Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations
The following discussion should be read
in conjunction with the information contained in the financial statements of the Company and the notes thereto appearing elsewhere
herein and in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations
set forth in the Company’s Annual Report on Form 10-K for the year ended June 30, 2017. Readers should carefully review the
risk factors disclosed in this Form 10-K and other documents filed by the Company with the SEC.
As used in this report, the terms “Company”,
“we”, “our”, “us” and “NNVC” refer to NanoViricides, Inc., a Nevada corporation.
PRELIMINARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This Report contains forward-looking statements
within the meaning of the federal securities laws. All statements other than statements of historical fact made in this report
are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial
position are forward-looking statements. These include statements about our expectations, beliefs, intentions or strategies for
the future, which we indicate by words or phrases such as “anticipate,” “expect,” “intend,”
“plan,” “will,” “we believe,” “Company believes,” “management believes”
and similar language. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,”
“could,” “possibly,” “probably,” “anticipates,” “projects,” “expects,”
“may,” “will,” or “should,” or other variations or similar words. No assurances can be given
that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s
current expectations and are inherently uncertain. The forward-looking statements are based on the current expectations of NanoViricides,
Inc. and are inherently subject to certain risks, uncertainties and assumptions, including those set forth in the discussion under
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report. Actual
results may differ materially from results anticipated in these forward-looking statements.
Investors are also advised to refer to
the information in our previous filings with the Securities and Exchange Commission (SEC), especially on Forms 10-K, 10-Q and 8-K,
in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic
results. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors
to be an exhaustive statement of all risks and uncertainties or potentially inaccurate assumptions.
Background - The Nanoviricide®
Platform Technology
NanoViricides, Inc. is a globally leading
company in the application of nanomedicine technologies to the complex issues of viral diseases. The nanoviricide® technology
enables direct attacks at multiple points on a virus particle. It is believed that such attacks would lead to the virus particle
becoming ineffective at infecting cells. Antibodies in contrast attack a virus particle at only a maximum of two attachment points
per antibody. In addition, the nanoviricide technology also simultaneously enables attacking the rapid intracellular reproduction
of the virus by incorporating one or more active pharmaceutical ingredients (APIs) within the core of the nanoviricide. The nanoviricide
technology is the only technology in the world, to the best of our knowledge, that is capable of both (a) attacking extracellular
virus, thereby breaking the reinfection cycle, and simultaneously (b) disrupting intracellular production of the virus, thereby
enabling complete control of a virus infection.
Our anti-viral therapeutics, that we call
“nanoviricides®” are designed to appear to the virus like the native host cell surface to which it binds. Since
these binding sites for a given virus do not change despite mutations and other changes in the virus, we believe that our drugs
will be broad-spectrum, i.e. effective against most if not all strains, types, or subtypes, of a given virus, provided the virus-binding
portion of the nanoviricide is engineered appropriately. Viruses would not be able to escape the nanoviricide drugs so designed
by mutations since they continue to bind to the same cellular receptor and thus would be captured by the nanoviricides. Virus escape
by mutations is a major problem in the treatment of viral diseases using conventional drugs.
The Company develops its drugs, that we
call a nanoviricide®, using a platform technology. This approach enables rapid development of new drugs against a number of
different viruses. A nanoviricide is a “biomimetic” - it is designed to “look like” the cell surface to
the virus. To accomplish this, we have developed a polymeric micelle structure composed of PEG and fatty acids that is designed
to create a surface like the cell membrane, with the fatty acids going inside of the micelle. On this surface, we chemically attach,
at regular intervals, virus-binding ligands. The virus is believed to be attracted to the nanomicelle by these ligands, and thereby
binds to the nanoviricide using the same glycoproteins that it uses for binding to a host cell. Upon such binding, a “lipid
mixing” interaction between the lipid envelope of the virus and the nanomicelle is thought to take place, leading to the
virus attempting to enter the nanomicelle. We believe many different kinds of viruses are likely to get destroyed in this process.
We engineer the ligands to “mimic”
the same site on the cell surface protein to which the virus binds. These sites do not change no matter how much a given virus
mutates. Thus, we believe that if a virus so mutates that it is not attacked by our nanoviricide, then it also would not bind to
the human host cell receptor effectively and therefore would be substantially reduced in its pathogenicity. Our success at developing
broad-spectrum nanoviricides depends upon how successfully we can design decoys of the cell surface receptor as ligands, among
other factors.
NanoViricides, Inc. is one of a few bio-pharma
companies that has all the capabilities needed from research and development to marketable drug manufacture in the small quantities
needed for human clinical trials. At our campus at 1 Controls Drive, Shelton, CT, we possess state of the art nanomedicines characterization
facilities that we believe enable us to perform pre-IND nanomedicine analysis and characterization studies of any of our various
drug candidates in house. In addition, we believe we now have the ability to scale up production of any of our drug candidates,
and implement state of the art in-process controls as well as post-process analysis controls in order to establish robust c-GMP-capable
production methodologies. We also have a Biological Safety Level 2 (BSL2) certified virological cell culture lab at this campus.
We are able to perform initial cell culture based screening of large numbers of drug candidates for effectiveness and safety against
certain of the viruses that we have targeted for drug development. This capability boosts our drug development capabilities significantly.
Other than this limited initial screening, all of the biological testing and characterization of our drug candidates continues
to be performed by external academic or institutional collaborators and contract research organizations (CRO). In particular, all
of the animal studies are performed by our collaborators and CROs.
Our Product Pipeline
We have focused our efforts primarily on
the HerpeCide program.
We currently have at least eight different
drug development programs, attesting to the strength of our platform technology.
The potential broad-spectrum nature of
our anti-HSV drug candidates is enabling several anti-Herpes indications under our HerpeCide™ program. Of these, our (i)
Topical Treatment for Shingles (VZV) is currently moving most rapidly towards clinical stage. We believe that the other anti-Herpes
drug candidates, would follow this lead drug to the clinical stage, namely, (ii) skin cream for the treatment of orolabial herpes
(“cold sores”) and recurrent herpes labialis (RHL) mostly caused by HSV-1, (iii) ocular eye drops treatment for external
eye herpes keratitis (HK), caused by HSV-1 or HSV-2, and (iv) skin cream for the treatment of genital herpes caused by HSV-2.
In addition, subsequent to the reporting
period, we announced that we have begun preclinical drug development work on a fifth indication under the HerpeCide program, namely
(v) viral Acute Retinal Necrosis (v-ARN), intravitreal injection.
The Company reports that it is close to
identifying a clinical candidate for VZV shingles skin cream topical treatment. We are now making sufficient amounts of the lead
candidate to begin a preliminary rat toxicology study. The results of this study will finalize the clinical lead. In addition these
results, if successful, will lead to the safety and toxicology study as required for filing an IND.
NanoViricides, Inc. reported in July 2017,
that its anti-shingles nanoviricides® drug candidates achieved dramatic reduction in infection of human skin by the varicella-zoster
virus (VZV), the shingles virus. These findings corroborate the previously reported findings of inhibition of VZV infection of
human cells in culture. VZV is restricted to human tissue and only infects and replicates in human tissue.
Over the time course of VZV infection,
the nanoviricides® drug candidates showed marked inhibition of VZV infection, replication and spread in human skin cultured
ex vivo
. The data suggest that select nanoviricides® drug candidates may have direct virucidal activity based on their
antiviral effects within the first 24 hours after viral infection.
The antiviral effect of certain nanoviricide
drug candidates was substantially greater than the effect of the standard positive control of cidofovir added into media. Even
more remarkably, the effect of these nanoviricides drug candidates was equivalent to a topical formulation of 1% cidofovir applied
directly onto the skin patch. A topical skin cream containing 2% cidofovir is clinically used in very severe cases of shingles.
However, the cytotoxicity of cidofovir is known to cause ulceration of the skin to which it is applied, followed by natural wound
healing. We are awaiting histopathology studies at present.
Since VZV causes skin lesions as a result
of direct attack of the re-awakened virus released from nerve endings onto the human skin cells, this ex vivo human skin patch
model involving VZV infection of cultured human skin
ex vivo
is considered to be a close representation of natural course
of shingles.
The Company has previously reported that
these same nanoviricides® compounds displayed potent inhibition of VZV infection of a human retinal epithelial pigment cell
line in an
in vitro
cell culture virus infection model with no evidence of toxicity to the cells. These
ex vivo
and
in vitro
studies are a critical step in the selection of final clinical drug development candidates for safety and toxicology
studies with the goal of an IND submission to the FDA for the topical treatment of shingles in humans.
These human skin studies were performed
in the laboratory of Dr. Jennifer Moffat at SUNY Upstate Medical University in Syracuse, NY. The Company previously reported the
collaboration with Dr. Moffat, an internationally recognized expert on varicella-zoster virus. She has extensive experience in
varicella-zoster virus (VZV) infection, pathogenesis, and anti-viral agent discovery. The National Institutes of Health has a contract
with Dr. Moffat’s lab for evaluating anti-viral compounds against VZV, although the Company chose to set up a direct collaboration
with Dr. Moffat rather than going through the NIH program.
Dr. Vivien Boniuk, Consultant
in Ophthalmology at the Company, presented the successful results of certain anti-herpes nanoviricide treatments for v-ARN
at the 2017 Annual meeting of the Ocular Microbiology and Immunology Group (OMIG) of the American Academy of Ophthalmology
held in New Orleans, LA., on November 10, 2017. In this study, HSV-2 infection was given to mice as a single injection
to cause v-ARN. The mice that received either of two nanoviricides drug candidates simultaneously with the virus in this
single injection, showed significant improvements using a number of parameters. In contrast, mice that received foscarnet
injection simultaneously with the virus did not show any improvements. Of note, foscarnet is a current standard of treatment,
although the treatment is long in duration and arduous, being multiple intravitreal injections. In addition, another group of
HSV-2 infected animals received acyclovir by intraperitoneal injection (50mg/kg), twice daily for 7 days, as a positive
control. Acyclovir and its derivatives are also used currently for treating v-ARN, although the clinical efficacy is limited
and generally requires long durations of treatment. Vehicle treated and untreated negative controls also were employed.
These studies were performed in Dr. Curtis Brandt Lab at CORL, University of Wisconsin, Madison, WI.
Both nanoviricides tested showed remarkable
efficacy using multiple parameters. In particular, nanoviricide-A treated group showed viral load going down to undetectable levels
by day 7 itself (approximately 4 logs viral load reduction from baseline), whereas acyclovir group showed no reduction in viral
load from baseline at day 7, but approximately 2 logs reduction at day 9, indicating a much lower efficacy.
