an increase in cholesterol
levels. Orencia (T cell inhibition) also works by weakening the immune system, therefore can increase the risk of infections.
Patients using Orencia have developed lymphoma and lung cancer. Xeljanz (JAK) is the newest RA treatment to enter the market.
It has demonstrated similar side effects to TNF inhibitors, including invasive and opportunistic infections and the reactivation
of tuberculosis. Lymphomas and other malignancies have been observed in patients treated with Xeljanz. In a study by a Swedish
research group published in November 2012 by the American College of Rheumatology entitled, “Mortality Rates in Patients
with Rheumatoid Arthritis Treated with Tumor Necrosis Factor Inhibitors”, following treatment of RA with either of the TNF
inhibitors Enbrel, Humira or Remicade, mortality rates were on average approximately one death per 30 patients treated in the
first three years of treatment. Findings such as these and the long list of serious adverse events for all of the currently marketed
treatments indicate that new and safer treatments for autoimmune diseases such as RA are needed.
Government Regulation and Product Approval
The FDA and comparable regulatory agencies
in state and local jurisdictions and in foreign countries impose substantial requirements upon the testing (preclinical and clinical),
manufacturing, labeling, storage, recordkeeping, advertising, promotion, import, export, marketing and distribution, among other
things, of drugs and drug product candidates. If we do not comply with applicable requirements, we may be fined, the government
may refuse to approve our marketing applications or allow us to manufacture or market our products, and we may be criminally prosecuted.
We and our manufacturers may also be subject to regulations under other U.S. federal, state, local and foreign laws.
In the United States, the FDA regulates drugs
under the Food Drug and Cosmetic Act, or FDCA, and implementing regulations. The process required by the FDA before our drug candidates
may be marketed in the United States generally involves the following (although the FDA is given wide discretion to impose different
or more stringent requirements on a case-by-case basis):
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completion of
extensive preclinical laboratory tests, preclinical animal studies and formulation studies,
all performed in accordance with the FDA’s Good Laboratory Practice or GLP regulations
and other regulations;
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submission to
the FDA of an IND application which must become effective before clinical trials may
begin;
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performance
of multiple adequate and well-controlled clinical trials meeting FDA requirements to
establish the safety and efficacy of the product candidate for each proposed indication;
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submission of
a Biological License Application or BLA to the FDA;
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satisfactory
completion of an FDA pre-approval inspection of the manufacturing facilities at which
the product candidate is produced, and potentially other involved facilities as well,
to assess compliance with cGMP, regulations and other applicable regulations; and
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the FDA review
and approval of the BLA prior to any commercial marketing, sale or shipment of the drug.
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The testing and approval process requires
substantial time, effort and financial resources, and we cannot be certain that any approvals for our drug candidates will be
granted on a timely basis, if at all. Risks to us related to these regulations are described in the Risk Factors in Item 1A of
this Annual Report.
A separate submission to the FDA, under an
existing IND must also be made for each successive clinical trial conducted during product development. The FDA must also approve
changes to an existing IND. Further, an independent institutional review board, or IRB, for each medical center proposing to conduct
the clinical trial must review and approve the plan for any clinical trial before it commences at that center and it must monitor
the study until completed. The FDA, the IRB or the sponsor may suspend a clinical trial at any time on various grounds, including
a finding that the subjects or patients are being exposed to an unacceptable health risk. Clinical testing also must satisfy extensive
Good Clinical Practice or GCP requirements and regulations for informed consent.
Clinical Trials
For purposes of BLA submission and approval,
clinical trials are typically conducted in the following three sequential phases, which may overlap (although additional or different
trials may be required by the FDA as well):
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Phase I
clinical trials
are initially conducted in a limited population to test the drug
candidate for safety, dose tolerance, absorption, metabolism, distribution and excretion
in healthy humans or, on occasion, in patients, such as cancer patients. In some cases,
particularly in cancer trials, a sponsor may decide to conduct what is referred to as
a “Phase 1b” evaluation, which is a second safety-focused Phase I
clinical trial typically designed to evaluate the impact of the drug candidate in combination
with currently FDA-approved drugs.
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Phase II
clinical trials
are generally conducted in a limited patient population to identify
possible adverse effects and safety risks, to determine the efficacy of the drug candidate
for specific targeted indications and to determine an optimal dosage. Multiple Phase II
clinical trials may be conducted by the sponsor to obtain information prior to beginning
larger and more expensive Phase III clinical trials. In some cases, a sponsor may
decide to conduct what is referred to as a “Phase IIb” evaluation, which
is a second, confirmatory Phase II clinical trial that could, if positive and accepted
by the FDA, serve as a pivotal clinical trial in the approval of a drug candidate.
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Phase III
clinical trials
are commonly referred to as pivotal trials. When Phase II clinical
trials demonstrate that a dose range of the drug candidate is effective and has an acceptable
safety profile, Phase III clinical trials are undertaken in large patient populations
to further evaluate dosage, to provide substantial evidence of clinical efficacy and
to further test for safety in an expanded and diverse patient population at multiple,
geographically dispersed clinical trial sites.
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In some cases, the FDA may condition continued
approval of a BLA on the sponsor’s agreement to conduct additional clinical trials with due diligence. In other cases, the
sponsor and the FDA may agree that additional safety and/or efficacy data should be provided; however, continued approval of the
BLA may not always depend on timely submission of such information. Such post-approval studies are typically referred to as Phase IV
studies.
Biological License Application
The results of drug candidate development,
preclinical testing and clinical trials, together with, among other things, detailed information on the manufacture and composition
of the product and proposed labeling, and the payment of a user fee, are submitted to the FDA as part of a BLA. The FDA reviews
all BLAs submitted before it accepts them for filing and may request additional information rather than accepting a BLA for filing.
Once a BLA is accepted for filing, the FDA begins an in-depth review of the application.
During its review of a BLA, the FDA may refer
the application to an advisory committee for review, evaluation and recommendation as to whether the application should be approved.
The FDA may refuse to approve a BLA and issue a not approvable letter if the applicable regulatory criteria are not satisfied,
or it may require additional clinical or other data, including one or more additional pivotal Phase III clinical trials.
Even if such data are submitted, the FDA may ultimately decide that the BLA does not satisfy the criteria for approval. Data from
clinical trials are not always conclusive and the FDA may interpret data differently than we or our collaboration partners interpret
data. If the FDA’s evaluations of the BLA and the clinical and manufacturing procedures and facilities are favorable, the
FDA may issue either an approval letter or an approvable letter, which contains the conditions that must be met in order to secure
final approval of the BLA. If and when those conditions have been met to the FDA’s satisfaction, the FDA will issue an approval
letter, authorizing commercial marketing of the drug for certain indications. The FDA may withdraw drug approval if ongoing regulatory
requirements are not met or if safety problems occur after the drug reaches the market. In addition, the FDA may require testing,
including Phase IV clinical trials, and surveillance programs to monitor the effect of approved products that have been commercialized,
and the FDA has the power to prevent or limit further marketing of a drug based on the results of these post-marketing programs.
Drugs may be marketed only for the FDA-approved indications and in accordance with the FDA-approved label. Further, if there are
any modifications to the drug, including changes in indications, other labeling changes, or manufacturing processes or facilities,
we may be required to submit and obtain FDA approval of a new BLA or BLA supplement, which may require us to develop additional
data or conduct additional preclinical studies and clinical trials.
Fast Track Designation
The FDA’s fast track program is intended
to facilitate the development and to expedite the review of drugs that are intended for the treatment of a serious or life-threatening
condition and that demonstrate the potential to address unmet medical needs. Under the fast track program, applicants may seek
traditional approval for a product based on data demonstrating an effect on a clinically meaningful endpoint, or approval based
on a well-established surrogate endpoint. The sponsor of a new drug candidate may request the FDA to designate the drug candidate
for a specific indication as a fast track drug at the time of original submission of its IND, or at any time thereafter prior
to receiving marketing approval of a marketing application. The FDA will determine if the drug candidate qualifies for fast track
designation within 60 days of receipt of the sponsor’s request.
