Table
of Contents
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Page
Number
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FORWARD-LOOKING
STATEMENTS
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1
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PROSPECTUS
SUMMARY
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3
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RISK
FACTORS
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7
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| RECENT
DEVELOPMENTS |
17
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BUSINESS
|
18
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MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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33
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DIRECTORS
AND EXECUTIVE OFFICERS
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40
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EXECUTIVE
COMPENSATION
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43
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SECURITY
OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND
MANAGEMENT
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46
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SELLING
STOCKHOLDERS
|
48
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USE
OF PROCEEDS
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50
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PLAN
OF DISTRIBUTION
|
51
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DESCRIPTION
OF SECURITIES
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53
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MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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54
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DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES
AND LIABILITIES
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55
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EXPERTS
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55
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LEGAL
MATTERS
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55
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INDEX
TO FINANCIAL PAGES
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F-1
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CONSOLIDATED
FINANCIAL STATEMENTS
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F-3
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You
should rely only on the information contained or incorporated by reference
in
this prospectus and in any accompanying prospectus supplement. We have not
authorized anyone to provide you with different information.
We
have
not authorized the selling stockholder to make an offer of these shares of
common stock in any jurisdiction where the offer is not permitted.
You
should not assume that the information in this prospectus or prospectus
supplement is accurate as of any date other than the date on the front of
this
prospectus.
FORWARD-LOOKING
STATEMENTS
The
information contained in this prospectus, including the information incorporated
by reference into this prospectus, includes forward-looking statements as
defined in the Private Securities Reform Act of 1995. These forward-looking
statements are often identified by words such as “may,” “will,” “expect,”
“intend,” “anticipate,” “believe,” “estimate,” “continue,” “plan” and similar
expressions. These statements involve estimates, assumptions and uncertainties
that could cause actual results to differ materially from those expressed
for
the reasons described in this prospectus. You should not place undue reliance
on
these forward-looking statements.
You
should be aware that our actual results could differ materially from those
contained in the forward-looking statements due to a number of factors,
including:
| · |
significant
uncertainty inherent in developing vaccines against bioterror threats,
and
manufacturing and conducting preclinical and clinical trials of
vaccines;
|
| · |
our
ability to obtain regulatory
approvals;
|
| · |
uncertainty
as to whether our technologies will be safe and
effective;
|
| · |
our
ability to make certain that our cash expenditures do not exceed
projected
levels;
|
| · |
our
ability to obtain future financing or funds when needed;
|
| · |
that
product development and commercialization efforts will be reduced
or
discontinued due to difficulties or delays in clinical trials or
a lack of
progress or positive results from research and development efforts;
|
| · |
our
ability to successfully obtain further grants and awards from the
U.S.
Government and other countries, and maintenance of our existing
grants;
|
| · |
our
ability to enter into any biodefense procurement contracts with
the U.S.
Government or other countries;
|
| · |
our
ability to patent, register and protect our technology from challenge
and
our products from competition;
|
| · |
maintenance
or expansion of our license agreements with our current licensors;
|
| · |
maintenance
of a successful business strategy;
|
| · |
the
FDA not considering orBec® approvable based upon existing studies because
orBec® did not achieve statistical significance in its primary endpoint
in
the pivotal Phase III clinical study (i.e. a p-value of less than
or equal
to 0.05);
|
| · |
orBec®
may not show therapeutic effect or an acceptable safety profile
in future
clinical trials, if required, or could take a significantly longer
time to
gain regulatory approval than we expect or may never gain approval;
|
| · |
we
are dependent on the expertise, effort, priorities and contractual
obligations of third parties in the clinical trials, manufacturing,
marketing, sales and distribution of our
products;
|
| · |
orBec®
may not gain market acceptance; and
|
| · |
others
may develop technologies or products superior to our
products.
|
You
should also consider carefully the statements under "Risk Factors" and other
sections of this prospectus, which address additional factors that could
cause
our actual results to differ from those set forth in the forward-looking
statements and could materially and adversely affect our business, operating
results and financial condition. All subsequent written and oral forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the applicable cautionary statements.
The
forward-looking statements speak only as of the date on which they are made,
and, except to the extent required by federal securities laws, we undertake
no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which the statement is made or to reflect
the
occurrence of unanticipated events. In addition, we cannot assess the impact
of
each factor on our business or the extent to which any factor, or combination
of
factors, may cause actual results to differ materially from those contained
in
any forward-looking statements.
PROSPECTUS
SUMMARY
The
Company
We
are a
research and development biopharmaceutical company focused on the development
of
biodefense vaccines and oral therapeutic products intended for areas of unmet
medical need. Our business strategy is to (a) prepare the submission of a
New
Drug Application, (“NDA”) for orBec® with the U.S. Food and Drug
Administration, (“FDA”) for the treatment of gastrointestinal Graft-versus-Host
Disease, “GVHD” as well as to prepare submission of a Marketing Authorization
Application (“MAA”) with the European Central Authority, European Medicine
Agency (“EMEA”); (b) consider prophylactic use studies of orBec® for
the prevention of gastrointestinal GVHD; (c) evaluate and possibly initiate
additional clinical trials to explore the effectiveness of oral BDP
(orBec®) in other therapeutic indications involving inflammatory
conditions of the gastrointestinal tract; (d) identify a marketing and sales
partner for orBec® for territories outside of the U.S., and
potentially inside the U.S.; (e) secure government funding for each of our
biodefense programs through grants, contracts, and procurements; (f) convert
the
biodefense vaccine programs from early stage development to advanced development
and manufacturing; (g) transition the biodefense vaccine development programs
from academic institutions into commercial manufacturing facilities with
the
goal of soliciting government contracts; (h) identify the development candidates
for botulinum therapeutic screening program; (i) reinitiate development of
our
other biotherapeutics products namely OraprineTM,
LPMTM-Leuprolide, and LPETM and PLPTM Systems
for Delivery of Water-Insoluble Drugs when resources permit; and (j) acquire
or
in-license new clinical-stage compounds for development.
Our
principal executive offices are located at Lincoln Building, 1691 Michigan
Ave.,
Miami, Florida 33139 and our telephone number is 305-534-3383.
orBec®
Our
goal
is to file an NDA with the FDA for orBec® for the treatment of
gastrointestinal GVHD in the second quarter of 2006. We have assembled an
experienced team of employees and contractors who are currently working on
all
aspects of the NDA preparation, including data management, data analysis,
and
biostatistics medical writing. Manufacturing of the requisite batches of
drug
product (registration batches) is completed and these batches are currently
undergoing stability testing.
We
anticipate the market potential for orBec® for the treatment of
gastrointestinal GVHD to be between 50 and 70 percent of the approximately
10,000 bone marrow and stem cell transplants that occur each year in the
U.S.
We
have
had strategic discussions with a number of pharmaceutical companies regarding
the partnering or sale of orBec®. We may seek a marketing partner in
the U.S. and abroad in anticipation of commercialization of orBec®.
We also intend to seek a partner for the other potential indications of
orBec®. We are also evaluating an alternative strategy of a
commercial launch of orBec® by ourselves in the U.S.
RiVax™
The
development of RiVaxTM, our ricin toxin vaccine, has progressed
significantly this year. Our academic partner, The University of Texas
Southwestern led by Dr. Ellen Vitetta, recently completed a Phase I safety
and
immunogenicity trial of RiVaxTM in human volunteers. The results of
the Phase I safety and immunogenicity dose-escalation study indicate that
the
vaccine is well tolerated and induces antibodies in humans that neutralize
ricin
toxin. The outcome of the study was recently published in the online edition
of
the Proceedings of the National Academy of Sciences. In January of 2005,
we
entered into a manufacturing and supply agreement for RiVax™ with Cambrex
Corporation. We recently announced that Cambrex has successfully achieved
the
second milestone of fermentation and downstream process development under
their
development and manufacturing agreement.
Botulinum
Programs
BT-VACC™
Our
mucosal botulinum toxin vaccine program has made important strides this year.
We
are developing a mucosal vaccine against botulinum neurotoxins serotypes
A, B
and E, which account for almost all human cases of disease. We have identified
lead antigens against serotypes A, B and E consisting of the Hc50 fragment
of
the botulinum toxin. Our preclinical data to date demonstrates that Hc50,
A and
B are completely effective at low, mid and high doses as an intranasal vaccine
and completely effective at the higher dose level orally in mice and rats.
Ongoing studies are focused on serotype E and multivalent immunization
experiments using serotype A, B and E antigens given simultaneously to animals.
Further, we are engaged in formulation work to create a microencapsulated,
enterically formulated oral dosage form, which we anticipate will be a more
active and stable oral formulation improving immunogenicity and potency.
To
date, much of the preclinical work is being conducted at Thomas Jefferson
University under a sponsored research agreement funded by us. We have applied
for, and intend to continue to apply for, research grants and contracts from
the
U.S. government to continue development of this vaccine. We have also recently
entered into a joint development agreement with Dowpharma, a business unit
of
the Dow Chemical Company. Dowpharma is providing process development leading
to
current Good Manufacturing Practices (cGMP) production services for BT-VACC™
using its Pfēnex Expression TechnologyTM, a high yield expression
system based on Pseudomonas fluorescens. Up to this point we have
successfully demonstrated successful high expression of soluble material
from
all three Hc50 vaccine candidates.
Botulinum
Toxic Therapeutics
In
2005,
we entered into an agreement with Blue Dolphin, LLC, a firm specializing
in
rational drug development, to apply computer-aided design to the discovery
of
small molecule drugs to counter Botulinum toxin exposure. Under the agreement,
Blue Dolphin is exploring novel drug-like inhibitors of Botulinum toxin by
targeting a new site on the toxin's structure. Candidate molecules will be
modeled for structural and chemical fit to the target site on the toxin using
computer aided discovery techniques. The best fitting molecules will be
experimentally tested for their effectiveness in treating Botulinum toxin
exposure. By focusing on the structure of the Botulinum toxin, as opposed
to
derivatives of previously known inhibitors, this "virtual screening" will
allow
DOR to target new parts of the toxin with new candidate inhibitors. To
date, we have identified several lead inhibitors. Planned studies will focus
on
initial profiling of hits and validation testing for activity against botulinum
toxin exposure, in addition to investigating the mechanism of action of
confirmed quality hits.
We
will
apply for research grants and contracts from the U.S. government to continue
development of these programs. The goal of our biodefense programs is to
supply
the United States government with qualified countermeasures that can protect
citizens against ricin toxin and botulinum toxin exposure.
Recent
Developments
On
October 28, 2005, we entered into a binding letter of intent to acquire
Gastrotech Pharma A/S (“Gastrotech”), a private Danish biotechnology company
developing therapeutics based on gastrointestinal peptide hormones to treat
gastrointestinal and cancer diseases and conditions. On January 26, 2006,
we
advised Gastrotech that we were not renewing the letter of intent, which
had
expired in accordance with its terms on January 15, 2006. The letter of intent
provided for a $1 million break-up fee in the event a party notifies the
other
of its intention not to proceed with the transaction. On January 30, 2006,
we
were advised by the attorney representing Gastrotech that if we were not
willing
to comply with the terms of the letter of intent, we would be in material
breach
of our obligations under the letter of intent and would be obligated to pay
Gastrotech a break-up fee of $1 million. Our position is that we do not owe
Gastrotech such break-up fee.
On
January 17, 2006, we entered into a common stock purchase agreement with
Fusion
Capital Fund II, LLC (“Fusion Capital”), pursuant to which Fusion Capital
agreed, under certain conditions, to purchase on each trading day $20,000
of our
common stock up to an aggregate of $6.0 million over approximately a 15-month
period, subject to earlier termination at our discretion. We have sold 329,540
shares of common stock to Fusion Capital. Pursuant to the terms of our April
2006 private placement, we may not sell any additional shares to Fusion Capital
until the earlier to occur of (i) seven business days after an FDA advisory
panel meeting regarding the New Drug Application for orBec® or (ii) the date the
FDA responds to the New Drug Application for orBec®. If and when we resume
selling stock to Fusion Capital, we may elect to sell less of our common
stock
than the daily amount, and we may increase the daily amount as the market
price
of our stock increases. We will sell our shares of common stock to Fusion
Capital based upon the future market price of the common stock. Fusion Capital
does not have the right or the obligation to purchase shares of our common
stock
in the event that the price of our common stock is less than $0.12. Under
the
terms of the common stock purchase agreement, we issued to Fusion Capital
450,000 shares of our common stock as a partial commitment fee upon entering
into the agreement. Fusion Capital also received an additional 450,000
commitment shares.
On
April
10, 2006, we completed the sale of an aggregate of 13,099,964 shares of our
common stock to institutional and other accredited investors for an aggregate
purchase price of $3,630,000. The investors also received warrants to purchase
an aggregate of 13,099,964 shares of our common stock at an exercise price
of
$0.45 per share. The warrants are exercisable for a period of three years
commencing on April 10, 2006. Pursuant to a registration rights agreement,
we
agreed to file this registration statement with the Securities and Exchange
Commission in order to register the resale of the shares.
On
May
10, 2006, we completed a merger pursuant to which our subsidiary, Enteron
Pharmaceuticals, Inc. (“Enteron”), the common stock of which we held 89.13%
prior to the merger, was merged into our wholly-owned subsidiary. Pursuant
to
this transaction, we issued 3,068,183 shares of our common stock to the former
shareholders of Enteron (“Enteron Shareholders”) in exchange for all of the
outstanding common stock of Enteron that we did not already own.
As
of May
5, 2006, there were 65,395,814 shares outstanding, including the 13,099,964
shares of our common stock offered by the Selling Stockholders pursuant to
this
prospectus. The number of shares offered by this prospectus, including the
14,461,672 shares of our common stock underlying the Warrants, represent
approximately 37% of the total common stock outstanding as of May 5, 2006,
assuming such Warrants were fully exercised and the shares issued to the
Enteron
Shareholders were already issued.
The
Selling Stockholders may sell these shares in the over-the-counter market
or
otherwise, at market prices prevailing at the time of sale, at prices related
to
the prevailing market price, or at negotiated prices. We will not receive
any
proceeds from the sale of shares by the Selling Stockholders.
We
are
also registering for sale any additional shares of common stock which may
become
issuable by reason of any stock dividend, stock split, recapitalization or
other
similar transaction effected without the receipt of consideration, which
results
in an increase in the number of outstanding shares of our common
stock.
Risk
Factors
You
should carefully consider the risks, uncertainties and other factors described
below before you decide whether to buy shares of our common stock. Any of
the
factors could materially and adversely affect our business, financial condition,
operating results and prospects and could negatively impact the market price
of
our common stock. Also, you should be aware that the risks and uncertainties
described below are not the only ones we face. 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
prospectus, including our financial statements and the related
notes.
Risks
Related to our industry
We
have had significant losses and anticipate future losses; if additional funding
cannot be obtained, we may reduce or discontinue our product development
and
commercialization efforts and we may be unable to continue our
operations.
We
are a
company that has experienced significant losses since inception and have
a
significant accumulated deficit. We expect to incur additional operating
losses
in the future and expect our cumulative losses to increase. As of March 31,
2006, we had approximately $328,109 in cash available. On April 10, 2006,
we
completed the sale of an aggregate of 13,099,964 shares of our common stock
to
institutional and other accredited investors for an aggregate purchase price
of
$3,630,000. On January 17, 2006, we entered into a common stock purchase
agreement with Fusion Capital Fund II, LLC (“Fusion Capital”), pursuant to which
Fusion Capital agreed, under certain conditions, to purchase on each trading
day
$20,000 of our common stock up to an aggregate of $6.0 million over
approximately a 15-month period, subject to earlier termination at our
discretion. We have sold 329,540 shares of common stock to Fusion Capital.
Pursuant to the terms of our April 2006 private placement, we may not sell
any
additional shares to Fusion Capital without the prior consent of
Iroquois until the earlier to occur of (i) seven business days after an FDA
advisory panel meeting regarding the New Drug Application for orBec® or (ii) the
date the FDA responds to the New Drug Application for orBec®. If and when we
resume selling stock to Fusion Capital, we may elect to sell less of our
common
stock than the daily amount, and we may increase the daily amount as the
market
price of our stock increases. We will sell our shares of common stock to
Fusion
Capital based upon the future market price of the common stock. Fusion Capital
does not have the right or the obligation to purchase shares of our common
stock
in the event that the price of our common stock is less than $0.12. We only
have
the right to receive $20,000 per trading day under the agreement with Fusion
Capital unless our stock price equals or exceeds $0.40, in which case the
daily
amount may be increased under certain conditions as the price of our common
stock increases. Fusion Capital shall not have the right nor the obligation
to
purchase any shares of our common stock on any trading days that the market
price of our common stock is less than $0.12. Since we initially registered
9,000,000 shares for sale by Fusion Capital pursuant to this prospectus
(excluding the 900,000 commitment fee shares and 62,500 expense reimbursement
shares that we have registered), the selling price of our common stock to
Fusion
Capital will have to average at least $0.67 per share for us to receive the
maximum proceeds of $6.0 million without registering additional shares of
common
stock. Assuming a purchase price of $0.32 per share (the closing sale price
of
the common stock on May 5, 2006), proceeds to us would only be $2,880,000
unless
we choose to register more than 9,962,500 shares, which we have the right
to do.
Subject to approval by our board of directors, we have the right under the
common stock purchase agreement to issue more than 9,962,500 shares to Fusion
Capital. In the event we elect to issue more than 9,962,500 shares offered
hereby, we will be required to file a new registration statement and have
it
declared effective by the U.S. Securities and Exchange Commission. Based
on our
budgetary projections of $3,700,000 over the next 12 months, this facility,
if
we are able to utilize it per the restriction imposed by our April 2006 private
placement, will allow us to continue and maintain operations into the 2nd
quarter of 2007. In addition, our existing NIH biodefense grant facilities
provide us with significant overhead contributions to continue to operate
and
manage our business. We estimate that the overhead revenue contribution from
our
existing NIH biodefense grants will generate an additional $550,000 over
the
next four quarters. The Company also has several other grant applications
currently under review that would allow the Company to significantly expand
the
pace and scope of development of its biodefense programs as well as make
additional significant contributions to overhead.
All
of
our products are currently in development, preclinical studies or clinical
trials, and we have not generated any revenues from sales or licensing of
these
products. Through March 31, 2006, we had expended approximately $13,800,000
developing our current product candidates for preclinical research and
development and clinical trials, and we currently expect to spend at least
$5.0
million over the next two years in connection with the development and
commercialization of our vaccines and therapeutic products, licenses, employee
agreements, and consulting agreements. Unless and until we are able to generate
sales or licensing revenue from orBec®, our leading product candidate, or
another one of our product candidates, we may require additional funding
to meet
these commitments, sustain our research and development efforts, provide
for
future clinical trials, and continue our operations. We may not be able to
obtain additional required funding on terms satisfactory to our requirements,
if
at all. If we are unable to raise additional funds when necessary, we may
have
to reduce or discontinue development, commercialization or clinical testing
of
some or all of our product candidates or take other cost-cutting steps that
could adversely affect our ability to achieve our business objectives. If
additional funds are raised through the issuance of equity securities,
stockholders may experience dilution of their ownership interests, and the
newly
issued securities may have rights superior to those of the common stock.
If
additional funds are raised by the issuance of debt, we may be subject to
limitations on our operations.
We
may
not be able to obtain additional required funding on terms satisfactory to
our
requirements, if at all. If we are unable to raise funds when necessary,
we may
have to reduce or discountinue development, commercialization or clinical
testing of some or all of our product candidates or take other cost cutting
steps that could adversely affect our ability to achieve our business
objectives. If additional funds are raised though the issuance of equity
securities, stockholders may experience dilution of their ownership interests,
and the newly issued securities may have rights superior to those of the
common
stock. If additional funds are raised by the issuance of debt, we may be
subject
to limitations on our operations.
If
we are unsuccessful in developing our products, our ability to generate revenues
will be significantly impaired.
To
be
profitable, our organization must, along with corporate partners and
collaborators, successfully research, develop and commercialize our technologies
or product candidates. Our current product candidates are in various stages
of
clinical and preclinical development and will require significant further
funding, research, development, preclinical and/or clinical testing, regulatory
approval and commercialization, and are subject to the risks of failure inherent
in the development of products based on innovative or novel technologies.
Specifically, each of the following is possible with respect to any of our
other
product candidates:
| · |
we
will not be able to maintain our current research and development
schedules;
|
| · |
we
may be unsuccessful in our efforts to secure profitable procurement
contracts from the U.S. government or others for our biodefense
products;
|
| · |
we
will encounter problems in clinical trials; or
|
| · |
the
technology or product will be found to be ineffective or unsafe.
|
If
any of
the risks set forth above occurs, or if we are unable to obtain the necessary
regulatory approvals as discussed below, we may not be able to successfully
develop our technologies and product candidates and our business will be
seriously harmed. Furthermore, for reasons including those set forth below,
we
may be unable to commercialize or receive royalties from the sale of any
other
technology we develop, even if it is shown to be effective, if:
| · |
it
is uneconomical or the market for the product does not develop
or
diminishes;
|
| · |
we
are not able to enter into arrangements or collaborations to manufacture
and/or market the product;
|
| · |
the
product is not eligible for third-party reimbursement from government
or
private insurers;
|
| · |
others
hold proprietary rights that preclude us from commercializing the
product;
|
| · |
others
have brought to market similar or superior products; or
|
| · |
the
product has undesirable or unintended side effects that prevent
or limit
its commercial use.
|
Our
business is subject to extensive governmental regulation, which can be costly,
time consuming and subjects us to unanticipated
delays.
Our
business is subject to very stringent United States, federal, foreign, state
and
local government laws and regulations, including the Federal Food, Drug and
Cosmetic Act, the Environmental Protection Act, the Occupational Safety and
Health Act, and state and local counterparts to these acts. These laws and
regulations may be amended, additional laws and regulations may be enacted,
and
the policies of the FDA and other regulatory agencies may change.
The
regulatory process applicable to our products requires pre-clinical and clinical
testing of any product to establish its safety and efficacy. This testing
can
take many years and require the expenditure of substantial capital and other
resources. We may be unable to obtain, or we may experience difficulties
and
delays in obtaining, necessary domestic and foreign governmental clearances
and
approvals to market a product. Also, even if regulatory approval of a product
is
granted, that approval may entail limitations on the indicated uses for which
the product may be marketed. The pivotal clinical trial of our product candidate
orBec® began in 2001. In December of 2004, we announced top line
results for our pivotal Phase III trial of orBec® in iGVHD, in which
orBec® demonstrated a statistically significant reduction in
mortality during the prospectively defined Day 200 post-transplant period
and
positive trends on its primary endpoint. While orBec® did not achieve
statistical significance in its primary endpoint of time to treatment failure
at
Day 50 (p-value 0.1177), orBec® did achieve a statistically
significant reduction in mortality compared to placebo. We plan to file a
new
drug application with the FDA. In addition, we may need to conduct additional
clinical trials prior to either submission or approval by the FDA of a marketing
application.
Following
any regulatory approval, a marketed product and its manufacturer are subject
to
continual regulatory review. Later discovery of problems with a product or
manufacturer may result in restrictions on such product or manufacturer.
These
restrictions may include withdrawal of the marketing approval for the product.
Furthermore, the advertising, promotion and export, among other things, of
a
product are subject to extensive regulation by governmental authorities in
the
United States and other countries. If we fail to comply with applicable
regulatory requirements, we may be subject to fines, suspension or withdrawal
of
regulatory approvals, product recalls, seizure of products, operating
restrictions and/or criminal prosecution.
There
may be unforeseen challenges in developing biodefense
products.
For
development of biodefense vaccines and therapeutics, the FDA has instituted
policies that are expected to result in accelerated approval. This includes
approval for commercial use using the results of animal efficacy trials,
rather
than efficacy trials in humans. However, we will still have to establish
that
the vaccine and countermeasures it is developing are safe in humans at doses
that are correlated with the beneficial effect in animals. Such clinical
trials
will also have to be completed in distinct populations that are subject to
the
countermeasures; for instance, the very young and the very old, and in pregnant
women, if the countermeasure is to be licensed for civilian use. Other agencies
will have an influence over the risk benefit scenarios for deploying the
countermeasures and in establishing the number of doses utilized in the
Strategic National Stockpile. We may not be able to sufficiently demonstrate
the
animal correlation to the satisfaction of the FDA, as these correlates are
difficult to establish and are often unclear. Invocation of the two animal
rule
may raise issues of confidence in the model systems even if the models have
been
validated. For many of the biological threats, the animal models are not
available and we may have to develop the animal models, a time-consuming
research effort. There are few historical precedents, or recent precedents,
for
the development of new countermeasure for bioterrorism agents. Despite the
two
animal rule, the FDA may require large clinical trials to establish safety
and
immunogenicity before licensure and it may require safety and immunogenicity
trials in additional populations. Approval of biodefense products may be
subject
to post-marketing studies, and could be restricted in use in only certain
populations.
We
will be dependent on government funding, which is inherently uncertain, for
the
success of our biodefense operations.
We
are
subject to risks specifically associated with operating in the biodefense
industry, which is a new and unproven business area. We do not anticipate
that a
significant commercial market will develop for our biodefense products. Because
we anticipate that the principal potential purchasers of these products,
as well
as potential sources of research and development funds, will be the U.S.
government and governmental agencies, the success of our biodefense division
will be dependent in large part upon government spending decisions. The funding
of government programs is dependent on budgetary limitations, congressional
appropriations and administrative allotment of funds, all of which are
inherently uncertain and may be affected by changes in U.S. government policies
resulting from various political and military developments.
Our
products, if approved, may not be commercially viable due to health care
changes
and third party reimbursement limitations.
Recent
initiatives to reduce the federal deficit and to change health care delivery
are
increasing cost-containment efforts. We anticipate that Congress, state
legislatures and the private sector will continue to review and assess
alternative benefits, controls on health care spending through limitations
on
the growth of private health insurance premiums and Medicare and Medicaid
spending, price controls on pharmaceuticals, and other fundamental changes
to
the health care delivery system. Any changes of this type could negatively
impact the commercial viability of our products, if approved. Our ability
to
successfully commercialize our product candidates, if they are approved,
will
depend in part on the extent to which appropriate reimbursement codes and
authorized cost reimbursement levels of these products and related treatment
are
obtained from governmental authorities, private health insurers and other
organizations, such as health maintenance organizations. In the absence of
national Medicare coverage determination, local contractors that administer
the
Medicare program may make their own coverage decisions. Any of our product
candidates, if approved and when commercially available, may not be included
within the then current Medicare coverage determination or the coverage
determination of state Medicaid programs, private insurance companies or
other
health care providers. In addition, third-party payers are increasingly
challenging the necessity and prices charged for medical products, treatments
and services.
