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, 2019. Readers should carefully review the
risk factors disclosed in this Form 10-Q, 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.
Recent Developments
NanoViricides is pioneering a unique platform
for developing anti-viral drugs based on the “bind-encapsulate-destroy” principles. Viruses would not be able to escape
a properly designed nanoviricide® drug by mutations because in doing so they would lose the ability to bind their cognate cellular
receptor(s) and thus fail to infect productively, becoming incompetent.
NanoViricides is one of a few bio-pharma
companies that possess its own facilities to support all of its drug development activities from discovery, optimization, pre-clinical
large scale production, to clinical cGMP production of its drug candidates. The Company fully owns its own lab and cGMP-capable
flexible custom manufacturing facility where any of our drug candidates can be produced in multi-kilogram quantities to support
corresponding IND-enabling tox package studies, initial human clinical trials, and possibly, initial revenue-generating commercialization
batches. This has enabled rapid translation of our first drug candidate to the IND application stage, saving years of manufacturing
translation and set-up activities, as well as saving several millions of dollars of external costs, while ensuring requisite quality
assurance, as compared to using a contract manufacturing organization (“CMO”) for our complex nanomedicine drugs. We
believe these benefits will continue to accrue as our first drug candidate goes through human clinical trials into commercialization,
and will also accrue for the multitude of candidates in our broad drug pipeline.
The Company’s Drug Programs in
Brief
Since its founding in 2005, the Company
has developed drug candidates against a number of different viruses. In particular, in the FluCide™ program, the Company
has previously demonstrated extremely high effectiveness in animal models against two unrelated influenza viruses, namely H1N1
and H3N2. In the HIVCide™ program, in the standard SCID-hy Thy/Liv mouse model of HIV infection, the Company’s drug
candidates were found to maintain viral load to the same level as an approved triple combination drug therapy, beyond 40 days after
the nanoviricide treatment was discontinued, although the combo therapy was continued daily. The Company intends to reactivate
these programs upon appropriate collaborations or funding. The Company has also demonstrated preliminary successes in developing
drug candidates against Dengue viruses, and Ebola virus, among others.
In December 2012, the Company purchased
at cost the nanomedicines research and cGMP production facility that was designed and built by Dr. Diwan, its co-founder, who had
used his personal funds and his privately raised financing. With this purchase, the Company became a unique company in the industry
with its own cGMP manufacturing capability, and end-to-end discovery-to-drug-product drug development capability that is rare in
the biopharma industry.
Since then, the Company has focused on
drug programs that it believes it can execute on with the limited financing that it believes it can bring in to support the projects.
Thus the Company decided to focus on the HerpeCide™ program. In particular, the Company decided to develop dermal topical
treatments (skin creams) for HSV-1 and HSV-2. When the Company’s internal research showed that, surprisingly, the same drug
candidates were effective against the VZV virus in cell culture, the Company extended the HerpeCide program to include VZV studies.
VZV is the cause of shingles and chickenpox. Further, the Company has also demonstrated that some of these drug candidates were
effective in viral-ARN (“Acute Retinal Necrosis”) in an animal model. Thus the Company has three immediate drug programs,
namely dermal topical treatments for HSV-1, HSV-2 and VZV, and two additional drug programs, namely eye drops for treatment of
Herpes Keratitis (an infection of the external eye), and intra-vitreal injection for the treatment of vARN, in the HerpeCide program
alone.
The Company intends to take the VZV (shingles)
treatment into clinical trials first, followed by topical treatment for HSV-1 and HSV-2. Additional indications for the same drugs
are expected to expand the pipeline wider. As these programs mature, the Company intends to re-engage its FluCide and HIVCide programs.
The market size for HerpeCide programs is in several tens of
billions of dollars because neither cures nor very effective treatments are available. Approved treatments have limited effectiveness,
demonstrating a significant unmet medical need. The market size for Influenza drugs is estimated to be in tens of billions of dollars
Based on data in a Jain PharmaBiotech report
prepared for the Company in March 2014, we believe the overall market size for the anti-viral market was $40 billion in 2018 and
may be $65.5 billion in 2023. We are seeking to add to our pipeline of drug candidates through our internal discovery pre-clinical
development programs and through an in-licensing strategy.
Thus the Company’s technology has substantial capabilities
and applications, and the potential to attack as-yet-unsolved problems caused by viral infection, and thus lead to a great health
benefit to individuals and societies. The Company has a bright future with expanding a pipeline, as we further the research programs
driving towards cures beyond our current objectives of effective treatments.