If the FDA grants fast track designation,
it may initiate review of sections of a BLA before the application is complete. This so-called “rolling review” is
available if the applicant provides and the FDA approves a schedule for the submission of the remaining information and the applicant
has paid applicable user fees. The FDA’s Prescription Drug User Fee Act or PDUFA review clock for both a standard and priority
BLA for a fast track product does not begin until the complete application is submitted. Additionally, fast track designation
may be withdrawn by the FDA if it believes that the designation is no longer supported by emerging data, or if the designated
drug development program is no longer being pursued.
In some cases, a fast track designated drug
candidate may also qualify for one or more of the following programs:
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Priority
Review.
As explained above, a drug candidate may be eligible for a six-month
priority review. The FDA assigns priority review status to an application if the drug
candidate provides a significant improvement compared to marketed drugs in the treatment,
diagnosis or prevention of a disease. A fast track drug would ordinarily meet the FDA’s
criteria for priority review, but may also be assigned a standard review. We do not know
whether any of our drug candidates will be assigned priority review status or, if priority
review status is assigned, whether that review or approval will be faster than conventional
FDA procedures, or that the FDA will ultimately approve the drug.
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Accelerated
Approval.
Under the FDA’s accelerated approval regulations, the
FDA is authorized to approve drug candidates that have been studied for their safety
and efficacy in treating serious or life-threatening illnesses and that provide meaningful
therapeutic benefit to patients over existing treatments based upon either a surrogate
endpoint that is reasonably likely to predict clinical benefit or on the basis of an
effect on a clinical endpoint other than patient survival or irreversible morbidity.
In clinical trials, surrogate endpoints are alternative measurements of the symptoms
of a disease or condition that are substituted for measurements of observable clinical
symptoms. A drug candidate approved on this basis is subject to rigorous post-marketing
compliance requirements, including the completion of Phase IV or post-approval clinical
trials to validate the surrogate endpoint or confirm the effect on the clinical endpoint.
Failure to conduct required post-approval studies with due diligence, or to validate
a surrogate endpoint or confirm a clinical benefit during post-marketing studies, may
cause the FDA to seek to withdraw the drug from the market on an expedited basis. All
promotional materials for drug candidates approved under accelerated regulations are
subject to prior review by the FDA.
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When appropriate, we intend to seek fast track
designation, accelerated approval or priority review for our drug candidates. We cannot predict whether any of our drug candidates
will obtain fast track, accelerated approval, or priority review designation, or the ultimate impact, if any, of these expedited
review mechanisms on the timing or likelihood of the FDA approval of any of our drug candidates.
Satisfaction of the FDA regulations and approval
requirements or similar requirements of foreign regulatory agencies typically takes several years, and the actual time required
may vary substantially based upon the type, complexity and novelty of the product or disease. Typically, if a drug candidate is
intended to treat a chronic disease, as is the case with the drug candidate we are developing, safety and efficacy data must be
gathered over an extended period of time. Government regulation may delay or prevent marketing of drug candidates for a considerable
period of time and impose costly procedures upon our activities. The FDA or any other regulatory agency may not grant approvals
for changes in dosage form or new indications for our drug candidates on a timely basis, or at all. Even if a drug candidate receives
regulatory approval, the approval may be significantly limited to specific disease states, patient populations and dosages. Further,
even after regulatory approval is obtained, later discovery of previously unknown problems with a drug may result in restrictions
on the drug or even complete withdrawal of the drug from the market. Delays in obtaining, or failures to obtain, regulatory approvals
for our drug candidate would harm our business. In addition, we cannot predict what adverse governmental regulations may arise
from future U.S. or foreign governmental action.
Regulatory Requirements
Any drugs manufactured or distributed by us
or any potential collaboration partners pursuant to future FDA approvals are subject to continuing regulation by the FDA, including
recordkeeping requirements and reporting of adverse experiences associated with the drug. Drug manufacturers and their subcontractors
are required to register with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA
and certain state agencies for compliance with ongoing regulatory requirements, including cGMP, which impose certain procedural
and documentation requirements upon us and our third-party manufacturers. Failure to comply with the statutory and regulatory
requirements can subject a manufacturer to possible legal or regulatory action, such as warning letters, suspension of manufacturing,
sales or use, seizure of product, injunctive action or possible civil penalties. We cannot be certain that we or our present or
future third-party manufacturers or suppliers will be able to comply with the cGMP regulations and other ongoing FDA regulatory
requirements. If our present or future third-party manufacturers or suppliers are not able to comply with these requirements,
the FDA may halt our clinical trials, require us to recall a drug from distribution, or withdraw approval of the BLA for that
drug.
The FDA closely regulates the post-approval
marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion,
industry-sponsored scientific and educational activities and promotional activities involving the Internet. A company can make
only those claims relating to safety and efficacy that are approved by the FDA. Failure to comply with these requirements can
result in adverse publicity, warning and/or untitled letters, corrective advertising and potential civil and criminal penalties.
Orphan Drug Designation in the United States, the European
Union and other foreign jurisdictions
In June 2015, the FDA granted Orphan Drug
Designation to PRTX-100 in the treatment for ITP. In September 2015, COMP issued
a positive opinion recommending PRTX-100 for designation as an orphan medicinal product for ITP. Based upon study data to date,
we believe that PRTX-100 may be effective in the treatment of ITP, as well as other orphan immunological diseases.
Under the U.S. Orphan Drug Act, Orphan Drug
Designation is granted by the FDA to drugs intended to treat a rare disease or condition, which for this program is defined as
having a prevalence of fewer than 200,000 individuals in the United States. Orphan Drug Designation must be requested before submitting
a marketing application. After the FDA grants an Orphan Drug Designation, the generic identity of the therapeutic agent and its
potential orphan use are disclosed publicly by the FDA.
Orphan Drug Designation does not shorten the
regulatory review and approval process, nor does it provide any advantage in the regulatory review and approval process. However,
if a product which has an Orphan Drug Designation subsequently receives the first FDA approval for the indication for which it
has such designation, the product is entitled to an orphan exclusivity period, in which the FDA may not approve any other applications
to market the same drug for the same indication for seven years in the United States, except in limited circumstances.
In addition, outside of the U.S. medicinal
products used to treat life-threatening or chronically debilitating conditions that affect no more than five in 10,000 people
in European Union and medicinal products which, for economic reasons, would be unlikely to be developed without incentives may
be granted orphan designation in the European Union. The application for orphan designation is submitted to the EMA before an
application is made for marketing authorization. Once authorized, orphan medicinal products are entitled to ten years of market
exclusivity. During this ten-year period, with a limited number of exceptions, neither the competent authorities of the European
Union member states nor the EMA are permitted to accept applications or grant marketing authorization for other similar medicinal
products with the same orphan indication. However, marketing authorization may be granted to a similar medicinal product with
the same orphan indication during the ten-year period with the consent of the marketing authorization holder for the original
orphan medicinal product or if the manufacturer of the original orphan medicinal product is unable to supply sufficient quantities.
Marketing authorization may also be granted to a similar medicinal product with the same orphan indication if this product is
safer, more effective or otherwise clinically superior to the original orphan medicinal product.
We retained the consulting services of Coté
Orphan Consulting, LLC (Coté) to submit the application for Orphan Drug Designation in the EU for PRTX-100 as Protalex,
Inc. does not maintain a European subsidiary. On October 9, 2015, PRTX-100 was granted Orphan Drug Designation in EU as EU/3/15/1562
(EMA/OD/111/15) for the treatment of Immune Thrombocytopenia. Coté Orphan Consulting UK Limited, a subsidiary of Coté
Orphan Consulting, LLC, is identified as the sponsor of the designation for PRTX-100 in the EU. Under our agreement with Coté,
we retain all ownership in the Orphan Drug Designation for PRTX-100 in the EU.
Foreign Regulation
In addition to regulations in the United States,
we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our
future products. Whether or not we obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory
authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval
process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements
governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.
Under European Union regulatory systems, marketing
authorizations may be submitted either under a centralized or mutual recognition procedure. The centralized procedure provides
for the grant of a single marketing authorization that is valid for all European Union member states. The mutual recognition procedure
provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marketing authorization
may submit an application to the remaining member states. Within 90 days of receiving the applications and assessment report,
each member state must decide whether to recognize approval.
In addition to regulations in Europe and the
United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial distribution of
our future products.