We
may not be able to retain rights licensed to us by third parties to
commercialize key products or to develop the third party relationships we
need
to develop, manufacture and market our
products.
We
currently rely on license agreements from, the University of Texas Southwestern
Medical Center, The University of Texas Medical Branch at Galveston, Thomas
Jefferson University, Southern Research Institute, the University of Alabama
Research Foundation, and George B. McDonald M.D. for the rights to commercialize
key product candidates. We may not be able to retain the rights granted under
these agreements or negotiate additional agreements on reasonable terms,
or at
all.
Furthermore,
we currently have very limited product development capabilities and no
manufacturing, marketing or sales capabilities. For us to research, develop
and
test our product candidates, we need to contract or partner with outside
researchers, in most cases with or through those parties that did the original
research and from whom we have licensed the technologies. If products are
successfully developed and approved for commercialization, then we will need
to
enter into collaboration and other agreements with third parties to manufacture
and market our products. We may not be able to induce the third parties to
enter
into these agreements, and, even if we are able to do so, the terms of these
agreements may not be favorable to us. Our inability to enter into these
agreements could delay or preclude the development, manufacture and/or marketing
of some of our product candidates or could significantly increase the costs
of
doing so. In the future, we may grant to our development partners rights
to
license and commercialize pharmaceutical and related products developed under
the agreements with them, and these rights may limit our flexibility in
considering alternatives for the commercialization of these products.
Furthermore, third-party manufacturers or suppliers may not be able to meet
our
needs with respect to timing, quantity and quality for the products.
Additionally,
if we do not enter into relationships with third parties for the marketing
of
our products, if and when they are approved and ready for commercialization,
we
would have to build our own sales force. Development of an effective sales
force
would require significant financial resources, time and expertise. We may
not be
able to obtain the financing necessary to establish a sales force in a timely
or
cost effective manner, if at all, and any sales force we are able to establish
may not be capable of generating demand for our product candidates, if they
are
approved.
We
may suffer product and other liability claims; we maintain only limited product
liability insurance, which may not be
sufficient.
The
clinical testing, manufacture and sale of our products involves an inherent
risk
that human subjects in clinical testing or consumers of our products may
suffer
serious bodily injury or death due to side effects, allergic reactions or
other
unintended negative reactions to our products. As a result, product and other
liability claims may be brought against us. We currently have clinical trial
and
product liability insurance with limits of liability of $5 million, which
may
not be sufficient to cover our potential liabilities. Because liability
insurance is expensive and difficult to obtain, we may not be able to maintain
existing insurance or obtain additional liability insurance on acceptable
terms
or with adequate coverage against potential liabilities. Furthermore, if
any
claims are brought against us, even if we are fully covered by insurance,
we may
suffer harm such as adverse publicity.
We
may not be able to compete successfully with our competitors in the
biotechnology industry.
The
biotechnology industry is intensely competitive, subject to rapid change
and
sensitive to new product introductions or enhancements. Most of our existing
competitors have greater financial resources, larger technical staffs, and
larger research budgets than we have, as well as greater experience in
developing products and conducting clinical trials. Our competition is
particularly intense in the gastroenterology and transplant areas and is
also
intense in the therapeutic area of inflammatory bowel disease. We face intense
competition in the area of biodefense from various public and private companies
and universities as well as governmental agencies, such as the U.S. Army,
which
may have their own proprietary technologies that may directly compete with
our
technologies. In addition, there may be other companies that are currently
developing competitive technologies and products or that may in the future
develop technologies and products that are comparable or superior to our
technologies and products. We may not be able to compete successfully with
our
existing and future competitors.
We
may be unable to commercialize our products if we are unable to protect our
proprietary rights, and we may be liable for significant costs and damages
if we
face a claim of intellectual property infringement by a third
party.
Our
success depends in part on our ability to obtain and maintain patents, protect
trade secrets and operate without infringing upon the proprietary rights
of
others. In the absence of patent and trade secret protection, competitors
may
adversely affect our business by independently developing and marketing
substantially equivalent or superior products and technology, possibly at
lower
prices. We could also incur substantial costs in litigation and suffer diversion
of attention of technical and management personnel if we are required to
defend
ourselves in intellectual property infringement suits brought by third parties,
with or without merit, or if we are required to initiate litigation against
others to protect or assert our intellectual property rights. Moreover, any
such
litigation may not be resolved in our favor.
Although
we and our licensors have filed various patent applications covering the
uses of
our product candidates, patents may not be issued from the patent applications
already filed or from applications that we might file in the future. Moreover,
the patent position of companies in the pharmaceutical industry generally
involves complex legal and factual questions, and recently has been the subject
of much litigation. Any patents we have obtained, or may obtain in the future,
may be challenged, invalidated or circumvented. To date, no consistent policy
has been developed in the United States Patent and Trademark Office regarding
the breadth of claims allowed in biotechnology patents.
In
addition, because patent applications in the United States are maintained
in
secrecy until patents issue, and because publication of discoveries in the
scientific or patent literature often lags behind actual discoveries, we
cannot
be certain that we and our licensors are the first creators of inventions
covered by any licensed patent applications or patents or that we or they
are
the first to file. The Patent and Trademark Office may commence interference
proceedings involving patents or patent applications, in which the question
of
first inventorship is contested. Accordingly, the patents owned or licensed
to
us may not be valid or may not afford us protection against competitors with
similar technology, and the patent applications licensed to us may not result
in
the issuance of patents.
It
is
also possible that our patented technologies may infringe on patents or other
rights owned by others, licenses to which may not be available to us. We
may not
be successful in our efforts to obtain a license under such patent on terms
favorable to us, if at all. We may have to alter our products or processes,
pay
licensing fees or cease activities altogether because of patent rights of
third
parties.
In
addition to the products for which we have patents or have filed patent
applications, we rely upon unpatented proprietary technology and may not
be able
to meaningfully protect our rights with regard to that unpatented proprietary
technology. Furthermore, to the extent that consultants, key employees or
other
third parties apply technological information developed by them or by others
to
any of our proposed projects, disputes may arise as to the proprietary rights
to
this information, which may not be resolved in our favor.
Our
business could be harmed if we fail to retain our current personnel or if
they
are unable to effectively run our business.
We
have
only eight employees and we depend upon these employees to manage the day-to-day
activities of our business. Because we have such limited personnel, the loss
of
any of them or our inability to attract and retain other qualified employees
in
a timely manner would likely have a negative impact on our operations. Michael
Sember, Chief Executive Officer, was hired in December 2004; Evan
Myrianthopoulos, our Chief Financial Officer, was hired in November 2004,
although he was on the Board for two years prior to that; James Clavijo,
our
Controller, Treasurer and Corporate Secretary was hired in October 2004;
and Dr.
Robert Brey, our Chief Scientific Officer was hired in 1996. In the fourth
quarter of 2004, Alexander P. Haig was appointed Chairman of the Board replacing
his father, General (Ret.) Alexander M. Haig, Jr., who resigned from our
Board
and joined our BioDefense Strategic Advisory Board. Because of this inexperience
in operating our business, there continues to be significant uncertainty
as to
how our management team will perform. We will not be successful if this
management team cannot effectively manage and operate our business. Several
members of our board of directors are associated with other companies in
the
biopharmaceutical industry. Stockholders should not expect an obligation
on the
part of these board members to present product opportunities to us of which
they
become aware outside of their capacity as members of our board of
directors.
Risks
Related to our Common Stock
Our
stock price is highly volatile.
The
market price of our common stock, like that of many other research and
development public pharmaceutical and biotechnology companies, has been highly
volatile and may continue to be so in the future due to a wide variety of
factors, including:
| · |
announcements
of technological innovations, more important bio-threats or new
commercial
therapeutic products by us, our collaborative partners or our present
or
potential competitors;
|
| · |
our
quarterly operating results and
performance;
|
| · |
announcements
by us or others of results of pre-clinical testing and clinical
trials;
|
| · |
developments
or disputes concerning patents or other proprietary
rights;
|
| · |
litigation
and government proceedings;
|
| · |
changes
in government regulations;
|
| · |
economic
and other external factors; and
|
| · |
general
market conditions
|
Our
stock
price has fluctuated between April 1, 2002 through March 31, 2006, the per
share
price of our common stock ranged between a high of $1.71 per share to a low
of
$0.11 per share. As of May 5, 2006 our common stock traded at $0.32. The
fluctuation in the price of our common stock has sometimes been unrelated
or
disproportionate to our operating performance.
Our
stock has been delisted from the American Stock
Exchange
On
April
18, 2006 our stock was delisted from the AMEX and we began trading on the
Over-the-Counter Bulletin Board (“OTCBB”) under the ticker symbol DORB. We were
delisted shortly after March 31, 2006 since we had not increased our shareholder
equity above the $6,000,000 required under the maintenance requirement for
continued listing.
Because
we incurred losses from operations in fiscal 2005, the stockholders’ equity
standard applicable to us of the American Stock Exchange’s (AMEX) continued
listing requirements is $6,000,000. As of December 31, 2005, we had
stockholders’ equity of $1,530,000.
Upon
delisting, our common stock is subject to the penny stock rules of the SEC,
which generally are applicable to equity securities with a price of less
than
$5.00 per share, other than securities registered on certain national securities
exchanges or quoted on the NASDAQ system, provided that current price and
volume
information with respect to transactions in such securities is provided by
the
exchange or system. The penny stock rules require a broker-dealer, before
a
transaction in a penny stock not otherwise exempt from the rules, to deliver
a
standardized risk disclosure document prepared by the SEC that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with bid and
ask
quotations for the penny stock, the compensation of the broker-dealer and
its
salesperson in the transaction and monthly account statements showing the
market
value of each penny stock held in the customer’s account. In addition, the penny
stock rules require that, before a transaction in a penny stock that is not
otherwise exempt from such rules, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser’s written agreement to the transaction. As a result of
these requirements, the price of our common stock may decline and our
stockholders may find it more difficult to sell their shares.
Shareholders
may suffer substantial dilution
We
have a
number of agreements or obligations that may result in dilution to investors.
These include:
| · |
warrants
to purchase a total of approximately 36,600,000 shares of our common
stock
at a current weighted average exercise price of approximately $0.73;
|
| · |
anti-dilution
rights associated with a portion of the above warrants which can
permit
purchase of additional shares and/or lower exercise prices under
certain
circumstances; and
|
| · |
options
to purchase approximately 9,800,000 shares of our common stock
of a
current weighted average exercise price of approximately $0.61.
|
To
the
extent that anti-dilution rights are triggered, or warrants or options are
exercised, our stockholders will experience substantial dilution and our
stock
price may decrease.
The
purchase of our common stock by Fusion Capital may not be available when
we need
it, thus limiting our ability to continue our product development and
commercialization.
We
have
secured a $6,000,000 equity financing commitment from Fusion Capital. Under
the
terms of our April 2006 private placement, we may not access the funds
available
to us under the Fusion Capital commitment by selling our shares of common
stock
to Fusion Capital without consent from Iroquois Capital or until the earlier
to
occur of (i) seven business days after an FDA advisory panel meeting regarding
the New Drug Application for orBec® or (ii) the date the FDA responds to the New
Drug Application for orBec®. Our stock price must be above $0.12 in order for
Fusion Capital to purchase our shares of common stock. Thus, we may be
unable to
sell shares of our common stock to Fusion Capital when we need the funds,
and
that could severely harm our business and financial condition and our ability
to
continue to develop and commercialize our products if we are not able to
obtain
alternative financing.
Holders
of our common stock are subject to the risk of additional and substantial
dilution to their interests as a result of the issuances of common stock
to
Fusion Capital.
Shareholders
are subject to the risk of substantial dilution to their interests as a
result
of our issuance of shares to Fusion Capital under the common stock purchase
agreement. The issuance of shares to Fusion Capital under the common stock
purchase agreement will dilute the equity interest of existing stockholders
and
could have an adverse effect on the market price of our common stock. In
addition, in the event we elect to issue more than the 9,962,500 shares
previously issued, we will be required to file a new registration statement
and
have it declared effective by the SEC. If such registration were declared
effective by the SEC, Fusion Capital could also sell any shares registered
on
such a subsequent registration statement and this in turn would result
in
additional dilution to our other stockholders. If we elect to issue more
than
the 9,962,500 shares previously issued and the average price at which we
sell $6
million of our stock is $0.32 (the closing sale price of our common stock
on May
5, 2006) we would issue 18.7 million shares. We do not have the right to
sell
shares to Fusion Capital at a price below $0.12 per share and accordingly
we
could not issue more than 50,000,000 shares under the agreement.
The
purchase price for the common stock to be sold to Fusion Capital pursuant
to the
common stock purchase agreement will fluctuate based on the market price
of our
common stock. Fusion Capital may sell none, some or all of the registered
shares
of common stock purchased from us at any time. We expect that the registered
shares held by Fusion Capital will be sold over a period of in excess of
13
months from the date of this prospectus. Depending upon market liquidity
at the
time, a sale of such shares at any given time could cause the trading price
of
our common stock to decline. The sale of a substantial number of shares
of our
common stock, or anticipation of such sales, could make it more difficult
for us
to sell equity or equity-related securities in the future at a time and
at a
price that we might otherwise wish to effect sales.
Our
shares of common stock are thinly traded, so you may be unable to sell
at or
near ask prices or at all if you need to sell your shares to raise money
or
otherwise desire to liquidate your shares.
Our
common stock has from time to time been "thinly-traded," meaning that the
number
of persons interested in purchasing our common stock at or near ask prices
at
any given time may be relatively small or non-existent. This situation
is
attributable to a number of factors, including the fact that we are a small
company that is relatively unknown to stock analysts, stock brokers,
institutional investors and others in the investment community that generate
or
influence sales volume, and that even if we came to the attention of such
persons, they tend to be risk-averse and would be reluctant to follow an
unproven company such as ours or purchase or recommend the purchase of
our
shares until such time as we became more seasoned and viable. As a consequence,
there may be periods of several days or more when trading activity in our
shares
is minimal or non-existent, as compared to a seasoned issuer which has
a large
and steady volume of trading activity that will generally support continuous
sales without an adverse effect on share price. We cannot give you any
assurance
that a broader or more active public trading market for our common shares
will
develop or be sustained, or that current trading levels will be
sustained.
RECENT
DEVELOPMENTS
On
October 28, 2005, we entered into a binding letter of intent to acquire
Gastrotech, a private Danish biotechnology company developing therapeutics
based
on gastrointestinal peptide hormones to treat gastrointestinal and cancer
diseases and conditions. On January 26, 2006, we advised Gastrotech that
we were
not renewing the letter of intent, which had expired in accordance with its
terms on January 15, 2006. The letter of intent provided for a $1 million
break-up fee in the event a party notifies the other of its intention not
to
proceed with the transaction. On January 30, 2006, we were advised by the
attorney representing Gastrotech that if we were not willing to comply with
the
terms of the letter of intent, we would be in material breach of our obligations
under the letter of intent and would be obligated to pay Gastrotech a break-up
fee of $1 million. Our position is that we do not owe Gastrotech such break-up
fee.
On
January 17, 2006, we entered into a common stock purchase agreement with
Fusion
Capital Fund II, LLC (“Fusion Capital”), pursuant to which Fusion Capital
agreed, under certain conditions, to purchase on each trading day $20,000
of our
common stock up to an aggregate of $6.0 million over approximately a 15-month
period, subject to earlier termination at our discretion. As of May 5, 2006,
we
sold 329,540 shares of common stock to Fusion Capital. Pursuant to the terms
of
our April 2006 private placement, we may not sell any additional shares to
Fusion Capital without the consent of Iroquois Capital or until the earlier
to
occur of (i) seven business days after an FDA advisory panel meeting regarding
the New Drug Application for orBec® or (ii) the date the FDA responds to the New
Drug Application for orBec®. If and when we resume selling stock to Fusion
Capital, in our discretion, we may elect to sell less of our common stock
to
Fusion Capital than the daily amount, and we may increase the daily amount
as
the market price of our stock increases. We will sell our shares of common
stock
based upon the future market price of the common stock without any fixed
discount. Fusion Capital does not have the right or the obligation to purchase
shares of our common stock in the event that the price of our common stock
is
less than $0.12. Under the terms of the common stock purchase agreement,
we
issued to Fusion Capital 450,000 shares of our common stock as a partial
commitment fee upon entering into the agreement. Fusion Capital also received
an
additional 450,000 commitment shares.
On
April
10, 2006, we completed the issuance and sale of an aggregate of 13,099,964
shares of our common stock to institutional and other accredited investors
for
an aggregate purchase price of $3,630,000 pursuant to a securities purchase
agreement. The investors also received warrants to purchase an aggregate
of
13,099,964 shares of our common stock at an exercise price of $0.45 per share.
The warrants are exercisable for a period of three years commencing on April
10,
2006. Pursuant to a registration rights agreement, we agreed to file this
registration statement with the Securities and Exchange Commission in order
to
register the resale of the shares.
On
May
10, 2006, we completed a merger pursuant to which Enteron, the common stock
of
which we held 89.13% prior to the merger, was merged into a wholly-owned
subsidiary of ours. Pursuant to this transaction, we issued issue 3,068,183
shares of our common stock to the Enteron Shareholders in exchange for the
all
of the outstanding common stock of Enteron that we did not already
own.
BUSINESS
Overview
We
are a
research and development biopharmaceutical company focused on the development
of
biodefense vaccines and oral therapeutic products intended for areas of unmet
medical need. Our business strategy is to (a) prepare the submission of a
New
Drug Application, (“NDA”) for orBec® with the U.S. Food and Drug
Administration, (“FDA”) for the treatment of gastrointestinal Graft-versus-Host
Disease, “GVHD” as well as to prepare submission of a Marketing Authorization
Application (“MAA”) with the European Central Authority, European Medicine
Agency (“EMEA”); (b) consider prophylactic use studies of orBec® for
the prevention of gastrointestinal GVHD; (c) evaluate and possibly initiate
additional clinical trials to explore the effectiveness of oral BDP
(orBec®) in other therapeutic indications involving inflammatory
conditions of the gastrointestinal tract; (d) identify a marketing and sales
partner for orBec® for territories outside of the U.S., and
potentially inside the U.S.; (e) secure government funding for each of our
biodefense programs through grants, contracts, and procurements; (f) convert
the
biodefense vaccine programs from early stage development to advanced development
and manufacturing; (g) transition the biodefense vaccine development programs
from academic institutions into commercial manufacturing facilities with
the
goal of soliciting government contracts; (h) identify the development candidates
for botulinum therapeutic screening program; (i) reinitiate development of
our
other biotherapeutics products namely OraprineTM,
LPMTM-Leuprolide, and LPETM and PLPTM Systems
for Delivery of Water-Insoluble Drugs as when resources permit; and (j) acquire
or in-license new clinical-stage compounds for development. We were incorporated
in 1987. We maintain two active segments; BioTherapeutics and
BioDefense.
BioTherapeutics
Overview
Through
our BioTherapeutics Division, we are in the process of developing oral
therapeutic products to treat unmet medical needs. Our therapeutic product,
orBec® (oral beclomethasone dipropionate), has completed a
randomized, multi-center, double-blinded, placebo-controlled pivotal Phase
III
clinical trial for the treatment of acute gastrointestinal graft-vs-host
disease
(GVHD), a form of serious and life-threatening gastrointestinal inflammation
associated with allogeneic bone marrow or stem cell transplant therapy.
orBec® demonstrated a statistically significant reduction in
mortality during the prospectively defined Day 200 post-transplant period
and
positive trends on it’s primary endpoint. While orBec® did not
achieve statistical significance in its primary endpoint of time to treatment
failure at Day 50 (p-value 0.1177), orBec® did achieve a 70%
reduction in mortality compared to placebo (p-value 0.011). orBec® is
a highly potent, topically-active glucocorticoid. orBec® has
previously been granted Fast Track Designation and received Orphan Drug
Designation by the Food and Drug Administration (FDA) for the treatment of
gastrointestinal GVHD.
BioDefense
Overview
In
collaboration with two United States academic research institutions, we are
developing vaccine products to combat the threat posed by two potent biological
toxins; ricin toxin and botulinum toxin. Both vaccines under development
are
recombinant products in bacterial hosts and both consist of nontoxic subunits
of
the native toxins. These subunits retain the ability to induce antibodies
that
completely neutralize the toxins from which they are derived. Through exclusive
licenses with two Universities, we have secured important intellectual property
rights related to these vaccines. Both of which are considered bioterrorism
threats by the U.S. Department of Homeland Security (DHS), National Institute
of
Allergic and Infectious Diseases (NIAID), Department of Defense (DOD) and
Centers for Disease Control and Prevention (CDC). We are developing our
biodefense countermeasures for potential U.S. government procurement pursuant
to
the Project Bioshield Act of 2004, which provides incentives to industry
to
expeditiously supply biodefense countermeasures to the Strategic National
Stockpile. As a step towards this goal, on September 13, 2004, we were awarded
a
$5,173,298 grant from the National Institute of Allergy and Infectious Diseases
(NIAID) for RiVaxTM, our genetically engineered vaccine against ricin
toxin, one of the most lethal plant toxins known to man. This was increased
on
May 6, 2005, to $6,433,316. The increase of $1,260,018 was awarded based
on a
new renegotiated F&A rate with the NIH. The grants project period is
September 15, 2004 to August 31, 2007 and covers the process development
for
manufacturing of RiVaxTM our recombinant vaccine for ricin toxin. The
grant is based on milestones and certain budget amounts are earned as we
meet
milestones in the development of RiVaxTM.
On
January 30, 2006 we announced results of a Phase I clinical trial of
RiVaxTM our recombinant vaccine against ricin toxin, that has been
completed by investigators at the University of Texas Southwestern Medical
Center (UT Southwestern) led by Dr. Ellen Vitetta, director of the Cancer
Immunobiology Center at UT Southwestern. Results from the trial demonstrated
that RiVaxTM is safe and immunogenic after immunization with three
monthly injections of vaccine, with volunteers developing antibodies against
ricin toxin. The functional activity of the antibodies was confirmed by
transferring serum samples from the vaccinated volunteers into mice, which
then
survived exposure to ricin toxin. Results of the study were published in
the
Proceedings of the National Academy of Sciences. Under the sponsorship
of the NIH grant, we have developed a scaleable process for the manufacture
of
the subunit immunogen component of RiVax™, begun long term stability testing,
and have developed a second generation formulation of RiVax which will be
tested
in a Phase II trial.
Our
vaccine against botulinum neurotoxin, BT-VACC™, is a mucosally administered
vaccine that protects against exposure to botulinum neurotoxins. Botulinum
neurotoxin is the most potent natural toxin and is on the Category A list
of
biothreats. Based on promising preclinical results that demonstrate induction
of
protective immune responses via oral or intranasal vaccination, we anticipate
that BT-VACC™ can be developed as either a standalone vaccine or administered as
a booster to the current injected vaccines. We are developing BT-VACC™ to be
administered by the mucosal route since such vaccines induce more complete
protection than injected vaccines and are thought to protect better against
aerosol or oral exposure to botulinum neurotoxin. Since mucosally administered
formulations can be given without needles and trained personnel, we expect
that
that BT-VACC™ will be poised for rapid distribution and vaccination for military
use or civilian vaccination in response to bioterrorism. Any vaccine for
botulinum will have to be composed of multiple antigens representing several
natural serotypes. At this point, we have demonstrated that combinations
of
three serotypes can induce protective immune response in animals. The three
serotypes are A, B, and E, which represent the most common of the botulinum
serotypes and the ones most likely to be used as bioweapons. Our plans are
to
focus on development of the oral vaccine concept using formulation technology
that permits increased contact of the antigen with immune inductive sites
in the
GI tract, and alternatively develop the A-B-E trivalent vaccine as a nasal
spray
vaccine. . In conjunction with DOW Pharma, we have demonstrated that it will
be
feasible to manufacture the required antigens in a bacterial host (P.
fluorescens), and are anticipating developing purification processes for
each
antigen. BT-VACC™ is covered by issued and pending U.S. patents.
BioTherapeutics
Division
orBec®
Our
therapeutic product orBec®, is an orally administered corticosteroid
that exerts a potent, local anti-inflammatory effect within the mucosal tissue
of the gastrointestinal tract. orBec® has recently completed a
multicenter, placebo-controlled pivotal Phase III clinical trial in
gastrointestinal GVHD. Gastrointestinal GVHD is a life threatening complication
of allogeneic bone marrow transplantation for which no FDA-approved therapies
exist, making it an area of unmet medical need. The active ingredient in
orBec®, beclomethasone 17, 21-dipropionate ("BDP"), is a mucosally
active anti-inflammatory agent, with a potent local effect, that is the active
ingredient in a variety of currently marketed products including Beconase
Aqua
(nasal spray for rhinitis), Becloforte (inhalant for asthma), and
Propaderm (a topical cream for eczema and psoriasis). There currently is no
FDA-approved oral BDP product in the United States. There are a variety of
additional gastrointestinal disorders for which a potent, topically-active
oral
corticosteroid could be beneficial including Irritable Bowel Syndrome,
Ulcerative Colitis and Crohn’s Disease. We believe that topical steroids such as
orBec® delivered to the affected mucosa would suppress the
inflammation associated with these disorders while producing fewer adverse
side
effects than systemic corticosteroids such as prednisone.
orBec®
is manufactured as a two-pill formulation (1 mg BDP per pill) administered
four times daily (total of 8 mg) for the indication of acute gastrointestinal
GVHD. The two-pill combination is comprised of an immediate-release pill
designed to primarily dissolve in the stomach and proximal intestine and
an
enterically-coated pill designed to dissolve in the more alkaline pH portion
of
the small intestine.
Our
goal
is to file an NDA with the FDA for orBec® for the treatment of
gastrointestinal GVHD in the second quarter of 2006. We have assembled an
experienced team of employees and contractors who are currently working on
all
aspects of the NDA preparation, including data management, data analysis,
and
biostatistics medical writing. Manufacturing of the requisite batches of
drug
product (registration batches) is completed and these batches are currently
undergoing stability testing.
We
anticipate the market potential for orBec® for the treatment of
gastrointestinal GVHD to be at between 50 and 70 percent of the approximately
10,000 bone marrow and stem cell transplants that occur each year in the
U.S.
We
have
had strategic discussions with a number of pharmaceutical companies regarding
the partnering or sale of orBec®. We may seek a marketing partner in
the U.S. and abroad in anticipation of commercialization of orBec®.
We also intend to seek a partner for the other potential indications of
orBec®. We are also evaluating an alternative strategy of a
commercial launch of orBec® by ourselves in the U.S.