We have declared a clinical drug candidate,
namely, NV-HHV-101, with its first indication as the dermal topical treatment of shingles rash (as a skin cream), and we have had
a positive pre-IND application response from the US FDA for our drug development plan. This drug candidate in the stage of completing
the IND-enabling required safety/toxicology studies. These required studies which are prepared by external collaborators are substantially
completed, with some studies to be completed shortly.. We are receiving updates from the collaborators as they prepare draft of
results, and have been publishing these updates through the Company’s press releases. We are awaiting final cGLP reports
from these external collaborators. Once these reports are available to us, we will be able to complete the IND application for
submission to the US FDA. The Company is developing its clinical program for NV-HHV-101, formulated as a skin cream for topical
application, with the help of regulatory affairs experts from the Biologics Consulting Group, Inc., Alexandria, VA, and other industry
experts.
NV-HHV-101 has consistently shown strong
effectiveness as well as safety in human skin-based model of VZV infection. In cell culture studies, it was as much as five times
more effective than acyclovir, the current standard of care. Our anti-VZV drug candidates have also shown strong effectiveness
in studies involving VZV infection of human skin patches ex vivo. These studies were conducted by Professor Jennifer Moffat at
the SUNY Upstate Medical Center in Syracuse, NY, an internationally recognized expert on varicella-zoster virus (VZV) infection,
pathogenesis, and anti-viral agent discovery. Some of the earlier work was presented by the Moffat Lab at the 31st International
Conference on Antiviral Research held June 11 - June 15, 2018 in Porto, Portugal.
There is a significant unmet medical need
for the topical treatment of shingles rash. An effective therapy for shingles has been estimated to have a market size into several
billions of dollars, if it reduces PHN incidence. An effective therapy against shingles rash reduction alone is estimated to have
a market size of several hundred million dollars to low billion dollars. These market size estimates have taken into account the
potential impact of the new Shingrix® GSK vaccine and the impact of the existing Zostavax® vaccine. Of note, the Shingrix
vaccine has been found to cause significant, debilitating, side effects in as many as 15%-20% of the persons receiving it. Given
that shingles is not a life-threatening disease (except under certain conditions), the uptake of such a vaccine with high incidence
of adverse effects may be far more limited than what was originally estimated. Additionally, Shingrix is not yet widely available.
The Company is also developing drugs against
HSV-1 “cold sores” and HSV-2 “genital ulcers”, both based on the NV-HHV-101 drug candidate, although final
clinical candidates are in pre-clinical optimization stage for both of these indications as of now.
Existing drugs given orally or systemically
may not reach required concentrations at the site of shingles outbreak, limiting effectiveness. In addition, unlike HSV-1 and HSV-2,
VZV does not have an effective TK enzyme that is required for producing active drug forms from the acyclovir class of drugs (such
as Valtrex®), requiring frequent administration of very large doses to treat shingles. Additionally, a dermal topical cream
formulation of Cidofovir is employed in very severe cases of shingles. Cidofovir is highly toxic, particularly towards kidneys.
A safer, effective, drug is thus an unmet medical need for the treatment of VZV.
Zostavax and other attenuated VZV (Oka
strain) vaccines for chickenpox are available, but not widely adopted. These vaccines may lead to a less severe form of shingles
in adulthood or at a later age, compared to the “wild type” chickenpox virus (“rebound shingles”). A new
vaccine, Shingrix® has been introduced by GSK recently, based on subunits or protein fragments of the virus, which cannot lead
to rebound shingles, but suffers from a very severe side effects profile, and has limited availability at present.
While shingles presents with a debilitating
“pins-and-needles” pain associated with the characteristic rash that is self-limiting within 2-3 weeks in most patients,
in a substantial percentage of patients, it presents as a severe, debilitating disease that leads to complications including hospitalization(s)
and in some cases may result in extended treatments including subsequent surgeries.
Limiting initial viral load is expected
to minimize the occurrence of such complications, and is also expected to reduce the incidence of post-herpetic-neuralgia (“PHN”),
which is defined as persistent pain six months or longer after the initial rash has subsided. Thus, we anticipate that NV-HHV-101
would have significant impact in reducing PHN incidence rates. We anticipate extending the NV-HHV-101 indication to include PHN
after obtaining marketing approval for the first indication, namely effect on shingles rash.
The Company is pleased to note that it
has been executing on all milestones towards the IND filing for its first clinical candidate along a reasonable projected timeline,
and is doing so with highly conservative expenditures. These continuing developments are substantially dependent on external collaborations
as well as on continuing to achieve successful results.