Patents, Trademarks, and Proprietary Technology
Patents and other proprietary rights are important
to our business. Our practice is to file patent applications to protect technology, inventions and improvements to our technologies
that are considered important to the development of our business. We have filed several U.S. patent applications and international
counterparts of certain of these applications. We also rely upon our trade secrets, know-how, and continuing technological innovations,
as well as patents that we may license from other parties, to develop and maintain our competitive position.
Our success will depend on our ability to
maintain our trade secrets and proprietary technology in the United States and in other countries.
The table below provides a list of our issued patents:
Patent Title
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|
Number
|
|
Expiration Date
|
|
|
|
|
|
Protein A Compositions and Methods of Use
|
|
U.S. Patent No. 7,211,258
|
|
Nov. 6, 2022
|
|
|
|
|
|
Protein A Methods of Use
|
|
U.S. Patent No. 7,425,331
|
|
Nov. 6, 2022
|
|
|
|
|
|
Protein A Compositions and Methods of Use
|
|
U.S. Patent No. 7,807,170
|
|
April 10, 2022
|
|
|
|
|
|
Protein A Compositions and Methods of Use
|
|
U.S. Patent No. 8,168,189
|
|
June 16, 2022
|
|
|
|
|
|
Protein A Compositions and Methods of Use
|
|
U.S. Patent No. 8,603,486
|
|
April 10, 2022
|
|
|
|
|
|
Protein A Compositions and Methods of Use
|
|
European Patent No. 2570136
|
|
March 6, 2023
|
|
|
|
|
|
Protein A Composition and Method of Use
|
|
Japanese Patent No. 5523796
|
|
March 6, 2023
|
|
|
|
|
|
Protein A Compositions and Methods of Use
|
|
U.S. Patent No. 9,370,552
|
|
April 10, 2022
|
It is our policy to require our employees,
consultants, and parties to collaborative agreements to execute confidentiality agreements upon the commencement of employment
or consulting relationships or collaborations with us. These agreements generally provide that all confidential information developed
or made known during the course of the relationship with us is to be kept confidential and not to be disclosed to third parties
except in specific circumstances.
Employees
In addition to our president and our chief
financial officer, we have one part-time employee. We also have a Scientific Advisory Board which is staffed by highly qualified
consultants with the background and scientific expertise we need to carry out our long-term business objectives. We believe that
our relationship with all of our employees and our Scientific Advisory Board is generally good.
ITEM 1A. RISK FACTORS
You should carefully consider the risks,
uncertainties and other factors described below, in addition to the other information set forth in this Annual Report, because
they could materially and adversely affect our business, operating results, financial condition, cash flows and prospects, as
well as adversely affect the value of an investment in our common stock. Also, you should be aware that the risks and uncertainties
described below are not the only ones facing us. 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 consolidated financial statements and the related notes.
There are numerous and varied risks that
may prevent us from achieving our goals. We believe that the following are the material risks that we face. If any of the following
risks actually occurs, our business, financial condition or results of operation may be materially adversely affected. In such
case, the trading price of our common stock could decline and investors in our common stock could lose all or part of their investment.
Risks relating to our Business
If we are unable to enroll enough patients to complete our
clinical trials, our applications before regulatory agencies may never be submitted or approved, which may result in increased
costs and harm our ability to develop products.
If we are not able to enroll enough patients
to complete the RA, ITP or other planned clinical trials for PRTX-100, regulatory agencies may delay reviewing our applications
for approval, or may reject them, based on our inability to enroll enough patients to complete our clinical trials. Patient enrollment
depends on many factors, including the size of the patient population, the nature of the protocol, the proximity of patients to
clinical sites and the eligibility criteria for the study. Delays in planned patient enrollment may result in increased costs
and delays, which could have a harmful effect on our ability to develop products. We may also encounter delays or rejections based
on changes in regulatory agency policies during the period in which we develop a drug or the period required for review of any
application for regulatory agency approval of a particular compound. We also may encounter delays if we are unable to produce
clinical trial material in sufficient quantities and of sufficient quality to meet the schedule for our planned clinical trials.
In addition, we rely on a number of third-parties, such as clinical research organizations, to help support the clinical trials
by performing independent clinical monitoring, data acquisition and data evaluations. Any failure on the part of these third-parties
could delay the regulatory approval process.
Clinical trials are expensive, time consuming and difficult
to design and implement. If clinical trials for PRTX-100 don’t provide positive results, we may be required to abandon or
repeat such clinical trials.
Human clinical trials are expensive and difficult
to design and to implement, in part because they are subject to rigorous requirements. The clinical trial process is also time-consuming.
Even with adequate financing, we estimate that our clinical trials for PRTX-100 will take up to several additional years to complete.
Furthermore, poor results or failure can occur at any stage of the trials, and we can encounter problems that cause us to abandon
or repeat clinical trials. The commencement and completion of clinical trials may be delayed by several factors, including:
|
·
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slow enrollment
of qualified patients;
|
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·
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unforeseen safety
issues;
|
|
·
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determination of
dosing issues;
|
|
·
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lack of effectiveness
during clinical trials
|
|
·
|
slower than expected
rates of patient recruitment
|
|
·
|
inability to monitor
patients adequately or after treatment; and
|
|
·
|
inability or unwillingness
of medical investigators to follow our clinical protocols.
|
In addition, we or the FDA and/or foreign regulatory agencies may suspend our clinical trials at any time if it appears
that we are exposing participants to unacceptable health risks or if the FDA and/or foreign regulatory agencies find deficiencies
in our Investigational New Drug Application (“IND”) and/or country specific regulatory submissions or in the conduct
of these trials. Therefore, we cannot predict with any certainty the schedule for future clinical trials.
If we fail to obtain regulatory approvals
for PRTX-100 or any other drug we develop, we will not be able to generate revenues from the commercialization or sale of those
drugs.
We must receive regulatory approval of each
of our drugs before we can commercialize or sell that product. The pre-clinical laboratory testing, formulation development, manufacturing
and clinical trials of any product we develop, as well as the distribution and marketing of these products, are regulated by numerous
federal, state and local governmental authorities in the United States, principally the FDA, and by similar regulatory authorities
in other countries. The development and regulatory approval process takes many years, requires the expenditure of substantial
resources, is uncertain and subject to delays, and will thus delay our receipt of revenues, if any, from PRTX-100 or any other
drug we develop. We cannot assure you that our clinical trials will demonstrate the safety and efficacy of PRTX-100 or any other
drug we develop or will result in a marketable product.
No product can receive FDA approval unless
human clinical trials show both safety and efficacy for each target indication in accordance with FDA and foreign country standards.
A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late stage clinical
trials even after achieving promising results in early stage development. We therefore cannot assure you that the results from
our clinical trials will be successful or that the results from our pre-clinical trials for PRTX-100 or any other drug we develop
will be predictive of results obtained in future clinical trials.
Further, data obtained from pre-clinical and
clinical trial activities are subject to varying interpretations that could delay, limit or prevent regulatory agency approval.
We cannot assure you that our clinical trials will establish the safety and efficacy of PRTX-100 or any other drug we develop
sufficiently for us to obtain regulatory approval.
Our products, if approved,
may fail to achieve market acceptance.
There can be no assurance that any products
we successfully develop, if approved for marketing, will achieve market acceptance or generate significant revenues. We intend
for our products, including PRTX-100, to replace or alter existing therapies or procedures, and hospitals, physicians or patients
may conclude that these products are less safe or effective or otherwise less attractive than existing therapies or procedures.
If our products do not receive market acceptance for any reason, it would adversely affect our business, financial condition and
results of operations.
Further, our competitors may develop new technologies
or products that are more effective or less costly, or that seem more cost-effective, than our products. We can give no assurance
that hospitals, physicians, patients or the medical community in general will accept and use any products that we may develop.
We could lose orphan market exclusivity.