Pivotal
Phase III Clinical Trial
Previous
Phase I and Phase II clinical studies demonstrated that a two-pill combination
of oral BDP was effective in treating gastrointestinal GVHD, allowing patients
to be rapidly tapered off the systemic corticosteroid prednisone, without
recurrence of intestinal symptoms (McDonald et al., 1998
Gastroenterology), and without clinical manifestation of adrenal
suppression (Baehr et al., 1995 Transplantation). Based on
this data, we designed a Phase III clinical protocol that was subject to
a
Special Protocol Assessment (SPA) by the FDA and was similar in design to
the
previously completed Phase II trial (McDonald et al. 1998
Gastroenterology). The primary efficacy endpoint of this trial was the
time to treatment failure at Study Day 50. Treatment failure was defined
as use
of prednisone or equivalent IV corticosteroids at doses higher than stated
in
protocol, or use of any additional other steroid, in response to uncontrolled
signs or symptoms of gastrointestinal GVHD. The target enrollment was 130
patients. The pivotal trial was conducted at sixteen bone marrow transplant
centers fourteen in the United States and two in France, and the product
has
been assigned "orphan drug" designation and "fast track" status by the FDA.
The
trial was a randomized, double-blind, placebo controlled safety, efficacy
and
pharmacokinetic trial that was to serve as the basis for a New Drug Application
to be filed with the FDA.
In
the
pivotal Phase III study, orBec® demonstrated a strong positive trend on the
primary endpoint of median time to treatment failure at study day 50 and
a
statistically significant result in the prospectively defined endpoint of
median
time to treatment failure at study day 80 (p-value 0.0226). The Company believes
that the p-value of 0.1177 achieved in the primary endpoint through Day 50
is
primarily due to a higher than expected rate of treatment failures during
days
0-10 of the study. During such period, patients were receiving high dose
prednisone (1-2mg/kg/day) plus either orBec® (8mg/day) or placebo.
For purposes of the study, patients that did not begin the rapid taper of
high
dose prednisone on Day 10 as called for by the regimen were deemed treatment
failures for all purposes, including the calculation of statistical significance
of time to treatment failure at Day 50. The Company intends to further analyze
the Day 0-10 treatment failure group and the statistical impact of this group
on
the primary endpoint of time to treatment failure at Day 50 and discuss the
results of this analysis with the FDA. Encouragingly, the treatment failure
rate
at Day 50 approached statistical significance (p-value 0.0515). In addition,
the
secondary endpoint of time to treatment failure at Day 80, as well the treatment
failure rate at Day 80, each achieved statistical significance (p-values
0.0226
and 0.0048, respectively).
Perhaps
of greatest clinical relevance, orBec® demonstrated a 67% reduction in
mortality, registering only 5 (8%) deaths during the prospectively defined
Day
200 post-transplant period versus 16 (26%) deaths for the placebo group (p-value
0.011). Based upon separate analysis conducted by the Company, there is also
a
statistically significant correlation between treatment failure and mortality.
Previous
Phase II Study Results
Oral
BDP
was previously tested in a randomized, double-blind, placebo-controlled Phase
II
study was conducted at the Fred Hutchinson Cancer Research Center in Seattle
(Gastroenterology, 1998; 115: 28-35). In that study, 60 patients with
gastrointestinal GVHD were randomized to receive conventional prednisone
therapy
plus either BDP or placebo. Initial responders continued to take BDP or placebo
for an additional 20 days, during which time the conventional therapy was
rapidly tapered. The primary endpoint for this study was the clinically relevant
determination of whether gastrointestinal GVHD patients at Day 30 were or
were
not able to consume at least 70% of their daily caloric intake by mouth,
as
compared to intravenous parenteral nutrition administered in the hospital.
The
treatment response at Day 30 was 22 of 31 (71%) vs. 12 of 29 (41%) in the
BDP
and placebo groups respectively, achieving a statistically significant p-value
of 0.02. By transplant day-200, three patients (10%) who had been randomized
to
BDP had died, compared to 6 deaths (21%) among patients who had been randomized
to placebo, leading to a 53% reduction in the hazard of day-200 mortality.
New
Mortality Findings
At
the
November, 2005 meeting with the FDA’s Oncology Division, the FDA specifically
asked for mortality data from the Phase II study as well as long term follow-up
mortality data from both studies. In the Phase III pivotal trial, 28 patients
(42%) in the placebo group and 18 patients (29%) in the BDP group died within
one year of randomization (adjusted hazard ratio 0.54, 95% CI: 0.30, 0.99,
p=0.0431, stratified log log-rank test). In the Phase III pivotal trial,
a
subgroup analysis revealed that among patients who had received stem cells
from
unrelated donors, the reduction in the risk of day-200 mortality among patients
randomized to orBec® was 91%. The new survival analysis of patients enrolled in
the earlier Phase II trial suggests that results were similar to those from
the
pivotal Phase III multi-center study. By one year after randomization, 9
of 29
patients in the placebo group and 6 of 31 patients in the BDP group had died
(adjusted hazard ratio 0.55).
In
the
Phase II trial, there were reductions in the risk of mortality of 55% and
43% at
transplant day-200 and one year post-randomized among patients randomized
to
oral beclomethasone dipropionate, respectively. The comparable survival data
from the 129-patient Phase IIII pivotal trial were 66% and 51% reductions
in the
risk of mortality at transplant day-200 and one-year post-randomization among
patients randomized to orBec®, respectively. In the Phase III pivotal trial, a
subgroup analysis revealed that among patients who had received stem cells
from
unrelated donors, the reduction in the risk of day-200 mortality among patients
randomized to orBec® was 94%.
Additionally,
in an analysis of the day-200 survival endpoint data from the pivotal Phase
III
clinical trial, there were no previously undetected imbalances between the
treatment and placebo groups that could have favored the orBec® group over the
placebo group. In fact, there was a higher proportion of high risk patients
in
the orBec® group which would be expected to put the orBec® arm at a
disadvantage. In spite of this, orBec® was still the factor with the strongest
statistical association with survival.
About
Graft-versus-Host Disease
Graft-versus-Host
Disease occurs in patients following an allogeneic bone marrow transplant
in
which tissues of the host, most frequently the gut, liver, and skin, are
attacked by lymphocytes in the donor (graft) marrow. Patients with mild to
moderate gastrointestinal GVHD present to the clinic with early satiety,
anorexia, nausea, vomiting and diarrhea. If left untreated, symptoms of
gastrointestinal GVHD persist and can progress to necrosis and exfoliation
of
most of the epithelial cells of the intestinal mucosa, frequently a fatal
condition. Approximately 50 to 70% of the estimated 10,000 annual allogeneic
transplant patients in the United States will develop some form of acute
gastrointestinal GVHD.
Gastrointestinal
GVHD is one of the most common causes for the failure of bone marrow transplant
procedures. These procedures are being increasingly utilized to treat leukemia
and other cancer patients with the prospect of eliminating residual disease
and
reducing the likelihood of relapse. orBec® Represents a
first-of-its-kind oral, locally acting therapy tailored to treat the
gastrointestinal manifestation of GVHD, the organ system where GVHD is most
frequently encountered and highly problematic. orBec® is intended to
reduce the need for systemic immunosuppressives to treat gastrointestinal
GVHD.
Currently approved systemic immunosuppressives utilized to control
gastrointestinal GVHD substantially inhibit the highly desirable
graft-versus-leukemia (“GVL”) effect of bone marrow transplants, leading to high
rates of aggressive forms of relapse, as well as substantial rates of mortality
due to opportunistic infection.
Future
Potential Indications of
orBec®
Based
on
its pharmacological characteristics, oral BDP may have utility in treating
other
conditions of the gastrointestinal tract having an inflammatory component.
We
have an issued U.S. patent (6,096,731) claiming the use of oral BDP as a
method
for preventing the tissue damage that is associated with both gastrointestinal
GVHD following hematopoietic cell transplantation, as well as Host-versus
Graft
Disease, as occurs following organ allograft transplantation. In addition,
we
are exploring the possibility of testing orBec® for local
inflammation associated with Ulcerative Colitis, Crohn’s Disease, Lymphocytic
Colitis, Irritable Bowel Syndrome and liver disease, among other indications.
Other
Products in BioTherapeutics Pipeline
The
following is a brief description of other products in our pipeline. Due to
resource limitations, the Company has recently focused its R&D efforts on
orBec®, RiVax® and BT-VACCTM. When
financial circumstances change, the Company may re-initiate development of
any
or all of these products, all of which are currently available for licensing
or
acquisition. These products consist of two drug delivery systems that are
designed to facilitate the oral delivery of hydrophobic and hydrophilic drugs,
including peptides, and an oral form of the immunosuppressant azathioprine.
We
acquired the formulation of azathioprine (Oraprine™) as a result of the merger
of Endorex and CTD in November 2001, also acquired were patent applications
licensed from Dr. Joel Epstein of the University of Washington. We
conducted a Phase I that established the feasibility of the oral drug to
treat oral ulcerative lesions resulting from graft versus host
disease. The drug delivery systems, LPM™,
LPETM, PLPTM, including
the use of leuprolide in the LPM™ system, were developed internally and we
have submitted and pursued patents on these products.
OraprineTM
OraprineTM is
an oral suspension of azathioprine, which we believe may be bioequivalent
to the
oral azathioprine tablet currently marketed in the United States as
Imuran®. We acquired the azathioprine formulation
(OraprineTM) as a result of the merger of Endorex and CTD in November
2001. Also acquired were patent applications licensed from Dr. Joel Epstein
of
the University of Washington. In collaboration with Dr. Joel Epstein we
conducted a Phase I trial that established the feasibility of the oral drug
to
treat oral ulcerative lesions resulting from graft versus host disease.
Subsequently we conducted an additional Phase I bioavailability trial with
the
oral formulation and determined that the new formulation was bioequivalent
to
the marketed tablets of azathioprine (Imuran®). Azathioprine is one of the most
widely used immunosuppressive medications in clinical medicine. Azathioprine
is
commonly prescribed to organ transplant patients to decrease their natural
defense mechanisms to foreign bodies (such as the transplanted organ).The
decrease in the patient’s immune system increases the chances of preventing
rejection of the transplanted organ in the patient. OraprineTM may
provide a convenient dosage form for patients who have difficulty swallowing
pills or tablets, such as children.
LPMTM -
Leuprolide
LPMTM -
Leuprolide is an oral dosage formulation of the peptide drug leuprolide,
a
hormone-based drug that is among the leading drugs used to treat endometriosis
and prostate cancer, which utilizes a novel drug delivery system composed
of
safe and well characterized ingredients to enhance intestinal absorption.
The
LPMTM system incorporates biocompatible lipids and
polymers and is potentially useful for a wide variety of molecular structures
of
water-soluble drugs, particularly those based on peptides. Although both
small
molecules and large molecules can be incorporated into our system, there
is a
molecular size cutoff for a commercially viable oral bioavailability
enhancement, and this system is most effective with hydrophilic drugs/peptides
below 5,000 Daltons in molecular weight. Utilizing a simple and scaleable
manufacturing process, aqueous solutions of peptides can be incorporated
into
lipid-polymer mixtures forming stable micelles.
LPETM
and PLPTM Systems for Delivery of Water-Insoluble
Drugs
We
were
developing two lipid-based systems, LPETM and
PLPTM, to support the oral delivery of small
molecules of water insoluble drugs. Such drugs include most kinds of cancer
chemotherapeutics currently delivered intravenously. The
LPETM system is in the form of an emulsion or
an emulsion pre-concentrate incorporating lipids, polymers and co-solvents.
We
have filed for patent applications on the use of perillyl alcohol as a solvent,
surfactant and absorption enhancer for lipophilic compounds. The polymers
used
in these formulations can either be commercially available or proprietary
polymerized lipids and lipid analogs.
In
collaboration with two United States academic research institutions, we are
developing vaccine products to combat the threat posed by two potent biological
toxins; ricin toxin and botulinum toxin. Both vaccines under development
are
recombinant products produced in bacterial hosts and both consist of nontoxic
subunits of the native toxins. These subunits retain the ability to induce
antibodies that neutralize the toxins from which they are derived. Through
exclusive licenses with these Universities, we have secured intellectual
property rights for these vaccines.
BioDefense
Programs
In
collaboration with two United States academic research institutions, we are
developing vaccine products to combat the threat posed by two potent biological
toxins; ricin toxin and botulinum toxin. Both vaccines under development
are
recombinant products produced in bacterial hosts and both consist of nontoxic
subunits of the native toxins. These subunits retain the ability to induce
antibodies that neutralize the toxins from which they are derived. Through
exclusive licenses with these Universities, we have secured intellectual
property rights for these vaccines.
RivaxTM
- Ricin Toxin Vaccine
The
development of our vaccine against ricin toxin stems from the research
(Smallshaw et al., 2002 Vaccine) of Dr. Ellen Vitetta at
University of Texas Southwestern Medical Center (UTSW). This research has
shown
that a modified subunit of ricin toxin is non-toxic and highly immunogenic
in
animals, reproducibly inducing protective immunity in mice challenged with
ricin
toxin. In collaboration with UTSW, we have manufactured the vaccine in small
batches in their current good manufacturing practices (“cGMP”) facility,
developed a stable formulation, filed an IND and initiated a pilot Phase
I
safety and immunogenicity trial. We have completed the pilot trial which
was a
dose escalation clinical trial. This trial marks the first time a ricin toxin
vaccine has ever been clinically tested in humans. The trial enrolled 15
volunteers in groups of 5 who were vaccinated with three successive monthly
injections of the same dose level of RiVax™. Three dose levels of RiVax™ were
evaluated. The vaccine was prepared without an adjuvant to determine whether
the
subunit itself was immunogenic and safe. Even without an adjuvant, RiVax™
induced antibodies in all five of the individuals who received the highest
dose,
four out of five who received the intermediate dose, and one out of five
who
received the lowest dose levels. The vaccine was well tolerated in all
individuals with only mild side effects that are typical of reactions to
vaccines injected intramuscularly. These side effects included mild transient
headaches and sore arms. Despite the absence of an adjuvant, antibodies were
present in the blood of several volunteers for as long as 127 days after
their
last vaccination. The functional activity of the antibodies was confirmed
by
transferring serum globulins from the vaccinated individuals along with active
ricin toxin to sensitive mice, which then survived subsequent exposure to
ricin
toxin. The results of this study were published in the Proceedings of the
National Academy of Sciences. Based on these results, we are planning
additional human clinical trials with an adjuvant formulation of the vaccine,
which is now being evaluated in stability and toxicology trials.
We
have
developed a robust process for manufacturing the vaccine at scale with Cambrex
under the auspices of a $6,433,316 NIH challenge grant awarded to foster
development and manufacturing. We have extensively characterized the different
stages in the process and have performed the process under cGMP in anticipation
of Phase II trials with the vaccine. We have also developed a formulation
of the
vaccine using salts of aluminum as an adjuvant to prolong and enhance the
protective immune response in humans. In conjunction with Phase II trials,
we
are planning to conduct pivotal animal trials of the vaccine to elaborate
on the
FDA “two animal” rule, which permits licensure of vaccines based on the results
of safety tests in humans and efficacy results in animals in situations where
the evaluation in humans is ethically not permitted. The goal of these studies
is to determine the level of antibodies in humans that is correlated to
protection against exposure in animals. This must be done to be able to choose
the correct dose and dosing regimen for humans. In the case of ricin, it
is not
ethical to expose humans to ricin post vaccination, so “correlates of immunity”
must be established in animal models. Our goal is to make a ricin vaccine
available for the United States government’s Strategic National Stockpile. We
have an exclusive license agreement with UTSW for its ricin vaccine
technology.
Ricin
toxin is a heat stable toxin that is easily isolated and purified from the
bean
of the castor plant. As a bioterrorism agent, ricin could be disseminated
as an
aerosol, by injection, or as a food supply contaminant. The Centers for Disease
Control and Prevention (CDC) have classified ricin as a Category B biological
agent. Ricin works by first binding to glycoproteins found on the exterior
of a
cell, and then entering the cell and inhibiting protein synthesis leading
to
cell death. Once exposed to ricin toxin, there is no effective therapy available
to reverse the course of the toxin. Currently, there is no FDA approved vaccine
to protect against the possibility of ricin toxin being used in a terrorist
attack, or its use as a weapon on the battlefield, nor is there a known antidote
for ricin toxin exposure.
BT-VACCTM
- Botulinum Toxin Vaccine
Botulinum
toxin is the product of the bacteria Clostridium botulinum. Botulinum
toxin is one of the most poisonous natural substances known to mankind.
Botulinum toxin causes acute, symmetric, descending flaccid paralysis due
to its
action on peripheral cholinergic nerves. Paralysis typically presents 12
to 72
hours after exposure. Death results from paralysis of the respiratory muscles.
Current treatments include respiratory support and passive immunization with
antibodies which must be administered before symptoms occur, which leaves
little
time post-exposure for effective treatment.
Our
botulinum toxin vaccine, called BT-VACC™, was developed through the research of
Dr. Lance Simpson at Thomas Jefferson University in Philadelphia, Pennsylvania
(Park and Simpson 2003 Infection and Immunity). There are
seven different serotypes of botulinum toxin and no cross immunogenicity
exists
between these serotypes. Any vaccine will therefore require multiple antigens
to
protect against the different serotypes. The antigen consists of a segment
of
the heavy chain of botulinum toxin that is non-toxic and immunogenic. After
oral
or intranasal immunization, the antigen elicits antibodies that protect
vaccinated animals against massive lethal doses of native toxin. Ability
for a
subunit protein to induce antibodies after oral or nasal immunization is
atypical for protein subunit vaccines. The reason that a mucosal vaccine
is
possible for botulinum toxin stems from the fact that the heavy chain of
the
toxin binds avidly to epithelial cells and is transported to lymphoid tissue
in
the gastrointestinal and respiratory tract. The majority of the protective
epitopes are located on the heavy chain, which does not contain enzymatic
activity and is devoid of toxicity. We are currently developing formulations
containing antigens of three serotypes and are testing those as oral or nasal
vaccines. To this point, we have demonstrated that it is possible to combine
three antigens in a multivalent formulation and administer them by the
respiratory route and induce protection against each corresponding toxin.
Our
prototype vaccine consists of antigens of type A, B, and E, which are the
most
prevalent serotypes in natural human infections and are thought to be the
ones
most likely to be used as bio-weapons. Our immediate plans are to obtain
antigen
from a single serotype (through manufacture or collaboration), conduct the
necessary preclinical toxicology tests for an IND, and test an oral formulation
for safety and immunogenicity in human volunteers. Our goal is to produce
a
multivalent vaccine and make it available for the U.S. government’s Strategic
National Stockpile. We have an exclusive license agreement with Thomas Jefferson
University for the oral and intranasal use of their botulinum toxin vaccine
technology.
Strategy
for development of BioDefense products
Since
2001, the United States government has developed an initiative to stockpile
countermeasures and vaccines for over 30 biological threats that could be
used
in bioterrorist attacks or on the battlefield. The Centers for Disease Control
and Prevention (CDC) and the National Institute of Allergy and Infectious
Diseases (NIAID) have recognized threats based on several factors: 1) public
health impact based on illness and death; 2) ability for an agent to be
disseminated, produced, and transmitted from person to person; 3) public
perception and fear; and 4) special public health preparedness needs. This
prioritization has resulted in classification into three threat categories:
A,
B, and C, where agents in Category A have the greatest potential for adverse
public health impact, and agents in Category B have potential for large scale
dissemination, but generally cause less illness and death. Biological agents
that are not regarded to present a high public health risk but may emerge
as
future threats, as the scientific understanding of the agents develops, have
been placed in Category C. Very few countermeasures or vaccines currently
exist
for Category A, B, or C agents. We believe that we have identified and will
continue to identify products with relatively low development risk for
addressing biological threats in Category A (e.g., botulinum toxin) and B
(e.g.,
ricin toxin). Biodefense products can be developed and sold to the U.S.
government before the FDA has licensed them for commercial use. Secondly,
the
FDA itself has facilitated the approval process, whereby portions of the
human
clinical development pathway can be truncated. Under the two animal rule,
when
it is not ethical to perform human efficacy trials, the FDA can rely on safety
evidence in humans and evidence from animal studies to provide substantial
proof
of a product’s effectiveness under circumstances where there is a reasonably
well-understood mechanism for the toxicity of the agent and its prevention
or
cure by the product. This effect has to be demonstrated in more than one
animal
species expected to react with a response predictive of humans or in one
animal
species. The animal study endpoint must be clearly related to the desired
benefit in humans and the information obtained from animal studies allows
selection of an effective dose in humans. Biodefense products are eligible
for
priority review in cases where the product is a significant advance for a
serious or life threatening condition. The government would also purchase
countermeasures upon expiration, so there is a recurrent market to replenish
the
stockpile. Under a $ 5.6 billon appropriation bill over 10 years, the BioShield
Act of 2004 authorizes the government to procure new countermeasures. This
bill
also allows the NIH to use simplified and accelerated peer-review and
contracting procedures for research and development and empowers the FDA
to
approve distribution of unapproved medical products on an emergency basis.
Further, there are additional legislation in front of Congress, such as
BioShield II, that will address additional issues such as patent extension
and
liability that may be of benefit to the Company in this business.
Summary
of Our Products in Development
The
following tables summarize the products that we are currently developing:
Biodefense
Products
|
Select
Agent
|
|
|
Currently
Available Countermeasure
|
|
|
DOR
Biodefense Product
|
|
|
|
|
|
|
|
|
|
|
|
Ricin
Toxin
|
|
|
No
vaccine or antidote currently FDA approved
|
|
|
Injectable
Ricin Vaccine
Phase
I Clinical Trial Successfully Completed
|
|
|
Ricin
Toxin
|
|
|
No
vaccine or antidote currently FDA approved
|
|
|
Nasal
Ricin Vaccine
|
|
|
Botulinum
Toxin
|
|
|
No
vaccine or antidote currently FDA approved
|
|
|
Oral/Nasal
Botulinum Vaccine
|
|
|
Botulinum
Toxin
|
|
|
No
vaccine or antidote currently FDA approved
|
|
|
Oral
Botulinum Therapeutic
|
|
BioTherapeutic
Products
|
Product
|
Therapeutic
Indication
|
Stage
of Development
|
|
|
|
|
|
orBec®
|
Treatment
of Intestinal Graft-versus-Host Disease
|
Pivotal
Phase III Clinical Trial Completed, NDA to be filed
|
|
OraprineTM
|
Oral
lesions resulting from Graft-versus-Host Disease
|
Phase
I Complete
|
|
LPMTM
- Leuprolide
|
Endometriosis
and Prostate Cancer
|
Pre-Clinical
|
|
LPETM
and PLPTM Systems
|
Delivery
of Water-Insoluble Drugs
|
Pre-Clinical
|
The
Drug Approval Process
General
Before
marketing, each of our products must undergo an extensive regulatory approval
process conducted by the FDA and applicable agencies in other countries.
Testing, manufacturing, commercialization, advertising, promotion, export
and
marketing, among other things, of the proposed products are subject to extensive
regulation by government authorities in the United States and other countries.
All products must go through a series of tests, including advanced human
clinical trials, which the FDA is allowed to suspend as it deems necessary.
Our
products will require, prior to commercialization, regulatory clearance by
the
FDA and by comparable agencies in other countries. The nature and extent
of
regulation differs with respect to different products. In order to test,
produce
and market certain therapeutic products in the United States, mandatory
procedures and safety standards, approval processes, manufacturing and marketing
practices established by the FDA must be satisfied.
An
Investigational New Drug Application (IND) is required before human clinical
use
in the United States of a new drug compound or biological product can commence.
The IND includes results of pre-clinical animal studies evaluating the safety
and efficacy of the drug and a detailed description of the clinical
investigations to be undertaken.
Clinical
trials are normally done in three phases, although the phases may overlap.
Phase
I trials are concerned primarily with the safety of the product. Phase II
trials
are designed primarily to demonstrate effectiveness and safety in treating
the
disease or condition for which the product is indicated. These trials typically
explore various doses and regimens. Phase III trials are expanded multi-center
clinical trials intended to gather additional information on safety and
effectiveness needed to clarify the product’s benefit-risk relationship,
discover less common side effects and adverse reactions, and generate
information for proper labeling of the drug, among other things. The FDA
receives reports on the progress of each phase of clinical testing and may
require the modification, suspension or termination of clinical trials if
an
unwarranted risk is presented to patients. When data is required from long-term
use of a drug following its approval and initial marketing, the FDA can require
Phase IV, or post-marketing, studies to be conducted.
With
certain exceptions, once successful clinical testing is completed, the sponsor
can submit an NDA for approval of a drug. The process of completing clinical
trials for a new drug is likely to take a number of years and require the
expenditure of substantial resources. Furthermore, the FDA or any foreign
health
authority may not grant an approval on a timely basis, if at all. The FDA
may
deny an NDA, in its sole discretion, if it determines that its regulatory
criteria have not been satisfied or may require additional testing or
information. Among the conditions for marketing approval is the requirement
that
the prospective manufacturer’s quality control and manufacturing procedures
conform to good manufacturing regulations. In complying with standards contained
in these regulations, manufacturers must continue to expend time, money and
effort in the area of production, quality control and quality assurance to
ensure full technical compliance. Manufacturing facilities, both foreign
and
domestic, also are subject to inspections by, or under the authority of,
the FDA
and by other federal, state, local or foreign agencies.
Even
after initial FDA or foreign health authority approval has been obtained,
further studies, including Phase IV post-marketing studies, may be required
to
provide additional data on safety and will be required to gain approval for
the
use of a product as a treatment for clinical indications other than those
for
which the product was initially tested. Also, the FDA or foreign regulatory
authority will require post-marketing reporting to monitor the side effects
of
the drug. Results of post-marketing programs may limit or expand the further
marketing of the products. Further, if there are any modifications to the
drug,
including any change in indication, manufacturing process, labeling or
manufacturing facility, an application seeking approval of such changes may
be
required to be submitted to the FDA or foreign regulatory authority.
In
the
United States, the Federal Food, Drug, and Cosmetic Act, the Public Health
Service Act, the Federal Trade Commission Act, and other federal and state
statutes and regulations govern or influence the research, testing, manufacture,
safety, labeling, storage, record keeping, approval, advertising and promotion
of drug, biological, medical device and food products. Noncompliance with
applicable requirements can result in, among other things, fines, recall
or
seizure of products, refusal to permit products to be imported into the U.S.,
refusal of the government to approve product approval applications or to
allow
the Company to enter into government supply contracts, withdrawal of previously
approved applications and criminal prosecution. The FDA may also assess civil
penalties for violations of the Federal Food, Drug, and Cosmetic Act involving
medical devices.