Both nanoviricides A and B resulted in
100% maintenance of body mass by day 9, indicating complete control of infection. However, the acyclovir group showed a loss of
at least 10% body mass, close to the nearly 15% loss in the negative controls, indicating that it was either much less effective
than the nanoviricides A and B or was somewhat toxic to the animals.
The mean disease score for the vitreous
infiltrate (fluid inside the eye) was zero (best) for 9 days with nanoviricide A treatment, and was about 0.5 for acyclovir treated
group, whereas it was about 4 (worst) in untreated and vehicle groups, indicating that nanoviricide A was more effective than the
acyclovir treatment in this model.
In both nanoviricide A and nanoviricide
B groups, the retina was protected fully from viral damage, which is very significant. In contrast, acyclovir treated group showed
retinal damage approximately similar to the vehicle treated group, in spite of reduced viral load in the acyclovir group, indicating
that acyclovir may have been toxic. These results were also confirmed by histological staining of retinal sections.
Taken together, both nanoviricide A and
nanoviricide B had substantial effectiveness in protecting the retina, in spite of the high infectious dose of HSV-2 employed in
this model. Significantly, they were both substantially more effective than foscarnet (single injection) or acyclovir (bid 7days)
in this particular study. If these results are reproducible, then the Company would be able to identify a clinical candidate for
v-ARN as well.
Of note, both nanoviricides tested against
v-ARN are closely chemically related to the ones that have shown significant efficacy against varicella zoster virus (VZV) in the
human skin patch model in Professor Moffat’s lab at the Upstate Medical Center, SUNY, Syracuse, NY. We have previously shown
that closely chemically related nanoviricides were also effective against HSV-1 in animal models as well as in cell culture models.
This is important because about 50% of v-ARN cases are caused by VZV, about 40+% caused by HSV-2, with HSV-1 and CMV accounting
for a small percentage of cases. VZV does not infect mice, and therefore the HSV-2 v-ARN model should be indicative model for our
drug development. Thus the broad-spectrum activity of our nanoviricides against multiple different herpesvirus types has been instrumental
in rapid expansion of our HerpeCide program.
Additional successful studies on v-ARN
are expected to add a fifth indication to the Company’s growing portfolio of anti-herpes drug indications, further expanding
the potential market. The Company intends to maximize shareholder value from its broad-spectrum anti-herpes nanoviricides asset
by aggressively expanding its portfolio of herpesvirus indications.
v-ARN is a disease of the retina of the
eye caused by various herpes viruses that leads to severe loss of vision and blindness. The infecting agent in this study was herpes
simplex virus-2 (HSV-2), the type of herpes virus that also causes genital herpes.
Acute Retinal Necrosis is characterized
by severe ocular inflammation, retinal necrosis, and a high incidence of retinal detachment (RD) leading to visual loss and blindness.
This disease is caused by members of the herpesvirus family, including, herpes simplex virus-2 (HSV-2), varicella zoster virus
(VZV), and herpes simplex virus (HSV-1). An estimated 50,000 new and recurrent cases of viral ARN per year are reported in the
United States alone. It is likely that v-ARN may qualify for an orphan disease indication.
We have recently reported that we have
extended the contracts with both the Moffat Lab, UMC, SUNY Syracuse, as well as the Brandt Lab, CORL, UW, Madison to continue to
perform more advanced studies in preparation of an IND for shingles topical treatment and for v-ARN intravitreal treatment, respectively.
The Brandt Lab will also be able to do animal model studies for genital herpes, when we initiate that program.
In addition, we have continued work on
our other drug candidates albeit at a very low priority. These include (vi) Injectable FluCide™ for hospitalized patients
with severe influenza, (vii) Oral FluCide™ for out-patients, (viii) DengueCide™, a broad spectrum nanoviricide designed
to attack all types of dengue viruses and expected to be effective in the Severe Dengue Disease syndromes including Dengue Hemorrhagic
Fever (DHS) and Dengue Shock Syndrome (DSS), and (ix) HIVCide™ for HIV/AIDS. In addition, the Company has research programs,
enabled by the robust nanoviricides platform technology, to develop drugs against Rabies virus, Ebola and Marburg viruses, and
other viruses.
To date, the Company does not have any
commercialized products. The Company continues to add to its existing portfolio of products through our internal discovery and
clinical development programs and also seeks to do so through an in-licensing strategy.
The Company has received an “Orphan
Drug Designation” for our DengueCide™ drug from the USFDA as well as the European Medicines Agency (EMA). This orphan
drug designation carries significant economic benefits for the Company, upon approval of a drug.
We believe we have demonstrated that we
can rapidly develop different types of formulations for different routes of administration, such as injectable, skin cream, lotion,
gel, and even oral, because of the inherent strength of the nanoviricide platform tailorable technology. The technology also enables
us to develop nasal sprays and bronchial aerosols. We plan to develop the appropriate formulations as necessary.
All of our drug programs are established
to target what we believe are unmet medical needs.
Herpes simplex viral infections cause keratitis
of the eye, and severe cases of infection may sometimes necessitate corneal transplants. Oral and genital herpes is also a well-known
disease, with no cure and existing treatments that are not very effective. Shingles, caused by VZV, a herpesvirus, does not have
an effective treatment at present, although some drugs are approved for use in shingles. Adenoviral Epidemic Kerato-Conjunctivitis
(EKC) is a severe pink eye disease that may lead to blurry vision in certain patients after recovery. The epidemic and pandemic
potential as well as the constantly changing nature of influenza viruses is well known. The HIV/AIDS worldwide epidemic and the
“curse of slow death” nature of HIV viral infection is also well known. Dengue viral infection is also known as “breakbone
fever”. What is worse, is that when a patient is infected with a dengue virus a second time, if the virus is a different
serotype, then it can cause a severe dengue disease, or dengue hemorrhagic syndrome, with very high morbidity and a high rate of
fatality. This is because, the patient’s immune system mounts an attack, but the antibodies that it generates, directed at
the previous infecting virus, are not effective against the new infection, and instead the new infecting virus uses them to hitch
a ride into host cells that it infects more severely. This phenomenon is called “Antibody-Dependent Enhancement” or
“ADE” for short.
In the United States alone, approximately
1 million cases of shingles (i.e. zoster) occur annually. The risk of zoster increases with age, and with decreased immune system
function. Zoster is characterized by pain and rash. Discrete cutaneous lesions occur in groups on the skin. The Company believes
that this presentation enables topical therapy for control of the viral outbreak.
One in four patients develop zoster-related
pain that lasts more than 30 days. If it persists more than 3 months, it is called post-herpetic neuralgia (PHN), and may persist
for years. It is thought that zoster-associated pain and PHN is a result of chronic ganglionitis, i.e. continued low-grade production
of the virus in the infected ganglia and related immune response. The Company believes that effective control of the virus production
would minimize or eliminate PHN, a debilitating morbidity of zoster.
Zoster occurs mostly in the abdominal region.
However, in 20% of cases, it occurs in the head area, with reactivation involving trigeminal distribution. These cases of zoster
can lead to serious complications including hemorrhagic stroke (VZV vasculopathy), VZV encephalitis, ophthalmic complications,
and may result in fatalities.
Currently available anti-herpes drugs have
had limited impact on zoster. Thus, an effective drug with a good safety profile could have a dramatic impact on zoster as well
as possibly PHN.
Ocular infections with HSV-1 have been
reported to be the leading cause of infectious blindness in the developed world, with recurrent episodes of viral reactivation
leading to progressive scarring and opacity of the cornea. HSV epithelial keratitis afflicts the epithelium of the cornea. In some
cases, the disease progresses to HSV stromal keratitis, which is a serious condition. HSV stromal keratitis involves the stroma,
the layer of tissue in the cornea, which is deeper in the eye than the epithelium. Its pathology disease involves the HSV infection
of stromal cells, and also involves the inflammatory response to this infection. It can lead to permanent scarring of the cornea
resulting in diminished vision. More serious cases require corneal replacement surgery. About 75% of corneal replacements are known
to fail in a 20-year time frame, due to graft versus host disease (i.e. rejection of the foreign implant by the body), requiring
a new procedure, or resulting in blindness.
Ocular herpes keratitis incidence rates
in the USA alone are reported to be in the range of 65,000 to 150,000 patients per year. Of these approximately 10,000 per year
may be estimated as requiring corneal transplants. The incidence estimates vary widely based on source, and are also assumed to
be underreported. A corneal transplant costs approximately $15,000 to $25,000 for the surgery, with additional costs for follow
on drugs and treatments.
This scenario exists in spite of available
drugs, namely the acyclovir class of drugs, trifluridine, and others, that are used for treatment of herpes keratitis. The failure
of these drugs is primarily due to limited safety resulting in insufficient drug availability at the site of infection.
In addition, the Company is developing
broad-spectrum eye drops that are expected to be effective against a majority of the viral infections of the external eye. Most
of these viral infections are from adenoviruses or from herpesviruses. The Company has shown excellent efficacy of its drug candidates
against EKC (adenoviral epidemic kerato-conjunctivitis) in an animal model. Further, our anti-HSV drug candidates have shown excellent
efficacy in cell culture studies, as well as in a lethal skin infection animal model.
Thus, an effective drug with a good safety
profile could have a dramatic impact on ocular viral infections. Merit-based compensation for the herpes keratitis treatment would
enable strong financial incentive and could result in potential revenues in the several hundreds of millions range, depending upon
the effectiveness of the drug. The Company believes that it has sufficient production capacity at its current site to supply the
US requirement of the drug for treatment of (ocular) herpes keratitis upon drug licensure.
Topical treatment of herpesvirus infections
is important because of the disfiguring nature of herpesvirus breakouts, the associated local pain, and the fact that the virus
grows in these breakouts to expand its domain within the human host further. Topical treatment can deliver much higher local levels
of drugs than a systemic treatment can, and thus can be more effective and safer at the same time. Systemic drug treatment results
in side effects because of the high systemic drug concentrations that need to be achieved and the large drug quantities that must
be administered. Since the virus remains mostly localized in the area of the rash and connected nerve apparatus, using high concentrations
of drugs delivered in small quantities topically would allow maximizing the effectiveness while minimizing the side effects.
Herpesviruses become latent in neuronal
cells or in ganglia, and cause periodic localized breakouts that appear as skin rashes and lesions. Systemic drug treatment results
in side effects because of the high systemic drug concentrations that need to be achieved and the large drug quantities that must
be administered. Since the virus remains mostly localized in the area of the rash and connected nerve apparatus, using high concentrations
of drugs delivered in small quantities topically would allow maximizing the effectiveness while minimizing the side effects, leading
to minimizing viral production at the site. Such effective local control of the virus titer is expected to lead to reduction in
recurrence of herpesvirus “cold sores” or genital ulcers.