Orphan drug exclusive marketing rights
may be lost if the FDA, EMA or other regulatory body later determines that the request for designation was materially defective
or if the manufacturer is unable to assure sufficient quantity of the drug. Although obtaining approval to market a product with
orphan drug exclusivity may be advantageous, we cannot be certain that:
|
·
|
we
will be the first to obtain approval for any drug for which we obtain Orphan Drug Designation;
|
|
·
|
Orphan Drug
Designation will result in any commercial or financial advantage, or reduce competition;
or
|
|
·
|
limited exceptions
to this exclusivity will not be invoked by the relevant regulatory authority.
|
If we are unable to obtain, to protect, and to maintain our
proprietary rights in intellectual property, we may not be able to compete effectively or operate profitably.
Our commercial success also depends,
in large part, on our ability to obtain and maintain intellectual property protection for our technology covering our product
candidates and avoiding infringement of the proprietary technology of others. Our ability to do so will depend on, among other
things, complex legal and factual questions, and it should be noted that the standards regarding intellectual property rights
in our industry are still evolving. However, we will be able to protect our proprietary rights from unauthorized use by third-parties
only to the extent that our proprietary rights are covered by valid and enforceable patents or are effectively protected and maintained
as trade secrets.
We have tried to protect our proprietary position
by filing U.S. and international patent applications related to PRTX-100 in Canada, Japan, Hong Kong and the European Union. Because
the patent position of pharmaceutical companies involves complex legal and factual questions, the issuance, scope and enforceability
of patents cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated or circumvented. Thus, any patents
that we own may not provide any protection against competitors. Patents that we may file in the future or those we may license
from third parties, may not result in patents being issued. If issued, they may not provide us with proprietary protection or
competitive advantages against competitors with similar technology. Furthermore, others may independently develop similar technologies
or duplicate any technology that we have developed, or designed around any patents we may have issued to us. Moreover, the laws
of foreign countries do not protect intellectual property rights to the same extent as the laws of the United States.
Patent applications in the United States
are maintained in secrecy and not published if either: i) the application is a provisional application or, ii)
the application is filed and we request no publication, and certify that the invention disclosed “has not and
will not” be the subject of a published foreign application. Otherwise, U.S. applications or foreign counterparts, if
any, publish 18 months after the priority application has been filed. Since publication of discoveries in the scientific or
patent literature often lag behind actual discoveries, we cannot be certain that we were the first creator of inventions
covered by pending patent applications or that we were the first to file patent applications for such inventions. There can
be no assurance that our patents, if issued, would be held valid or enforceable by a court or that a competitor’s
technology or product would be found to infringe such patents.
Moreover, we may be subject to third party
preissuance submissions of prior art to the USPTO, or become involved in opposition, derivation, reexamination, inter partes review,
post-grant review or interference proceedings challenging our patent rights. An adverse determination in any such submission,
proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our
technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize
products without infringing third party patent rights. Even if our patent applications issue as patents, they may not issue in
a form that will provide us with any meaningful protection, prevent competitors from competing with us, or otherwise provide us
with any competitive advantage. Our competitors may be able to circumvent our patents by developing similar or alternative technologies
or products in a non-infringing manner.
Further, patents generally expire, regardless
of their date of issue, 20 years from the earliest claimed nonprovisional filing date. As a result, the time required to obtain
regulatory approval for a product candidate may consume part or all of the patent term. Given the amount of time required for
the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before
or shortly after such candidates are commercialized. As a result, our patent portfolio may not provide us with sufficient rights
to exclude others from commercializing products similar or identical to ours.
We also rely on trade secrets, know-how and
technology, which are not protected by patents, to maintain our competitive position. We protect this information by entering
into confidentiality agreements with parties that have access to it, such as potential investors, advisors, employees and consultants.
Any of these parties may breach the agreements and disclose our confidential information, or our competitors might learn of the
information in some other way. If any trade secret, know-how or other technology not protected by a patent was to be disclosed
to or independently developed by a competitor, our business and financial condition could be adversely affected.
If other companies claim that we infringe their proprietary
technology, we may incur liability for damages or be forced to stop our development and commercialization efforts.
Competitors and other third-parties may initiate
patent litigation against us in the United States or in foreign countries based on existing patents or patents that may be granted
in the future. These lawsuits can be expensive and would consume time and other resources even if unsuccessful or brought without
merit. Our competitors may have sought or may seek patents that cover aspects of our technology.
Owners or licensees of patents may file one
or more infringement actions against us. Any such infringement action could cause us to incur substantial costs defending the
lawsuit and could distract our management from our business, even if the allegations of infringement or misappropriation are unwarranted.
The defense of multiple claims could have a disproportionately greater impact. Furthermore, an adverse outcome from this type
of claim could subject us to a judgment that requires us to pay substantial damages. A judgment could also include an injunction
or other court order that could prevent us from making, using, selling, offering for sale or importing our products or prevent
our customers from using our products.
Alternatively, we could be required to license
disputed rights from the third party. If a court determines, or if we independently discover, that any of our products or manufacturing
processes violates third-party proprietary rights, we might not be able to reengineer the product or processes to avoid those
rights, or obtain a license under those rights on commercially reasonable terms, if at all.
We may become involved in lawsuits to protect or enforce
our patents that would be expensive and time consuming.
In order to protect or enforce our patent
rights, we may initiate patent litigation against third-parties. In addition, we may become subject to interference or opposition
proceedings conducted in patent and trademark offices to determine the priority of inventions. The defense of intellectual property
rights, including patent rights through lawsuits, interference or opposition proceedings, and other legal and administrative proceedings,
would be costly and divert our technical and management personnel from their normal responsibilities. An adverse determination
of any litigation or defense proceedings could put our patent application at risk of not issuing.
Furthermore, because of the substantial amount
of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information
could be compromised by disclosure during this type of litigation. For example, during the course of this kind of litigation,
confidential information may be inadvertently disclosed in the form of documents or testimony in connection with discovery requests,
depositions or trial testimony. This disclosure could negatively affect our business and financial results.
We may not be able to manufacture our products in commercial
quantities, which would prevent us from marketing our products.
If any of our potential products were approved
by the FDA or foreign regulatory agencies for commercial sale, we would need to manufacture them in larger quantities. We have
no manufacturing facilities at this time, and we have no experience in the commercial manufacturing of drugs. Thus, we would need
to either develop the capability of manufacturing on a commercial scale or engage third-party manufacturers with this capability.
Significant scale-up of manufacturing may require certain additional validation studies, which the FDA must review and approve.
Moreover, contract manufacturers often encounter difficulties in achieving volume production, quality control and quality assurance,
as well as shortages of qualified personnel. For these reasons, a third-party manufacturer might not be able to manufacture sufficient
quantities of PRTX-100 to allow us to commercialize it. If we are unable to increase the manufacturing capacity for PRTX-100,
or any other product we may develop, we may experience delays in or shortages in supply when launching them commercially.
We have no experience selling, marketing or distributing
our products and no internal capability to do so.
If we receive regulatory approval to commence
commercial sales of PRTX-100, we will face intense competition with respect to commercial sales, marketing and distribution. These
are areas in which we currently have no experience due to a lack of management. To market our product directly, we must develop
a direct marketing and sales force with technical expertise and supporting distribution capability. Alternatively, we may engage
pharmaceutical or other healthcare companies with an existing distribution system and direct sales force to assist us. There can
be no assurance that we will successfully establish sales and distribution capabilities either on our own or in collaboration
with third-parties or gain market acceptance for our product. To the extent we enter co-promotion or other licensing arrangements,
any revenues we receive will depend on the efforts of third-parties. Those efforts may not succeed.
Competition in the pharmaceutical industry is intense; if
we fail to compete effectively, our financial results will suffer.
We engage in a business characterized by extensive
research efforts, rapid developments and intense competition. We cannot assure you that our products will compete successfully
or that research and development by others will not render our products obsolete or uneconomical. Our failure to compete effectively
would negatively affect our business, financial condition and results of operations. We expect that successful competition will
depend, among other things, on product efficacy, safety, reliability, availability, timing and scope of regulatory approval and
price. Specifically, other factors we expect will impact our ability to compete include the relative speed with which we can develop
products, complete the clinical, development and laboratory testing and regulatory approval processes and supply commercial quantities
of the product to the market.
We expect competition to increase as technological
advances are made and commercial applications broaden. In commercializing PRTX-100 and any additional products we develop using
our technology, we will face substantial competition from large pharmaceutical, biotechnology and other companies, universities
and research institutions.