For
development of biodefense vaccines and therapeutics, the FDA has instituted
policies that are expected to result in accelerated approval. This includes
approval for commercial use using the results of animal efficacy trials,
rather
than efficacy trials in humans. However, the Company will still have to
establish that the vaccine and countermeasures it is developing are safe
in
humans at doses that are correlated with the beneficial effect in animals.
Such
clinical trials will also have to be completed in distinct populations that
are
subject to the countermeasures; for instance, the very young and the very
old,
and in pregnant women, if the countermeasure is to be licensed for civilian
use.
Other agencies will have an influence over the risk benefit scenarios for
deploying the countermeasures and in establishing the number of doses utilized
in the Strategic National Stockpile. We may not be able to sufficiently
demonstrate the animal correlation to the satisfaction of the FDA, as these
correlates are difficult to establish and are often unclear. Invocation of
the
two animal rule may raise issues of confidence in the model systems even
if the
models have been validated. For many of the biological threats, the animal
models are not available and the Company may have to develop the animal models,
a time-consuming research effort. There are few historical precedents, or
recent
precedents, for the development of new countermeasure for bioterrorism agents.
Despite the two animal rule, the FDA may require large clinical trials to
establish safety and immunogenicity before licensure and it may require safety
and immunogenicity trials in additional populations. Approval of biodefense
products may be subject to post-marketing studies, and could be restricted
in
use in only certain populations.
Marketing
Strategies
We
have
had strategic discussions with a number of pharmaceutical companies regarding
the partnering or sale of orBec®. We may seek a marketing partner in
the U.S. and abroad in anticipation of commercialization of orBec®.
We are actively seeking a partner for the development of other potential
indications of orBec® as well as for our OraprineTM,
LPMTM - Leuprolide, LPETM and PLPTM Systems for
Delivery of Water-Insoluble Drugs. We are actively considering a strategy
of a
commercial launch of orBec® by ourselves in the U.S.
We
have
had strategic discussions with a number of pharmaceutical companies regarding
the partnering or sale of our biodefense vaccine products. We may market
our
biodefense vaccine products directly to government agencies. We believe that
both military and civilian health authorities of the United States and other
countries will increase their stockpiling of therapeutics and vaccines to
treat
and prevent diseases and conditions that could ensue following a bioterrorism
attack.
Competition
Our
competitors are pharmaceutical and biotechnology companies, most of whom
have
considerably greater financial, technical, and marketing resources than we
currently have. Another source of competing technologies is universities
and
other research institutions, including the U.S. Army Medical Research Institute
of Infectious Diseases, and we face competition from other companies to acquire
rights to those technologies.
Biodefense
Vaccine Competition
We
face
intense competition in the area of biodefense from various public and private
companies, universities and governmental agencies, such as the U.S. Army,
some
of whom may have their own proprietary technologies which may directly compete
with the our technologies. Acambis, Inc., Avant Immunotherapeutics, Inc.,
Bioport Corporation, VaxGen, Inc., Chimerix, Inc., Biosante, Inc., ID Biomedical
Corporation, Human Genome Sciences, Inc., CpG Immunotherapeutics, Inc., Avanir
Pharmaceuticals, Inc., Dynport Vaccine Company, LLC., and others have announced
vaccine or countermeasure development programs for biodefense. Some of these
companies have substantially greater human and financial resources than we
do,
and many of them have already received grants or government contracts to
develop
anti-toxins and vaccines against bioterrorism. VaxGen and Avecia Biotechnology,
Inc. have both received NIH contracts to develop a next generation injectable
anthrax vaccine. VaxGen has also recently received approximately $900 million
procurement order from the U.S. government to produce and deliver 75 million
doses of Anthrax vaccine. CpG Immunotherapeutics, Inc. has received a $6
million
Department of Defense grant to develop vaccine enhancement technology. ID
Biomedical Corporation, has entered into an $8 million contract to develop
a
plague vaccine. We have not yet been awarded any such contract funding.
Additionally, we face competition from other companies which have existing
governmental relationships, such as Dynport Vaccine Company, LLC, a prime
contractor to the U.S. Department of Defense. Dynport currently has a $300
million contract to develop vaccines for the U.S. Military, including anthrax,
and botulinum toxin vaccines.
orBec®
Competition
Competition
is intense in the gastroenterology and transplant areas. Companies are
attempting to develop technologies to treat graft-vs.-host disease by
suppressing the immune system through various mechanisms. Some companies,
including Sangstat, Abgenix, and Protein Design Labs, Inc., are developing
monoclonal antibodies to treat graft-vs.-host disease. Novartis, Medimmune,
and
Ariad are developing both gene therapy products and small molecules to treat
graft-vs.-host disease. All of these products are in various stages of
development. For example, Novartis currently markets Cyclosporin, and Sangstat
currently markets Thymoglobulin for transplant related therapeutics.
Competition
is also intense in the therapeutic area of inflammatory bowel disease. Several
companies, including Centocor, Immunex, and Celgene, have products that are
currently FDA approved. For example, Centocor, a subsidiary of Johnson &
Johnson, markets the drug product RemicadeTM for Crohn’s disease.
Other drugs used to treat inflammatory bowel disease include another oral
locally active corticosteroid called budesonide, which is being marketed
by
AstraZeneca in Europe and Canada and by Prometheus Pharmaceuticals in the
U.S.
under the tradename of Entocort®.
Entocort is structurally similar to beclomethasone dipropionate, and the
FDA
approved Entocort for Crohn’s disease late in 2001. In Italy, Chiesi
Pharmaceuticals markets an oral formulation of beclomethasone dipropionate,
the
active ingredient of orBec® for ulcerative colitis and may seek marketing
approval for their product in countries other than Italy including the United
States. In addition, Salix Pharmaceuticals, Inc. markets an FDA-approved
therapy
for ulcerative colitis called Colazal®.
Several
companies have also established various colonic drug delivery systems to
deliver
therapeutic drugs to the colon for treatment of Crohn’s disease. These companies
include Ivax Corporation, Inkine Pharmaceutical Corporation, and Elan
Pharmaceuticals, Inc. Other approaches to treat gastrointestinal disorders
include antisense and gene therapy. Isis Pharmaceuticals, Inc. is in the
process
of developing antisense therapy to treat Crohn’s disease.
We
are
not aware of any marketed products or products in active development to
selectively treat gastrointestinal GVHD. We also believe that
orBec®’s unique release characteristics, intended to deliver
topically active therapy to both the upper and lower gastrointestinal systems,
should make orBec® an attractive alternative to existing therapies
for inflammatory diseases of the gastrointestinal tract.
Patents
and Other Proprietary Rights
Our
goal
is to obtain, maintain and enforce patent protection for our products,
formulations, processes, methods and other proprietary technologies, preserve
our trade secrets, and operate without infringing on the proprietary rights
of
other parties, both in the United States and in other countries. Our policy
is
to actively seek to obtain, where appropriate, the broadest intellectual
property protection possible for our product candidates, proprietary information
and proprietary technology through a combination of contractual arrangements
and
patents, both in the U.S. and elsewhere in the world.
We
also
depend upon the skills, knowledge and experience of our scientific and technical
personnel, as well as that of our advisors, consultants and other contractors,
none of which is patentable. To help protect our proprietary knowledge and
experience that is not patentable, and for inventions for which patents may
be
difficult to enforce, we rely on trade secret protection and confidentiality
agreements to protect our interests. To this end, we require all employees,
consultants, advisors and other contractors to enter into confidentiality
agreements, which prohibit the disclosure of confidential information and,
where
applicable, require disclosure and assignment to us of the ideas, developments,
discoveries and inventions important to our business.
We
have
"Orphan Drug" designations for orBec® in the United States and in
Europe. Our Orphan Drug designations provide for seven years of post approval
marketing exclusivity in the U.S. and 10 years exclusivity in Europe for
the use
of orBec® in the treatment of gastrointestinal GVHD. We have pending
patent applications for this indication that, if granted, may extend our
anticipated marketing exclusivity beyond the seven year post-approval
exclusivity provided by the Orphan Drug Act of 1983. We are the exclusive
licensee of an issued U.S. patent that covers the use of orBec® for
the prevention of gastrointestinal GVHD.
Under
the
Waxman-Hatch Act, a patent which claims a product, use or method of manufacture
covering drugs and certain other products may be extended for up to five
years
to compensate the patent holder for a portion of the time required for
development and FDA review of the product. The Waxman-Hatch Act also establishes
periods of market exclusivity, which are periods of time ranging from three
to
five years following approval of a drug during which the FDA may not approve,
or
in certain cases even accept, applications for certain similar or identical
drugs from other sponsors unless those sponsors provide their own safety
and
efficacy data.
orBec®
License Agreement
In
October 1998, our subsidiary, Enteron Pharmaceuticals, Inc. (Enteron), entered
into an exclusive, worldwide, royalty bearing license agreement with George
B.
McDonald, M.D., including the right to grant sublicenses, for the rights
to the
intellectual property and know-how relating to orBec®. In addition,
Dr. McDonald receives $40,000 per annum as a consultant.
Enteron
also executed an exclusive license to patent applications
for "Use of Anti-Inflammatories to Treat Irritable Bowel Syndrome" from the
University of Texas Medical Branch-Galveston. Under the license agreements,
we
will be obligated to make performance-based milestone payments, as well as
royalty payments on any net sales of orBec®.
Ricin
Vaccine Intellectual Property
In
January 2003, we executed a worldwide exclusive option to license patent
applications with the University of Texas Southwestern Medical Center for
the
nasal, pulmonary and oral uses of a non-toxic ricin vaccine. In June 2004,
we
entered into a license agreement with UTSW for the injectable rights to the
ricin vaccine for initial license fees of $200,000 of our common stock and
$100,000 in cash. Subsequently, in October of 2004, we negotiated the remaining
oral rights to the ricin vaccine for additional license fees of $150,000
in
cash. Our license obligates us to pay $50,000 in annual license
fees.
On
March
1, 2005 we signed a sponsored research agreement with UTSW extending through
March 31, 2007. The cost of this research is approximately $190,000. The
research will grant us certain rights to such intellectual
property.
Botulinum
Toxin Vaccine Intellectual Property
In
2003,
we executed an exclusive license agreement with Thomas Jefferson University
for
issued U.S. Patent No. 6,051,239 and corresponding international patent
applications broadly claiming the oral administration of nontoxic modified
botulinum toxins as vaccines. The intellectual property also includes patent
applications covering the inhaled and nasal routes of delivery of the vaccine.
This license agreement required that we pay a license fee of $160,000, payable
in $130,000 of restricted common stock and $30,000 in cash. We also entered
into
a one-year sponsored research agreement with the execution of the license
agreement with Thomas Jefferson University, renewable on an annual basis,
under
which we are providing $300,000 in annual research support. In addition,
we also
executed a consulting agreement with Dr. Lance Simpson, the inventor of the
botulinum toxin vaccine for a period of three years. Under this agreement,
Dr.
Simpson received options to purchase 100,000 shares of our common stock,
vesting
over two years. We are also required to pay a $10,000 non-refundable license
royalty fee no later than January 1 of each calendar year.
MicrovaxTM Intellectual
Property
During
1998, our former joint venture with Élan Pharmaceuticals, Inc., Innovaccines
Corporation, acquired from the Southern Research Institute/University of
Alabama
broadly issued U.S. and international patents relating to the oral
administration of vaccines. Microspheres of these dimensions are preferentially
absorbed by lymphoid tissues in the gastrointestinal tract and other mucosal
lymphoid tissue, resulting in higher efficacy for orally and mucosally applied
vaccines. In 2002, we acquired Élan’s interest in Innovaccines. We subsequently
amended our existing agreement with the Southern Research Institute (Brookwood
Pharmaceuticals)/University of Alabama for rights to use their patents and
technologies for commercialization of microencapsulated vaccines that permit
oral delivery of antigenic compounds (vaccines). In April 2003, after the
inception of our biodefense program, the license agreement was amended to
provide us with the rights to nasal delivery of anthrax and ricin antigens.
In
keeping with our current focus, the Southern Research Institute/University
of
Alabama license agreement has again been amended to allow us to keep the
nasal
rights for the ricin vaccine while returning all other rights. This most
recent
amendment requires us to pay a yearly license fee in the amount of $60,000
and
monthly patent maintenance of $5,000.
Employees
As
of
December 31, 2005, we had eight full-time employees, two of whom are Ph.D.s.
Information
regarding our executive officers is set forth in Items 9 and 10 of this Annual
Report, which information is incorporated herein by reference.
Research
and Development Spending
We
spent
approximately $3,700,000 in 2005 and 2004 on research and development.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The
following discussion and analysis provides information that we believe is
relevant to an assessment and understanding of our results of operation and
financial condition. You should read this analysis in conjunction with our
audited consolidated financial statements and related notes. This discussion
and
analysis contains statements of a forward-looking nature relating to future
events or our future financial performance. These statements are only
predictions, and actual events or results may differ materially. In evaluating
such statements, you should carefully consider the various factors identified
in
this Annual Report which could cause actual results to differ materially
from
those expressed in, or implied by, any forward-looking statements, including
those set forth in "Item1. Description of Business-Risk Factors" in this
Annual
Report. See "Item1 .Description of Business-Cautionary Note Regarding
Forward-Looking Statements."
Business
Overview and Strategy
We
are a
research and development biopharmaceutical company focused on the development
of
biodefense vaccines and oral therapeutic products intended for areas of unmet
medical need. Our business strategy is to (a) prepare the submission of a
New
Drug Application, (“NDA”) for orBec® with the U.S. Food and Drug
Administration, (“FDA”) for the treatment of gastrointestinal Graft-versus-Host
Disease, “GVHD” as well as to prepare submission of a Marketing Authorization
Application (“MAA”) with the European Central Authority, European Medicine
Agency (“EMEA”); (b) consider prophylactic use studies of orBec® for
the prevention of gastrointestinal GVHD; (c) evaluate and possibly initiate
additional clinical trials to explore the effectiveness of oral BDP
(orBec®) in other therapeutic indications involving inflammatory
conditions of the gastrointestinal tract; (d) identify a marketing and sales
partner for orBec® for territories outside of the U.S., and
potentially inside the U.S.; (e) secure government funding for each of our
biodefense programs through grants, contracts, and procurements; (f) convert
the
biodefense vaccine programs from early stage development to advanced development
and manufacturing; (g) transition the biodefense vaccine development programs
from academic institutions into commercial manufacturing facilities with
the
goal of soliciting government contracts; (h) identify the development candidates
for botulinum therapeutic screening program; (i) reinitiate development of
our
other biotherapeutics products namely OraprineTM,
LPMTM-Leuprolide, and LPETM and PLPTM Systems
for Delivery of Water-Insoluble Drugs as resources permit; and (j) acquire
or
in-license new clinical-stage compounds for development. We were incorporated
in
1987. We maintain two active segments; BioTherapeutics and
BioDefense.
orBec®
Our
goal
is to file an NDA with the FDA for orBec® for the treatment of
gastrointestinal GVHD in the second quarter of 2006. We have assembled an
experienced team of employees and contractors who are currently working on
all
aspects of the NDA preparation, including data management, data analysis,
and
biostatistics medical writing. Manufacturing of the requisite batches of
drug
product (registration batches) is completed and these batches are currently
undergoing stability testing.
We
anticipate the market potential for orBec® for the treatment of
gastrointestinal GVHD to be between 50 and 70 percent of the approximately
10,000 bone marrow and stem cell transplants that occur each year in the
U.S.
We
have
had strategic discussions with a number of pharmaceutical companies regarding
the partnering or sale of orBec®. We may seek a marketing partner in
the U.S. and abroad in anticipation of commercialization of orBec®.
We also intend to seek a partner for the other potential indications of
orBec®. We are also actively considering an alternative strategy of
a
commercial launch of orBec® by ourselves in the U.S.
RiVax™
The
development of RiVaxTM, our ricin toxin vaccine, has progressed
significantly this year. Our academic partner, The University of Texas
Southwestern led by Dr. Ellen Vitetta recently completed a Phase I safety
and
immunogenicity trial of RiVaxTM in human volunteers. The results of
the Phase I safety and immunogenicity dose-escalation study indicate that
the
vaccine is well tolerated and induces antibodies in humans that neutralize
ricin
toxin. Despite the absence of an adjuvant, antibodies were present in the
blood
of several volunteers for as long as 127 days after their last vaccination.
The
functional activity of the antibodies was confirmed by transferring serum
globulins from the vaccinated individuals along with active ricin toxin to
sensitive mice, which then survived subsequent exposure to ricin toxin. The
outcome of the study was recently published in the Proceedings of the National
Academy of Sciences. In January of 2005 we entered into a manufacturing and
supply agreement for RiVax™ with Cambrex Corporation. We recently announced that
Cambrex has successfully achieved the second milestone of our collaboration
of
fermentation and downstream process development under their development and
manufacturing agreement.
BT-VACC™
Our
mucosal botulinum toxin vaccine program has made important strides this year.
We
are developing a mucosal vaccine against botulinum neurotoxins serotypes
A, B
and E, which account for almost all human cases of disease. We have identified
lead antigens against Serotypes A, B and E consisting of the Hc50 fragment
of
the botulinum toxin. Our preclinical data to date, demonstrates that Hc50,
A and
B are completely effective at low, mid and high doses as an intranasal vaccine
and completely effective at the higher dose level orally in mice and rats.
Ongoing studies are focused on serotype E and multivalent immunization
experiments using serotype A, B and E antigens given simultaneously to animals.
Further, we are engaged in formulation work to create a microencapsulated,
enterically formulated oral dosage form, which we anticipate will be a more
active and stable oral formulation improving immunogenicity and potency.
To date
much of the preclinical work is being conducted at Thomas Jefferson University
under a sponsored research agreement funded by us. We have applied for and
intend to continue to apply for research grants and contracts from the U.S.
government to continue development of this vaccine. We have also recently
entered into a joint development agreement with Dowpharma, a business unit
of
the Dow Chemical Company. Dowpharma is providing process development leading
to
current Good Manufacturing Practices (cGMP) production services for BT-VACC™
using its Pfēnex Expression TechnologyTM, a high yield expression
system based on Pseudomonas fluorescens. Up to this point we have
successfully demonstrated successful high expression of soluble material
from
all three Hc50 vaccine candidates.
Oraprine™
OraprineTM is
an oral suspension of azathioprine, which we believe may be bioequivalent
to the
oral azathioprine tablet currently marketed in the United States as
Imuran®. We acquired the azathioprine drug
(OraprineTM) as a result of the merger of Endorex and CTD in November
2001. Also acquired were patent applications licensed from Dr. Joel Epstein
of
the University of Washington. We conducted a Phase I bioequivalence trial
following a trial conducted by Dr. Epstein that established the feasibility
of
the oral drug to treat oral ulcerative lesions resulting from graft versus
host
disease. Azathioprine is one of the most widely used immunosuppressive
medications in clinical medicine. Azathioprine is commonly prescribed to
organ transplant patients to decrease their natural defense mechanisms to
foreign bodies (such as the transplanted organ). The decrease in the
patient’s immune system increases the chances of preventing rejection of the
transplanted organ in the patient. OraprineTM may provide a
convenient dosage form for patients who have difficulty swallowing pills
or
tablets, such as children.
LPM™ -
Leuprolide
LPMTM -
Leuprolide is an oral dosage formulation of the peptide drug leuprolide,
a
hormone-based drug that is among the leading drugs used to treat endometriosis
and prostate cancer, which utilizes a novel drug delivery system composed
of
safe and well characterized ingredients to enhance intestinal absorption.
The
LPMTM system incorporates biocompatible lipids and
polymers and is potentially useful for a wide variety of molecular structures
of
water-soluble drugs, particularly those based on peptides. Although both
small
molecules and large molecules can be incorporated into our system, there
is a
molecular size cutoff for a commercially viable oral bioavailability
enhancement, and this system is most effective with hydrophilic drugs/peptides
below 5,000 Daltons in molecular weight. Utilizing a simple and scaleable
manufacturing process, aqueous solutions of peptides can be incorporated
into
lipid-polymer mixtures forming stable micelles.
LPE
™ and PLP
™
Systems
for Delivery
of Water-Insoluble Drugs
We
were
developing two lipid-based systems, LPETM and
PLPTM, to support the oral delivery of small
molecules of water insoluble drugs. Such drugs include most kinds of cancer
chemotherapeutics currently delivered intravenously. The
LPETM system is in the form of an emulsion or
an emulsion pre-concentrate incorporating lipids, polymers and co-solvents.
We
have filed for patent applications on the use of perillyl alcohol as a solvent,
surfactant and absorption enhancer for lipophilic compounds. The polymers
used
in these formulations can either be commercially available or proprietary
polymerized lipids and lipid analogs.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations
are
based upon our consolidated financial statements, which have been prepared
in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates
and
judgments that affect the reported amounts of assets, liabilities and expenses,
and related disclosure of contingent assets and liabilities. On an on-going
basis, we evaluate these estimates and judgments.
Intangible
Assets
Currently,
the most significant estimate or judgment that we make is whether to capitalize
or expense patent and license costs. License costs are expensed unless the
license fee is for more than one year. We make this judgment based on
whether the technology has alternative future uses, as defined in SFAS 2,
"Accounting for Research and Development Costs." Based on this consideration,
we
capitalized all outside legal and filing costs incurred in the procurement
and
defense of patents.
These
intangible assets are reviewed for impairment at least annually or whenever
events or changes in circumstances indicate that the carrying amount may
not be
recoverable. If the sum of the expected undiscounted cash flows is less than
the
carrying value of the related asset or group of assets, a loss is recognized
for
the difference between the fair value and the carrying value of the related
asset or group of assets.
We
capitalize and amortize intangibles over a period of 11 to 16 years. We
capitalize payments made to legal firms that are engaged in filing and
protecting our rights to our intellectual property and rights for our current
products in both the domestic and international markets.
Research
and Development Costs
Research
and Development costs are charged to expense when incurred. Research and
development includes costs such as clinical trial expenses, contracted research
and license agreement fees with no alternative future use, supplies and
materials, salaries and employee benefits, equipment depreciation and allocation
of various corporate costs. Purchased in-process research and development
expense (IPR&D) represents the value assigned or paid for acquired research
and development for which there is no alternative future use as of the date
of
acquisition.
Revenue
Recognition
We
recognize revenue from government grants. These revenues are recorded in
the
period in which they are earned. The consideration we receive is based upon
a
cost plus Facilities and Administrative (F&A) rate that provides funding for
overhead expenses.
Material
Changes in Results of Operations
We
are a
research and development company. The 2005 revenues and associated expenses
were
from an NIH Grant which we received in September 2004, and from an FDA grant
which we received in September 2005. The NIH grant was associated with our
ricin
vaccine. The original amount of the NIH grant was $5,173,298. This was increased
on May 6, 2005, to $6,433,316. The increase of $1,260,018 was awarded based
on a
new renegotiated F&A (facilities and administrative) rate with the NIH. Part
of this increase was attributed to the NIH reimbursement for overhead expenses
for 2004 in the amount of $285,891 in the second quarter of 2005. This new
rate
provided a fixed rate for facilities and administrative costs (overhead
expenditures) that is applied against all costs associated with the grant
awarded. The FDA grant was awarded on September 23, 2005 for the “Oral BDP for
the Treatment of GI GVHD.” We begin recognizing revenue for this grant in the
fourth quarter of 2005. The total amount of the one-year grant is
$318,750.
For
the
year ended December 31, 2005, we had grant revenues of $3,075,736 as compared
to
$997,482 in the 12 months ended December 31, 2004, an increase of $2,078,254,
or
208%. We also incurred expenses related to that revenue in 2005 and 2004
of
$2,067,034 and $936,636, respectively, an increase of $1,130,398, or 121%.
These
costs relate to payments made to subcontractors and universities in connection
with the grants.
Although
we have a gross profit, the gross profit is a result of the increase in the
NIH
award for a higher and more comprehensive F&A rate to provide for overhead
expenditures and the FDA grant. In addition, the gross profit of $1,008,702,
for
the twelve months ended December 31, 2005, respectively, includes $285,891
from
2004, as reimbursement in the second quarter of 2005 for the new F&A rate.
For
the
12 months ended December 31, 2005, we had a net loss applicable to common
stockholders of $4,720,260 as compared to a $6,374,769 net loss applicable
to
common stockholders for the 12 months ended December 31, 2004, a decrease
of
$1,654,509, or 26%. Net loss applicable to common stockholders included the
impact of preferred stock dividends, which totaled $503,195 in 2004, as compared
to $0 in 2005. This decrease in the net loss is due largely to our increased
gross profit generated by the government grants and to the costs reductions
in
general and administrative expenses.
During
2005, our research and development spending increased to $3,681,137 as compared
to $3,656,776 for 2004; an increase of $24,361 or 1% as compared to 2004.
In
2005 we had higher expenses in the third and fourth quarters for regulatory
and filing consultant costs associated with the preparation of the NDA filing
for orBec®.
General
and administrative expenses for the 12 months ended December 31, 2005 were
$2,162,616 as compared to $2,321,186 for the 12 months ended December 31,
2004,
a decrease of $158,570, or 7%. In 2004 we had severance payments and accrued
severance due former employees approximating $160,000. For 2005, the decrease
was primarily attributed to a reversal of $284,855 from reported income in
2004
for the variable accounting treatment of options granted to new employees
under
the stock option plan that exceeded the number of allowed stock options under
the plan.
We
are
required to perform an annual impairment test on intangible assets, which
we
perform in the fourth quarter of each year. During the fourth quarter of
2005,
we determined that our intangible assets, namely, our patents were impaired
by
$164,336. The net book value of the intangible assets will be reviewed annually
and when impairment is indicated the resulting expense will be
taken.
Interest
income for the 12 months ended December 31, 2005 was $78,242 as compared
to
$66,539 for the 12 months ended December 31, 2004, an increase of $11,704
or
18%. This was primarily due to an increase in the number of days of available
interest bearing cash balances in 2005 as compared to 2004 and higher interest
rates on those balances.
Interest
expense for the 12 months ended December 31, 2005 was a $36,549 credit as
compared to $20,977 expense for the 12 months ended December 31, 2004, an
increase of $57,546 or 274%. This was due to reversal of interest expense
resulting from an agreement reached with a pharmaceutical company for settlement
of a note payable. This agreement required a payment of $41,865 in lieu of
the
$83,729 of accrued interest.