The potential broad-spectrum nature of
our anti-HSV drug candidates is expected to enable several antiviral indications. Thus, HSV-1 primarily affects skin and mucous
membranes causing “cold sores”. HSV-2 primarily affects skin and mucous membranes leading to genital herpes. HSV-1
infection of the eye causes herpes keratitis that can lead to blindness in some cases. In addition, human herpesvirus-3 (HHV-3),
a.k.a. varicella-zoster virus (VZV), causes chickenpox in children and when reactivated in adults, causes shingles. Shingles breakouts
are amenable to topical treatment, as are the HSV cold sores, genital lesions, and herpes keratitis of the eye. Most of these indications
do not have satisfactory treatments at present, if any. Further, the treatment of herpesvirus infections caused by acyclovir- and
famciclovir- resistant mutants is currently an unmet medical need. Drugs with mechanisms of action other than DNA-polymerase inhibitors
(such as acyclovir) are needed for effective treatment.
The childhood chickenpox vaccine has reduced
the cases of chickenpox, but this is a live attenuated virus vaccine that persists in the body. All adults who have had chickenpox
in childhood continue to harbor the chickenpox virus, and are expected to develop shingles at some time, with the risk of shingles
increasing with age or weakening of the immune system surveillance. In addition to the shingles breakout itself, post-herpetic
neuralgia (pain) (PHN) is a significant morbidity of shingles, and to a lesser extent, of oral and genital herpes. PHN is initially
caused probably by the inflammation and immune response related to the local virus expansion, but persists well after the virus
has subsided, the blisters have scabbed off, and the skin has recovered, due to the nerve damage that results from the local large
viral load during infection. Current PHN treatments are symptomatic, affecting the pain signaling circuit (such as novocaine, pramoxine,
capsaicin, etc.), and do not produce lasting control. An effective therapy that results in strong local control of the virus production
during the breakout itself is expected to minimize the resulting immune responses and nerve damage, and thereby minimize or possibly
eliminate PHN.
The Company thus believes that it can develop
its broad-spectrum anti-herpes drug candidate towards at least four topical indications, namely, (a) shingles, (b) ocular herpes
keratitis, (c) oral herpes (“cold sores”), and (d) genital herpes. As the HerpeCide™ program progresses, it is
likely that additional herpesvirus related pathologies may become amenable to treatment with our herpesvirus drug candidates.
Our nanoviricides in the HerpeCide™
program at present are designed as topical treatment for the breakout of shingles or herpes sores. Our animal studies results are
very significant considering that topical acyclovir in the form of a cream as well as an ointment, are approved for the treatment
of cold sores. We believe our strong anti-herpes nanoviricide® drug candidates are capable of reaching approval as a drug for
topical use against herpes cold sores, based on these datasets. Further drug development is necessary towards the goal of drug
approval. Currently, valacyclovir (Valtrex®) is approved as an oral drug for the treatment of severe shingles, but it has limited
effectiveness. Another oral drug known as “FV-100” was studied in Phase II in clinical trials for the treatment of
shingles by Bristol-Myers Squibb. This study has been completed in September 2015, but results are not available to us. Currently
this drug is being further developed by ContraVir Pharma. There is also a preventive vaccine for shingles that can be taken by
adults over 55 years of age. Given the number of cases of severe shingles, we believe that there is an unmet medical need for developing
a topical skin cream for the treatment of shingles. Local application should enable delivery of stronger, local doses of medicine,
with a stronger patient benefit, than oral systemic dosing allows.
Existing therapies against HSV include
acyclovir and drugs chemically related to it. These drugs must be taken orally or by injection. Available topical treatments, including
formulations containing acyclovir or chemically related anti-HSV drugs, are not very effective. Currently, there is no cure for
herpes infection.
Both the safety and effectiveness of any
new drug has to be determined experimentally. The safety of a nanoviricide drug is expected to depend upon the safety of the nanomicelle
portion as well as the safety of the antiviral ligand. We have observed excellent safety of our injectable anti-influenza drug
candidates. This leads us to believe that the nanomicelle backbones of these drug candidates that were evaluated in preliminary
safety studies should be safe in most if not all routes of administration.
The current market size for drugs for the
treatment of herpes infections is about $2~4B. Similarly, the current market size for the treatment of influenza infections is
in excess of $4B, and that for HIV treatments is in excess of $40B. The total market sizes for the drug development programs we
have in progress are estimated at around $100B.
We believe that when an effective topical
treatment is introduced, the market size is likely to expand substantially, as has been demonstrated in the case of HIV as well
as Hepatitis C.
Our timelines depend upon several assumptions,
many of which are outside the control of the Company, and thus are subject to delays.
We are currently focused on topical drug
development against several indications related to infections by herpes family viruses. The Company recognized, after consultations
with its FDA regulatory advisors, namely Biologics Consulting Group (of Alexandria, VA), and several other experts in the field,
that the development of these topical drug candidates towards human clinical trials is likely to be considerably faster than the
development of our anti-influenza systemic (injectable) drug candidate.
We believe we are now one of the very few
small pharmaceutical drug innovators that possess their own cGMP or cGMP-capable manufacturing facility (see below). With our new
campus and pilot-scale c-GMP-capable manufacturing facility, we are now in a position to advance our drug candidates into clinical
trials, produce the pre-clinical “tox package” batches, and the clinical drug substance batches.
Management Discussion - Current Drug
Development Strategy
During the reported quarter we have continued
to focus our drug development work plans primarily on our lead anti-Herpes-virus programs. In particular, we have focused on a
work plan related to identifying a clinical development candidate for the topical skin cream for the treatment of shingles outbreak.
Because of the broad-spectrum nature of our anti-herpes drug candidates, we have also simultaneously continued further development
of our drug candidates for the other three indications in the HerpeCide™ project, namely, cold sores, genital ulcers, external
ocular viral infections, and viral acute retinal necrosis. We have also continued to work on our anti-influenza drug development
programs under the FluCide™ project.
We have licenses from TheraCour Pharma,
Inc., (TheraCour) our development partner and where the intellectual property has originated, for HSV-1 and HSV-2 but not for the
remaining herpesviruses. NanoViricides in the past has asked TheraCour to work on unlicensed viruses in order to determine the
feasibility of fully engaging into a program before licensing it. This has been the case with Dengue viruses, Japanese Encephalitis
virus, West Nile Virus, Ebola and Marburg viruses, as well as SARS, MERS, and VZV, to name a few. TheraCour initiates work on a
given virus or program only after we ask for such work. Of these programs, we ended up licensing Dengue viruses, Japanese Encephalitis
virus, West Nile Virus, Ebola and Marburg viruses, in the additional license agreement. We have now disclosed our intention to
obtain licenses for VZV as well as other remaining unlicensed herpesvirus indications from TheraCour Pharma. As is the standard
process with such agreements, and the process that we have followed in the past, the Company needs to obtain a valuation of the
assets under consideration. Thereafter, we anticipate license agreements will be drafted and the terms and conditions will be negotiated.
TheraCour has in the past not denied any licenses for any virus programs that we initiated. In addition, the Company has retained
counsel to prepare and negotiate the new license agreement on our behalf, subsequent to this reporting period.
The process for developing a license agreement
for the remaining viruses has officially started only around September 2017, when the Company initiated our search for an appropriate
party to perform the valuation. We are now in the process of finalizing a consulting agreement with an expert in this field to
help us with (i) valuation of the assets under consideration, (ii) potential timelines for the drug development programs, and (iii)
anticipated financing needed for at least the first program through different human clinical stages into FDA approval.
Recent developments and our discussions
with our regulatory advisors and consultants indicate that the shingles drug candidate may be likely to reach the human clinical
evaluation phase earliest compared to the other drug candidates. Other drug candidates in the HerpeCide project are expected to
follow into clinical stage rapidly thereafter. This is primarily because of the topical treatment nature of the drug candidates
we have chosen to develop in these indications. The FluCide drug candidates are now expected to enter human clinical stage later
than the HerpeCide drug candidates.
Animal model studies of lethal herpesvirus
infection using the highly pathogenic and neurotropic HSV-1 H129 strain in two different sites resulted in 85% to 100% survival
in animals treated with certain anti-HSV nanoviricide drug candidates, while control animals uniformly died. We reported on these
studies as the results became available in April 2015, from Professor Emeritus Ken Rosenthal’s lab at NEOMED, and in August
2015, from TransPharm Preclinical Solutions, LLC, Jackson, MI, a CRO. Previously, we have improved the anti-HSV drug candidates
in cell culture studies and were able to achieve significant effectiveness before engaging into animal studies. We re-designed
the anti-HSV drug candidates so that the solutions would not run off the skin when applied. With this redesign, our drug candidates
demonstrated complete survival of HSV-1 H129 lethally infected animals.
The Company thus has achieved animal studies
efficacy proof of concept for HSV-1 skin topical treatment. The Company believes that the broad-spectrum nature of these drug candidates
should allow effectiveness against related herpesvirus types such as HSV-2 as well as the more distantly related HHV-3 aka VZV
or chickenpox/shingles virus.
The Company has established additional
collaborations towards IND-enabling development of drug candidates against the four indications listed earlier. We now have collaboration
agreements with the CORL at the University of Wisconsin, the Campbell Lab at the University of Pittsburgh, and, the Moffat Lab
at SUNY Upstate Medical Center, for the evaluation of our nanoviricides® drug candidates in models of ocular herpesvirus and
adenovirus infections as well as VZV infections in
in vitro
and
ex vivo
models. TransPharm Preclinical Solutions,
a CRO, will continue to perform testing of our anti-herpes drug candidates in dermal infection animal models. The Company also
now has the ability to perform initial screening of our drug candidates in our BSL2 certified Virology Lab in Shelton, CT, against
several viruses that include various strains and subtypes of HSV-1, HSV-2, VZV, and Influenza.
The Company has previously reported the
successes of its nanoviricides drug candidates in pre-clinical studies of dermal herpes virus infections in mouse models. The studies
in Dr. Brandt’s laboratory, namely CORL, at the University of Wisconsin will be critical in optimizing our anti-herpes drug
candidates against ocular herpes virus infections. The goal of these studies will be to identify a drug development candidate as
a treatment for ocular keratitis in humans caused by herpes simplex virus infections.
The Company has continued to test several
drug candidates with different formulation consistencies in multiple studies in order to select a clinical development candidate
for the topical treatment of shingles. Following identification of the clinical development candidate, the Company will engage
into scaled up production of said drug candidate at our Scale-Up Lab in the new campus. The Scale-up Lab has been in operation
since June 2015, and we have scaled most production operations to 200g scale previously.