Substantially all of our competitors have
substantially greater capital resources, research and development personnel, facilities and experience in conducting clinical
trials and obtaining regulatory approvals than us. As well, most of our competitors have advantages over us in manufacturing and
marketing pharmaceutical products. We are thus at a competitive disadvantage to those competitors who have greater capital resources
and we may not be able to compete effectively.
If we are unable to hire additional qualified scientific,
sales and marketing, and other personnel, we will not be able to achieve our goals.
We depend on the members of our management
staff, Scientific Advisory Board and a small number of third-party consultants to provide the expertise needed to carry out our
business objectives. The loss of any of these individuals’ services may significantly delay or prevent the achievement of
research, development or business objectives and could negatively affect our business, financial condition and results of operations
if their replacements are not promptly retained. We face intense competition for such personnel and consultants. Such replacements
are predicated, among other conditions, on our ability to raise additional funding. We cannot assure you that we will attract
and retain qualified management and scientific personnel in the future, with or without adequate additional financing. We do not
maintain key person life insurance on any of these individuals.
Further, we expect that our potential expansion into areas and
activities requiring additional expertise, such as further clinical trials, governmental approvals, contract manufacturing and
marketing, will place additional requirements on our management, operational and financial resources. We expect these demands
will require an increase in management and scientific personnel and the development of additional expertise. The failure to attract
and retain such personnel or to develop such expertise would impact prospects for our success.
Even if we obtain marketing approval, PRTX-100 will be subject
to ongoing regulatory review.
If regulatory approval of PRTX-100 is granted,
that approval may be subject to limitations on the indicated uses for which it may be marketed or contain requirements for costly
post-marketing follow-up studies. As to products for which marketing approval is obtained, the manufacturer of the product and
the manufacturing facilities will be subject to continual review and periodic inspections by the FDA and other regulatory authorities.
In addition, the labeling, packaging, adverse event reporting, storage, advertising, promotion and record keeping related to the
product will remain subject to extensive regulatory requirements. The subsequent discovery of previously unknown problems with
the product, manufacturer or facility may result in restrictions on the product or the manufacturer, including withdrawal of the
product from the market. We may be slow to adapt, or we may never adapt, to changes in existing requirements or adoption of new
requirements or policies.
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 criminal prosecution.
Market acceptance of PRTX-100 will be limited if users are
unable to obtain adequate reimbursement from third-party payors.
Government health administration authorities,
private health insurers and other organizations generally provide reimbursement for products like PRTX-100, and our commercial
success will depend in part on these third-party payors agreeing to reimburse patients for the costs of our product. Even if we
succeed in bringing our proposed products to market, we cannot assure you that third-party payors will consider it cost-effective
or provide reimbursement in whole or in part for its use.
Significant uncertainty exists as to the reimbursement
status of newly approved health care products. PRTX-100 is intended to replace or alter existing therapies or procedures. These
third-party payors may conclude that our product is less safe, effective or cost-effective than existing therapies or procedures.
Therefore, third-party payors may not approve our product for reimbursement.
If third-party payors do not approve our product
for reimbursement or fail to reimburse them adequately, sales will suffer as some physicians or their patients will opt for a
competing product that is approved for reimbursement or is adequately reimbursed. Even if third-party payors make reimbursement
available, these payors’ reimbursement policies may adversely affect our ability to sell our product on a profitable basis.
Moreover, legislative proposals to reform
healthcare and government insurance programs could significantly influence the purchase of healthcare services and products, resulting
in lower prices and reduced demand for our product, which could adversely affect our business, financial condition and results
of operations.
In addition, legislation and regulations affecting
the pricing of pharmaceuticals may change in ways adverse to us before or after the FDA or other regulatory agencies approve PRTX-100
for marketing. While we cannot predict the likelihood of any of these legislative or regulatory proposals, if any government or
regulatory agencies adopt these proposals they could negatively affect our business, financial condition and results of operations.
We may be required to defend lawsuits or pay damages in connection
with the alleged or actual harm caused by our products.
We face an inherent business risk of exposure
to product liability claims in the event that the use of any of our products is alleged to have resulted in harm to others. This
risk exists in clinical trials as well as in commercial distribution. In addition, the pharmaceutical and biotechnology industries
in general have been subject to significant medical malpractice litigation. We may incur significant liability if product liability
or malpractice lawsuits against us are successful. Furthermore, product liabilities claims, regardless of their merits, could
be costly and divert our management’s attention from other business concerns, or adversely affect our reputation and the
demand for our product. We currently maintain a $2,000,000 general liability insurance policy, a global $5,000,000 clinical liability
insurance policy and as required, country specific clinical liability insurance will be procured. We intend to expand our liability
insurance coverage for any products for which we obtain marketing approval, however, such insurance may be unavailable, prohibitively
expensive or may not fully cover our potential liabilities. If we are unable to maintain sufficient insurance coverage on reasonable
terms or to otherwise protect against potential product liability claims or field actions, we may be unable to continue to market
our products and develop new markets.
Developments by competitors may render our products or technologies
obsolete or non-competitive.
The biotechnology and pharmaceutical industries
are intensely competitive and subject to rapid and significant technological change. Should we obtain regulatory approval for
PRTX-100, we will have to compete with existing therapies, some of which have been marketed for years. In addition, a significant
number of companies are pursuing the development of products that target the same indications that we are targeting. We face competition
from both domestic and international companies. In addition, companies pursuing different but related fields represent substantial
competition. Many of these organizations competing with us have substantially greater capital resources, larger research and development
staffs and facilities, long drug development history in obtaining regulatory approvals and greater manufacturing and marketing
capabilities than we do. These organizations also compete with us to attract qualified personnel and parties for acquisitions,
joint ventures or other strategic collaborations.
The loss of one or more key members of our management team
or Scientific Advisory Board could adversely affect our business.
Our performance is substantially dependent
on the continued service and performance of our management team, and Scientific Advisory Board members, who have experience and
specialized expertise in our business. In particular, the loss of Arnold P. Kling, our president, could adversely affect our business
and operating results. We do not have “key person” life insurance policies for any members of our management team
or Scientific Advisory Board, or employment agreements with any members of our management team.
Many of our business practices are subject to scrutiny by
regulatory authorities, as well as to lawsuits brought by private citizens under federal and state laws. Failure to comply with
applicable law or an adverse decision in lawsuits may result in adverse consequences to us.
The laws governing our conduct in the United
States are enforceable by criminal, civil and administrative penalties. Violations of laws such as the Federal Food, Drug, and
Cosmetic Act, the False Claims Act and the Anti-Kickback Law and the Public Health Service Act, and any regulations promulgated
under their authority, may result in jail sentences, fines or exclusion from federal and state programs, as may be determined
by Medicare, Medicaid and the Department of Health and Human Services and other regulatory authorities as well as by the courts.
There can be no assurance that our activities will not come under the scrutiny of regulators and other government authorities
or that our practices will not be found to violate applicable laws, rules and regulations or prompt lawsuits by private citizen
“relators” under federal or state false claims laws.
For example, under the Anti-Kickback Law,
and similar state laws and regulations, even common business arrangements, such as discounted terms and volume incentives for
customers in a position to recommend or choose products for patients, such as physicians and hospitals, can result in substantial
legal penalties, including, among others, exclusion from the Medicare and Medicaid programs, and arrangements with referral sources
must be structured with care to comply with applicable requirements. Also, certain business practices, such as consulting fees
to healthcare providers, sponsorship of educational or research grants, charitable donations, interactions with healthcare providers
that prescribe products for uses not approved by the FDA and financial support for continuing medical education programs, must
be conducted within narrowly prescribed and controlled limits to avoid any possibility of wrongfully influencing healthcare providers
to prescribe or purchase particular products or as a reward for past prescribing. Under the Patient Protection and Affordable
Care Act and the companion Health Care and Education Reconciliation Act, which together are referred to as the healthcare reform
law, such payments by pharmaceutical manufacturers to U.S. healthcare practitioners and academic medical centers must be publicly
disclosed. A number of states have similar laws in place. Additional and stricter prohibitions could be implemented by federal
and state authorities. Where such practices have been found to be improper incentives to use such products, government investigations
and assessments of penalties against manufacturers have resulted in substantial damages and fines. Many manufacturers have been
required to enter into consent decrees or orders that prescribe allowable corporate conduct.