Financial
Condition
As
of
December 31, 2005, we had cash and cash equivalents of $821,702 as compared
to
$2,332,190 as of December 31, 2004 and negative working capital of $319,675
as
compared to $1,055,922 as of December 31, 2004. For the 12 months ended December
31, 2005, our cash used in operating activities was approximately $4,700,000,
versus approximately $4,400,000 in 2004.
In
2004,
we granted options to employees and directors that were conditional upon
stockholder approval of an amendment to our 1995 omnibus option plan. Therefore,
a measurement date did not exist until approval could be gained at our annual
stockholder meeting. In December 2004, we recorded a noncash expense of
$284,555.
We
expect
our expenditures for 2006, under existing product development agreements
and
license agreements pursuant to letters of intent and option agreements to
approximate $3,600,000. We anticipate grant revenues to offset manufacturing
and
research expenditures for the development of our ricin vaccine and for
orBec® in the amount of approximately $2,300,000, pending completion
of certain milestones.
As
of
September 30, 2005, we paid a note due of $115,948, which represents the
remaining amount payable to a pharmaceutical company in connection with our
joint ventures.
The
following summarizes our contractual obligations at December 31, 2005, and
the
effect those obligations are expected to have on our liquidity and cash flow
in
future periods.
|
Contractual
Obligations
|
Year
2006
|
Year
2007
|
|
Non-cancelable
obligations (1)
|
$
52,628
|
$
-
|
|
TOTALS
|
$
52,628
|
$
-
|
_____________
(1)
3
year lease on corporate office entered into in 2003 and expiring in
2006.
On
January 17, 2006, we entered into a common stock purchase agreement with
Fusion
Capital Fund II, LLC. Fusion has agreed to purchase on each trading day $20,000
of our common stock up to an aggregate of $6,000,000 million over approximately
a 15-month period, subject to earlier termination at our discretion. We have
sold 329,540 shares of common stock to Fusion Capital. Pursuant to the terms
of
our April 2006 private placement, we may not access the funds available under
the Fusion Capital commitment by selling our shares of common stock to Fusion
Capital without the prior consent of Iroquois Capital until the earlier to
occur
of (i) seven business days after an FDA advisory panel meeting regarding
the New
Drug Application for orBec® or (ii) the date the FDA responds to the New Drug
Application for orBec®. If and when we resume selling stock to Fusion Capital,
we may elect to sell less of our common stock to Fusion Capital than the
daily
amount and we may increase the daily amount as the market price of our stock
increases. We will sell our shares of common stock to Fusion Capital based
upon
the future market price of the common stock without any fixed discount. Fusion
Capital does not have the right or the obligation to purchase shares of our
common stock in the event that the price of our common stock is less than
$0.12.
We only have the right to receive $20,000 per trading day under the agreement
with Fusion Capital unless our stock price equals or exceeds $0.40, in which
case the daily amount may be increased under certain conditions as the price
of
our common stock increases.
In
February 2005, we increased our cash position by the issuance and sale of
8,396,100 shares of our common stock at $0.45 per share in a private placement
to institutional investors. Such investors also received warrants to purchase
6,297,075 shares of our common stock at an exercise price of $0.505 per share.
The proceeds after related expenses and closing costs were approximately
$3.5 million.
On
April
10, 2006, we completed the sale of an aggregate of 13,099,964 shares of our
common stock to institutional and other accredited investors for an aggregate
purchase price of $3,630,000. The investors also received warrants to purchase
an aggregate of 13,099,964 shares of our common stock at an exercise price
of
$0.45 per share. The warrants are exercisable for a period of three years
commencing on April 10, 2006. Pursuant to a registration rights agreement,
we
agreed to file this registration statement with the Securities and Exchange
Commission in order to register the resale of the shares.
Based
on
our current rate of cash outflows, and provided we have access to the Fusion
continuous secondary facility, we believe that our cash will be sufficient
to
meet our anticipated cash needs for working capital and capital expenditures
through the second quarter of 2007. If we obtain additional funds through
the
issuance of equity or equity-linked securities, shareholders may experience
significant dilution and these equity securities may have rights, preferences
or
privileges senior to those of our common stock. The terms of any debt financing
may contain restrictive covenants which may limit our ability to pursue certain
courses of action. We may not be able to obtain such financing on acceptable
terms or at all. If we are unable to obtain such financing when needed, or
to do
so on acceptable terms, we may be unable to develop our products, take advantage
of business opportunities, respond to competitive pressures or continue our
operations.
Off-Balance
Sheet Arrangements
We
currently have no off-balance sheet arrangements.
Effects
of Inflation and Foreign Currency Fluctuations
We
do not
believe that inflation or foreign currency fluctuations significantly affected
our financial position and results of operations as of and for the fiscal
year
ended December 31, 2004.
DIRECTORS
AND EXECUTIVE OFFICERS
The
following table contains information regarding the current members of the
Board
of Directors and executive officers:
|
Name
|
Age
|
Position
|
|
Alexander
P. Haig,
J.D.
|
53
|
Chairman
of the Board
|
|
Steve
H. Kanzer, C.P.A.,
J.D.
|
42
|
Vice
Chairman
|
|
Michael
T. Sember,
M.B.A.
|
56
|
Chief
Executive Officer, President, and Director
|
|
Evan
Myrianthopoulos
|
41
|
Chief
Financial Officer, and Director
|
|
James
S. Kuo, M.D.,
M.B.A.
|
41
|
Director
|
|
T.
Jerome Madison,
C.P.A.
|
65
|
Director
|
|
James
Clavijo, C.P.A.,
M.A.
|
40
|
Controller,
Treasurer, and Corporate Secretary
|
Alexander
P. Haig, J.D., has been a director since 2004 and currently serves as
our non-employee Chairman of the Board. Since 1988, Mr. Haig has served as
the
managing director of Worldwide Associates, Inc., a firm representing
multi-national corporations and early stage development companies in marketing
and business strategies. From 1992 to 1996, Mr. Haig also served as president
of
US-CIS Ventures, a privately held company active in transactions and projects
in
China and the former Soviet Union. From 1999 to 2002, Mr. Haig also served
as
Chairman and CEO of Sky Station International, Inc., a privately held
telecommunications company. Mr. Haig has worked on a wide variety of projects
for Worldwide Associates with particular emphasis on aerospace and
pharmaceutical technologies and was active in providing strategic and financial
advice to a broad range of companies from early stage through initial public
offerings, including America Online, Inc. Previously a partner in a large
private law firm, Mr. Haig concentrated on international trade and corporate
matters. He received his undergraduate and law degrees from Georgetown
University.
Steve
H. Kanzer, C.P.A., J.D., has been a director
since 1996 and currently serves as the non-executive Vice Chairman of the
Board.
Mr. Kanzer served as our Interim President from June 30, 2002 through January
4,
2003. Since December 2000, he has served as Chairman of Accredited Ventures
Inc.
and Accredited Equities Inc., respectively, a venture capital firm and NASD
member investment bank specializing in the biotechnology industry. He also
serves as President and/or a member of the board of directors of several
private
biopharmaceutical companies, including Pipex Therapeutics, Solovax, Inc.,
General Fiber, Inc., Effective Pharmaceuticals, Inc. and CD4 Biosciences,
Inc..,
each of which are involved in the licensing and development of clinical stage
investigational new drugs and life science technologies. Since September
2004,
he assumed the role as Chairman and Chief Executive Officer of Pipex
Therapeutics, Inc., a biopharmaceutical company located in Ann Arbor, Michigan
focusing on late stage products. From January 2001 until October 2003, Mr.
Kanzer also served as President of Developmental Therapeutics, Inc. until
its
acquisition by Titan Pharmaceuticals, Inc. in October 2003. Prior to founding
Accredited Ventures and Accredited Equities in December 2000, Mr. Kanzer
was a
co-founder of Paramount Capital, Inc. in 1992 and served as Senior Managing
Director - Head of Venture Capital of Paramount Capital until December 2000.
While at Paramount Capital, Mr. Kanzer was involved in the formation and
financing of a number of biotechnology companies, including our company as
well
as a private biopharmaceutical company, Corporate Technology Development,
Inc.
("CTD"). Mr. Kanzer was full-time Chief Executive Officer of CTD from March
1998
until December 2000 and part-time Chief Executive Officer from December 2000
until our company completed its acquisition of CTD in November 2001. From
1995
until June 1999, Mr. Kanzer was a founder and Chairman of Discovery
Laboratories, Inc., a public biotechnology company. From 1997 until 2000,
he was
President of PolaRx Biopharmaceuticals, Inc. a biopharmaceutical company
that
licensed and developed TRISENOX®, a leukemia drug currently marketed by
Cephalon, Inc. Prior to joining Paramount Capital in 1992, Mr. Kanzer was
an
attorney at the law firm of Skadden, Arps, Slate, Meagher & Flom in New
York. Mr. Kanzer received his J.D. from New York University School of Law
and a
B.B.A. in accounting from Baruch College.
Michael
T. Sember, M.B.A., became the Company's Chief Executive Officer,
President and Director in December 2004. Mr. Sember brings 30 years of broad
experience working with both public and private pharmaceutical and biotech
companies in the U.S. and Europe. Mr. Sember has an extensive business
development, operating and financial background which
includes involvement with nearly 100 licensing transactions and several
corporate acquisitions. Formerly he was Managing Director of EGB Advisors,
LLC
from December 2003 to December 2004, a business consulting firm and biotech
incubator. Prior to joining EGB Advisors, LLC he was President and Chief
Operating Officer of Women First Healthcare, from September 2003 to December
2003, a specialty pharmaceutical company. Prior to joining Women First
Healthcare, he was President and Chief Operating Officer of Deltagen, Inc.,
from
April 2002 to December 2002, a genomics company. Both Women's First Healthcare
and Deltagen filed bankruptcy petitions subsequent to Mr. Sember's tenure
at
each company. Mr. Sember was not a member of the executive management or
an
employee of either company during the period leading up to their engagement
of
him to assist in their efforts to accomplish a restructuring of their business.
Prior to joining Deltagen, Inc. he was Executive Vice President of Business
Development with Élan Corporation, from September 1991 to March 2002. At Élan he
was responsible for building a strategic alliance portfolio, which included
over
30 products in clinical development across several therapeutic areas including
neurology, oncology, and pain management. During this period he generated
approximately $900 million in licensing revenue during the development of
the
alliance portfolio. While at Élan he was also responsible for managing an
investment portfolio valued at approximately $1.25 billion. In addition to
this
experience Mr. Sember has served on the Boards of eight public and private
biotech companies and on the Advisory Boards of several venture capital firms,
and currently serves on the board of Directors of Iomed Inc., a publicly
traded
company. Mr. Sember received a bachelor's degree from the University of
Pittsburgh and a Master of Business Administration degree from Rockhurst
University.
Evan
Myrianthopoulos, has been a director since 2002 and is currently the
Chief Financial Officer after joining the Company in November of 2004 as
President and Acting Chief Executive Officer. From November 2001 to November
2004, he was President and founder of CVL Advisors, Group, Inc., a financial
consulting firm specializing in the biotechnology sector. Prior to founding
CVL
Advisors Group, Inc., Mr. Myrianthopoulos was a co-founder of Discovery
Laboratories, Inc., a public specialty pharmaceutical company developing
respiratory therapies. During his tenure at Discovery from June 1996 to November
2001, Mr. Myrianthopoulos held the positions of Chief Financial Officer and
Vice
President of Finance, where he was responsible for raising approximately
$55
million in four private placements. He also helped negotiate and managed
Discovery's mergers with Ansan Pharmaceuticals and Acute Therapeutics. Prior
to
co-founding Discovery, Mr. Myrianthopoulos was a Technology Associate at
Paramount Capital Investments, L.L.C., a New York City based biotechnology
venture capital and investment banking firm. Prior to joining Paramount Capital,
Mr. Myrianthopoulos was a managing partner at a hedge fund, and also held
senior
positions in the treasury department at the National Australia Bank where
he was
employed as a spot and derivatives currency trader. Mr. Myrianthopoulos holds
a
B.S. in Economics and Psychology from Emory University.
James
S. Kuo, M.D., M.B.A., has been a director since 2004. Since January
2003, Dr. Kuo was a founder, and currently serves as Chairman and Chief
Executive Officer of BioMicro Systems, a private nanotechnology company.
Formerly, Dr. Kuo was co-founder, President and Chief Executive Officer of
Discovery Laboratories, Inc. from January 2002 to December 2002, where he
raised
over $22 million in initial private funding and successfully took the company
public. Prior to that, he served as Vice President Business Development,
from
2001 to 2002, of Metabasis, Inc. From 2000 to 2001, Dr. Kuo served as Vice
President Worldwide Business Development of Genset Corporation. He has held
senior business development positions at Pfizer, and Myriad Genetics. Dr.
Kuo
has also been Managing Director of Venture Analysis at HealthCare Ventures
and
Vice President at Paramount Capital Investments. Dr. Kuo is also a founder
and former director of ArgiNOx, a private cardiovascular drug development
company. Dr. Kuo simultaneously received his M.D. from the University of
Pennsylvania School of Medicine and his M.B.A. from the Wharton School of
Business.
T.
Jerome Madison, C.P.A., M.B.A., has been a director since May 2005 and
is currently a General Partner at Founders Court, a company specializing
in
management buyouts of companies with significant growth potential. From 1982
to
1986, he was a co-founder and Chief Financial Officer of Cytogen, a cancer
biotechnology company. From 1977 to 1982, he was with Rhone Poulenc Rorer
(n/k/a
Sanofi-Aventis), a major international pharmaceutical company, where he held
the
position of Corporate Controller and Chief Accounting Officer. Prior to that,
Mr. Madison held financial positions at Abbott Laboratories and KPMG. Prior
to
joining KPMG, Mr. Madison served in the U.S. Navy as a Naval Flight Officer.
Mr.
Madison is a Certified Public Accountant and received his B.S. from Wharton
School of the University of Pennsylvania and his M.B.A. from Monmouth
University.
James
Clavijo, C.P.A., M.A. Mr. Clavijo joined our company in October 2004
and is currently our Controller, Treasurer, and Corporate Secretary. He brings
15 years of senior financial management experience, involving both domestic
and
international entities, and participating in over $100 Million in equity
and
debt financing. Prior to joining DOR, Mr. Clavijo, held the position of Chief
Financial Officer for Cigarette Racing Team (Miami, FL), from July 2003 to
October 2004. During his time with Cigarette he was instrumental in developing
a
cost accounting manufacturing tracking system and managed the administration
and
development of an IRB Bond related to a 10 acre, 100,000 square foot facility
purchase. Prior to joining Cigarette Racing Team, Mr. Clavijo held the position
of Chief Financial Officer for Gallery Industries, from November 2001 to
July
2003, a retail and manufacturing garment company. Prior to joining, Gallery,
he
served as Corporate Controller, for A Novo Broadband, from December 2000
to
November 2001, a repair and manufacturing telecommunications company where
he
managed several mergers and acquisitions and corporate restructuring. Prior
to
joining A Novo Broadband, he served as Chief Financial Officer of AW Industries,
from August 1997 to December 2000, a computer parts manufacturer. He also,
held
the position of Finance Manager for Wackenhut Corporation in the U.S.
Governmental Services Division. In addition, he served in the U.S. Army from
1983 to 1996 in both a reserve and active duty capacity for personnel and
medical units. Mr. Clavijo holds a Master in Accounting degree from Florida
International University, a Bachelor in Accounting degree from the University
of
Nebraska, and a Bachelor in Chemistry degree from the University of Florida.
Mr.
Clavijo is a licensed Certified Public Accountant in the state of Florida.
General
Alexander M. Haig, Jr., Mr. Haig currently serves on our Strategic
Advisory Board. He previously served as Chairman of the Board of Directors
from
December 2002 to November 2004. Since 1984, Mr. Haig has been Chairman and
President of Worldwide Associates, Inc., a Washington D.C. based international
advisory firm. He served as Secretary of State (1981-82), President and Chief
Operating officer of United Technologies Corporation (1979-81), and Supreme
Allied Commander in Europe (1974-79). Previously, he was White House Chief
of
Staff for the Nixon and Ford administrations, Vice Chief of Staff of the
U.S.
Army and Deputy National Security Advisor. Mr. Haig currently serves on the
Board of Directors of MGM Mirage, Inc. and Metro-Goldwyn Mayer, Inc. He is
also
the host of his own weekly television program, "World Business Review".
EXECUTIVE
COMPENSATION
The
following table contains information concerning the compensation paid during
our
fiscal years ended December 31, 2003, 2004 and 2005, to the persons who
served
as our Chief Executive Officers, and each of the two other most highly
compensated executive officers during 2005 (collectively, the "Named Executive
Officers").
|
Name
|
Position
|
Years
|
Annual
Salary
|
Annual
Bonus
|
All
Other Compensation
|
Long
term Compensation Awards Securities Underlying Options
|
| |
|
|
|
|
|
|
|
Michael
Sember (1)
|
CEO
& President
|
2005
|
$300,000
|
$100,000
|
$57,398
|
2,000,000
|
|
2004
|
$20,000
|
-
|
-
|
2,000,000
|
|
Evan
Myrianthopoulos (2)
|
CFO
|
2005
|
$185,000
|
$50,000
|
$35,744
|
-
|
|
2004
|
$25,694
|
-
|
-
|
650,000
|
|
James
Clavijo (3)
|
Controller,
Treasurer & Secretary
|
2005
|
$125,000
|
$25,000
|
-
|
150,000
|
|
2004
|
$27,500
|
-
|
-
|
100,000
|
____________
(1)
Mr.
Sember joined in December 2004. Mr. Sember deferred payment of half of
his 2005
annual bonus or $50,000 into 2006. Other Compensation includes costs for
transportation, travel and lodging.
(2)
Mr.
Myrianthopoulos joined in November 2004 as President and Acting Chief Executive
Officer and then in December 2004 he accepted the position of Chief Financial
Officer. Mr. Myrianthopoulos deferred payment of half of his 2005 annual
bonus
or $25,000 into 2006. Other Compensation includes costs for transportation,
travel and lodging.
(3)
Mr.
Clavijo joined in October 2004.
The
following table contains information concerning options granted to the Named
Executive Officers during the fiscal year ended December 31, 2005. We have
never issued Stock Appreciation Rights.
|
Named
Executive Officer
|
Number
of Securities Underlying Options
Granted
|
Percentage
of Total Options Granted to Employees in Fiscal
Year (1)
|
Exercise
Price ($/share)(2)
|
Expiration
Date
|
|
Michael
Sember
|
-
|
N/A
|
N/A
|
N/A
|
|
Evan
Myrianthopoulos
|
-
|
N/A
|
N/A
|
N/A
|
|
James
Clavijo (3)
|
150,000
|
30%
|
$0.45
|
2/22/2015
|
____________
(1)
Based
on options to purchase an aggregate of 500,000 shares of our common stock
granted to employees and non-employee board members in the fiscal year ended
December 31, 2005, including all options granted to the Named Executive Officers
in all capacities in the fiscal year ended December 31, 2005.
(2)
The
exercise price of each grant is equal to the fair market value of the company's
common stock on the date of the grant.
(3)
Mr.
Clavijo's options vested 50,000 on date of grant, February 22, 2005, with
the
balance vesting every three months from grant date, at a rate of 8,333 options
per three month period.
Fiscal
Year-End Option Table
The
following table provides information on the total number of exercisable and
unexercisable stock options held at December 31, 2005 by the Named
Executive Officers. None of the Named Executive Officers exercised any options
during fiscal year 2005.
Fiscal
Year-End Option Values
|
|
Number
of Securities
Underlying
Unexercised
Options
at Fiscal Year-End
|
Value
of Unexercised
In-the-Money
Options
at
Fiscal Year-End
|
|
Named
Executive Officer
|
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable(1)
|
|
Michael
Sember
|
1,120,000
|
880,000
|
-
|
-
|
|
Evan
Myrianthopoulos
|
316,668
|
333,332
|
-
|
-
|
|
James
Clavijo
|
108,332
|
141,668
|
-
|
-
|
____________
(1)
Based
on the difference between the option's exercise price and a closing price
of
$0.27 for the underlying common stock on December 31, 2005 as reported by
the
American Stock Exchange.
Employment
and Severance Agreements
During
February 2005, we entered into a three year employment agreement with James
Clavijo. Pursuant to this employment agreement we agreed to pay Mr. Clavijo
a
base salary of $125,000 per year. After one year of service Mr. Clavijo would
be
entitled to a minimum annual bonus of $25,000. We agreed to issue him options
to
purchase 150,000 shares of our common stock, with one third immediately vesting
and the remainder vesting over three years. This option grant is subject
to
shareholder approval. Upon termination without "just cause" as defined by
this
agreement, we would pay Mr. Clavijo three months severance, as well as any
unpaid bonuses and accrued vacation would become payable. No unvested options
shall vest beyond the termination date. Mr. Clavijo also received 100,000
options, vesting over three years when he was hired in October 2004, as
Controller, Treasurer and Corporate Secretary.
During
December 2004, we entered into a three year employment agreement with Evan
Myrianthopoulos. Pursuant to this employment agreement we agreed to pay Mr.
Myrianthopoulos a base salary of $185,000 per year. After one year of service
Mr. Myrianthopoulos would be entitled to a minimum annual bonus of $50,000.
We
agreed to issue him options to purchase 500,000 shares of our common stock,
with
the options vesting over three years. Upon termination without "just cause"
as
defined by this agreement, we would pay Mr. Myrianthopoulos six months severance
subject to setoff, as well as any unpaid bonuses and accrued vacation would
become payable. No unvested options shall vest beyond the termination date.
Mr.
Myrianthopoulos also received 150,000 options, vested immediately when he
was
hired in November 2004, as President and Acting Chief Executive
Officer.
During
December 2004, we entered into a three year employment agreement with Michael
T.
Sember, M.B.A. Pursuant to this employment agreement we agreed to pay Mr.
Sember
a base salary of $300,000 per year. After one year of service Mr. Sember
would
be entitled to a minimum annual bonus of $100,000. We agreed to issue him
options to purchase 2,000,000 shares of our common stock, with one third
immediately vesting and the remainder vesting over three years. Upon termination
without "just cause" as defined by this agreement, we would pay Mr. Sember
six
months severance, as well as any unpaid bonuses and accrued vacation would
become payable. No unvested options shall vest beyond the termination date.
During
July 2003, we entered into a three year employment agreement with Geoff Green.
Pursuant to this employment agreement we agreed to pay Mr. Green a base salary
of $100,000 per year. After one year of service he would be entitled to an
annual bonus of $20,000. We agreed to issue him options to purchase 300,000
shares of our common stock, with one third immediately vesting and the remainder
vesting over two years. Upon termination without "just cause" as defined
by this
agreement, we would pay Mr. Green three months severance, as well as any
unpaid
bonuses and accrued vacation would become payable. No unvested options shall
vest beyond the termination date. In November 2003, Mr. Green also received
options to purchase 400,000 shares of our common stock, with vesting based
on
milestones. In July 2004, Mr. Green accepted the position of President and
Acting Chief Executive Officer and received an increase in salary to $145,000.
On November 9, 2004, Mr. Green resigned.
During
March 2003, we entered into a three year employment agreement with Ralph
M.
Ellison M.D., M.B.A. Pursuant to this employment agreement we agreed to pay
Dr.
Ellison a base salary of $200,000 per year. Upon the completion of the equity
financing, Dr. Ellison received an increase in base salary to $300,000 per
year,
as well as a bonus on his anniversary of 30% of his yearly salary. We agreed
to
issue him options to purchase 2,000,000 shares of our common stock, with
one
third immediately vesting and the remainder vesting over two years. Upon
termination without "just cause" as defined by this agreement, we would pay
Dr.
Ellison six months severance, as well as any unpaid bonuses and all of his
options would immediately become vested in full. On July 9, 2004, Dr. Ellison
resigned from the Company and entered into a separation agreement and general
release in which we agreed to pay Dr. Ellison six months’ severance and provide
him with the right to exercise his 2,000,000 vested options received pursuant
to
his employment agreement for a period of one year from his resignation
date.
Director
Compensation
Directors
who are compensated as full-time employees receive no additional compensation
for service on our Board of Directors or its committees. Each director who
is
not a full-time employee is paid $2,000 for each board or committee meeting
attended ($1,000 if such meeting was attended telephonically).
We
maintain a stock option grant program pursuant to the nonqualified stock
option
plan, whereby members of the our Board of Directors who are not full-time
employees receive an initial grant of fully vested options to purchase 50,000
shares of common stock, and subsequent annual grants of fully vested options
to
purchase 50,000 shares of common stock after re-election to our Board of
Directors.
On
November 10, 2004, we entered into a letter agreement with Alexander P. Haig,
to
serve as the Chairman of the Board of Directors. We agreed to issue to him
options to purchase 1,000,000 shares of our common stock, with 500,000 vesting
immediately and 500,000 vesting in one year. In addition, on November 10,
2004,
we entered into a one year consulting agreement with Worldwide Associates,
Inc.,
for a fee of $16,500 per month. Mr. Haig is the managing director of Worldwide
Associates, Inc. and General Haig is its President.
On
December 23, 2002, we entered into a letter agreement with General Alexander
M.
Haig, Jr. to serve as the Chairman of the Board of Directors. We agreed to
pay
General Haig a retainer of $50,000 per year, and issued to him options to
purchase 2,000,000 shares of our common stock. On November 10, 2004, the
retainer portion of this agreement was terminated and General Haig was given
three years in which to exercise his options.
SECURITY
OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The
table
below provides information regarding the beneficial ownership of the Common
Stock as of May 5, 2006, of (1) each person or entity who owns beneficially
5%
or more of the shares of our outstanding common stock, (2) each of our
directors, (3) each of the Named Executive Officers, and (4) our directors
and
officers as a group. Except as otherwise indicated, and subject to applicable
community property laws, we believe the persons named in the table have sole
voting and investment power with respect to all shares of common stock held
by
them. Except as otherwise indicated, each stockholder's percentage ownership
of
our common stock in the following table is based on 65,395,814 shares of
common
stock outstanding as of May 5, 2006.
|
Name
of Beneficial Owner
|
Shares
of Common Stock Beneficially
Owned
|
Percent
of Class
|
|
Silverback
Asset Management, LLC (1)
|
3,837,700
|
5.72
%
|
|
SF
Capital Partners (2)
|
3,817,046
|
5.61
%
|
|
Alexander
P. Haig (3)
|
1,050,000
|
1.58
%
|
|
Steve
H. Kanzer (4)
|
2,135,635
|
3.21
%
|
|
James
S. Kuo (5)
|
155,000
|
*
|
|
T.