On August 5, 2019, the Company reported that its first
drug candidate, NV-HHV-101, has been found to be safe and well tolerated in the clinical observation portion of the GLP
Safety/Toxicology study of NV-HHV-101 as a dermal treatment, and thus is on track with required preclinical GLP Safety and
Toxicology studies moving towards human clinical trials.
The in-life stage of the first part of the GLP studies is complete,
allowing assessment of clinical observations. The Company is waiting on the full histology studies to assess the effects of this
drug candidate on all primary organs. The study was conducted by BASi, Evansville, IN, a Contract Research Organization that specializes
in IND-enabling safety/toxicology studies.
The first of these GLP studies, a GLP safety and tolerability
study following dermal treatment, was conducted using minipigs, who received twice daily skin treatment for 28 days, at different
dosage levels. The animals were evaluated daily for general signs of toxicity including body weight, detailed clinical physical
observations as well as the specific evaluation of the skin treatment areas. Topical treatment of the skin at all doses was well
tolerated in all animals and all measured parameters remained within normal range in the study.
The Company has previously found that NV-HHV-101 was safe and
well tolerated in non-GLP safety/toxicology studies. The GLP studies are an expanded version of the non-GLP studies, with extended
treatment, larger number of subjects, and stringent operational requirements as specified by the current Good Laboratory Practices
guidelines for such studies.
Additional studies required for the Safety and Toxicology datasets
for filing an IND are in progress.
Of note, the cGMP-like manufacture of both the active pharmaceutical
ingredient (API, the nanoviricide against VZV), and the fully formulated skin cream (the drug product candidate), was accomplished
at our own facilities at ~1kg scale (API), saving us millions of dollars and at least one year’s worth of time, as opposed
to going to an external contract manufacturer. Approximately 10kg of fully formulated drug product has already been manufactured.
We believe this scale is sufficient for the requirements of Phase I human clinical trials.
The Company is currently performing additional analytical tests
development, documentation development, as well as process systems development to set up manufacture as per the requirements of
cGMP manufacture for Phase I human clinical trials, in our own facilities. Simultaneously, we are scaling up manufacture to ~2kg
of API per batch, which would be sufficient for production of anywhere from 40~ 200kg of the final skin cream (assuming 5%~1% API).
The Company has now demonstrated that it has unique expertise
in the industry of performing cGMP manufacture of complex nanomedicine drugs, including cGMP manufacture of (a) drug substance
from simple chemical starting materials, (b) the formulated drug product, and (c) the final packaged drug.
This establishment and execution of cGMP manufacturing is an
extremely significant milestone for the Company. Our current multi-kg per batch scale of cGMP manufacturing capacity is expected
to be more than sufficient for the anticipated Phase I and Phase II human clinical trials. In addition, we believe that our facility
can supply required quantities of the drug for Phase III clinical trials as well. Thus, this in-house cGMP production capability
is expected to result in significant cost savings across all our programs.
Manufacture of nanomedicines, especially under cGMP conditions,
has been identified as a strong risk, and has led to failure of several nanomedicines programs. NanoViricides co-founder Dr. Diwan
and his team have employed considerations for cGMP manufacture of our nanomedicines right from the design, development and optimization
of the drug candidates, the polymers and ligands that go into them, as well as the processes employed right from the small research
scale to the initial process verification batches. The rapid success of translating the research scale production of several grams
drug substance in early CY-2018 to kg-scale cGMP manufacture in early CY-2019 was a result of the tremendous subject matter expertise
of the team. External contract manufacturing organizations would likely have required at least three years to scale up these complex
products, based on certain discussions we have had.
The Company has previously found that dermally
applied nanoviricide drug candidates in the HerpeCide program led to full survival of lethally infected animals in a severe infection
with the highly pathogenic, neurotropic strain of HSV-1, namely H129c. Thus the nanoviricide drug candidates applied topically
appear to demonstrate strong efficacy. Topical application has the advantage of being able to deliver very high drug concentrations
locally to completely eradicate the virus. In contrast, the local concentrations and therefore effectiveness of orally delivered
medications is limited by the toxicity and bioavailability of the oral drug, as is known for the existing antiviral therapies for
HSV-1, HSV-2, and VZV. Therefore, treating the HSV-1 cold sores, HSV-2 genital ulcers, or VZV chicken pox lesions or shingles rash
using dermal topical creams is expected to be highly beneficial.