Once we identify the clinical drug candidate
for the treatment of shingles, we will need to manufacture it in sufficient quantities to enable further IND-enabling studies.
These studies include formulation optimization studies, dose-response efficacy studies, efficacy studies with different viral strains,
and preliminary safety/tox in small animals, followed by cGLP safety/tox in larger animals, and PK/PD studies (pharmacokinetics
and pharmacodynamics studies) in standard animal models.
The Company is evaluating the possibility
of performing Phase I and Phase II human clinical studies internationally. It is widely believed that Phase I studies can be performed
in Australia more quickly than in the USA due to differences in regulatory procedures and guidelines.
The Company believes that its anti-herpes
drug candidates for the treatment of cold sores and for genital lesions should lead to effective control of the cold sores rapidly,
and may also lead to a long lag time before a new recurrence episode occurs. This is because it is believed that recurrence rates
increase by virtue of further infection of new nerve endings from the site of the herpesvirus outbreak which result in additional
nerve cells harboring the virus. If this in situ re-infection is limited, which we believe is the primary mechanism of nanoviricide
drugs, then it is expected that the number of HSV harboring reservoir cells should decrease, and recurrence rate should go down.
The Company believes that it will be able
to expand its anti-herpes portfolio in the future to include many other herpesviruses such as cytomegalovirus (CMV), HHV-6A, HHV-6B,
KSHV, and Epstein-Barr virus (EBV, cause of mononucleosis). This would lead to a very large number of therapeutic indications beyond
the four or five indications we are currently targeting.
The Company thus continues to expand its
portfolio of opportunities, while also making progress towards the clinical trials stage.
The Company continues to work on its anti-influenza
drug candidates in parallel to its HerpeCide program. We are currently developing Injectable FluCide™ for hospitalized patients
with severe influenza as our first, broad-spectrum anti-influenza drug candidate. We have demonstrated the very first effective
orally available nanomedicine, namely oral FluCide™ for outpatients with influenza. The development of Oral FluCide is expected
to follow behind Injectable FluCide.
Because of our limited resources, we have
assigned lower development priorities to our other drug candidates in our pipeline such as DengueCide™ (a broad spectrum
nanoviricide designed to attack all types of dengue viruses and expected to be effective in the Severe Dengue Disease syndromes
including Dengue Hemorrhagic Fever (DHS) and Dengue Shock Syndrome (DSS)) and HIVCide™ (a potential “Functional Cure”
for HIV/AIDS).
Of these, our Injectable FluCide anti-influenza
drug candidate for hospitalized patients and our anti-HSV-1 drug candidate for dermal herpes infections or “cold sores”
are in advanced pre-clinical stage. Our remaining drug development programs are presently at pre-clinical stage. We continue to
test several drug candidates under each program even though we may achieve extremely strong results with some of the candidates.
Both of our anti-influenza therapeutic
candidates are designed to be “broad-spectrum”, i.e. they are expected to be effective against most if not all types
of influenzas including the recently discovered novel strain of H7N9, Bird Flu H5N1, other Highly Pathogenic Influenzas (HPI/HPAI),
Epidemic Influenzas such as the 2009 “swine flu” H1N1/A/2009, and Seasonal Influenzas including the recent H3N2 influenza.
The Company has already demonstrated that our anti-influenza drugs have significantly superior activity when compared to oseltamivir
(Tamiflu®) against two unrelated influenza A subtypes, namely, H1N1 and H3N2 in a highly lethal animal model.
Our position that an injectable drug against
influenza is a viable option is now affirmed by the US FDA licensure of the very first injectable drug for influenza in December
2014, namely peramivir (Rapivab, by BioCryst). Interestingly, peramivir as an injection was approved even though it did not appear
to provide significant additional benefits over other drugs in its class. Overall, patients who received 600 mg of peramivir had
symptom relief 21 hours sooner, on average, than those who received the placebo, which is consistent with other drugs in the same
class. Additionally, peramivir injection was found to be not effective for hospitalized patients with severe influenza.
Thus, an effective therapy for patients
hospitalized with severe influenza continues to be an unmet need. In addition, a single injection treatment of non-hospitalized
patients would be a viable drug if it provides superior benefits to existing therapies.
Both of our anti-influenza drug candidates
can be used as prophylactics to protect at-risk personnel such as health-care workers and immediate family members and caretakers
of a patient.
We are developing our anti-herpes drug
candidates and the injectable FluCide for severely ill patients towards IND applications in parallel. We have engaged Biologics
Consulting Group, a well-known group of regulatory consultants, to advise us on the regulatory pathways, and the studies required
for the IND applications for the various indications.
We believe we have demonstrated that we
can rapidly develop different types of formulations for different routes of administration, such as injectable, skin cream, lotion,
gel, and even oral, because of the inherent strength of the nanoviricide platform tailorable technology. The technology also enables
us to develop nasal sprays and bronchial aerosols. We plan to develop the appropriate formulations as necessary.
Our Campus in Shelton, CT
We are happy to report that our new campus
at Shelton, CT, is mostly operative. With the expanded R&D labs, Analytical Labs, the new Bio labs, the new Process Scale-Up
production facility, and the new cGMP-capable manufacturing facility established at our new Shelton campus, we are in a much stronger
position than ever to move our drug development programs into the clinic rapidly.
Process Scale-Up Production Capability
The Process Scale-up area is operational
at scales of about 200g to 1kg per step for different chemical synthesis and processing steps. It comprises reactors and process
vessels on chassis or skids, ranging from 1L to 30L capacities, as needed. Many of the reactors or vessels have been designed by
us for specific tasks.
cGMP Production Capability
Our versatile, customizable cGMP-capable
manufacturing facility is designed to support the production of kilogram-scale quantities of any of our nanoviricides drugs. In
addition, it is designed to support the production of the drug in any formulation such as injectable, oral, skin cream, eye drops,
lotions, etc. The production scale is designed so that clinical batches for Phase I, Phase II, and Phase III can be made in this
facility. The clean room suite contains areas suitable for the production of sterile injectable drug formulations, which require
special considerations.
We have planned certain minimal infrastructure
modifications to improve the capabilities of the cGMP-compliant facility, based on our experience in the Scale-up operations. Certain
of these improvements are expected to add a separate production suite for the manufacture of skin cream in an area that was designated
for such further expansion. These infrastructure improvements will be undertaken only after appropriate level of funding becomes
available, of which there can be no assurance.
After these infrastructure improvements,
we plan to produce at least three consecutive batches of a drug product and satisfy that said drug product is within our own defined
specifications. After we are satisfied with such strong reproducibility of our processes, we plan to register the facility as a
cGMP manufacturing facility with the US FDA.
At present, we plan on moving operations
to our cGMP-capable manufacturing facility as the operational steps are developed to the level needed for moving them into this
facility. This requires the development of draft-level Standard Operating Procedures, training, and drill-through of operations.
We will also need to establish a Quality Assurance and Quality Control Department. The staff is busy developing our pre-clinical
HerpeCide programs.
Given the limited financing, we have not
been able to attract the necessary talent for replacing the lost staff and for building out the necessary additional resources
such as QA/QC. We have been working with our extremely versatile and multi-talented team, in a task-serialized fashion, over the
last several years. While the versatility of the team has enabled us to develop and establish most of the required quality assays
and methods, we will be severely limited in our abilities in producing a cGMP product until the staffing is enhanced.
After we are able to attract and hire quality
candidates that we severely need, we anticipate that it will take at least six months to one year for each such person to be fully
productive as an integrated part of our team. In the past, we have been very fortunate that newly hired personnel were immediately
productive in tasks delineated to them, and they were productively integrated within a short time frame of several months into
independent but integrated parts of our team. However, this is not always the case.
We operate in a completely novel area of
medicines, which is broadly described as polymeric-micelle based drug conjugates and complex nanomedicines. Our technologies are
also completely novel, and unmatched in the industry. As such, we anticipate a longer training period for new employees than in
normal small chemical or biological drugs. We continue to seek talented scientists and engineers with specialized training. However,
it is difficult to attract such talent for a small, pre- revenue pharma company such as ours.
We employ the same team that developed
the small-scale synthesis chemistry for translation of those chemical syntheses into clinical-scale processes, and also to perform
the related chemical engineering, quality control, quality assurance, and regulatory tasks along the way. Because of the small
size of our scientific staff, this results in significant serialization of efforts. However, the personnel cost, as well as the
time and expense cost of transfer of knowledge and training of a separate dedicated team is avoided because the same expert scientists
who have developed the chemistries are also involved in scaling them up into process scale. To enable such extensive multi-tasking,
we have a continuous training program in place, with both formal and informal components. We believe that this approach helps us
keep drug development costs as low as possible.
Our BSL-2 Certified Virology Lab
Most importantly, we have significantly
enhanced our internal anti-viral cell culture testing capabilities at our Shelton campus. We have achieved BSL-2 (Biological Safety
Level 2) certification from the State of Connecticut for our Virology suite at the new campus. This suite comprises three individual
virology workrooms, enabling us to work on several different viruses and strains at the same time. This facility is designed only
for cell culture studies on viruses, and no animal studies can be conducted at any of our own facilities. We have brought in Brian
Friedrich, Ph.D. as the Company’s Virologist. Dr. Friedrich has previously performed drug screening of hundreds of candidates
against several viruses including alphaviruses, bunyaviruses, and filoviruses (namely, Ebola and Marburg, which are BSL-4), to
discover potential therapeutics, while he was at United States Army Medical Research Institute of Infectious Diseases (USAMRIID).
Brian has also worked extensively on Flaviviruses, specifically West Nile Virus, while at University of Texas Medical Branch (UTMB).
He has also worked on HIV as part of his PhD thesis. Dengue viruses as well as the Zika virus belong to the Flavivirus family.
Dr. Friedrich has already established several
different types of assays for screening of candidates against VZV, HSV-1 and HSV-2 in our lab. He is now in the process of establishing
assays for Influenza viruses and HIV. We believe that having developed the internal capabilities for cell culture testing of our
ligands and nanoviricides against a variety of viruses has substantially strengthened our drug development programs. We believe
that this internal screening enables speedy evaluation of a much larger number of candidates than external collaborations allow.
This has significantly improved our ability of finding highly effective ligands and performing structure-activity-relationship
studies of the same in a short time period.