Jerome Madison (6)
|
100,000
|
*
|
|
Evan
Myrianthopoulos (7)
|
794,667
|
1.15
%
|
|
Michael
T. Sember (8)
|
1,865,440
|
2.78
%
|
|
James
Clavijo (9)
|
116,665
|
*
|
|
All
directors and executive officers as a group (7 persons)
|
5,581,977
|
9.01
%
|
____________
*
Indicates less than 1%.
**
Beneficial ownership is determined in accordance with the rules of the SEC.
Shares of common stock subject to options or warrants currently exercisable
or
exercisable within 60 days of May 5, 2006, are deemed outstanding for computing
the percentage ownership of the stockholder holding the options or warrants,
but
are not deemed outstanding for computing the percentage ownership of any
other
stockholder. Percentage of ownership is based on 65,395,814 shares of common
stock outstanding as of May 5, 2006.
(1)
Includes 1,665,000 shares of common stock issuable upon exercise of warrants
until August 2010. Reference to this was as reported on Schedule 13G filed
with
the SEC on February 14, 2006. According to this Schedule 13G, Elliot Bossen
may
be deemed to be a beneficial owner of all of these shares as a result of
acting
as the sole managing member of Silverback, and Silverback Master Ltd. may
be
deemed the beneficial owner of 3,108,000 of these shares. The address for
Silverback is 1414 Raleigh Road, Suite 250, Chapel Hill, NC 27517.
(2)
Includes 1,139,387 shares of common stock beneficially owned by SF Capital
Partners Ltd, 1,012,659 shares of common stock issuable upon exercise of
warrants within 60 days and 1,665,000 shares of common stock issuable upon
exercise of warrants until August 2010. Reference to this was as reported
on
Schedule 13G filed with the SEC on February 15, 2005. According to this Schedule
13G, Michael A. Roth and Brian J. Stark may be deemed to be beneficial owners
of
these shares as a result of their acting as managing members of Stark Offshore
Management, LLC, which acts as investment manager and has sole power to direct
the management of SF Capital. The address for SF Capital Partners Ltd. is
3600
South Lake Drive St. Francis, WI 53235.
(3)
Consists of 1,050,000 options to purchase common stock within 60 days of
May 5,
2006. The address of Mr. Haig is c/o DOR BioPharma, 1691 Michigan Ave, Suite
435, Miami Beach, FL 33139.
(4)
Includes 1,069,437 shares of common stock owned by Mr. Kanzer, 349,398 warrants
to purchase shares of common stock and 716,800 options to purchase common
stock
within 60 days of May 5, 2006. The address of Mr. Kanzer is c/o DOR BioPharma,
1691 Michigan Ave, Suite 435, Miami Beach, FL 33139.
(5)
Includes 150,000 options to purchase common stock and 5,000 warrants to purchase
shares of common stock within 60 days of May 5, 2006. The address of Dr.
Kuo is
c/o DOR BioPharma, 1691 Michigan Ave, Suite 435, Miami Beach, FL
33139.
(6)
Includes 100,000 options to purchase common stock within 60 days of May 5,
2006.
The address of Mr. Madison is c/o DOR BioPharma, 1691 Michigan Ave, Suite
435,
Miami Beach, FL 33139.
(7)
Includes 608,335 options to purchase common stock and 186,342 warrants to
purchase common stock within 60 days of May 5, 2006. The address of Mr.
Myrianthopoulos is c/o DOR BioPharma, 1691 Michigan Ave, Suite 435, Miami
Beach,
FL 33139.
(8)
Includes 1,685,000 options to purchase common stock within 60 days of May
5,
2006. The address of Mr. Sember is c/o DOR BioPharma, 1691 Michigan Ave,
Suite
435, Miami Beach, FL 33139.
(9)
Includes 116,665 options to purchase common stock within 60 days of May 5,
2006.
The address of Mr. Clavijo is c/o DOR BioPharma, 1691 Michigan Ave, Suite
435,
Miami Beach, FL 33139.
Equity
Compensation Plan Information
In
December 2005, our Board of Directors approved the 2005 Equity Incentive
Plan,
which was approved by stockholders on December 29, 2005.
|
Plan
Category
|
Number
of Securities to be issued upon exercise of outstanding options,
warrants
and rights
|
Weighted-Average
Exercise Price Outstanding options, warrants
and rights
|
Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans (excluding securities reflected in the
first
column)
|
|
Equity
compensation plans approved by security holders (1)
|
9,826,838
|
$
0.61
|
6,800,000
|
|
Equity
compensation plans not approved by security holders
|
-
|
-
|
-
|
|
TOTAL
|
9,826,838
|
$0.61
|
6,800,000
|
_____________
(1)
Includes our 1995 Amended and Restated Omnibus Incentive Plan and our 2005
Equity Incentive Plan. Out Plan expired in 2005 and thus no securities remain
available for future issuance under that plan.
SELLING
STOCKHOLDERS
The
following table presents information regarding the Selling Stockholders.
Neither
the Selling Stockholder nor any of their affiliates have held a position
or
office, or had any other material relationship, with us.
|
Name
of
Selling
Stockholder
|
Number
of Shares of Common Stock Owned Before the
Offering (1)
|
Percent
of
Common
Stock Owned Before
the
Offering
|
Shares
Available for Sale Under This Prospectus
(1)
|
Number
of Shares of Common Stock To Be Owned After Completion
of
the Offering
|
Percent
of Common Stock to be Owned After Completion
of
the Offering
|
|
Iroquois
Master Fund LTD(2)
|
5,052,328
|
7.44
|
|
5,052,328
|
-
|
*
|
|
Platinum
Partners Long Term Growth III(3)
|
4,330,566
|
6.41
|
|
4,330,566
|
-
|
*
|
|
Alpha
Capital AG/CO
LH
Financial(4)
|
3,608,806
|
5.37
|
|
3,608,806
|
-
|
*
|
|
Smithfield
Fiduciary LLC(5)
|
2,165,284
|
4.96
|
|
2,165,284
|
-
|
*
|
|
Nite
Capital, LP(6)
|
3,337,044
|
5.37
|
|
2,887,044
|
-
|
*
|
|
Cyrille
F. Buhrman
|
3,608,806
|
1.22
|
|
3,608,806
|
-
|
*
|
|
Ed
Burke
|
811,982
|
1.10
|
|
811,982
|
-
|
*
|
|
Little
Gem Life Sciences Fund, LLC(7)
|
721,762
|
*
|
|
721,762
|
-
|
*
|
|
Steven
Mark
|
180,440
|
*
|
|
180,440
|
-
|
*
|
|
Vasili
Myrianthopoulos
|
144,352
|
*
|
|
144,352
|
-
|
*
|
|
Kim
Alberstadt
|
72,176
|
*
|
|
72,176
|
-
|
*
|
|
Evan
Myrianthopoulos
|
180,440
|
*
|
|
180,440
|
-
|
*
|
|
Mike
Sember
|
360,880
|
*
|
|
360,880
|
-
|
*
|
|
David
Gentile
|
120,288
|
*
|
|
120,288
|
-
|
*
|
|
Bernard
Pismeny
|
120,288
|
*
|
|
120,288
|
-
|
*
|
|
Kyle
Brengel
|
120,288
|
*
|
|
120,288
|
-
|
*
|
|
Bristol
Investment Fund, Ltd.(8)
|
1,804,402
|
2.72
|
|
1,804,402
|
-
|
*
|
|
Midsouth
Capital, Inc.(9)
|
1,901,196
|
2.83
|
|
1,271,488
|
-
|
*
|
|
Nicholas
Stergis
|
1,350,000
|
2.06
|
|
1,350,000
|
-
|
*
|
|
Baruch
Ruttner
|
1,350,000
|
2.06
|
|
1,350,000
|
-
|
*
|
|
David
Tanen
|
184,091
|
*
|
|
184,091
|
-
|
*
|
|
Michael
Ferrari
|
76,705
|
*
|
|
76,705
|
-
|
*
|
|
Ham
Park
|
76,705
|
*
|
|
76,705
|
-
|
*
|
|
Sarah
Laut
|
30,682
|
*
|
|
30,682
|
-
|
*
|
_______________
|
**
|
Beneficial
ownership is determined in accordance with the rules of the SEC.
Shares of
common stock subject to options or warrants currently exercisable
or
exercisable within 60 days of May 5, 2006, are deemed outstanding
for
computing the percentage ownership of the stockholder holding the
options
or warrants, but are not deemed outstanding for computing the percentage
ownership of any other stockholder. Percentage of ownership is
based on
65,395,814 shares of common stock outstanding as of May 5,
2006.
|
|
(1)
|
The
shares of common stock issuable upon the exercise of warrants as
follows:
Iroquois Master Fund LTD, 2,526,164 shares; Platinum Partners Long
Term
Growth III, 2,165,283 shares; Alpha Capital AG/CO / LH Financial,
1,804,403 shares; Smithfield Fiduciary LLC / Highbridge Capital
Management, LLC, 1,082,642 shares; Nite Capital, LP, 1,893,522
shares;
Cyrille F. Buhrman, 1,804,403 shares; Ed Burke, 451,101 shares;
Little Gem
Life Sciences Fund, LLC 360,881 shares; Steven Mark, 90,220 shares;
Vasili
Myrianthopoulos, 72,176 shares; Kim Alberstadt 36,088 shares; Evan
Myrianthopoulos, 90,220 shares; Mike Sember, 180,440 shares; David
Gentile, 60,144 shares; Bernard Pismeny, 60,144 shares; Kyle Brengel,
60,144 shares; Bristol Capitol Advisors, LLC, 902,201 shares and
Midsouth
Capital Inc., 1,901,196 shares.
|
|
(2)
|
Joshua
Silverman is the natural person who exercises sole voting or dispositive
power with respect to the shares held of record by Iroquois Master
Fund
LTD. Iroquois Master Fund LTD is not a broker dealer, nor is it
affiliated
with one.
|
| (3) |
Mark
Norducht is the natural person who exercises sole voting or dispositive
power with respect to the shares held of record by Platinum Partners
Long
Term Growth III. Platinum Partners Long Term Growth III is not a
broker
dealer, nor is it affiliated with one.
|
| (4) |
Konrad
Ackerman is the natural person who exercises sole voting or dispositive
power with respect to the shares held of record by Alpha Capital
AG/CO /
LH Financial. Alpha Capital AG/CO / LH Financial are not broker dealers,
nor they affiliated with one.
|
| (5) |
Highbridge
Capital Management, LLC is the trading manager of Smithfield Fiduciary
LLC. Glenn Dubin and Henry Swieca control Highbridge Capital Management,
LLC and as such are the natural persons who exercise shared voting
or
dispositive power with respect to the shares held of record by Smithfield
Fiduciary LLC. Each of Highbridge Capital Management, LLC, Glenn
Dubin and
Henry Swieca disclaim beneficial ownership of the securities held
by
Smithfield Fiduciary LLC. Smithfield Fiduciary LLC and Highbridge
Capital
Management, LLC are not broker dealers, nor are they affiliated with
one.
|
| (6) |
Keith
Goodman is the natural person who exercises sole voting or dispositive
power with respect to the shares held of record by Nile Capital,
LP. Mr.
Goodman disclaims beneficial ownership of these securities. Nile
Capital,
LP is not a broker dealer, nor is it affiliated with
one.
|
| (7) |
Jeffrey
Benison is the natural person who exercises sole voting or dispositive
power with respect to the shares held of record by Little Gem Life
Sciences Fund, LLC. Little Gem Life Sciences Fund, LLC is not a broker
dealer, nor is it affiliated with one.
|
| (8) |
Bristol
Capital Advisors, LLC is the investment advisor to Bristol Investment
Fund, Ltd. Paul Kessler is the manager of Bristol Capital Advisors,
LLC
and as such is the natural person who exercises sole voting or dispositive
power with respect to the shares held of record by Bristol Investment
Fund, Ltd. Mr. Kessler disclaims beneficial ownership of these securities.
Bristol Investment Fund, Ltd. is not a broker dealer, nor is it affiliated
with one.
|
| (9) |
MidSouth
Capital, Inc. is a broker-dealer who acted as placement agent for
the
private placement completed on April 10, 2006.
|
USE
OF PROCEEDS
This
prospectus relates to shares of our common stock that may be offered and
sold
from time to time by the Selling Stockholders. We will receive no proceeds
from
the sale of shares of common stock in this offering. However, we may receive
up
to approximately $6.3 million in proceeds from the exercise of the Warrants
to
purchase our common stock. We intend to use the net proceeds from the exercise
of the Warrants as working capital to cover costs associated with the assembly
and filing of the NDA for orBec®,
other
research and development expenses, and general overhead costs including salaries
until such time, if ever, as we are able to generate a positive cash flow
from
operation.
PLAN
OF DISTRIBUTION
The
selling stockholders and any of their pledgees, donees, transferees, assignees
and successors-in-interest may, from time to time, sell any or all of their
shares of common stock on any stock exchange, market or trading facility
on
which the shares are traded or in private transactions. These sales may be
at
fixed or negotiated prices. The selling stockholders may use any one or more
of
the following methods when selling shares:
| · |
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits investors;
|
| · |
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
| · |
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
| · |
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
| · |
privately
negotiated transactions;
|
| · |
to
cover short sales and other hedging transactions made after the date
that
the registration statement of which this prospectus is a part is
declared
effective by the Securities and Exchange
Commission;
|
| · |
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per share;
|
| · |
a
combination of any such methods of sale;
and
|
| · |
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this prospectus.
Broker-dealers
engaged by the selling stockholders may arrange for other brokers-dealers
to
participate in sales. Broker-dealers may receive commissions or discounts
from
the selling stockholders (or, if any broker-dealer acts as agent for the
investor of shares, from the purchaser) in amounts to be negotiated. The
selling
stockholders do not expect these commissions and discounts to exceed what
is
customary in the types of transactions involved.
The
selling stockholders may from time to time pledge or grant a security interest
in some or all of the Shares owned by them and, if they default in the
performance of their secured obligations, the pledgees or secured parties
may
offer and sell shares of common stock from time to time under this prospectus,
or under an amendment to this prospectus under Rule 424(b)(3) or other
applicable provision of the Securities Act of 1933 amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.
Upon
our
being notified in writing by a selling stockholder that any material arrangement
has been entered into with a broker-dealer for the sale of common stock through
a block trade, special offering, exchange distribution or secondary distribution
or a purchase by a broker or dealer, a supplement to this prospectus will
be
filed, if required, pursuant to Rule 424(b) under the Securities Act, disclosing
(i) the name of each such selling stockholder and of the participating
broker-dealer(s), (ii) the number of shares involved, (iii) the price at
which
such shares of common stock were sold, (iv) the commissions paid or discounts
or
concessions allowed to such broker-dealer(s), where applicable, (v) that
such
broker-dealer(s) did not conduct any investigation to verify the information
set
out or incorporated by reference in this prospectus, and (vi) other facts
material to the transaction. In addition, upon our being notified in writing
by
a selling stockholder that a donee or pledge intends to sell more than 500
shares of common stock, a supplement to this prospectus will be filed if
then
required in accordance with applicable securities law.
The
selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors
in
interest will be the selling beneficial owners for purposes of this
prospectus.
The
selling stockholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be "underwriters" within the meaning
of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of
the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Discounts, concessions, commissions and
similar selling expenses, if any, that can be attributed to the sale of
securities will be paid by the selling stockholders and/or the purchasers
of the
securities.
Each
selling stockholder that is affiliated with a registered broker-dealer has
confirmed to us that, at the time it acquired the securities subject to the
registration statement of which this prospectus is a part; it did not have
any
agreement or understanding, directly or indirectly, with any person to
distribute any of such securities. The Company has advised each selling
stockholder that it may not use shares registered on the registration statement
of which this prospectus is a part to cover short sales of our common stock
made
prior to the date on which such registration statement was declared effective
by
the SEC.
We
are
required to pay certain fees and expenses incident to the registration of
the
shares. We have agreed to indemnify the selling stockholders against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act. We agreed to keep this prospectus effective until the earlier
of
(i) the date on which the shares may be resold by the selling stockholders
without registration and without regard to any volume limitations by reason
of
Rule 144(e) under the Securities Act or any other rule of similar effect
and
(ii) such time as all of the shares have been publicly sold.
DESCRIPTION
OF SECURITIES
Our
authorized capital stock consists of 155,000,000 shares of capital stock,
of
which 150,000,000 shares are common stock, par value $.001 per share, 4,600,000
shares are preferred stock, par value $0.001 per share, 200,000 are Series
B
Convertible Preferred Stock, par value $.05 per share and 200,000 shares
are
Series C Convertible Preferred Stock, par value $0.05 per share. As of May
5,
2006, there were issued and outstanding 65,395,814 shares
of
common stock, options to purchase 9,826,838 shares of common stock and warrants
to purchase 36,628,789 shares of common stock. The amount outstanding includes
the 13,099,964 shares of common stock issued to the Selling
Stockholders.
Common
Stock
Holders
of our common stock are entitled to one vote for each share held in the election
of directors and in all other matters to be voted on by the stockholders.
There
is no cumulative voting in the election of directors. Holders of common stock
are entitled to receive dividends as may be declared from time to time by
our
board of directors out of funds legally available therefor. In the event
of
liquidation, dissolution or winding up of the corporation, holders of common
stock are to share in all assets remaining after the payment of liabilities.
Holders of common stock have no pre-emptive or conversion rights and are
not
subject to further calls or assessments. There are no redemption or sinking
fund
provisions applicable to the common stock. The rights of the holders of the
common stock are subject to any rights that may be fixed for holders of
preferred stock. All of the outstanding shares of common stock are fully
paid
and non-assessable.
Preferred
Stock
Our
Certificate of Incorporation authorizes the issuance of 4,600,000 shares
of
preferred stock with designations, rights, and preferences as may be determined
from time to time by the board of directors. The board of directors is
empowered, without stockholder approval, to designate and issue additional
series of preferred stock with dividend, liquidation, conversion, voting
or
other rights, including the right to issue convertible securities with no
limitations on conversion, which could adversely affect the voting power
or
other rights of the holders of our common stock, substantially dilute a common
stockholder’s interest and depress the price of our common stock.
No
shares
of the Series B Convertible Preferred Stock or the Series C Convertible
Preferred Stock are outstanding.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our
common stock is presently quoted on the Over-the-Counter Bulletin Board
(“OTCBB”) under the symbol "DORB.” The table below sets forth the high and low
sales prices, as provided by the American Stock Exchange, in each quarter
for
the period from January 1, 2004 through March 31, 2006. Until April 18, 2006,
our common stock was listed on the American Stock Exchange. The amounts
represent inter-dealer quotations without adjustment for retail markup,
markdowns or commissions and do not represent the prices of actual transactions.
|
Period
|
Price
Range
|
|
High
|
Low
|
|
Fiscal
Year Ended December 31, 2004:
|
|
|
|
First
Quarter
|
$1.58
|
$0.70
|
|
Second
Quarter
|
$0.97
|
$0.53
|
|
Third
Quarter
|
$0.65
|
$0.36
|
|
Fourth
Quarter
|
$0.81
|
$0.41
|
|
Fiscal
Year Ended December 31, 2005:
|
|
|
|
First
Quarter
|
$0.67
|
$0.35
|
|
Second
Quarter
|
$0.42
|
$0.29
|
|
Third
Quarter
|
$0.45
|
$0.32
|
|
Fourth
Quarter
|
$0.36
|
$0.22
|
|
Fiscal
Year Ended December 31, 2006:
|
|
|
|
First
Quarter
|
$0.69
|
$0.26
|
On
April
18, 2006, our common stock was delisted from the American Stock Exchange
and
began to be quoted on the OTCBB. As of May 5, 2006, the last reported price
of
our common stock quoted on the OTCBB was $0.32 per share. The OTCBB price
quoted
reflects inter-dealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions. We have approximately
1,083 registered
holders of record.
Dividend
Policy
We
have
never declared nor paid any cash dividends, and currently intend to retain
all
our cash and any earnings for use in our business and, therefore, do not
anticipate paying any cash dividends in the foreseeable future. Any future
determination to pay cash dividends will be at the discretion of the Board
of
Directors and will be dependant upon our consolidated financial condition,
results of operations, capital requirements and such other factors as the
Board
of Directors deems relevant.
DISCLOSURE
OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
ACT
LIABILITIES
Section
102(b)(7) of the Delaware General Corporation Law allows companies to limit
the
personal liability of its directors to the company or its stockholders for
monetary damages for breach of a fiduciary duty. Article IX of the Company’s
Certificate of Incorporation, as amended, provides for the limitation of
personal liability of the directors of the Company as follows:
“A
Director of the Corporation shall have no personal liability to the Corporation
or its stockholders for monetary damages for breach of his fiduciary duty
as a
Director; provided, however, this Article shall not eliminate or limit the
liability of a Director (I) for any breach of the Director’s duty of loyalty to
the Corporation or its stockholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) for the unlawful payment of dividends or unlawful stock repurchases
under
Section 174 of the General Corporation Law of the State of Delaware; or (iv)
for
any transaction from which the Director derived an improper personal benefit.
If
the General Corporation Law is amended after approval by the stockholders
of
this Article to authorize corporate action further eliminating or limiting
the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted
by
the General Corporation Law of the State of Delaware, as so amended.”
Article
VIII of the Company’s Bylaws, as amended and restated, provide for
indemnification of directors and officers to the fullest extent permitted
by the
Delaware General Corporation Law.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers or persons controlling the registrant
pursuant to the foregoing provisions, the registrant has been informed that
in
the opinion of the Securities and Exchange Commission such indemnification
is
against public policy as expressed in the Act and is therefore unenforceable.
EXPERTS
The
audited consolidated financial statements of DOR BioPharma, Inc. and
subsidiaries included herein in the Registration Statement have been audited
by
Sweeney, Gates & Co., an independent registered public accounting firm, for
the years ended December 31, 2005 and 2004 as set forth in their report
appearing herein and elsewhere in the Registration Statement. Such financial
statements have been so included in reliance upon the reports of such firm
given
upon their authority as experts in accounting and auditing.
LEGAL
MATTERS
The
validity of the shares of our common stock offered by the Selling Stockholder
will be passed upon by the law firm of Edwards Angell Palmer & Dodge LLP,
Fort Lauderdale, Florida.
INDEX
TO FINANCIAL STATEMENTS
DOR
BIOPHARMA, INC. AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
Consolidated
Financial Statements—December 31, 2005 and 2004:
Report
of
Independent Registered Public Accounting Firm . . . . . . . . . . . . . .
. . .
. . . . . . . . F-2
Consolidated
Balance Sheet
as
of
December 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .
. . . . . . . ................... F-3
Consolidated
Statements of Operations
for
the
years ended December 31, 2005 and 2004 . . . . . . . . . . . . . . . . .
. . . .
. . . . . . F-4
Consolidated
Statements of Changes in Shareholders’ Equity
for
the
years ended December 31, 2005 and 2004 . . . . . . . . . . . . . . . . .
. . . .
. . . . . . F-5
Consolidated
Statements of Cash Flows
for
the
years ended December 31, 2005 and 2004 . . . . . . . . . . . . . . . . .
. . . .
. . . . . .. F-6
Notes
to
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . .
. . .
. . . . . . . . . . . . . . ... F-7
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors of DOR BioPharma, Inc.,
We
have
audited the accompanying consolidated balance sheet of DOR BioPharma, Inc.
and
subsidiaries at December 31, 2005 and the related consolidated statements
of
operations, changes in shareholders' equity and cash flows for the years
ended
December 31, 2005 and 2004. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an
opinion on these consolidated financial statements based on our audits.
We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the financial position of the Company, as of December
31, 2005 and the results of its operations and its cash flows for the years
ended December 31, 2005 and 2004, in conformity with United States generally
accepted accounting principals.
Sweeney,
Gates & Co.
Fort
Lauderdale, Florida
March
17,
2006
DOR
BioPharma, Inc.
Consolidated
Balance Sheet
December
31, 2005
| |
|
|
|
|
| |
|
|
|
|
|
|
Assets
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
821,702
|
|
|
|
|
|
Grants
receivable
|
|
564,330
|
|
|
|
|
|
Prepaid
expenses
|
|
138,794
|
|
|
|
|
|
Total
current assets
|
|
1,524,826
|
|
|
|
|
| |
|
|
|
|
|
|
|
Office
and laboratory equipment, net
|
|
44,728
|
|
|
|
|
|
Intangible
assets, net
|
|
1,803,020
|
|
|
|
|
|
Total
assets
|
|
$
3,372,574
|
|
|
|
|
|
Liabilities
and shareholders’ equity
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
1,530,900
|
|
|
|
|
|
Accrued
royalties
|
|
60,000
|
|
|
|
|
|
Accrued
compensation
|
|
148,601
|
|
|
|
|
|
Accrued
other expenses
|
|
105,000
|
|
|
|
|
|
Total
current liabilities
|
|
1,844,501
|
|
|
|
|
|
Shareholders’
equity:
|
|
|
|
|
|
|
|
Common
stock, $.001 par value. Authorized 150,000,000
|
|
|
|
|
|
|
|
shares;
50,612,504 issued and outstanding
|
|
50,612
|
|
|
|
|
|
Additional
paid-in capital
|
|
86,045,192
|
|
|
|
|
|
Accumulated
deficit
|
|
(
84,567,731
|
)
|
|
|
|
| |
|
|
|
|
|
|
|
Total
shareholders’ equity
|
|
1,528,073
|
|
|
|
|
|
Total
liabilities and shareholders’ equity
|
|
$
3,372,574
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements
DOR
BioPharma, Inc.
Consolidated
Statements of Operations
For
the years ended December 31,
| |
|
|
2005
|
2004
|
| |
|
|
|
|
|
|
Revenues
|
|
$
3,075,736
|
|
|
$
997,4827,
|
|
|
Cost
of revenues
|
|
(
2,067,034
|
)
|
|
(
936,6366
|
)
|
|
Gross
profit
|
|
1,008,702
|
|
|
60,8466
|
|
| |
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Research
and development
|
|
3,681,137
|
|
|
3,656,7766
|
|
|
General
and administrative
|
|
2,162,616
|
|
|
2,321,1866
|
|
|
Total
operating expenses
|
|
5,843,753
|
|
|
5,977,9622
|
|
| |
|
|
|
|
|
|
|
Loss
from operations
|
|
(
4,835,051
|
)
|
|
(
5,917,1166
|
)
|
| |
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
Interest
income
|
|
78,242
|
|
|
66,539
|
|
|
Interest
(expense) reversal
|
|
36,549
|
|
|
(
20,997
|
)
|
|
Total
other income (expense)
|
|
114,791
|
|
|
45,542
|
|
|
Net
loss
|
|
(
4,720,260
|
)
|
|
(
5,871,574
|
)
|
|
Preferred
stock dividends
|
|
-
|
|
|
(
503,195
|
)
|
|
Net
loss applicable to common shareholders
|
|
$(
4,720,260
|
)
|
|
$(
6,374,769
|
)
|
|
Basic
and diluted net loss per share applicable to common
shareholders
|
|
$
( 0.09
|
)
|
|
$
(
0.16
|
)
|
| |
|
|
|
|
|
|
|
Basic
and diluted weighted average common shares outstanding
|
|
49,726,249
|
|
|
40,626,621
|
|
| |
|
|
|
|
The
accompanying notes are an integral part of these financial
statements
DOR
BioPharma, Inc.