Failure to satisfy requirements under the Federal Food, Drug,
and Cosmetic Act can also result in penalties, as well as requirements to enter into consent decrees or orders that prescribe
allowable corporate conduct.
In addition, while regulatory authorities
generally do not regulate physicians’ discretion in their choice of treatments for their patients, they do restrict communications
by manufacturers on unapproved uses of approved products or on the potential safety and efficacy of unapproved products in development.
Companies in the United States, Canada and the European Union cannot promote approved products for other indications that are
not specifically approved by the competent regulatory authorities (e.g., FDA in the United States), nor can companies promote
unapproved products. In limited circumstances, companies may disseminate to physicians information regarding unapproved uses of
approved products or results of studies involving investigational products. If such activities fail to comply with applicable
regulations and guidelines of the various regulatory authorities, we may be subject to warnings from, or enforcement action by,
these authorities. Furthermore, if such activities are prohibited, it may harm demand for our products.
Promotion of unapproved drugs or devices or
unapproved indications for a drug or device is a violation of the Federal Food, Drug, and Cosmetic Act and subjects us to civil
and criminal sanctions. Furthermore, sanctions under the Federal False Claims Act have recently been brought against companies
accused of promoting off-label uses of drugs, because such promotion induces the use and subsequent claims for reimbursement under
Medicare and other federal programs. Similar actions for off-label promotion have been initiated by several states for Medicaid
fraud. The healthcare reform law significantly strengthened provisions of the Federal False Claims Act, Medicare and Medicaid
Anti-Kickback provisions, and other health care fraud provisions, leading to the possibility of greatly increased qui tam suits
by relators for perceived violations. Violations or allegations of violations of the foregoing restrictions could materially and
adversely affect our business.
We may be required to report detailed pricing
information, net of included discounts, rebates and other concessions, to the Centers for Medicare & Medicaid Services, or
CMS, for the purpose of calculating national reimbursement levels, certain federal prices and certain federal and state rebate
obligations. We will need to establish systems for collecting and reporting this data accurately to CMS and institute a compliance
program to assure that the information collected is complete in all respects. If we report pricing information that is not accurate
to the federal government, we could be subject to fines and other sanctions that could adversely affect our business.
If we choose to pursue clinical development
and commercialization in the European Union or otherwise market and sell our products outside of the United States, we must obtain
and maintain regulatory approvals and comply with regulatory requirements in such jurisdictions. The approval procedures vary
among countries in complexity and timing. We may not obtain approvals from regulatory authorities outside the United States on
a timely basis, if at all, which would preclude us from commercializing products in those markets. In addition, some countries,
particularly the countries of the European Union, regulate the pricing of prescription pharmaceuticals. In these countries, pricing
discussions with governmental authorities can take considerable time after the receipt of marketing approval for a product. To
obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness
of their product candidate to other available therapies. Such trials may be time-consuming and expensive, and may not show an
advantage in efficacy for our products. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing
is set at unsatisfactory levels, in either the United States or the European Union, we could be adversely affected. Also, under
the United States Foreign Corrupt Practices Act, or FCPA, the United States has increasingly focused on regulating the conduct
by U.S. businesses occurring outside of the United States, generally prohibiting remuneration to foreign officials for the purpose
of obtaining or retaining business.
To enhance compliance with applicable health
care laws, and mitigate potential liability in the event of noncompliance, regulatory authorities, such as the United States Health
and Human Services Department Office of Inspector General, or OIG, have recommended the adoption and implementation of a comprehensive
health care compliance program that generally contains the elements of an effective compliance and ethics program described in
Section 8B2.1 of the United States Sentencing Commission Guidelines Manual. Increasing numbers of U.S.-based pharmaceutical companies
have such programs. In the future, we may need to adopt healthcare compliance and ethics programs that would incorporate the OIG’s
recommendations, and train our applicable employees in such compliance. Such a program may be expensive and may not assure that
we will avoid compliance issues.
The implementation of the healthcare reform law in the United
States may adversely affect our business.
Through the March 2010 adoption of the healthcare
reform law in the United States, substantial changes were made to the current system for paying for healthcare in the United States,
including programs to extend medical benefits to millions of individuals who currently lack insurance coverage. The changes contemplated
by the healthcare reform law are subject to rule-making and implementation timelines that extend for several years, and this uncertainty
limits our ability to forecast changes that may occur in the future. However, implementation has already begun with respect to
certain significant cost-saving measures under the healthcare reform law, for example with respect to several government healthcare
programs that may cover the cost of our future products, including Medicaid, Medicare Parts B and D, and these efforts could have
a materially adverse impact on our future financial prospects and performance.
The healthcare reform law also introduced
a biosimilar pathway that will permit companies to obtain FDA approval of generic versions of existing biologics based upon reduced
documentation and data requirements deemed sufficient to demonstrate safety and efficacy than are required for the pioneer biologics.
The new law provides that a biosimilar application may be submitted as soon as four years after the reference product is first
licensed, and that the FDA may not make approval of an application effective until 12 years after the reference product was first
licensed. With the likely introduction of biosimilars in the United States, we expect in the future to face greater competition
from biosimilar products, including a possible increase in patent challenges. The FDA has reported meeting with sponsors who are
interested in developing biosimilar products, and is developing regulations to implement the abbreviated regulatory review pathway.
Regarding access to our products, the healthcare
reform law established and provided significant funding for a Patient-Centered Outcomes Research Institute to coordinate and fund
Comparative Effectiveness Research, or CER. While the stated intent of CER is to develop information to guide providers to the
most efficacious therapies, outcomes of CER could influence the reimbursement or coverage for therapies that are determined to
be less cost-effective than others. Should any of our products be determined to be less cost-effective than alternative therapies,
the levels of reimbursement for these products, or the willingness to reimburse at all, could be impacted, which could materially
impact our future financial prospects and results.
Risks Related to Our Dependence on Third Parties
If third-party manufacturers of our products fail to devote
sufficient time and resources to our concerns, or if their performance is substandard, our clinical trials and product introductions
may be delayed and our costs may rise.
We have relied on, and intend to rely in the
future, on third-party contract manufacturers to supply, store, test and distribute PRTX-100 and other potential products. Any
products we develop may be in competition with other product candidates and products for access to these facilities. Thus, we
may not be successful in contracting with third-party manufacturers, or they may not be able to manufacture these candidates and
products in a cost-effective or timely manner. Additionally, our reliance on third-party manufacturers exposes us to the following
risks, any of which could delay or prevent the completion of (x) our clinical trials, (y) the approval of our products by the
FDA or (z) the commercialization of our products, resulting in higher costs or depriving us of potential product revenues:
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Contract manufacturers
are obliged to operate in accordance with FDA-mandated cGMPs. Their failure to establish
and follow cGMPs and to document their adherence to such practices may lead to significant
delays in the availability of material for clinical study and may delay or prevent filing
or approval of marketing applications for our products. Additionally, failure to achieve
and maintain high manufacturing standards, including the incidence of manufacturing errors,
could result in patient injury or death, product recalls or withdrawals, delays or failures
in product testing or delivery, cost overruns or other problems that could seriously
hurt our business.
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It may be difficult
or impossible for us to find replacement manufacturers quickly on acceptable terms, or
at all. For example, we have initially relied on a single contract drug substance manufacturer,
Eurogentec S.A., to produce PRTX-100. Changing this manufacturer, or changing the manufacturer
for any other products we develop, may be difficult, time consuming and expensive. The
number of potential manufacturers is limited, and changing manufacturers may require
confirmation of the analytical methods of the manufacturing processes and procedures
in accordance with FDA-mandated cGMPs. Such confirmation of the analytical methods may
be costly and time-consuming.
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Our contract
manufacturers may not perform as agreed or may not remain in the contract manufacturing
business for the time required to produce, store, test and distribute our products successfully.