Manufacturing Requirements of Some of
Our Drug Candidates
The HerpeCide program drug product batch
requirements are estimated to be fairly modest because of the topical nature of treatment. In consultation with BASi and BCG, we
have currently estimated a batch size of approximately 500g will be sufficient for the “Tox Package” (i.e. safety and
toxicology) studies of our dermal topical shingles drug candidate. We are estimating that a ~500g batch will be more than sufficient
for initial Phase-I human clinical studies as well. Our current estimate for a Phase IIa human clinical efficacy study is also
in the range of a ~500g batch requirement. We already have the facilities for producing up to 1kg per batch or more. Many of our
synthesis steps have already been scaled up to 200g~500g scales. The “nanomicelle” polymer manufacture is already scaled
to ~500g scale. Some of the synthetic steps have also been tested successfully at kg scales. Thus we believe that we have sufficient
production capability for the amounts of the HerpeCide drugs that would be needed for tox package as well as clinical studies.
The rat toxicology study for VZV-shingles
candidates, which is the first step before the full tox package study, is expected to require only about 10-20g of the nanoviricide,
depending upon the scope of the study. This is well within our current capabilities.
As we move our drug candidates into clinical
studies, we plan to perform further scale-up studies to get to about 1kg per batch production scale. In the current facility, we
may be able to manufacture about 10kg to 20kg of cGMP product annually. Depending upon the drug’s potency and indication,
this production size may fetch modest revenues of around $50M to $500M, depending upon the cost metrics, enabling profitable market
entry. Such initial commercialization would allow the Company to turn itself into a stand-alone pharmaceutical company, by enabling
capital formation for larger scale manufacturing facilities and fueling further growth.
Current Status of the Company’s Drug Development
Programs
All of our drug development programs are
in the pre-clinical or advanced pre-clinical stages.
With the achievement of extremely high
levels of effectiveness in appropriate animal models for its current drug candidates listed above, the Company has progressed to
advance its drugs into the IND-enabling studies needed to go into the clinical stage. Our drug development strategy now is to focus
on the IND-enabling studies for at least one, possibly two, indications in the HerpeCide topical treatment program, and our injectable
FluCide drug candidate for severely ill patients hospitalized with influenza (IND = Investigational New Drug application). In addition,
the other programs will continue to progress at different priorities.
Our animal efficacy studies are performed
by third parties. We opt into drug developments against specific disease indications for which we have appropriate partners that
can perform the necessary cell culture and animal efficacy studies.
NanoViricides technology is now maturing
rapidly toward the clinical studies, with the new facility, expanded staff, and the financial strength that we have attained since
uplisting to the NYSE-MKT.
During the reported quarter we have continued
to perform further optimization of our anti-HSV drug candidates. We have increased our efforts at characterization and study of
each synthetic step in order to develop a knowledge base for further scale up of syntheses to larger scales. This process, as is
well known in the industry, requires painstaking studies, and is time consuming. In April 2015, we reported dramatic improvement
in clinical symptoms associated with a herpes simplex virus dermal infection in mice. The topical nanoviricide treatment significantly
reduced the clinical disease, and led to >85% survival of the mice dermally infected with a highly aggressive, neurotropic,
HSV-1 H129c strain, wherein all of the untreated mice had severe clinical morbidity and none of the untreated mice survived. Later
in August 2015, we reported that these results were reproduced at a different laboratory, with 100% survival being observed. The
repeat studies were conducted by Transpharm Preclinical Solutions, a pre-clinical contract research services organization (CRO),
in Jackson, MI. We plan to replicate similar studies of our antiviral candidates in appropriate models for shingles, ocular HSV-1
infection and genital HSV-2 infection.
We believe that these successes have positioned
us to develop drugs against multiple herpesvirus indications. The potential broad-spectrum nature of our anti-HSV drug candidates
is expected to enable several antiviral indications. Thus, HSV-1 primarily affects skin and mucous membranes causing “cold
sores”. HSV-2 primarily affects skin and mucous membranes leading to genital herpes. HSV-1 infection of the external eye
causes herpes keratitis that can lead to blindness in some cases. In addition, human herpesvirus-3 (HHV-3), a.k.a. varicella-zoster
virus (VZV), causes chickenpox in children and when reactivated in adults, causes shingles. Shingles breakouts are amenable to
topical treatment, as are the HSV cold sores, genital lesions, and herpes keratitis of the eye. In addition, VZV, HSV-2 and HSV-1
infections lead to v-ARN, which requires intravitreal injectable drug development. Most of these indications do not have satisfactory
treatments at present, if any.
We are currently performing the studies
necessary for selection of IND candidates (i.e. clinical drug candidates) for several indications related to herpes viruses under
our HerpeCide™ program. These indications include shingles, ocular herpes keratitis, oral herpes (“cold sores”),
genital herpes, and v-ARN. After initial achievement of efficacy in the HSV-1 dermal model, we are now working on establishing
the best anti-HSV ligand for our anti-HSV drug candidate in this model. New ligands, based on a SAR (“structure-activity-relationship”)
modeled after our successfully tested earlier ligands were developed using knowledge-based approaches including molecular modeling
and bioinformatics studies in our laboratory. We are now scaling up the synthesis of the two most broadly applicable and successful
ligands active against the tested herpesvirus indications. We are also performing CMC studies required as part of the IND package
for these ligands as well as appropriate backbone polymers.
The nanomedicine technology enables tailor-made
nanomicelle polymer compositions so that transport across skin layers and delivery to the site of action can be accomplished properly.
Different nanomicelle compositions may be better suited for intravitreal delivery.
Once these studies are successfully completed,
we expect that we will be able to announce a broad-spectrum clinical drug development candidate for the topical treatment of shingles
outbreak. We believe that clinical candidates for the dermal topical treatment of HSV-1 and HSV-2 infections should be identified
after an additional cycle of testing for effectiveness for these respective indications.
We had discussions with BASi, Toxicology
Services of West Lafayette, IN (“BASi”), a CRO for GLP and non-GLP safety/toxicology studies recently regarding the
Safety/toxicology studies that would be needed for our topical dermal skin cream for the treatment of various herpesvirus skin
infections including zoster (shingles), herpes labialis, and herpetic genital ulcers. We have also held discussions with other
experts in the industry. We have developed a plan for the required studies, and are in the process of estimating the drug product
requirements. We believe that we have the facilities for producing the drug product batches needed for the safety/tox studies as
well as the initial human clinical trials.
Our antiviral safety and efficacy studies
are substantially performed by third party collaborators or contract organizations. To this end, we have engaged several new collaborations
to help us finalize clinical candidates and develop IND-enabling pre-clinical data in our various programs this year. For our HerpeCide
program, we have collaborations with the CORL at the University of Wisconsin for HSV-1 and HSV-2, with focus on small animal models
for ocular disease; the Campbell Lab at the University of Pittsburgh for in vitro cell culture models of various ocular viruses
including many adenovirus and herpesvirus strains, as well as animal models for ocular herpes keratitis (HK) and adenoviral epidemic
kerato-conjunctivitis (EKC); and TransPharm, LLC, a contract research organization (CRO), for pre-clinical animal efficacy studies
for our HSV-1 and HSV-2 skin cream drug candidates. In addition, we have a continuing relationship with BASi. We have engaged Biologics
Consulting Group (BCG) for advice and help with regulatory affairs.
We have entered into an agreement with
SUNY Upstate Medical University for the testing of our nanoviricides® drug candidates against VZV (varicella zoster virus),
i.e. the shingles virus. The research is being performed in the laboratory of Dr. Jennifer Moffat and will include
in vitro
,
ex vivo
and possibly
in vivo
studies. Dr. Moffat has extensive experience in VZV infection and antiviral agent discovery.
The goal of these studies is to help select a clinical drug development candidate for toxicology and safety evaluation intended
for clinical trials for the treatment of shingles in humans.
A major impediment in VZV infection studies
is a lack of suitable animal models because VZV is restricted to human tissue and only infects and replicates in human tissue.
To overcome this problem, Dr. Moffat has developed an “
ex-vivo
” human skin organ culture VZV infection model
for the evaluation of therapeutics. This model is a good representative model of natural VZV infection in humans as well as an
important model for evaluating antiviral activity, because it demonstrates behavior similar to the skin lesions caused by VZV in
human patients.
The
in vitro
studies will evaluate
the effectiveness of the Company's nanoviricides antiviral agents against VZV infection of certain human cells in culture. The
ex vivo
studies will evaluate the efficacy of the Company's nanoviricides to inhibit VZV in human skin organ cultures. A
limitation of this
ex vivo
model at present is the number of samples that can be studied at one time. We have planned several
studies in sequence to overcome this issue. We are pleased to note that we are in the process of repeating the
ex vivo
skin
patch model studies to establish reproducibility of the data. We have planned these studies such that they will help us identify
a clinical drug candidate for the topical treatment of shingles when they are completed.
Dr. Moffat is an internationally recognized
expert on varicella zoster virus, and her research has focused on the pathogenesis and treatment of infection by this virus. The
National Institutes of Health has recognized this VZV model via a contract with Dr. Moffat’s lab for evaluating antiviral
compounds against VZV. Dr. Moffat is the director of two research core facilities at SUNY Upstate, namely, the Center for Humanized
Mouse Models and the core facility for
In Vivo
Imaging.
We believe that our anti-herpes drug development
program is thus maturing towards a franchise of drug candidates, such as eye drops and gel formulations for ocular herpes keratitis,
skin creams for oral herpes “cold sores”, for genital herpes lesions, and for shingles (which is caused by the herpesvirus
called Varicella-Zoster virus that also causes chickenpox in children).
We are also working on further developments
in our FluCide™ anti-Influenza drug development project, and in particular, on our broad-spectrum anti-influenza drug for
hospitalized, severely ill patients, Injectable FluCide™.
In addition, NanoViricides, Inc. is possibly
the first company in the world in the entire field of nanomedicines to have developed a nanomedicine drug that is effective when
taken orally (by mouth). Our oral anti-influenza drug candidate, NV-INF-2, has shown extremely high broad-spectrum effectiveness
against two different influenza A viruses in animal models, in our FluCide™ program. We believe that the Oral FluCide drug
development will follow the Injectable FluCide for hospitalized patients as the latter enters human clinical trials. We believe
we now have the ability to manufacture sufficient drug material for initial market entry of our Injectable FluCide drug candidate
when licensed by the FDA or another regulatory agency. However, an oral drug against influenza is expected to require very large
manufacturing facility in order to address the large worldwide outpatient influenza market, comprising billions of cases every
year. We intend to out-license the oral FluCide drug candidate when appropriate.
We have performed preliminary safety and
toxicology studies on certain drug candidates in the FluCide program. In all of the studies conducted, the drug candidates were
found to be extremely safe. Both mouse and rat models have been employed for these studies. Some of the earlier studies were performed
at KARD Scientific. Recent studies have been performed at BASi, Inc., a well-regarded pre-clinical CRO for tox package studies.