Consolidated
Statements of Changes in Shareholders’ Equity
For
the years ended December 31, 2005 and 2004
| |
|
Series
B Preferred Stock
|
Common
Stock
|
Additional
Paid-In capital
|
AccumulatedDeficit
|
Treasury
Stock
|
| |
|
|
Shares
|
|
|
Stated
Value
|
|
|
Shares
|
|
|
Par
Value
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Cost
|
|
|
Balance,
January
1, 2004
|
|
|
126,488
|
|
|
$12,648,768
|
|
|
34,893,765
|
|
|
$
34,894
|
|
|
$67,005,276
|
|
(
|
$73,975,897
|
)
|
|
172,342
|
|
(
|
$468,267
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock, from private placement
|
|
|
-
|
|
|
-
|
|
|
4,113,925
|
|
|
4,114
|
|
|
3,039,870
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of preferred stock to common stock
|
|
(
|
128,203
|
)
|
(
|
12,820,303
|
)
|
|
2,886,438
|
|
|
2,886
|
|
|
12,817,417
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of shares from options or warrants
|
|
|
-
|
|
|
-
|
|
|
377,976
|
|
|
378
|
|
|
104,269
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividends
|
|
|
1,715
|
|
|
171,535
|
|
|
-
|
|
|
-
|
|
(
|
171,535
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
467,183
|
|
|
-
|
|
|
-
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of treasury stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
|
2,000
|
|
(
|
1,316
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
stock retired
|
|
|
-
|
|
|
-
|
|
(
|
53,700
|
)
|
(
|
54
|
)
|
(
|
41,832
|
)
|
|
-
|
|
(
|
53,700
|
)
|
|
41,886
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
(
|
5,871,574
|
)
|
|
-
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December
31, 2004
|
|
|
-
|
|
|
$
-
|
|
|
42,218,404
|
|
|
$
42,218
|
|
|
$83,216,533
|
|
(
|
$79,847,471
|
)
|
|
120,642
|
|
(
|
$427,697
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock, from private placement
|
|
|
-
|
|
|
-
|
|
|
8,396,100
|
|
|
8,396
|
|
|
3,539,897
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
stock retired
|
|
|
-
|
|
|
-
|
|
(
|
2,000
|
)
|
(
|
2
|
)
|
(
|
426,383
|
)
|
|
-
|
|
(
|
120,642
|
)
|
|
427,697
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal
of non-cash compensation
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
(
|
284,855
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,720,260
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December
31, 2005
|
|
|
-
|
|
|
$
-
|
|
|
50,612,504
|
|
|
$
50,612
|
|
|
$86,045,192
|
|
(
|
$84,567,731
|
)
|
|
-
|
|
|
$
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements
DOR
BioPharma, Inc.
Consolidated
Statements of Cash Flows
For
the years ending December 31,
| |
|
|
2005
|
2004
|
|
Operating
activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
( 4,720,260
|
)
|
|
$
(
5,871,574
|
)
|
| |
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
|
|
|
|
| |
Amortization
and depreciation
|
|
194,284
|
296,234
|
|
|
|
|
Impairment
expense for intangibles
|
|
164,346
|
|
|
6,215
|
|
|
Non-cash
stock compensation
|
|
(
284,855
|
)
|
|
467,183
|
|
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Grants
receivable
|
|
178,657
|
|
|
(
722,033
|
)
|
|
Prepaid
expenses
|
|
(
79,191
|
)
|
|
96,240
|
|
|
Accounts
payable
|
|
(
167,039
|
)
|
|
1,457,371
|
|
|
Accrued
royalties
|
|
(
40,000
|
)
|
|
(
220,000
|
)
|
|
Accrued
compensation and other expenses
|
|
83,356
|
|
|
82,588
|
|
|
Total
adjustments
|
|
49,558
|
|
|
1,463,798
|
|
| |
|
|
|
|
|
|
|
Net
cash used by operating activities
|
|
(
4,670,702
|
)
|
|
(
4,407,776
|
)
|
| |
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
Purchases
of office and laboratory equipment
|
|
(
21,561
|
)
|
|
(
10,559
|
)
|
|
Acquisition
of intangible assets
|
|
(
250,570
|
)
|
|
(
267,096
|
)
|
|
Net
cash used by investing activities
|
|
(
272,131
|
)
|
|
(
277,655
|
)
|
| |
|
|
|
|
|
|
| Financing
activities: |
|
|
|
|
|
|
| Repayments
of note payable |
|
(
115,948 |
) |
|
(
243,119 |
)
|
|
Net proceeds from issuance of common stock |
|
3,548,293 |
|
|
3,039,870 |
|
|
Proceeds from exercise of options |
|
- |
|
|
104,647 |
|
|
Purchases of common stock for treasury |
|
- |
|
|
(1,316 |
)
|
| Net
cash provided by financing activities |
|
3,432,345 |
|
|
2,900,082 |
|
| Net
(decrease) in cash and cash equivalents |
|
(
1,510,488 |
|
|
(
1,785,349 |
|
| Cash
and cash equivalents at beginning of period |
|
2,332,190 |
|
|
4,117,539 |
|
| Cash
and cash equivalents at end of period |
|
$
821,702 |
|
|
$
2,332,190 |
|
| |
|
|
|
|
|
|
Supplemental
disclosure of cash flow:
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
41,865 |
|
|
$
3,383 |
|
|
Non-cash
transactions:
|
|
|
|
|
|
|
|
Non-cash
stock option expense (reversal)
|
|
$(
284,855 |
) |
|
$
393,913 |
|
|
Issuance of preferred stock dividend in kind
|
|
- |
|
|
$
171,535 |
|
|
Issuance of common stock for intangible assets
|
|
- |
|
|
$
32,778 |
|
|
Options for increase in subsidiary ownership
|
|
- |
|
|
$
88,740 |
|
|
Issuance of common stock to induce preferred stock
conversion
|
|
- |
|
|
$
331,660 |
|
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements
DOR
BioPharma, Inc.
Notes
to Consolidated Financial Statements
1. Organization
and Nature of Business
Nature
of Business
The
Company is a biopharmaceutical company incorporated in 1987, focused on the
development of biodefense vaccines and biotherapeutic products intended for
areas of unmet medical need. DOR’s biodefense business segment consists of
converting biodefense vaccine programs from early stage development to advanced
development and manufacturing. DOR’s biotherapeutic business segment consists of
development of orBec®
and
other biotherapeutics products namely OraprineTM,
LPMTM-Leuprolide,
and LPETM
and
PLPTM
Systems
for Delivery of Water-Insoluble Drugs.
During
the year ending December 31, 2005, the Company had one customer, the U.S.
Federal Government. All revenues were generated from two U.S. Federal Government
Grants. As of December 31, 2005 all outstanding receivables were from the
U.S.
Federal Government, National Institute of Health and The Food and Drug
Administration.
Principles
of Consolidation
The
consolidated financial statements include DOR BioPharma Inc., and its wholly
owned subsidiaries (“DOR” or the “Company”). The Company owns a 89.13% interest
in Enteron Pharmaceuticals, Inc., its subsidiary developing orBec®.
All
significant intercompany accounts and transactions have been eliminated in
consolidation.
2. Summary
of Significant Accounting Policies
Segment
Information
Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated on a regular basis by
the
chief operating decision maker, or decision making group, in deciding how
to
allocate resources to an individual segment and in assessing the performance
of
the segment.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of 90 days
or
less when purchased to be cash equivalents.
Grants
Receivable
Receivables
consist of unbilled amounts due from grants from the U.S. Federal Government,
National Institute of Health and The Food and Drug Administration. The amounts
were billed in the month subsequent to year end. The Company considers accounts
receivable to be fully collectible; accordingly, no allowance for doubtful
accounts has been established. If accounts become uncollectible, they will
be
charged to operations when that determination is made.
Intangible
Assets
Intangible
assets consist of patent costs, principally legal fees, and, upon application
for the patent, are amortized on a straight-line basis over the shorter of
the
estimated useful life of the patent or the regulatory life
Impairment
of Long-Lived Assets
Office
and laboratory equipment and intangible assets are evaluated and reviewed
for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. The Company recognizes impairment
of
long-lived assets in the event the net book value of such assets exceeds
the
estimated future undiscounted cash flows attributable to such assets or the
business to which such assets relate. If the sum of the expected undiscounted
cash flows is less than the carrying value of the related asset or group
of
assets, a loss is recognized for the difference between the fair value and
the
carrying value of the related asset or group of assets. Such analyses
necessarily involve significant judgment.
The
Company recorded impairment of intangible assets of $164,346 and $6,215 for
the
years ended December 31, 2005 and 2004, respectively.
Fair
Value of Financial Instruments
Accounting
principles generally accepted in the United States of America require that
fair
values be disclosed for the Company’s financial instruments. The carrying
amounts of the Company’s financial instruments, which include cash and cash
equivalents, current liabilities and debt obligations, are considered to
be
representative of their respective fair values.
Revenue
Recognition
The
Company recognizes revenue from government grants. These revenues are recorded
in the period in which they are earned. The consideration received is based
upon
a cost plus Facilities and Administrative (F&A) rate that provides funding
for overhead expenses. Similar to many cost-reimbursable grants, these
governmental grants are typically subject to audit and adjustment by the
government.
Research
and Development Costs
Research
and Development costs are charged to expense when incurred. Research and
development includes costs such as clinical trial expenses, contracted research
and license agreement fees with no alternative future use, supplies and
materials, salaries and employee benefits, equipment depreciation and allocation
of various corporate costs.
Stock
Based Compensation
The
Company has stock-based compensation plans. SFAS No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require companies to
record
compensation cost for stock-based employee compensation plans at fair value.
The
Company has chosen to continue using the intrinsic value method prescribed
in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to
Employees," and related interpretations, in accounting for its stock option
plans. In December 2002, the Financial Accounting Standards Board (“FASB”)
issued Statement of Financial Accounting Standard SFAS No. 148 “Accounting for
Stock-Based Compensation-Transition and Disclosure” which amends SFAS No. 123
“Accounting for Stock-Based Compensation.” Had compensation cost been determined
based upon the fair value at the grant date for awards under the plans based
on
the provisions of SFAS No. 123, the Company’s SFAS No. 123 pro forma net
loss and net loss per share would have been as follows:
December
31,
| |
2005
|
|
2004
|
|
Net
loss applicable to common shareholders
|
|
|
|
|
|
|
As
reported
|
$
( 4,720,260
|
)
|
|
$
(
6,374,769
|
)
|
|
Add
stock-based employee compensation expense related to stock options
determined under fair value method
|
(
393,226
|
)
|
|
(
1,023,368
|
)
|
|
Amounts
(credited) charged to income
|
(
284,855
|
)
|
|
284,855
|
|
|
Pro
forma net loss according to SFAS 123
|
$
( 5,398,341
|
)
|
|
$
(
7,113,282
|
)
|
|
Net
loss per share:
|
|
|
|
|
|
|
As
reported, basic and diluted
|
$
( 0 .09
|
)
|
|
$
(
0 .16
|
)
|
|
Pro
forma, basic and diluted
|
$
( 0 .11
|
)
|
|
$
(
0 .18
|
)
|
The
weighted average fair value of options granted with an exercise price equal
to
the fair market value of the stock was $0.48 and $0.44 for 2005 and 2004,
respectively.
The
fair
value of options in accordance with SFAS 123 was estimated using the
Black-Scholes option-pricing model and the following weighted-average
assumptions: dividend yield 0%, expected life of four years, volatility of
121%
and 129% in 2005 and 2004, respectively and average risk-free interest rates
in
2005 and 2004 of 3.75% and 3.5%, respectively.
Stock
compensation expense for options granted to nonemployees has been determined
in
accordance with SFAS 123 and Emerging Issues Task Force (“EITF”) 96-18,
"Accounting for Equity Instruments That Are Issued to Other Than Employees
for
Acquiring, or in Conjunction with Selling, Goods or Services," and represents
the fair value of the consideration received, or the fair value of the equity
instruments issued, whichever may be more reliably measured. For options
that
vest over future periods, the fair value of options granted to non-employees
is
periodically remeasured as the options vest.
Income
Taxes
The
Company files a consolidated federal income tax return and utilizes the asset
and liability method of accounting for income taxes. Under this method, deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of
existing assets and liabilities and their respective tax bases. A valuation
allowance is established when it is more likely than not that all or a portion
of a deferred tax asset will not be realized. A review of all available positive
and negative evidence is considered, including the Company’s current and past
performance, the market environment in which the Company operates, the
utilization of past tax credits, length of carryback and carryforward periods.
Deferred tax assets and liabilities are measured utilizing tax rates expected
to
apply to taxable income in the years in which those temporary differences
are
expected to be recovered or settled. No current or deferred income taxes
have
been provided through December 31, 2005 because of the net operating losses
incurred by the Company since its inception.
Net
Loss Per Share
In
accordance with accounting principles generally accepted in the United States
of
America, basic and diluted net loss per share has been computed using the
weighted-average number of shares of common stock outstanding during the
respective periods (excluding shares that are not yet issued). The effect
of
stock options, warrants and convertible preferred stock is antidilutive for
all
periods presented.
Use
of Estimates and Assumptions
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts in the financial statements
and
accompanying notes. Actual results could differ from those estimates.
New
Accounting Pronouncements
On
December 16, 2004, the FASB issued Statement No. 123R, “Share-Based Payment”
which requires companies to record compensation expense for stock options
issued
to employees at an amount determined by the fair value of the options. SFAS
No.
123R is effective for interim or annual periods beginning after June 15,
2005.
As such, effective with the Company’s first fiscal quarter of 2006, SFAS No.
123R will eliminate the Company’s ability to account for stock options using the
method permitted under APB 25 and instead require us to recognize compensation
expense should the Company issue options to its employees or non-employee
directors. The Company will adopt this policy effective January 1, 2006 and
is
in the process of evaluating the impact adoption of will have on the
consolidated financial statements.
In
December 2004, the FASB issued SEAS No. 153, “Exchange of Non-monetary Assets,
an amendment of APB Opinion No 29, Accounting for Non-monetary Transactions”.
SFAS No. 153 eliminates the exception for non-monetary exchanges of similar
productive assets, which were previously required to be recorded on a carryover
basis rather than a fair value basis. Instead, this statement provides that
exchanges of non-monetary assets that do not have commercial substance be
reported at carryover basis rather than a fair value basis. A non-monetary
exchange is considered to have commercial substance if the future cash flows
of
the entity are expected to change significantly as a result of the exchange.
The
provisions of this statement are effective for non-monetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. The Company expects
to adopt the standard during the fiscal year 2006. The Company is evaluating
the
requirements of SFAS No. 153 and has not determined the impact on its financial
condition or results of operations.
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections”
which provides guidance on the accounting for and reporting of accounting
changes and correction of errors. This statement changes the requirements
for
the accounting for and reporting of a change in accounting principle and
applies
to all voluntary changes in accounting principle. It also applies to changes
required by an accounting pronouncement in the unusual instance that the
pronouncement does not include specific transition provisions. This statement
is
effective for accounting changes and corrections of errors made in fiscal
years
beginning after December 15, 2005. The adoption of this standard is not expected
to have a material effect on the Company’s results of operations or financial
position.
3. Liquidity
and Management’s Plan
The
Company has incurred continuing losses since its inception in 1987. At December
31, 2005 the Company had negative working capital of $319,675, a net loss
of
$4,720,260 and was delinquent in its payment of some of its obligations.
The
Company expects to sustain additional losses in 2006. Due to insufficient
equity
to meet American Stock Exchange requirements, the Company expects to be delisted
from the Exchange on or shortly after March 31, 2006. This may adversely
affect
the ability of the Company to raise equity or debt capital. Moreover, the
Company’s ability to raise additional funding may be compromised should the Food
and Drug Administration deny initial approval of orBec for sale in the United
States.
Management’s
plan to generate positive cash flows either from operations or financing
includes the following:
| · |
In
January 2006, the Company entered into a $6,000,000, 15 month equity
financing agreement with an institutional investor to fund operations
through the first quarter of 2007. This agreement provides for the
sale of
$20,000 of common stock per working day (the amount can be increased
if
the stock price is greater than $0.40). The stock price must be greater
than $0.12 in order to use the financing agreement. According to
the
Company’s management, this funding will be sufficient for research and
administration through this period.
|
| · |
The
Company plans to continue seeking sources for additional equity
financing.
|
| · |
The
Company has taken steps to be traded on the Over the Counter (“OTC”)
bulletin board. Participation in the OTC bulletin board requires
compliance with all SEC filing
requirements.
|
| · |
The
Company plans to continue seeking grant funds from governmental
sources.
|
| · |
The
Company believes that if there were no other sources of financing
and it
is not able to utilize the funding from the investment banking
organization, reductions or discontinued operations of several of
the
Company’s programs may be required. If this should occur, the Company
believes it could continue to operate over the next four quarters
at a
reduced level and only continue with the existing NIH and FDA grant
projects.
|
| · |
The
Company is also exploring outlicensing opportunities for its
BioTherapeutic and BioDefense programs.
|
There
is
no assurance that the Company will be able to successfully implement the
plan or
will be able to generate cash flows from either operations or from equity
financings.
4.
Office and Laboratory Equipment
Office
and laboratory equipment are stated at cost. Depreciation is computed on
a
straight-line basis over five years. Office and laboratory equipment consisted
of the following:
December
31,
|
|
2005
|
|
|
2004 |
|
|
Office
equipment
|
$
115,108
|
|
|
$
95,417
|
|
|
Laboratory
equipment
|
23,212
|
|
|
23,212
|
|
|
Total
|
138,320
|
|
|
118,629
|
|
|
Accumulated
depreciation
|
(
93,592
|
)
|
|
(
68,149
|
)
|
| |
$
44,728
|
|
|
$
50,480
|
|
Depreciation
expense was $25,443 and $20,875 for the years ended December 31, 2005 and
2004,
respectively.
5.
Intangible Assets
The
following is a summary of intangible assets which consists of licenses and
patents:
| |
Weighted
Average Amortization period
(years)
|
Cost
|
Accumulated
Amortization
|
Net
Book Value
|
|
December
31, 2005
|
10.2
|
$
2,605,472
|
$
802,452
|
$
1,803,020
|
|
December
31, 2004
|
10.6
|
$
2,611,195
|
$
728,741
|
$
1,882,454
|
Amortization
expense was $168,841 and $302,449 for 2005 and 2004, respectively.
Based
on
the balance of licenses and patents at December 31, 2004, the annual
amortization expense for each of the succeeding five years is estimated to
be as
follows:
| |
Amortization
Amount
|
|
2006
|
$
170,000
|
|
2007
|
170,000
|
|
2008
|
170,000
|
|
2009
|
170,000
|
|
2010
|
170,000
|
License
fees and royalty payments in connection with the below agreements are expensed
annually.
In
July
2003, the Company entered into an exclusive license agreement with University
of
Texas South Western (UTSW) for administering the ricin vaccine via the
intramuscular route for initial license fees of 250,000 shares valued at
$200,000 of DOR common stock and $200,000 in cash. Subsequently, the Company
negotiated the remaining intranasal and oral rights to the ricin vaccine
for
$50,000 in annual license fees in subsequent years. On March 1, 2005 the
Company
signed a sponsored research agreement with UTSW extending through March 31,
2007. For $190,000 UTSW will grant the Company certain rights to intellectual
property.
In
October 2003, the Company executed an exclusive license agreement with the
University of Texas System (UTMB) for the use luminally-active steroids,
including beclomethasone dipropionate (BDP) in the treatment of irritable
bowel
syndrome. Pursuant to this agreement the Company paid UTMB a license fee
of
$10,000 and also agreed to pay an additional $10,000 license fee expense
each
year. The Company also agreed to pay past and future patent maintenance costs.
The cost for 2005 and 2004 was $12,728 and $39,171, respectively. The Company
acquired a sublicense agreement and may receive payments on this sublicense
in
the event of the sublicensee reaching certain milestones.
Upon
execution of a royalty bearing license agreement to a pharmaceutical company
in
July 2003, the Company paid an additional license fee of $175,000 for the
encapsulation of antigens in polymeric microspheres and their use in oral
or
mucosal vaccination primarily in the use of a vaccine for ricin. The Company
also agreed to provide $130,000 of sponsored research during 2003, a $60,000
annual license fee and $60,000 annually for patent maintenance.
In
July
2005 the Company signed a sponsored research agreement with Thomas Jefferson
University (TJU) that would pay TJU $150,000. In May 2003, the Company signed
a
license agreement with TJU for the licensure of detoxified botulinum toxin
for
use as a vaccine. The Company paid TJU $30,000 in cash and issued 141,305
shares
of common stock valued at $130,000. The Company also agreed to reimburse
TJU for
past and future patent maintenance. The patent maintenance expense for 2005
and
2004 was $157,293 and $58,922, respectively. The patent costs are capitalized.
The Company is also responsible for a license maintenance fee of $10,000
in 2004
and 2005 and $15,000 in 2005 and each year thereafter. These costs are expensed
as incurred. The Company is also responsible for paying TJU $200,000 upon
the
first filing of any New Drug Application (“NDA”) with the United States Food and
Drug Administration (“FDA”) and $400,000 upon first approval of an NDA relating
to the first licensed product by FDA.
6.
Notes Payable
On
June
29, 2002, DOR and a pharmaceutical company signed an agreement for the
dissolution of their joint ventures. Based on this agreement, DOR retained
the
joint venture entities, InnoVaccines and Newco. In connection with the
settlement, the Company’s balance of $2,042,833 due to joint ventures at
December 31, 2001 was restructured into payments totaling $1,104,242: $524,500
paid immediately in cash and the remaining $579,742 payments of principal
and
interest of $231,897 were due on June 30, 2003, $231,897 on June 30, 2004
and $115,948 on December 30, 2004, respectively.
The
note
payable of $115,948 was paid in the third quarter of 2005. DOR paid the
principal balance in full and 50% of the interest accrued as full payment.
The
total payment of principal and interest was $157,813. This resulted in a
reversal of interest previously accrued and expensed of $41,864.
7.
Shareholders’ Equity
Preferred
Stock
The
Company has 5 million authorized shares of preferred stock, none are issued
or
outstanding.
In
1998,
a pharmaceutical company purchased $8,000,000 of DOR Series B convertible
preferred stock, which was convertible into common stock at a price of $5.11
per
share, subject to adjustment, with automatic conversion at such point that
the
common stock traded over 100,000 shares per day at a closing price of at
least
$9.75 per share for 20 out of 30 consecutive trading days. In the intervening
years, the Company issued additional preferred shares and stock dividends.
The
Series B convertible preferred stock paid an 8% annual in-kind dividend,
which
was valued at $171,535 in 2004. The Company issued 1715 shares of
preferred stock. In March 2004, the Company issued the pharmaceutical company
376,886 shares of common stock valued at $331,660, as an inducement for the
early conversion and exchanged 128,203 shares of Series B of preferred stock
for
2,509,552 shares of common stock.
Common
Stock
In
February 2005, the Company sold 8,396,100 shares of common stock at $0.45
per
share for proceeds, net of expenses, of $3,548,293 in a private placement
to
institutional investors. Investors also received warrants to purchase 6,297,075
shares of common stock at an exercise price of $0.505 per share. These warrants
expire on August 8, 2010 and are callable when the price reaches $1.52 for
20
consecutive days. The placement agent was paid cash $188,912, and warrants
to
purchase 629,708 shares of the Company’s common stock exercisable by August 8,
2010 at $0.625. The warrants are callable when the price reaches $1.88 for
20
consecutive days.
In
2005,
the Company retired 120,640 shares of treasury stock.
During
2004, individuals exercised common stock options and common stock warrants
at
various prices from $0.20 to $0.75 for total proceeds of $104,647.
In
March
2004, the Company sold 4,113,925 shares of common stock in a private placement.
Gross proceeds were $3,250,000 (net after commissions and expenses, $3,039,870).
In addition to common stock, for each share purchased investors received
a
warrant to purchase .4 shares of common stock, for a total of 1,645,570,
exercisable at $0.87 per share until the earlier of an average closing price
for
20 consecutive days of the Company’s common stock of $1.74 per share or March
15, 2009. The placement agent was paid cash compensation of approximately
$162,500, and issued warrants to purchase 287,974 shares of the Company’s common
stock exercisable for five years at $0.87 per share.
In
September 2004, the Company retired 53,700 shares of treasury
stock.
Stock
Compensation to Non-employees
During
2004, the Company issued 46,886 warrants to purchase common stock valued
at
$32,778 to a University for license agreements.
During
2004, the Company issued 50,000 stock options to 3 resigning directors. The
grants were valued at $20,270 each, for a total of $60,810.
During
2004, the Company issued 200,000 warrants to purchase common stock valued
at
$88,740 to a consultant, in exchange for his 160,000 shares of Enteron stock.
In
addition, contingent warrants were issued to a consultant. A consultant was
issued 400,000 warrants to purchase common stock for consulting services
with an
expiration date of April 2009 and will be exercisable on the approval date
for
orBec®.
In
2004,
the Company granted options to employees and directors that were conditional
upon stockholder approval of an amendment to the 1995 Omnibus Plan. Therefore,
a
measurement date did not exist at the approval date. This resulted in an
expense
of approximately $285,000. The expense was reversed when the Company received
approval of its 2005 Equity Incentive Plan. The Plan granted 10,000,000 shares
of Common Stock to issue for satisfaction of awards made under the 2005 Equity
Incentive Plan.
8.
Stock Option Plans and Warrants
The
2005
Equity Incentive Plan is divided into four separate equity programs: 1) the
Discretionary Option Grant Program, under which eligible persons may, at
the
discretion of the Plan Administrator, be granted options to purchase shares
of
common stock, 2) the Salary Investment Option Grant Program, under which
eligible employees may elect to have a portion of their base salary invested
each year in options to purchase shares of common stock, 3) the Automatic
Option
Grant Program, under which eligible nonemployee Board members will automatically
receive options at periodic intervals to purchase shares of common stock,
and 4)
the Director Fee Option Grant Program, under which non-employee Board members
may elect to have all, or any portion, of their annual retainer fee otherwise
payable in cash applied to a special option grant.