NV-HHV-101 is a broad-spectrum nanomedicine
designed to attack herpesviruses that use the HVEM (“herpesvirus entry mediator”) receptor on human cells. This drug
candidate is composed of a flexible polymeric micelle “backbone” to which a number of small chemical ligands are chemically
attached. The ligands in this case are designed to mimic the binding site of the herpesviruses on HVEM, based on molecular modeling.
NV-HHV-101 is expected to bind to VZV (or HSV-1 or HSV-2) virus particle via a number of binding sites (i.e. the ligands), thereby
encapsulating the virus particle and destroying its ability to infect human cells. This “Bind, Encapsulate, Destroy”
nanoviricide® strategy is distinctly different from the mechanism of action of existing antiviral drugs against VZV, HSV-1,
and HSV-2.
NanoViricides’ platform technology
and programs are based on the TheraCour® nanomedicine technology of TheraCour Pharma, Inc.(“TheraCour”) NanoViricides
holds licenses for developing drugs against several different viruses from TheraCour, including HSV-1 and HSV-2.
On November 1, 2019, the Company executed
an agreement with TheraCour and obtained a world-wide, exclusive, sub-licensable, license to use, promote, offer for sale, import,
export, sell and distribute drugs that treat VZV infections, using TheraCour’s proprietary as well as patented technology
and intellectual property. The discovery of ligands and polymer materials as well as formulations, the chemistry and chemical characterization,
as well as process development and related work will be performed by TheraCour under the same compensation terms as prior agreements
between the parties, with no duplication of costs allowed.
NanoViricides will not pay any upfront
licensing fee under the Agreement. The Company will will be required to pay a first milestone payment to TheraCour upon the grant
of approval of an Investigational New Drug application (“IND”), of 75,000 shares of the Company’s Series A preferred
stock. A second milestone payment will be due upon completion of Phase I human clinical trials in the cash amount of $1.5 million.
A third milestone payment will be payable to TheraCour upon completion of Phase II human clinical trials in the cash amount of
$2.5 million, and a fourth milestone payment will be due upon completion of Phase III human clinical trials in the cash amount
of $5 million. However, NanoViricides shall have no obligation to continue clinical trials beyond Phase I.
Upon commercialization, NanoViricides will
pay royalties of 15% of net sales to TheraCour, as defined in the Agreement. The Agreement contemplates that the parties will enter
into a separate Manufacturing and Supply Agreement for the commercial manufacture and supply of the drug products if and when NanoViricides
intends to engage into commercialization of the drugs. The Agreement provides that the Manufacturing and Supply agreement would
be on customary and reasonable terms, on a cost-plus basis, using a market rate based on then-current industry standards, and include
customary backup manufacturing rights.
To assist in the analysis of the terms
of the Agreement, NanoViricides commissioned research reports on VZV drug market sizes for the VZV field from two different, independent,
consulting agencies, namely, Nanotech Plus, LLC, and BioEnsemble LLC. Additionally, the Company obtained business analysis and
valuation reports for potential licensing terms for a VZV shingles drug from BioEnsemble LLC, using multiple different market scenarios,
that accounted for the introduction of the Shingrix® GSK vaccine for VZV. Dr. Carolyn Myers, Principal of Bioensemble LLC,
has over 25 years of experience in licensing and negotiations, drug development and commercialization from Startups, small-, mid-
and large- Pharma, having acted in very senior business development roles from both sides of the equation. NanoViricides was represented
by McCarter & English, LLP while TheraCour was represented by DuaneMorris LLP.
The anti-VZV drug development program has
moved rapidly towards clinical candidate declaration stage because of several factors, namely (a) that it was simply the existing
HSV-1 drug program in which the existing candidates were re-tested for effectiveness against VZV, (b) that we have had a highly
successful collaboration with Dr. Moffat Lab at SUNY Syracuse with rapid turnaround times, and (c) the drug candidates were found
to be highly effective against VZV in these studies.
Thus the Company has been executing rapidly
and efficiently, as well as in a cost-effective and productive manner, towards its goal of advancing the first drug candidate into
human clinical trials as soon as possible. We believe that taking our first drug candidate into initial human clinical trials will
be a very important milestone in that it would essentially validate our entire platform technology as being capable of producing
drug candidates worthy of human clinical trials, and potentially of success in those clinical trials.