As a result of the strong safety, we have estimated a batch size requirement of about 2kg ~ 2.5kg of Injectable FluCide that will
be needed to complete the full set of tox studies as well as efficacy studies in different influenza virus strains in cell cultures
as well as in animal models. However, the HerpeCide program drug candidates are expected to require only 100g~500g scale batch
production for toxicological and initial human clinical trials studies. We have therefore re-prioritized our programs last year
and are now focused on the scale up studies for the HerpeCide drug candidates at approximately 200g scale of production. We will
be able to continue further development of a 1kg~2kg per batch scale for FluCide drug candidates after we have completed the HerpeCide
program scale up.
We are now optimizing the production processes
at different scales of production. As part of this, we are designing, evaluating, and implementing various in-process controls.
We are developing and implementing several tools and methods for the characterization of the materials we produce as part of making
the final drug substance. Much of the work performed for the optimization of the polymer backbone of the nanoviricide would be
applicable to several of our drug candidates. After the processes and methods are finalized, we will need to document the production
processes as well as the specific characterization methods into standardized procedures. We will then need to manufacture at least
two batches under the standardized protocols, and establish that the product meets the acceptance criteria. If the batches are
not reproducibly acceptable, then we will need to further optimize the processes to eliminate the problems. Once the batches are
acceptable, the resulting product would be considered “c-GMP-like” and we would be able to use it in human clinical
trials.
We are continuing the CMC (Chemistry, Manufacture
and Control) related work and scale-up for the HerpeCide program at present. This drug development phase is intensive in terms
of workload for any drug candidate. In our case, and in general for nanomedicines, the workload in this phase is much more intensive
than for small chemical drugs. This is because we have to perform this work for the small chemical anti-viral ligand, the nanomicelle,
and for their chemical conjugate, which is our final nanoviricide drug candidate. We anticipate the CMC program for our anti-herpes
drug candidate to be significantly less time consuming as compared to our FluCide drug program, which will require scaling to a
much larger scale of production. We generally plan our scale-up studies in small steps, going from ~1g to ~10g to ~50g to ~200g
to ~500g to ~1kg. At each stage, we must collect parameters and observations from each batch, improve process control at the next
batch, and make a replicate batch at the end when the process is relatively stabilized. We do not need to finalize the production
processes before entering human clinical trials. However, we must develop appropriate quality characterization assays, quality
control techniques, process control methods, and quality assurance assays so that we can make equivalent materials from batch to
batch.
We believe that because of the smaller
quantity requirements and the less rigorous tox package studies needed for the dermal topical treatment, our anti-herpes drug candidates
are likely to move more rapidly towards clinical stage, while we continue to work on our anti-influenza drug candidate.
As part of the advanced IND–enabling
development of our Injectable FluCide™ drug candidate, we performed initial safety-toxicology screening of an optimized FluCide™
drug candidate in a GLP-like toxicology study in rats. We reported that a good safety profile was observed for this drug candidate
in rats, around the end of January 2015. These results are extremely important since they indicate that FluCide continues to look
very promising as one of the most advanced candidates in the Company’s drug development pipeline.
No direct adverse clinical effects were
found upon administration of this FluCide candidate intravenously at doses of up to 300mg/kg/day for 14 days (a total of 4,200mg/kg)
in rats. Organs were examined for gross histological observations. Microscopic histological tissue analysis was also performed.
There were no adverse histological findings in gross organ level histological examination, nor were there any adverse findings
in microscopic histological analysis. Equally importantly, there were no meaningful effects observed on animal weight gain, food
consumption, hematology, or clinical chemistry at the end of the 14 day dosing period.
The Company believes that these strong
safety data bode well for our other drug programs as well. This is because a nanoviricide is built of two parts – (1) a virus
specific ligand, that is chemically attached to (2) a “nanomicelle” or polymeric micelle based on our specific chemistries.
It is reasonable to believe that the nanomicelle structures of our other drug candidates should also be safe. In addition, we believe
that we have chosen antiviral ligands for our other drug candidates in a very conservative, safety-biased fashion.
The study was conducted at BASi. The study
was performed in a cGLP-like fashion, compliant with BASi Evansville standard operating procedures. BASi has over 40 years of experience
providing contract research services and niche instrumentation to the life sciences, primarily drug research and development. This
study was developed in collaboration with BASi and conducted by BASi in a c-GLP-like fashion in order to understand the safety
parameters of FluCide intravenous dosing.
These results are in agreement with the
previously reported results of a non-GLP toxicology study in mice. The current study results also support the Company’s positive
findings in animal models of infection with different influenza A virus strains in which no safety or toxicology concerns were
observed. The Company has previously reported that many of its FluCide candidates demonstrated extremely high anti-influenza activity
in those models.
Our anti-HIV program is conducted at a
lower priority level because the Company lacks the resources needed to commit to the development of an anti-HIV drug. We will continue
to advance this program albeit at a relatively slow pace in order to enable us to seek appropriate partnerships and/or non-dilutive
funding.
The Company reports summaries of its studies
as the data becomes available to the Company, after analyzing and verifying same, in its press releases. The studies of biological
testing of materials provide information that is relatively easy to understand and therefore readily reported. In addition, we
continue to engage in substantial work that is needed for the optimization of synthesis routes and for the chemical characterization
of the nanoviricide drug candidates. We also continue to work on improving the drug candidates and the virus binding ligands where
necessary. We continue to work on creating the information needed for the development of controlled chemical synthesis procedures
that is vital for developing c-GMP manufacturing processes.
NanoViricides Business Strategy in
Brief
NanoViricides, Inc. intends to perform
the regulatory filings and own all the regulatory licenses for the drugs it is currently developing. The Company will develop these
drugs in part via subcontracts to TheraCour Pharma, Inc., the exclusive source for these nanomaterials. The Company may manufacture
these drugs itself, or under subcontract arrangements with external manufacturers that carry the appropriate regulatory licenses
and have appropriate capabilities. The Company intends to distribute these drugs via subcontracts with distributor companies or
in partnership arrangements. The Company plans to market these drugs either on its own or in conjunction with marketing partners.
The Company also plans to actively pursue co-development, as well as other licensing agreements with other Pharmaceutical companies.
Such agreements may entail up-front payments, milestone payments, royalties, and/or cost sharing, profit sharing and many other
instruments that may bring early revenues to the Company. Such licensing and/or co-development agreements may shape the manufacturing
and development options that the company may pursue. There can be no assurance that the Company will be able to enter into co-development
or other licensing agreements.
The Company has kept its capital expenditures
to a minimum in the past, and we intend to continue to do the same, in order to conserve our cash for drug development purposes,
and in order to minimize additional capital requirements.
Collaborations, Agreements and Contracts
Our strategy is to minimize capital expenditure.
We therefore rely on third party collaborations for the testing of our drug candidates. We continue to engage with our previous
collaborators. We also seek to engage with additional collaborators, as necessitated for the progress of our programs.
We have signed a collaboration agreement
with the Professor Moffat Lab at SUNY Upstate Medical Center, Syracuse, NY, for evaluating safety and effectiveness studies of
our drug candidates in cell culture and in animal models for shingles VZV infections.
We have signed a collaboration agreement
with the CORL at the University of Wisconsin, Madison, WI, for HSV-1 and HSV-2, with focus on small animal models for ocular disease.
We have signed a collaboration agreement
with the Campbell Lab at the University of Pittsburgh, Pittsburgh, PA for evaluating safety and effectiveness studies of our drug
candidates in cell culture and in animal models for ocular infections by HSV-1, HSV-2 and Adenoviruses.
We have signed a Master Services Agreement
with TransPharm Preclinical Services, Jackson, MI. TransPharm is currently performing evaluation of our anti-HSV drug candidates
in a dermal model of HSV-1 infection.
We have an agreement with the Professor
Eva Harris lab at the University of California at Berkeley for evaluation and development of our Denguecide drug candidates.
We have engaged Biologics Consulting Group,
Inc., to help us with the US FDA regulatory submissions. We are also engaged with Australian Biologics Pty, Ltd to help us with
clinical trials and regulatory approvals in Australia. We believe that cGMP-like manufactured product is acceptable for entering
human clinical trials in Australia.
In addition, we have signed a Master Services
Agreement with Public Health England (PHE), UK.
We have a CRADA-Materials Transfer Agreement
with USAMRIID for the evaluation of our anti-Ebola nanoviricide drug candidates.
We anticipate completing master services
agreements, after performing our due diligence, with additional parties in furtherance of our anti-viral drug development programs.
We have continued to achieve significant
milestones in our drug development activities. All of our drug development programs are presently at pre-clinical or advanced pre-clinical
stage. We believe we are advancing these programs at a faster pace than industry peers. We continue to test several drug candidates
under each program even though we may achieve extremely strong results with some of the candidates
Patents, Trademarks, Proprietary
Rights: Intellectual Property
The nanomedicine technologies licensed
from TheraCour Pharma, Inc. (“TheraCour”) serve as the foundation for our intellectual property. The Company holds
a worldwide exclusive perpetual license to this technology for several drugs with specific targeting mechanisms in perpetuity for
the treatment of the following human viral diseases: Human Immunodeficiency Virus (HIV/AIDS), Hepatitis B Virus (HBV), Hepatitis
C Virus (HCV), Rabies, Herpes Simplex Virus (HSV), Influenza and Asian Bird Flu Virus. The Company has entered into an Additional
License Agreement with TheraCour granting the Company the exclusive licenses in perpetuity for technologies developed by TheraCour
for the additional virus types: Dengue viruses, Japanese Encephalitis virus, West Nile Virus, Viruses causing viral Conjunctivitis
(a disease of the eye) and Ocular Herpes, and Ebola/Marburg viruses. The Company may want to add further virus types to its drug
pipeline. The Company would then need to negotiate with TheraCour an amendment to the existing Licensing Agreement to include those
of such additional viruses that the Company determines it wants to follow for further development. We are seeking to add to our
existing portfolio of products through our internal discovery pre-clinical development programs and through an in-licensing strategy.
NanoViricides, Inc. holds exclusive, worldwide,
perpetual, licenses from TheraCour Pharma, Inc. to these technologies and patents for a broad range of antiviral applications and
diseases that include all Influenzas including Asian Bird Flu Virus, Human Immunodeficiency Virus (HIV/AIDS), Hepatitis B Virus
(HBV), Hepatitis C Virus (HCV), Herpes Simplex Virus (HSV), Dengue viruses, West Nile Virus, Rabies virus, Ebola/Marburg viruses,
Japanese Encephalitis virus, as well as viruses causing viral Conjunctivitis (a disease of the eye) and ocular herpes. NanoViricides
currently holds two licenses in perpetuity to develop and sell drugs for the treatment of these viral diseases.