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Drug manufacturers are subject to ongoing
periodic unannounced inspection by the FDA, the U.S. Drug Enforcement Agency, and corresponding state and foreign agencies to
ensure strict compliance with cGMPs, other government regulations and corresponding foreign standards. While we are obligated
to audit the performance of third-party contractors, we do not have control over our third-party manufacturers’ compliance
with these regulations and standards. Failure by our third-party manufacturers or us to comply with applicable regulations could
result in sanctions being imposed on us, including fines, injunctions, civil penalties, failure of the government to grant market
approval of drugs, delays, suspension or withdrawal of approvals, seizures or recalls of product, operating restrictions and criminal
prosecutions, any of which could significantly and adversely affect our business.
We believe Eurogentec S.A. has the capacity
to produce a sufficient inventory of PRTX-100 to conduct our currently planned clinical trials. If these inventories are lost
or damaged, or if Eurogentec S.A. cannot or will not produce additional inventory to complete the remaining phases of clinical
trials, the clinical development of our product candidate or its submission for regulatory approval could be significantly delayed
and our ability to commercialize this product could be impaired.
If we do not have adequate clinical trial material available to
complete our clinical trials, which could also lead to a significant delay in continuing and /or commencing our clinical trial
programs, we may be unable to obtain FDA approval and our ability to commercialize this product could be impaired or precluded.
We rely on third parties to conduct our PRTX-100 studies
and intend to rely on third parties to conduct our clinical trials for other product candidates. Such third parties may not perform
satisfactorily, including failing to meet deadlines for the completion of such trials.
We rely and expect to continue to rely on
third parties, such as clinical research organizations, clinical data management organizations, medical institutions and clinical
investigators, to conduct clinical trials for our drug product candidates. Relying on these third parties for clinical development
activities will reduce our control over these activities.
We will remain responsible for ensuring that
our PRTX-100-202 and 203 Studies and each of our future clinical trials are conducted in accordance with the general investigational
plan and protocols for the trial. Moreover, the FDA will require us to comply with cGTPs with respect to any clinical trials conducted
in connection with a submission to the FDA, including an IND, and will require that we record and report clinical trial results
to assure that data and reported results are credible and accurate and that the rights and safety are protected. We will also
be required to register ongoing FDA-regulated clinical trials and post the results of completed clinical trials on a government-sponsored
database, ClinicalTrials.gov, within certain timeframes. Failure to do so can result in fines, adverse publicity and civil and
criminal sanctions.
If these third parties do not successfully
carry out their contractual duties, meet expected deadlines or conduct our clinical trials in accordance with regulatory requirements
or our stated protocols, we will not be able to obtain, or may be delayed in obtaining, regulatory approvals for our product candidates
and will not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates. Furthermore,
these third parties may also have relationships with other entities, some of which may be our competitors, and could devote more
of their resources to such other entities at the expense of expending sufficient resources on our clinical development activities.
We expect to depend on collaborations with third parties
to develop and commercialize our product candidates. If those collaborations are not successful, we may not be able to capitalize
on the market potential of these drug product candidates.
We currently intend to commercialize PRTX-100
and to collaborate with third parties to commercialize PRTX-100 and any future product candidates. In addition, we may seek partners
for further development and commercialization of our other product candidates. These collaborations could take the form of license,
distribution, sales representative, joint venture, sponsored research or other arrangements with pharmaceutical and biotechnology
companies, other commercial entities and academic and other institutions.
If we do enter into any such arrangements
with third parties, we will likely have limited control over the amount and timing of resources that such collaborators dedicate
to the development or commercialization of our product candidates. Collaboration agreements may not lead to development or commercialization
of product candidates in the most efficient manner, or at all. Our ability to generate revenues from these arrangements will depend
on, among other things, our collaborators' successful performance of the functions assigned to them in these arrangements.
Collaborations involving our product candidates
would pose the following risks to us:
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collaborators
have significant discretion in determining the efforts and resources that they will apply
to these collaborations and could devote fewer resources to our product candidates than
we expect them to;
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a collaborator
with marketing and distribution rights to one or more products may not commit sufficient
resources to the marketing and distribution of our product or products;
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collaborators
may not pursue development and commercialization of our product candidates or may elect
not to continue or renew development or commercialization programs based on clinical
trial results, changes in the collaborator's strategic focus or available funding, or
external factors such as an acquisition that diverts resources or creates competing priorities;
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collaborators
may delay clinical trials, provide insufficient funding for a clinical trial program,
stop a clinical trial or abandon a product candidate or repeat or conduct new clinical
trials;
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collaborators
could independently develop, or develop with third parties, products that compete directly
or indirectly with our products or product candidates;
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collaborators
may not properly maintain or defend our intellectual property rights or may use our proprietary
information in such a way as to invite litigation that could jeopardize or invalidate
our proprietary information;
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disputes may
arise between the collaborators and us that result in the delay or termination of the
research, development or commercialization of our product candidates or that result in
costly litigation or arbitration that diverts management's attention and resources; and
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collaborations
may be terminated and, if terminated, may result in a need for additional capital to
pursue further development or commercialization of the applicable product candidates.
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If we are not able to establish collaborations, we may have
to alter our development and commercialization plans.
Our product development programs and the potential
commercialization of our product candidates will require substantial additional cash to fund expenses. We may collaborate with
pharmaceutical and biotechnology companies to develop and commercialize our product candidates. For example, we currently intend
to seek to collaborate with third parties to commercialize PRTX-100 and other product candidates we successfully develop.
We face significant competition in seeking
appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our
assessment of the collaborator's resources and expertise, the terms and conditions of the proposed collaboration, and the proposed
collaborator's evaluation of a number of factors. Those factors may include the design or results of our clinical trials, the
likelihood of approval by the FDA or similar regulatory authorities outside the United States of our product candidate, the potential
market for such product candidate, the costs and complexities of manufacturing and delivering the product candidate to patients,
the potential and relative cost of competing products, uncertainty with respect to our ownership of technology, which can exist
if there is a challenge to such ownership without regard to the merits of the challenge, and industry and market conditions generally.
The collaborator may also consider alternative product candidates or technologies for similar indications or conditions that may
be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product
candidate. We may also be restricted under existing license agreements from entering into agreements on certain terms with potential
collaborators. In addition, there have been a significant number of recent business combinations among pharmaceutical and biotechnology
companies that have resulted in a reduced number of potential future collaborators. Collaborations are complex and time consuming
to negotiate and document. We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all.
If we cannot find a collaborator for a particular
program, we may have to curtail the development of such program or of one or more of our other development programs, delay the
potential commercialization of such program or reduce the scope of any sales or marketing activities for the program or increase
our expenditures and undertake development or commercialization activities for the program at our own expense. If we elect to
increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital,
which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further
develop our product candidates or bring these product candidates to market and generate product revenue.
Risks Relating to our Finances, Capital Requirements and Other
Financial Matters
Auditors have doubt as to our ability to continue in business.
In their report on our May 31, 2016 financial
statements, our auditors expressed substantial doubt as to our ability to continue as a going concern. A going concern qualification
could impair our ability to finance our operations through the sale of debt or equity securities. Our ability to continue as a
going concern will depend, in large part, on our ability to obtain additional financing and generate positive cash flow from operations,
neither of which is certain. If we are unable to achieve these goals, our business would be jeopardized and we may not be able
to continue operations.
We are a clinical stage company with a history of operating
losses that are expected to continue and we are unable to predict the extent of future losses, whether we will generate significant
revenues or whether we will achieve or sustain profitability.
We are a clinical stage company and our prospects
must be considered in light of the uncertainties, risks, expenses and difficulties frequently encountered by similarly situated
companies. We have generated net losses in all periods since our inception in September 1999 including losses of approximately
$9.4 million and $11.6 million for the years ended May 31, 2016 and 2015, respectively and as of May 31, 2016
we had an accumulated deficit of approximately $94.6 million. We expect to make substantial expenditures and incur increasing
operating costs in the future and our accumulated deficit will increase significantly as we expand development and clinical trial
activities for our product candidates. Our losses have had, and are expected to continue to have, an adverse impact on our working
capital, total assets and stockholders’ equity. Because of the risks and uncertainties associated with product development,
we are unable to predict the extent of any future losses, whether we will ever generate significant revenues or if we will ever
achieve or sustain profitability.
We will need substantial additional funding and may be unable
to raise capital when needed, which would force us to delay, curtail or eliminate one or more of our research and development
programs or commercialization efforts.