While the Company has been focused on cGMP
production, scale-up, and establishment of required characterization and analytical tools, the Company had not raised any additional
capital since mid-2014, except for conversion of certain convertible debt instruments into equity, and a Registered Direct Offering
in February, 2019 that netted approximately $2.3 million. We have brought down our cash expenditure rate significantly, to approximately
$1.6 million per quarter by reducing our workforce and by stopping work on all other programs except the HerpeCide program.
As of September 30, 2019, the Company
had approximately $.9 million of cash and cash equivalents plus $221,000 of pre-paid expenses in hand. In addition, the Company
has property and equipment with a carrying value of approximately $10 million after depreciation, comprised of our cGMP manufacturing
and R&D lab facilities in Shelton, CT, and certain specialized lab equipment units.
The Company believes that it will
need to raise additional capital by way of equity, debt, debentures, or other methods, to support the upcoming clinical
trials and operational expenses. The Company currently has a commitment from a related party for a bridge loan of up to $1
million until additional financing is obtained or for a term of up to one year. In addition, the Company is in discussions
regarding freeing up its fixed capital for use as working capital by obtaining a mortgage secured by our cGMP manufacturing
and R&D lab facility in Shelton, CT. The Company is also pursuing additional equity-based transactions. Based on our
current discussions, we believe that we will be successful in obtaining the required financing to be able to continue our
programs to file our first IND application and initiate human clinical trials. However, there can be no assurance that any of
these commitments or discussions will result in actual financing at this time or that such financing would be on terms that
are favorable to the Company. If the Company cannot raise the additional financing, our business plan will need to be
significantly restructured.
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 by viral mutations
since they continue to bind to the same cellular receptor and thus would be captured by the nanoviricide. Virus escape by mutations
is a major problem in the treatment of viral diseases using conventional drugs.
The Company develops its class of drugs,
that we call nanoviricides®, 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 almost exclusively
on the HerpeCide™ program, given our budgets and current financial condition.
We currently have at least 9 different
drug development programs, attesting to the strength of our platform technology. Of these, 5 of the indications are under the HerpeCide™
program. We are currently working on 3 of these indications (VZV, HSV-1 and HSV-2) in parallel, as explained below (priority level
1). The HK program and v-ARN program (see below) are at a lower priority level. In addition, we continue to work on the FluCide™
program at the lower priority 3. HIVCide™ program is at priority level 4. We will continue to seek funding for further development
in the remaining programs, namely Dengue and Ebola/Marburg antivirals.
The potential broad-spectrum nature of
our anti-HSV drug candidates is enabling several anti-Herpes indications under our HerpeCide™ program. Of these, the (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, and (iii) skin cream for the treatment of
genital herpes caused by HSV-2.
In addition, a fourth indication, (iv)
ocular eye drops treatment for external eye herpes keratitis (HK), caused by HSV-1 or HSV-2, is expected to follow into further
drug development. Further, we have 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 market size for an effective anti-shingles
drug is currently estimated to be in the range of several billions of dollars, even after a new shingles vaccine, Shingrix®
(GlaxoSmithKline) has been approved, based on a report performed for the Company by Dr. Myers of BioEnsemble, LLC, pharma industry
consultants, commissioned by the Company. The current vaccine for prevention of chicken pox in children, i.e. the varicella vaccine,
is based on the live attenuated virus derived from the Oka strain. Un-vaccinated children usually develop chicken pox at some point
in their childhood, and the wild-type virus then remains latent in their bodies, in nerve ganglia. Similarly, Varicella vaccinated
children may develop mild syndrome when vaccinated and the weakened Oka strain remains latent in their bodies, All of these children
can develop shingles later in life. It is generally believed that the intensity of such disease would be much less severe with
the weakened vaccine strain than with the natural or wild type strain. Nevertheless, the severity of the symptoms and overall effects
depend upon the immune status of the individual. Pre-vaccination era, (i.e. before varicella vaccination was widely adopted in
the USA), there were 3-4 million cases of chicken pox per year (matching the birth rate). Post-vaccination era, this rate has dropped
to about 120,000-150,000 cases in the USA. However, in several developing and underdeveloped countries, the rates of chicken pox
remain high due to limited access to the vaccine or limited adoption of the vaccine. As stated earlier, nearly every person may
be expected to get shingles at some point in their lives, with varying severity. A preventive vaccine for adults, namely Zostavax®
is available, based on the attenuated Oka strain. Its effectiveness is variously estimated at around 60-70%. Its coverage remains
low, as most people do not get this vaccine. Shingrix is a subunit vaccine, that is, it does not contain intact living virus particles
but only certain proteins derived from the virus. As such, it is expected to not have the issue of “breakthrough disease”
which occurs when the live latent virus from the vaccine itself causes disease. However, Shingrix has significantly greater severe
side-effects than Zostavax in more than 10-15% of the persons taking it. This may keep its adoption rate much lower than expected
by the manufacturer GSK. Currently, Shingrix is unavailable in most markets because the manufacturer has apparently not scaled
up production more than one year since its introduction. Thus it appears that a significant market would continue to exist for
an anti-shingles drug, at least for several years.