These licenses are provided for all the
intellectual property held by TheraCour Pharma, Inc. that relates to our antiviral licensed products. These licenses are not limited
to underlying patents, but also include the know-how, trade secrets, and other important knowledge base that is utilized for developing
the drugs and making them successful.
In addition, these extremely broad licenses
are not limited to some specific chemical structures, but comprise all possible structures that we could deploy against the particular
virus, based on these technologies. In addition, the licenses are held in perpetuity by NanoViricides for worldwide use. The licenses
are also exclusively provided to NanoViricides for the licensed products so NanoViricides is the only party that can further sublicense
the resulting drugs to another party, if it so desires. TheraCour cannot further license anything in our licensed products areas
because of the breadth of the license. The licenses can revert only in the case of a default by NanoViricides. The terms of default
are such that, effectively, TheraCour would be able to take the licenses back only in the event that NanoViricides files bankruptcy
or otherwise declares insolvency and the inability to conduct its business. This structure is standard in the licensing world as
it saves the IP from being blocked from commercialization in lengthy and potentially fragmentary bankruptcy proceedings.
A fundamental Patent Cooperation Treaty
(“PCT”) patent application, on which the nanoviricides® technology is based, has resulted in additional issued
patents in Europe and Korea. As with issuances in other countries including the United States, these patents have been allowed
with a very broad range of claims to a large number of families of chemical structure compositions, pharmaceutical compositions,
methods of making the same, and uses of the same. The corresponding original “pi-polymer” international application,
namely, PCT/US06/01820, was filed under the Patent Cooperation Treaty (PCT) system in 2006. Several other patents have already
been granted previously in this patent family in various countries and regions, including Australia, ARIPO, Canada, China, Hong
Kong, Indonesia, Israel, Japan, Mexico, New Zealand, OAPI, Philippines, Singapore, Vietnam, South Africa, and the USA. Prosecution
in several other countries continues. In May 2012, the US Patent (No. 8,173,764) was granted for “Solubilization and Targeted
Delivery of Drugs with Self-Assembling Amphiphilic Polymers.” The US patent term is expected to last through October 1, 2028,
including anticipated extensions in compensation for time spent in clinical trials. This US Patent has been allowed with a very
broad range of claims to a large number of families of chemical structure compositions, pharmaceutical compositions, methods of
making the same, and uses of the same. The disclosed structures enable self-assembling, biomimetic nanomedicines. Estimated expiry
dates for these patents range nominally from 2027 to 2029 with various extensions accounting for delays in clinical trials. Additional
issuances are expected in Europe, and in several other countries around the world.
In addition to this basic PCT application
that covers the “pi-polymer” structure itself, another PCT application, PCT/US2007/001607, that discloses making antiviral
agents from the TheraCour family of polymers and such structures is in various stages of prosecution in several countries, and
has already issued in at least seven countries and regions. The counterparts of the international PCT application have issued as
a granted patent in Australia, Japan, China, ARIPO, Mexico, New Zealand, OAPI, Pakistan, and, South Africa to date. Additional
issuances are expected in Europe, USA, and in several other countries around the world. This patent application covers antivirals
based on the TheraCour polymeric micelle technologies, their broad structures and compositions of matter, pharmaceutical compositions,
methods of making the same, and their uses. The nominal expiry dates are expected to range from 2027 to 2029.
More than 61 patents have been issued globally
on the basis of the two international PCT patent families that cover the fundamental aspects of our platform technology. Additional
patent grants are expected to continue as the applications progress through prosecution processes. All of the resulting patents
have substantially broad claims.
The patents are issued to the inventors
Anil R. Diwan, PhD, Jayant G. Tatake, PhD, and Ann L. Onton, all of whom are among the founders of NanoViricides, Inc. The patents
have been assigned to AllExcel, Inc., the Company at which the groundbreaking work was performed. AllExcel, Inc. has contractually
transferred this intellectual property to TheraCour Pharma, Inc.
The Company has an exclusive license
in perpetuity for technologies developed by TheraCour for the following virus types: HIV, Hepatitis C Virus, HSV, Asian (bird)
flu, Influenza, and rabies. The Company has entered into an Additional License Agreement with TheraCour granting the Company the
exclusive licenses in perpetuity for technologies developed by TheraCour for the additional virus types for Dengue viruses, Japanese
Encephalitis virus, West Nile Virus, Viruses causing viral Conjunctivitis (a disease of the eye) and Ocular Herpes, and Ebola/Marburg
viruses. (Also please see under “Significant Alliances: Related Parties: TheraCour Pharma”).
The Company has entered into a Memorandum of Understanding with
TheraCour, whereby TheraCour will initiate discovery and development for drug candidates for a new virus or indication upon such
request by the Company. If the resulting drug candidates are worthy of further drug development, NanoViricides may determine that
it should enter into a licensing agreement with TheraCour. In such a case, NanoViricides would obtain an independent asset valuation
for the asset(s) to be licensed from a party experienced in such valuations. NanoViricides and TheraCour would thereafter negotiate
the terms of compensation for the new license agreement. However, there can be no assurance that an agreement for licenses for
new viruses will be entered into on terms that are favorable to NanoViricides. We believe this process has been extremely beneficial
for NanoViricides, since this process saves NanoViricides from the cost of acquiring and paying for licenses that it may not want
to pursue further. At present, TheraCour has licensed the Company HSV-1 and HSV-2, but has not licensed the VZV area, nor has it
licensed any of the remaining herpesviruses. Licensing of these assets is currently in process as described earlier.
Patents and other proprietary rights are
essential for our operations. If we have a properly designed and enforceable patent, it can be more difficult for our competitors
to use our technology to create competitive products and more difficult for our competitors to obtain a patent that prevents us
from using technology we create. As part of our business strategy, we actively seek patent protection both in the United States
and internationally and intend to file additional patent applications, when appropriate, to cover improvements in our compounds,
products and technology. We also rely on trade secrets, internal know-how, technological innovations and agreements with third
parties to develop, maintain and protect our competitive position. Our ability to be competitive will depend on the success of
this strategy.
The Company believes that the drugs by
themselves, Shingles antiviral topical treatment, HerpeCide for Cold Sores, HerpeCide for genital ulcers, antiviral nanoviricide
eye drops, Injectable FluCide, Oral FluCide, DengueCide, HIVCide, RabiCide, and others, may be eligible for patent protection.
The Company plans on filing patent applications for protecting these drugs when we have definitive results from in-vitro or in-vivo
studies that enable further drug development and IND application filing.
The issued patents have nominal expiry
dates in 2026 to 2029. The dates can be further extended in several countries and regions for the additional allowances due to
the regulatory burden of drug development process, or other local considerations, such as licensing to a local majority held company.
Many countries allow up to five years extension for regulatory delays.
No patent applications have been filed
for the actual drug candidates that we intend to develop as drugs as of now. We intend to file the patent application for FluCide
and HerpeCide before entering human clinical trials. The estimated expiry date for the FluCide and HerpeCide patents, if and when
issued, would be no earlier than 2037.
We may obtain patents for our compounds
many years before we obtain marketing approval for them. Because patents have a limited life, which may begin to run prior to the
commercial sale of the related product, the commercial value of the patent may be limited. However, we may be able to apply for
patent term extensions, based on delays experienced in marketing products due to regulatory requirements. There is no assurance
we would be able to obtain such extensions. The Company controls the research and work TheraCour performs on its behalf and no
costs may be incurred without the prior authorization or approval of the Company.
Patents relating to pharmaceutical, biopharmaceutical
and biotechnology products, compounds and processes such as those that cover our existing compounds, products and processes and
those that we will likely file in the future, do not always provide complete or adequate protection. Future litigation or reexamination
proceedings regarding the enforcement or validity of our licensor, TheraCour Pharma Inc.’s existing patents or any future
patents, could invalidate TheraCour’s patents or substantially reduce their protection. In addition, the pending patent applications
and patent applications filed by TheraCour, may not result in the issuance of any patents or may result in patents that do not
provide adequate protection. As a result, we may not be able to prevent third parties from developing the same compounds and products
that we have developed or are developing. In addition, certain countries do not permit enforcement of our patents, and manufacturers
are able to sell generic versions of our products in those countries.
We also rely on unpatented trade secrets
and improvements, unpatented internal know-how and technological innovation. In particular, a great deal of our material manufacturing
expertise, which is a key component of our core material technology, is not covered by patents but is instead protected as a trade
secret. We protect these rights mainly through confidentiality agreements with our corporate partners, employees, consultants and
vendors. These agreements provide that all confidential information developed or made known to an individual during the course
of their relationship with us will be kept confidential and will not be used or disclosed to third parties except in specified
circumstances. In the case of employees, the agreements provide that all inventions made by the individual while employed by us
will be our exclusive property. We cannot be certain that these parties will comply with these confidentiality agreements, that
we have adequate remedies for any breach, or that our trade secrets will not otherwise become known or be independently discovered
by our competitors.
Trademarks
On April 20, 2010, the United States Patent
and Trademark Office granted trademark registration number 3,777,001 to the Company for the standard character mark “nanoviricides”
(the “Mark”) for International Class 5, pharmaceutical preparation for the treatment of viral diseases. The Mark was
registered on the Principal Register and is protected in all its letter forms, including corresponding plural and singular forms,
various forms of capitalization, and fonts and designs.
Analysis of Financial Condition,
and Result of Operations
As of September 30, 2017, we had cash and
equivalents of $13,512,240, prepaid expenses of $192,240, and property and equipment of $11,135,304, net of accumulated depreciation
of $2,671,690. Long-term liabilities were $1,462,625 and stockholders’ equity was $18,519,209 at September 30, 2017.
As of June 30, 2017, we had cash and equivalents
of $15,099,461, and $190,166 in prepaid expenses. Property and equipment stood at $11,271,060 net of accumulated depreciation of
$2,505,501. Long-term liabilities were $2,015,354 and the stockholders’ equity was $20,321,942 at June 30, 2017.
During the three-month period ended September
30, 2017 we used approximately $1,557,000 in cash toward operating activities.
We do not anticipate any major capital
costs going forward in the near future.
Based on the current rate of expenditures
(excluding capital costs), we believe that we have sufficient funds in hand to last more than twelve months. In addition, in order
to conserve cash, we also pay compensation in stock and stock instruments to various parties. The Company believes that our spending
continues to be in line with our estimates. Management believes that it will have to raise additional capital during this period
to fund and perform additional projected work, which is beyond normal pre-clinical development operations, leading towards an Investigational
New Drug Application (IND) filling with the U.S. Food and Drug Administration (FDA), to continue through and beyond November 2018.