Our operations have consumed substantial
amounts of cash since inception. During the years ended May 31, 2016 and 2015, we incurred research and development expenses
of approximately $3.1 million and $3.0 million, respectively. As of May 31, 2016, we had cash and cash equivalents of
approximately $444,000 and negative net working capital of approximately $107,000. We expect to continue to spend substantial
amounts on product development, including conducting clinical trials for our product candidates and purchasing clinical trial
materials from our suppliers. Until such time, if ever, as we can generate a sufficient amount of product revenue and achieve
profitability, we expect to seek to finance future cash needs through equity or debt financings or corporate collaboration
and licensing arrangements. We currently have no agreements relating to any of these types of transactions and we cannot be
certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional
capital, we will have to delay, curtail or eliminate one or more of our research and development programs.
Raising additional funds by issuing securities or through
licensing or lending arrangements may cause dilution to our existing stockholders, restrict our operations or require us to relinquish
proprietary rights.
To the extent that we raise additional capital
by issuing equity securities, the share ownership of existing stockholders will be diluted. Any future debt financing may involve
covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends,
redeem our stock, make certain investments and engage in certain merger, consolidation or asset sale transactions, among other
restrictions. In addition, if we raise additional funds through licensing arrangements, it may be necessary to relinquish potentially
valuable rights to our product candidates, or grant licenses on terms that are not favorable to us.
Risks Associated with our Capital Stock
Our common stock is quoted on the OTC Markets, which may
have an unfavorable impact on our stock price and liquidity. Sales of a substantial number of shares of our common stock, or the
perception that such sales may occur, may adversely impact the price of our common stock.
Almost all of our outstanding shares
of common stock, subject to volume limitations, are available for sale in the public market, either pursuant to Rule 144 under
the Act or an effective registration statement. Sales of a substantial number of shares of our common stock, or the perception
that such sales may occur, may adversely impact the price of our common stock.
We have never paid and do not intend to pay cash dividends.
As a result, capital appreciation, if any, will be your sole source of gain.
We have never paid cash dividends on any of
our capital stock and we currently intend to retain future earnings, if any, to fund the development and growth of our business.
In addition, the terms of existing and future debt agreements may preclude us from paying dividends. As a result, capital appreciation,
if any, of our common stock will be your sole source of gain for the foreseeable future.
Our affiliates control the majority of our shares of common
stock and one shareholder holds a controlling interest.
As of June 30, 2016, our directors and executive
officers and their affiliates beneficially own approximately 80% of the outstanding shares of our common stock, with one such
affiliate, Niobe Ventures LLC, beneficially owns approximately 78% of our outstanding common stock. As a result, this stockholder
is able to exercise control over matters requiring stockholder approval, including the election of directors, and the approval
of mergers, consolidations and sales of all or substantially all of our assets.
Provisions in our certificate of incorporation, our by-laws
and Delaware law might discourage, delay or prevent a change in control of our company or changes in our management and, therefore,
depress the trading price of our common stock.
Provisions of our certificate of incorporation,
our by-laws and Delaware law may have the effect of deterring unsolicited takeovers or delaying or preventing a change in control
of our company or changes in our management, including transactions in which our stockholders might otherwise receive a premium
for their shares over then current market prices. In addition, these provisions may limit the ability of stockholders to approve
transactions that they may deem to be in their best interests. These provisions include:
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the inability
of stockholders to call special meetings; and
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the ability
of our Board to designate the terms of and issue new series of preferred stock without
stockholder approval, which could include the right to approve an acquisition or other
change in our control or could be used to institute a rights plan, also known as a poison
pill, that would work to dilute the stock ownership of a potential hostile acquirer,
likely preventing acquisitions that have not been approved by our Board.
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The classification of our board of directors
and limitation on filling of vacancies could make it more difficult for a third party to acquire, or discourage a third party
from seeking to acquire, control of our company.
In addition, Section 203 of the Delaware General
Corporation Law prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder,
generally a person which together with its affiliates owns, or within the last three years, has owned 15% of our voting stock,
for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner.
The existence of the forgoing provisions and
anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock.
They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for
your common stock in an acquisition.
If our common stock becomes subject to the penny stock rules,
this may make it more difficult to sell our shares.
The SEC has
adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally
equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or
authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect
to transactions in such securities is provided by the exchange or system). If the price of our common stock drops below $5.00,
our securities will be deemed penny stocks. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock
not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In
addition, the penny stock rules require that prior to effecting any transaction in a penny stock not otherwise exempt from those
rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser
and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement
to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure
requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore
security holders may have difficulty selling their shares.
The price of our common stock may be
volatile.
The trading price of our common stock may
fluctuate substantially. The price of our common stock that will prevail in the market may be higher or lower than the price you
have paid, depending on many factors, some of which are beyond our control and may not be related to our operating performance.
These fluctuations could cause you to lose part or all of your investment in our common stock. Those factors that could cause
fluctuations include, but are not limited to, the following:
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the actual number of shares of our common stock that
trade;
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sales of potential sales of large blocks of our stock;
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price and volume fluctuations in the overall stock market
from time to time;
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fluctuations in stock market prices and trading volumes
of similar companies;
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actual or anticipated changes in our net loss or fluctuations
in our operating results or in the expectations of securities analysts;
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the issuance of new equity securities pursuant to a future
offering, including issuances of preferred stock;
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general economic conditions and trends;
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positive and negative events, conditions or developments
relating to healthcare and the overall pharmaceutical and biotech sector;
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major catastrophic events;
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significant dilution caused by the anti-dilutive clauses
in our financial agreements;
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departures of key personnel;
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delay or failure in initiating or completing preclinical
or clinical trials or unsatisfactory results of these trials;
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changes in the regulatory status of our immunotherapies;
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litigation and other developments relating to our patents
or other proprietary rights or those of our competitors;
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events affecting existing or future collaborators including
licensors and manufacturers;
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announcements of new products or technologies, commercial
relationships, results of clinical trials, regulatory approvals, new product introductions or other relevant events by us or our
competitors;
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legislative and/or regulatory developments in the United
States and other countries;
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failure of our common stock or warrants to be listed
or quoted on the NASDAQ Capital Market or other national market systems;
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changes in accounting principles; and
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change in securities analysts’ estimates of our
performance, or our failure to meet analysts’ expectations.
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Many of these factors are beyond our control.
The stock markets in general, and the market for pharmaceutical and biotechnological companies in particular, have historically
experienced extreme price and volume fluctuations. These fluctuations often have been unrelated or disproportionate to the operating
performance of these companies. These broad market and industry factors could reduce the market price of our common stock, regardless
of our actual operating performance.
In the past, following periods of volatility
in the market price of a company’s securities, securities class action litigation has often been brought against that company.
Due to the potential volatility of our stock price, we may therefore be the target of securities litigation in the future. Securities
litigation could result in substantial costs and divert management’s attention and resources from our business.
Sales of additional equity securities
may adversely affect the market price of our common stock and your rights may be reduced.
We expect to continue to incur drug development
and selling, general and administrative costs, and to satisfy our funding requirements, we will need to sell additional equity
securities, which may be subject to registration rights and warrants with anti-dilutive protective provisions. The sale or the
proposed sale of substantial amounts of our common stock or other equity securities in the public markets may adversely affect
the market price of our common stock and our stock price may decline substantially. Our stockholders may experience substantial
dilution and a reduction in the price that they are able to obtain upon sale of their shares. Also, new equity securities issued
may have greater rights, preferences or privileges than our existing common stock.
Additional authorized shares of common
stock available for issuance may adversely affect the market price of our securities.
We are currently authorized to issue 100,000,000
shares of common stock. As of May 31, 2016, we had 28,767,582 shares of our common stock issued and outstanding, excluding shares
issuable upon exercise of our outstanding options. To the extent the shares of common stock are issued or options are exercised,
holders of our common stock will experience dilution. In addition, in the event of any future financing of equity securities or
securities convertible into or exchangeable for, common stock, holders of our common stock may experience dilution. As of May
31, 2016, we had outstanding options to purchase 4,582,543 shares of our common stock at a weighted average exercise price of
approximately $4.22 per share.