December 31,
| |
2005
|
2004
|
|
| |
|
|
|
|
|
|
Shares
available for grant at beginning of year
|
(
1,979,339
|
)
|
|
1,630,587
|
|
|
Increase
in shares available
|
10,000,000
|
|
|
-
|
|
|
Options
granted
|
(
3,500,000
|
)
|
|
(
4,500,000
|
)
|
|
Options
exercised
|
-
|
|
|
240,000
|
|
|
Options
forfeited or expired
|
2,479,339
|
|
|
650,074
|
|
|
Shares
available for grant at end of year
|
7,000,000
|
|
|
(
1,979,339
|
)
|
In
2004
the Company granted options to employees and directors that were conditional
upon stockholder approval of an amendment to the 1995 Omnibus Option Plan.
Accordingly, a measurement date did not exist at the approval date. The Company
recorded an expense of approximately $285,000. This expense was reversed
in
2005.
Option
activity for the years ended December 31, 2005 and 2004 was as follows:
| |
Options
|
Weighted
Average
Options
Exercise Price
|
|
|
Balance
at January 1, 2004
|
7,889,413
|
|
|
$
0.72
|
|
Granted
|
4,500,000
|
|
|
0.49
|
|
Forfeited
|
(
650,074
|
)
|
|
0.78
|
|
Exercised
|
240,000
|
|
|
0.20
|
|
Balance
at December 31, 2004
|
11,979,339
|
|
|
0.64
|
|
Granted
|
500,000
|
|
|
0.41
|
|
Forfeited
|
(
2,465,000
|
)
|
|
0.83
|
|
Balance
at December 31, 2005
|
10,014,339
|
|
|
$
0.59
|
The
weighted-average exercise price, by price range, for outstanding options
at
December 31, 2005 was:
|
Price
Range
|
|
Weighted
Average Remaining
Contractual
Life in Years
|
|
Outstanding
Options
|
|
Exercisable
Options
|
|
|
$0.20-$0.50
|
|
6.61
|
|
7,310,000
|
|
5,767,499
|
|
|
$0.51-$1.00
|
|
5.69
|
|
2,362,839
|
|
2,262,839
|
|
|
$1.01-$6.00
|
|
3.89
|
|
541,500
|
|
541,500
|
|
|
Total
|
|
6.25
|
|
10,214,339
|
|
8,571,838
|
|
From
time
to time, the Company grants warrants to consultants and grants warrants to
purchase common stock in connection with private placements.
Warrant
activity for the years ended December 31, 2005 and 2004 was as follows:
|
|
|
|
Options |
|
Weighted
Average Warrant
Exercise Price
|
|
|
|
|
Balance
at January 1, 2004
|
|
|
12,207,523
|
|
$
|
1.37
|
|
|
Granted
|
|
|
2,580,429
|
|
|
0.80
|
|
|
Balance
at December 31, 2004
|
|
|
14,787,952
|
|
|
1.24
|
|
|
Granted
|
|
|
6,926,783
|
|
|
0.52
|
|
|
Expired
|
|
|
(
452,383
|
)
|
|
5.91
|
|
|
Balance
at December 31, 2005
|
|
|
22,167,118
|
|
$
|
0.92
|
|
The
weighted-average exercise price, by price range, for outstanding options
at
December 31, 2005 was:
|
Price
Range
|
|
Weighted
Average Remaining
Contractual
Life in Years
|
|
Outstanding
Warrants
|
|
Exercisable
Warrants
|
|
|
$0.35-$0.75
|
|
3.97
|
|
9,579,503
|
|
9,579,503
|
|
|
$0.76-$1.50
|
|
2.81
|
|
10,141,733
|
|
10,141,733
|
|
|
$1.51-$8.50
|
|
2.29
|
|
2,445,882
|
|
2,445,882
|
|
|
Total
|
|
3.26
|
|
22,167,118
|
|
22,167,118
|
|
9.
Income Taxes
The
types
of temporary differences between tax bases of assets and liabilities and
their
financial reporting amounts that give rise to the deferred tax asset (liability)
and their approximate tax effects are as follows:
December 31,
| |
2005
|
|
|
2004
|
|
| |
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
$
23,260,000
|
|
|
$ 21,524,000
|
|
|
Orphan
drug credit carryforwards
|
1,944,000
|
|
|
1,894,000
|
|
|
Research
and development credit carryforwards
|
752,000
|
|
|
693,000
|
|
|
Work
opportunity credit carryforwards
|
260,000
|
|
|
260,000
|
|
|
Employee
Retention Credit
|
2,000
|
|
|
-
|
|
|
Total
|
26,218,000
|
|
|
24,371,000
|
|
|
Valuation
allowance
|
(
26,218,000
|
)
|
|
(
24,371,000
|
)
|
|
Net
deferred tax assets
|
$
-
|
|
|
$ -
|
|
At
December 31, 2005, the Company had net operating loss carryforwards of
approximately $59,800,000 for Federal and state tax purposes, which are
currently expiring each year until 2025.
The
following is the approximate amount of the Company’s net operating losses that
expire over the next five years:
| |
|
|
2006
|
$
222,000
|
|
2007
|
981,000
|
|
2008
|
910,000
|
|
2009
|
1,609,000
|
|
2010
|
1,420,000
|
10.
Related Party Transaction
On
November 10, 2004, The Company entered into an agreement with Alexander P.
Haig,
to serve as the chairman of the Board of Directors. He received options to
purchase 1,000,000 shares of DOR common stock, with 500,000 vesting immediately
and 500,000 vesting in one year. In addition, on the same date the Company
entered into a one year consulting agreement with Worldwide Associates, Inc.,
for a fee of $16,500 per month. Mr. Haig is the managing director of Worldwide
Associates, Inc. and ret. General Alexander M. Haig, Jr. is its
President.
11.
Risks and Uncertainties
The
Company is subject to risks common to companies in the biotechnology industry,
including, but not limited to, litigation, product liability, development
of new
technological innovations, dependence on key personnel, protections of
proprietary technology, and compliance with FDA regulations.
During
the year ended December 31, 2005, the Company had two vendors that constituted
approximately 31% of the outstanding payables.
At
December 31, 2005 and 2004 the Company had deposits in financial institutions
that exceeded the amount covered by the Federal Deposit Insurance Company.
The
excess amounts at December 31, 2005 and 2004 were $721,702 and $2,226,265,
respectively.
12.
Subsequent Events
On
January 17, 2006, DOR entered into a common stock purchase agreement with
Fusion
Capital Fund II, LLC. Fusion agreed to purchase on each trading day $20,000
of
common stock up to a total of $6,000,000 over approximately a 15-month period.
DOR may elect to sell less common stock to Fusion Capital than the daily
amount
and may increase the daily amount as the market price of the stock increases.
The purchase price of the shares of common stock will be equal to a price
based
upon the market price of the common stock at date of purchase without any
fixed
discount to the market price. Fusion Capital does not have the right to purchase
shares of common stock in the event that the price of the common stock is
less
than $0.12. DOR has the right to sell $20,000 per trading day under the
agreement with Fusion Capital unless the stock price equals or exceeds $0.40,
in
which case the daily amount may be increased under certain conditions as
the
price of DOR’s common stock price increases. Since the Company initially
registered 9,000,000 shares for sale by Fusion Capital (excluding the 900,000
commitment fee shares and 62,500 expense reimbursement shares that were
registered), the selling price of DOR’s common stock to Fusion Capital will have
to average at least $0.67 per share for the Company to receive the maximum
proceeds of $6,000,000 without registering additional shares of common stock.
On
October 28, 2005, the Company entered into a letter of intent to acquire
Gastrotech Pharma A/S (“Gastrotech”), a
private
Danish biotechnology company developing
therapeutics based on gastrointestinal peptide hormones to treat
gastrointestinal and cancer diseases and conditions. The letter of intent
provided for a $1,000,000 breakup fee in the event a party notified the other
of
its intention not to proceed with the transaction. On January 26, 2006, the
Company advised Gastrotech that the Company was not renewing the Company’s
letter of intent with Gastrotech, which had expired in accordance with its
terms
on January 15, 2006. The Company has been advised by the attorney representing
Gastrotech that if the Company is not willing to comply with the terms in
the
letter of intent, the Company will be in material breach of its obligations
under the letter of intent and will be obligated to pay Gastrotech a break-up
fee of $1,000,000. The Company’s position is that it does not owe Gastrotech
such break-up fee.
13.
Business Segments
The
Company had two active segments for the year ended December 31, 2005 and
2004:
BioDefense and BioTherapeutics. Summary data:
December
31,
| |
2005 |
|
2004 |
|
Net
Revenues
|
|
|
|
| BioDefense |
$
2,896,878
|
|
$
997,482
|
| BioTherapeutics |
178,858
|
|
-
|
| Total |
$
3,075,736
|
|
$
997,482
|
| |
|
|
|
| |
|
|
|
|
Loss
from Operations
|
|
|
|
|
BioDefense
|
$
( 847,830)
|
|
$
(
1,379,608)
|
|
BioTherapeutics
|
(
1,665,812)
|
|
(
2,653,508)
|
|
Corporate
|
(
2,321,409)
|
|
(
1,884,000)
|
|
Total
|
$
( 4,383,051)
|
|
$
(
5,917,116)
|
| |
|
|
|
|
Identifiable
Assets
|
|
|
|
|
BioDefense
|
$
2,189,216
|
|
$
2,192,097
|
|
BioTherapeutics
|
420,250
|
|
230,048
|
|
Corporate
|
763,108
|
|
2,645,570
|
|
Total
|
$
3,372,574
|
|
$
5,067,715
|
| |
|
|
|
|
Amortization
and Depreciation Expense
|
|
|
|
|
BioDefense
|
$
63,212
|
|
$
117,001
|
|
BioTherapeutics
|
118,351
|
|
169,264
|
|
Corporate
|
12,721
|
|
16,184
|
|
Total
|
$
194,284
|
|
$
302,449
|
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
13. Other
Expenses of Issuance and Distribution.
The
following table sets forth the estimated costs and expenses of the Registrant
in
connection with the offering described in the registration statement.
SEC
registration fee . . . . . . . . . . . . . . . . . . . . . $
952
Legal
fees and expenses . . . . . . . . . . . . . . . . . $
20,000
Accounting
fees and expenses . . . . . . . . . . . $
4,000
Miscellaneous
. . . . . . . . . . . . . . . . . . . . . . . .....$
1,000
TOTAL $
25,952
ITEM
14. Indemnification
of Directors and Officers.
Section
102(b)(7) of the Delaware General Corporation Law grants the Registrant the
power to limit the personal liability of its directors to the Registrant
or its
stockholders for monetary damages for breach of a fiduciary duty. Article
X of
the Registrant’s Certificate of Incorporation, as amended, provides for the
limitation of personal liability of the directors of the Registrant as follows:
"A
Director of the Corporation shall have no personal liability to the corporation
or its stockholders for monetary damages for breach of his fiduciary duty
as a
Director; provided, however, this Article shall not eliminate or limit the
liability of a Director (i) for any breach of the Director’s duty of loyalty to
the Corporation or its stockholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) for the unlawful payment of dividends or unlawful stock repurchases
under
Section 174 of the General Corporation Law of the State of Delaware; or (iv)
for
any transaction from which the Director derived an improper personal benefit.
If
the General Corporation Law is amended after approval by the stockholders
of
this Article to authorize corporate action further eliminating or limiting
the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted
by
the General Corporation Law of the State of Delaware, as so
amended."
Article
VIII of the Registrant's Bylaws, as amended and restated, provide for
indemnification of directors and officers to the fullest extent permitted
by
Section 145 of the Delaware General Corporation Law.
The
Registrant has a directors’ and officers’ liability insurance policy.
The
above
discussion is qualified in its entirety by reference to the Registrant’s
Certificate of Incorporation and Bylaws.
ITEM
15. Recent
Sales of Unregistered Securities.
During
September 2003, the Registrant completed a private placement in which it
issued
(i) 6,796,919 shares of common stock at $0.796 per share and
(ii)
warrants exercisable for 6,796,919 shares of its common stock at an exercise
price of $0.8756 per share, resulting in net proceeds of approximately $4.9
million.
The
warrants have a five-year term. Also,
as
part of the compensation received for its assistance in the private placement,
the
placement agents/dealers received warrants to purchase an aggregate of 1,359,383
shares of the Registrant's common stock at an exercise price of $0.8756 per
share. The
shares of common stock and warrants were issued in transactions exempt from
registration under the Securities Act of 1933 in reliance upon Rule 506 of
Regulation D under Section 4(2) of the Securities Act, as transactions not
involving a public offering.
During
March 2004, the Registrant completed a private placement in which it issued
(i)
4,113,925 shares of common stock at $0.79 per share and (ii) warrants
exercisable for 1,645,570 shares of its common stock at an exercise price
of
$0.87 per share, resulting in net proceeds of approximately $3.0 million.
The
warrants have a five-year term. Also,
as
part of the compensation received for its assistance in the private placement,
the placement agent received warrants to purchase an aggregate of 257,120
shares
of the Registrant's common stock at an exercise price of $0.87 per share.
The
shares of common stock and warrants were issued in transactions exempt from
registration under the Securities Act of 1933 in reliance upon Rule 506 of
Regulation D under Section 4(2) of the Securities Act, as transactions not
involving a public offering.
During
February 2005, the Registrant completed a private placement in which it issued
(i) 8,396,100 shares of common stock at $0.45 per share and (ii) warrants
exercisable for 6,247,075 shares of its common stock at an exercise price
of
$0.505 per share, resulting in net proceeds of approximately $3.5 million.
The
warrants have a five-year term. Also,
as
part of the compensation received for its assistance in the private placement,
the placement agent received warrants to purchase an aggregate of 629,708
shares
of the Registrant's common stock at an exercise price of $0.625 per share.
The
shares of common stock and warrants were offered in transactions exempt from
registration under the Securities Act of 1933 in reliance upon Rule 506 of
Regulation D under Section 4(2) of the Securities Act, as transactions not
involving a public offering.
On
January 2006, the Registrant entered into a common stock purchase agreement
with
Fusion Capital Fund II, LLC. Fusion Capital agreed to purchase on each trading
day $20,000 of common stock up to a total of $6,000,000 over approximately
a
15-month period. The Registrant may elect to sell less common stock to Fusion
Capital than the daily amount and may increase the daily amount as the market
price of the stock increases. The purchase price of the shares of common
stock
will be equal to a price based upon the market price of the common stock
at date
of purchase without any fixed discount to the market price. Fusion Capital
does
not have the right to purchase shares of common stock in the event that the
price of the common stock is less than $0.12. The Registrant has the right
to
sell $20,000 per trading day under the agreement with Fusion Capital unless
the
stock price equals or exceeds $0.40, in which case the daily amount may be
increased under certain conditions as the price of the Registrant’s common stock
price increases.
Under
the
terms of a Securities Purchase Agreement dated as of April 6, 2006 among
the
Registrant and the institutional and other accredited investors named therein,
the Registrant issued 13,099,964 shares of its common stock to the investors,
for aggregate gross proceeds of $3,630,000, and warrants, exercisable for
three
years, to purchase an aggregate of 13,099,964 shares of the Registrant’s common
stock at an exercise price of $0.45 per share. Such securities were issued
pursuant to an exemption provided by Section 4(2) of the Securities Act of
1933,
as amended, and Rule 506 of Regulation D promulgated hereunder.
ITEM
16. Exhibits.
|
2.1
|
Agreement
and Plan of Merger, dated May 10, 2006 by and among the Company,
Corporate
Technology Development, Inc., Enteron Pharmaceuticals, Inc. and
CTD
Acquisition, Inc. *
|
|
3.1
|
Amended
and Restated Certificate of Incorporation. (10)
|
|
3.2
|
Certificate
of Amendment to Amended and Restated Certificate of Incorporation.
(14)
|
|
3.3
|
By-laws.
(11)
|
|
4.1
|
Form
of Investor Warrant issued to each investor dated as of April 12,
2000.
(1)
|
|
4.2
|
Finder
Warrant issued to Paramount Capital, Inc. dated as of April 12,
2000. (1)
|
|
4.3
|
Warrant
issued to Aries Fund dated as of May 19, 1997. (1)
|
|
4.4
|
Warrant
issued to Aries Domestic Fund, L.P. dated as of May 19, 1997. (1)
|
|
4.5
|
Warrant
issued to Paramount Capital, Inc. dated as of October 16, 1997.
(2)
|
|
4.6
|
Warrant
issued to Paramount Capital, Inc. dated as of October 16, 1997.
(2)
|
|
4.7
|
Warrant
issued to Élan International Services, Ltd. dated January 21, 1998. (3)
|
|
4.8
|
Form
of Warrant to be issued to CTD warrant holders. (4)
|
|
4.9
|
Form
of Warrant issued to each investor in the December 2002 private
placement.
(14)
|
|
4.10
|
Form
of Warrant issued to each investor in the September 2003 private
placement. (8)
|
|
4.11
|
Form
of Warrant issued to each investor in the March 2004 private placement.
(9)
|
|
4.12
|
Form
of Warrant issued to each investor in the March 2004 private placement.
(9)
|
|
4.13
|
Form
of Warrant issued to each investor in the February 2005 private
placement.
(13)
|
|
4.14
|
Form
of Warrant issued to each investor in the April 2006 private placement.
(19)
|
|
5.1
|
Opinion
of Edwards Angell Palmer & Dodge LLP.*
|
|
10.1
|
Amended
and Restated 1995 Omnibus Incentive Plan. (10)
|
|
10.2
|
Lease
dated September 1, 2003 between the Company and L.N.R. Jefferson
LLC.
(15)
|
|
10.4
|
Form
of Affiliate Agreement dated as of August 15, 2001 by and between
the
Company and the affiliates of CTD. (5)
|
|
10.5
|
Noncompetition
and Nonsolicitation Agreement entered into by and among the Company,
CTD
and Steve H. Kanzer dated as of November 29, 2001. (7)
|
|
10.6
|
Termination
of the Endorex Newco joint venture between the Company, Élan Corporation,
Élan international services, and Elan Pharmaceutical Investments
dated
December 12, 2002. (7)
|
|
10.7
|
Option
Agreement with General Alexander M. Haig Jr. (7)
|
|
10.8
|
Separation
agreement and General Release between the Company and Ralph Ellison
dated
July 9, 2004. (18)
|
|
10.9
|
License
Agreement between the Company and The University of Texas Southwestern
Medical Center. (18)
|
|
10.10
|
License
Agreement between the Company and Thomas Jefferson University.
(18)
|
|
10.11
|
License
Agreement between the Company and The University of Texas Medical
Branch.
(18)
|
|
10.12
|
Consulting
Agreement between the Company and Lance Simpson of Thomas Jefferson
University. (14)
|
|
10.13
|
Form
of Subscription Agreement between the Company and each investor
dated July
18, 2003. (8)
|
|
10.14
|
Form
of Securities Purchase Agreement between the Company and each investor
dated March 4, 2004. (9)
|
|
10.15
|
Employment
agreement between the Company and Greg Davenport dated September
1, 2004.
(18)
|
|
10.16
|
Employment
agreement between the Company and Mike Sember dated December 7,
2004. (18)
|
|
10.17
|
Employment
agreement between the Company and Evan Myrianthopoulos dated December
7,
2004. (18)
|
|
10.18
|
Employment
agreement between the Company and James Clavijo dated February
18, 2005.
(18)
|
|
10.19
|
Form
of Securities Purchase Agreement between the Company and each investor
dated February 1, 2005 (13).
|
|
10.20
|
Amendment
No. 1 dated February 17, 2005 to the Securities Purchase Agreement
between
the Company and each investor dated February 1, 2005. (18)
|
|
10.21
|
Form
Registration Rights agreement between the Company and each investor
dated
February 1, 2005. (14).
|
|
10.22
|
2005
Equity Incentive Plan dated December 12, 2005 of the definitive
proxy
statement. (16).
|
|
10.23
|
Form
S-8 Registration of Stock Options Plan dated December 30, 2005.
(14).
|
|
10.24
|
Form
of Securities Purchase Agreement between the Company and each investor
dated January 17, 2006. (17).
|
|
10.25
|
Form
of Registration Rights agreement between the Company and each investor
dated January 17, 2006. (17).
|
|
10.26
|
Securities
Purchase Agreement dated as of April 6, 2006 among the Company
and the
investors named therein. (19)
|
|
10.27
|
Registration
Rights Agreement dated as of April 6, 2006 among the Company and
the
investors named therein. (19)
|
|
23.1
|
Consent
of Sweeney, Gates & Co., independent registered public accounting
firm.*
|
|
23.2
|
Consent
of Edwards Angell Palmer & Dodge LLC (contained in the opinion filed
as Exhibit 5.1 hereto).*
|
| |
|
____________
|
*
|
Filed
herewith.
|
|
(1)
|
Incorporated
by reference to our Registration Statement on Form S-3 (File No.
333-
36950), as amended on December 29, 2000.
|
|
(2)
|
Incorporated
by reference to our Quarterly Report on Form 10-QSB, as amended,
for the
fiscal quarter ended September 30, 1997.
|
|
(3)
|
Incorporated
by reference to our Annual Report on Form 10-KSB, as amended, for
the
fiscal year ended December 31, 1997.
|
|
(4)
|
Incorporated
by reference to our Registration Statement on Form S-4 filed on
October 2,
2001.
|
|
(5)
|
Incorporated
by reference to our current report on Form 8-K filed on December
14, 2001.
|
|
(6)
|
Incorporated
by reference to our Annual Report on Form 10-KSB as amended for
the fiscal
year ended December 31, 2001.
|
|
(7)
|
Incorporated
by reference to our Annual Report on Form 10-KSB as amended for
the fiscal
year ended December 31, 2002.
|
|
(8)
|
Incorporated
by reference to our current report on Form 8-K filed on July 18,
2003.
|
|
(9)
|
Incorporated
by reference to our current report on Form 8-K filed on March 4,
2004.
|
|
(10)
|
Incorporated
by reference to our Quarterly Report on Form 10-QSB, as amended,
for the
fiscal quarter ended September 30, 2003.
|
|
(11)
|
Incorporated
by reference to our Quarterly Report on Form 10-QSB, as amended,
for the
fiscal quarter ended June 30, 2003.
|
|
(12)
|
Incorporated
by reference to our Annual Report on Form 10-KSB, as amended, for
the
fiscal year ended December 31, 2003.
|
|
(13)
|
Incorporated
by reference to our current report on Form 8-K filed on February
3, 2005.
|
|
(14)
|
Incorporated
by reference to our Registration Statement on Form S-8 (File No.
333-130801).
|
|
(15)
|
Incorporated
by reference to our current report on Form 8-K filed on January
20,
2006.
|
|
(16)
|
Incorporated
by reference to Appendix D to our Proxy Statement filed December
12,
2005.
|
|
(17)
|
Incorporated
by reference to our Registration Statement on Form SB-2/A (File
No.
333-131166).
|
|
(18)
|
Incorporated
by reference to our Annual Report on Form 10-KSB, as amended, for
the
fiscal year ended December 31, 2004.
|
|
(19)
|
Incorporated
by reference to our current report on Form 8-K filed on April 7,
2006.
|
ITEM
17. Undertakings.
(a)
The
undersigned Registrant hereby undertakes as follows:
(1) To
file,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement:
(i) to
include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii)
to
reflect in the prospectus any facts or events, which individually or together,
represent a fundamental change in the information set forth in this registration
statement. Notwithstanding the foregoing, any increase or decrease in volume
of
securities offered (if the total dollar value of securities offered would
not
exceed that which was registered) and any deviation from the low or high
end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) to
include any additional or changed material information on the plan of
distribution.
(2)
That,
for the purpose of determining any liability under the Securities Act, each
such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(3) To
remove
from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of this offering.
(4) That,
for
the purpose of determining liability under the Securities Act to any purchaser,
each prospectus filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration statements relying
on
Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall
be
deemed to be part of and included in the registration statement as of the
date
it is first used after effectiveness. Provided, however, that no statement
made
in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to
such
first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made
in
any such document immediately prior to such date of first use.
(b) Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In
the
event that a claim for indemnification against such liabilities (other than
the
payment by the Registrant of expenses incurred or paid by a director, officer
or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person
in connection with the securities being registered, the Registrant will,
unless
in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and
will be governed by the final adjudication of such issue.
(c) The
undersigned Registrant hereby undertakes that:
(1) For
purposes of determining any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by
the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act
shall be deemed to be part of this registration statement as of the time
it was
declared effective.
(2) For
the
purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to
be a new registration statement relating to the securities offered therein,
and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant certifies
that
it has reasonable grounds to believe that it meets all of the requirements
for
filing on Form S-1 and has duly caused this registration statement to be
signed
on its behalf by the undersigned, thereunto duly authorized, in the City
of
Miami, State of Florida, on the 10th day of May 2006.
DOR BIOPHARMA, INC.
By: /s/Michael
T. Sember
Michael
T. Sember
President
and Chief Executive Officer
POWER
OF ATTORNEY
KNOW
ALL MEN BY THESE PRESENTS,
that
each person whose signature appears below constitutes and appoints Michael
T.
Sember and Evan Myrianthopoulos, and each of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead in any and all
capacities, to sign any or all amendments to this Registration Statement
on Form
S-1 (including post-effective amendments), and to file the same, with all
exhibits thereto, and other documents in connection therewith with the
Securities and Exchange Commission, granting unto said attorneys-in-fact
and
agents full power and authority to do and perform each and every act and
thing
requisite and necessary to be done in and about the premises, as fully and
to
all intents and purposes as he might or could do in person, hereby ratifying
and
confirming that said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
|
Signature
|
|
Title
|
|
Date
|
|
/s/Michael
T. Sember
Michael
T. Sember
|
|
Director,
President and Chief Executive Officer (Principal Executive Officer)
|
|
May
10, 2006
|
|
/s/Evan
Myrianthopoulos
Evan
Myrianthopoulos
|
|
Director,
Chief Financial Officer (Principal Financial and Accounting Officer)
|
|
May
10, 2006
|
|
/s/Alexander
P. Haig
Alexander
P. Haig
|
|
Chairman
of the Board
|
|
May
10, 2006
|
|
/s/Steven
H. Kanzer
Steve
H. Kanzer
|
|
Vice-Chairman
of the Board
|
|
May
10, 2006
|
|
/s/James
S. Kuo
James
S. Kuo
|
|
Director
|
|
May
10, 2006
|
|
/s/T.J.
Madison
T.J.
Madison
|
|
Director
|
|
May
10, 2006
|