The Company does not currently have any
revenue. All of the Company’s products are in the development stage and require successful development through regulatory
processes before commercialization. We have generated funding through the issuances of debt and private placement of common stock
and also the sale of our registered securities. The Company does not currently have any long-term debt, other than convertible
debentures as disclosed earlier. We have not generated any revenues and we may not be able to generate revenues in the near future.
We may not be successful in developing our drugs and start selling our products when planned, or we may not become profitable in
the future. We have incurred net losses in each fiscal period since inception of our operations.
Research and Development Costs
The
Company does not maintain separate accounting line items for each project in development. The Company maintains aggregate expense
records for all research and development conducted. Because at this time all of the Company’s projects share a common core
material, the Company allocates expenses across all projects at each period-end for purposes of providing accounting basis for
each project. Project costs are allocated based upon labor hours performed for each project. Far fewer man-hours are spent on the
projects at low priority than the projects at high priority
.
In
this quarter, we have focused primarily on our HerpeCide program drug candidates, while continuing limited work on our FluCide
program
The Company has signed several cooperative
research and development agreements with different agencies and institutions. The Company expects to enter into additional cooperative
agreements with other governmental and non-governmental, academic, or commercial, agencies, institutions, and companies. There
can be no assurance that a final agreement may be achieved and that the Company will execute any of these agreements. However,
should any of these agreements materialize, the Company will need to implement a system to track these costs by project and account
for these projects as customer-sponsored activities and show these project costs separately.
The Company has limited experience with
pharmaceutical drug development. Thus, our budget estimates are not based on experience, but rather based on advice given by our
associates and consultants. As such these budget estimates may not be accurate. In addition, the actual work to be performed is
not known at this time, other than a broad outline, as is normal with any scientific work. As further work is performed, additional
work may become necessary or change in plans or workload may occur. Such changes may have an adverse impact on our estimated budget.
Such changes may also have an adverse impact on our projected timeline of drug development.
We believe that this coming year’s
work plan will lead us to obtain certain information about the safety and efficacy of one of the drugs under development in animal
models. If our studies are not successful, we will have to develop additional drug candidates and perform further studies. If our
studies are successful, then we expect to be able to undertake further studies in animal models to obtain necessary data regarding
the pharmaco-kinetic and pharmaco-dynamic profiles of our drug candidates, provided that appropriate levels of funding become available.
We believe this data will then enable us to file an Investigational New Drug Application, towards the goal of obtaining FDA approval
for testing the drugs in human patients.
Most pharmaceutical companies expect 4
to 10 years of study to be required before a drug candidate reaches the IND stage. We believe that because we are working in the
infectious agents area, our studies will have objective response end points, and most of our human clinical studies will be of
relatively short duration. Our business plan is based on these assumptions. If we find that we have underestimated the time duration
of our studies, or we have to undertake additional studies, due to various reasons within or outside of our control, this will
grossly and adversely impact both our timelines and our financing requirements.
Results of Operations
The Company is a biopharmaceutical company
and did not have any revenue for the three-month periods ended September 30, 2017 and 2016.
Revenues
– The
Company is currently a non-revenue producing entity.
Research and Development Expenses
–
Research and development expenses for the three months ended September 30, 2017 decreased $296,909 to $1,155,228 from $1,452,137
for the three months ended September 30, 2016. This decrease in the cost of research and development is largely attributable to
a decrease in research and development payroll costs, lab supplies and materials Additionally, there were no new third party laboratory
agreements, or laboratory fees paid during the three months ended September 30, 2017.
General and Administration Expenses
– General and administrative expenses for the three months ended September 30, 2017 increased $86,906 to $1,075,218
from $988,312 for the three months ended September 30, 2016. The increase resulted primarily from an increase in other operating
expenses in general.
Interest Income
–
Interest income increased $10,218 to $24,394 for the three months ended September 30, 2017 from interest income of $14,176 for
the three months ended September 30, 2016. Interest income included interest on cash equivalent deposits in interest-bearing accounts
at market rates. The increase for the three months ended September 30, 2017 is due to increases in market rates offset by a decrease
in cash deposited in interest bearing accounts.
Interest Expense on Convertible Debentures
–
Interest expense decreased $120,000 to $125,000 for the three months ended September 30, 2017 from $245,000 for the three months
ended September 30, 2016. The decrease is a result of the repayment of the Company’s Series B debenture on February 8, 2017.
Other Expenses
–
Discount on convertible debentures for the three months ended September 30, 2017 decreased $164,111 to $239,351 from $403,462
for the three months ended September 30, 2016. The decrease for the three months resulted from the repayment of the Company’s
Series B Debenture in February 2017, offset by increased amortization of the discount on the Company’s Series C Convertible
Debenture as it nears maturity.
Other Income
–
Change in fair value of derivatives for the three months ended September 30, 2017 increased $551,557 to $564,848 from $13,291 for
the three months ended September 30, 2016. Change in the fair value of derivatives is a non-cash item estimate based upon certain
actuarial assumptions. See Footnote 7 to the Financial Statements.
Income Taxes
– There is no provision
for income taxes due to ongoing operating losses.
Net Loss
- For the three
months ended September 30, 2017, the Company had a net loss of ($2,005,555), or $ ($0.03) per share on a fully diluted basis compared
to a net loss of ($3,061,444) or ($0.05) per share on a fully diluted basis for the three months ended September 30, 2016. The
Company does not have any revenue and reports its operating and other expenses resulting in a net operating loss for the current
period. The net operating loss in the current period was less than the net operating loss for the three months ended September
30, 2016, due to a decrease in research and development expenses and an increase in the Change in fair value of derivatives.
Liquidity and Capital Reserves
The Company had cash and cash equivalents
of approximately $13,512,000 as of September 30, 2017 and accounts payable and accrued liabilities of approximately $125,000. The
Company had account payables due to a related party, TheraCour Pharma, Inc. of approximately $819,000. Our Series C Convertible
Debenture in the amount of $5,000,000 matures at June 30, 2018 unless extended.
Since inception, the Company has expended
substantial resources on research and development. Consequently, we have sustained substantial losses. The Company has an accumulated
deficit of approximately $77,134,000 at September 30, 2017.
Management believes that the Company’s
existing cash resources are sufficient for its operations at the current rate of expenditures to continue through November 2018.
However, management believes that the available funds are insufficient for the Company’s projected work, which is beyond
normal pre-clinical development operations, leading towards an Investigational New Drug Application (IND) filing with the U.S.
Food and Drug Administration (FDA), to continue through November 2018. The Company has engaged investment banks to advise it as
to raising further funding as the Company progresses towards human clinical trials. In addition, the Company is currently in negotiation
with the Holder of the Company’s Series C Convertible Debenture to extend the term of such Debenture. The Company believes
that it can adjust its business plan according to its available resources. Further, the Company believes that it will be able to
raise additional funding at an opportune time as it progresses towards human clinical trials. However, the Company cannot provide
assurance that its plans will not change or that changed circumstances will not result in the depletion of its capital resources
more rapidly than it currently anticipates. Further, the Company cannot provide assurances that it will be able to raise additional
funding in a timely manner, and if it can, that it will be on terms favorable for the Company’s current shareholders. The
accompanying unaudited financial statements do not include any adjustments that may result from the outcome of such unidentified
uncertainties.
While the Company continues
to incur significant operating losses with significant capital requirements, the Company has been able to finance its business
through sale of its securities. The Company has in the past adjusted its priorities and goals in line with the cash on hand and
capital availability. The Company believes it can adjust its priorities of drug development and its plan of operations as necessary,
if it is unable to raise additional funds. The Company has sufficient capital to continue its business for more than one year,
at the current rate of expenditure.
We anticipate undertaking additional expenditures
towards the goal of filing at least one Investigational New Drug application (IND) with the US FDA or another regulatory agency.
We anticipate that we will need to raise additional funds to support these activities as well as the human clinical trials that
would follow. Further development of other drug candidates in our drug pipeline will depend upon the availability of appropriate
levels of additional funding. The Company believes it will continue to be able to successfully raise financing as needed. If we
are unable to obtain additional financing, our business plan will be significantly delayed.
Our estimates for external costs are based
on various preliminary discussions and “soft” quotes from contract research organizations that provide pre-clinical
and clinical studies support. The estimates are also based on certain time estimates for achievement of various objectives. If
we miss these time estimates or if the actual costs of the development are greater than the early estimates we have at present,
our drug development cost estimates may be substantially greater than anticipated now. In that case, we may have to re-prioritize
our programs and/or seek additional funding.
The Company does not have direct experience
in taking a drug through human clinical trials. In addition, we depend upon external collaborators, service providers and consultants
for much of our drug development work.
The Company has limited experience with
pharmaceutical drug development. Thus, our budget estimates are not based on experience, but rather based on advice given by our
associates and consultants. As such these budget estimates may not be accurate. In addition, the actual work to be performed is
not known at this time, other than a broad outline, as is normal with any scientific work. As further work is performed, additional
work may become necessary or change in plans or workload may occur. Such changes may have an adverse impact on our estimated budget.
Such changes may also have an adverse impact on our projected timeline of drug development.
We believe that this coming year’s
work plan will lead us to obtain certain information about the safety and efficacy of one of the drugs under development in animal
models. If our studies are not successful, we will have to develop additional drug candidates and perform further studies. If our
studies are successful, then we expect to be able to undertake further studies in animal models to obtain necessary data regarding
the pharmaco-kinetic and pharmaco-dynamic profiles of our drug candidates, provided that appropriate levels of funding become available.
We believe this data will then enable us to file an Investigational New Drug Application, towards the goal of obtaining FDA approval
for testing the drugs in human patients.
Most pharmaceutical companies expect 4
to 10 years of study to be required before a drug candidate reaches the IND stage. We believe that because we are working in the
infectious agents area, our studies will have objective response end points, and most of our human clinical studies will be of
relatively short duration. Our business plan is based on these assumptions. If we find that we have underestimated the time duration
of our studies, or we have to undertake additional studies, due to various reasons within or outside of our control, this will
grossly and adversely impact both our timelines and our financing requirements.
Management intends to use capital and debt
financing, as required, to fund the Company’s operations. Management also intends to pursue non-diluting funding sources
such as government grants and contracts as well as licensing agreements with other pharmaceutical companies. There can be no assurance
that the Company will be able to obtain such additional capital resources or that such financing will be on terms that are favorable
to the Company.
Off Balance Sheet Arrangements
We have not entered into any off-balance
sheet arrangements during the three months ended September 30, 2017.