More specifically, the report estimated
that the anti-shingles drug candidate could reach peak annual sales of as much as $2 billion, depending upon the effectiveness
determined in clinical trials, at an assumed 50% market penetration, if it is effective in reducing incidence of post-herpetic
neuralgia (PHN). Based on current pre-clinical data, we believe that there is a very strong probability that the shingles treatment
would significantly minimize the shingles pain, accelerate healing, and minimize nerve damage, thereby minimizing the occurrence
and severity of post-herpetic neuralgia (PHN). Our pre-clinical drug design efforts have been aimed at developing a treatment for
shingles that would have pain reduction effects as well as healing effects on skin.
Initially, we plan on performing clinical
trials based on VZV related biomarkers and clinical pathology, which we believe would be sufficient for a first indication for
approval of the drug for treatment of shingles by the US FDA. Sales of an effective drug against shingles with this limited indication
are projected to reach several hundreds of millions of dollars. We plan on performing observations regarding PHN in these clinical
trials so that an informed PHN clinical trial may be performed later to extend the drug indication.
We have developed strong chemical manufacturing
process controls that enable us to produce the backbone polymers with highly restricted and reproducible molecular size range.
In fact, we have achieved highly reproducible and scalable processes that have yielded the same polymer molecular sizes across
production scales from 10g to 500g. In other words, we are now able to control the length of the backbone polymer to within one
monomer unit, irrespective of production scale, at least up to about 1 kg scale.
We believe that this is a remarkable and
possibly unmatched achievement in the field of nanomedicines. We have scaled up the production of the polymer backbone “nanomicelle”
to kilogram scales, and do not anticipate any manufacturing constraints at present. We have also achieved kilogram-scale manufacture
of the ligand in NV-HHV-101, and have further scaled up production of the nanoviricide NV-HHV-101, which is chemical conjugate
of the ligand to the nanoviricide, in a well defined manner to kilogram scale. Additionally we have scaled up formulation of the
resulting drug substance into the skin cream to multi-kilogram scales. The production of the drug substance and the drug product
is achieved in a cGMP compatible fashion at our own facility.
Our polymer backbone itself is designed
based on the route of application. In the case of the shingles drug candidate, as well as for HSV-1 cold sores, and for HSV-2 genital
ulcers, the route is dermal topical application.
The ligands currently in use for the nanoviricide
drug candidates against VZV shingles were actually developed using computer models of HSV binding to its cellular receptor, and
not against VZV itself. Our program shifted to advance a VZV candidate as our first indication due to various considerations that
led to the prioritization of the different drug indications. The Company identified certain advantages that would enable earlier
entry into clinical trials for the shingles candidates. The shingles drug development program has been moving rapidly primarily
because of the quick turnaround time and high responsiveness of the Dr. Moffat Lab at SUNY Syracuse, our critical collaborator
for human skin effectiveness studies of our drug candidates.
One of the advantages of the shingles program
is that the pre-clinical drug development is performed directly in a human skin model, bypassing any animal model, providing significant
confidence that a human clinical studies outcome would parallel the preclinical study outcome. VZV does not infect animals other
than humans.
Thus, we have made significant and
substantial progress in the reporting quarter towards the goal of filing our first IND application, and we continue to build on
this progress.
In addition to VZV, we are also developing
dermal topical drugs against HSV-1 cold sores and HSV-2 genital ulcers. Dr. Brandt’s Lab at CORL, the University of Wisconsin,
Madison, WI, is validating animal models for the study and evaluation of relative efficacies of different treatments for HSV-1
infection in mice as well as for HSV-2 infection in mice. The goal of these developments is to develop animal models that would
be able to discriminate an experimental drug that is more effective than the current standard of care drugs, from the standard
of care. At present the existing animal models show maximal effectiveness with the standard of care and therefore cannot discriminate
a drug that might be superior. If their animal models are successful in differentiating effectiveness of different drug candidates,
then we will be able to evaluate our drug candidates for the treatment of HSV-1 cold sores as well as for the treatment of HSV-2
genital ulcers, in addition to the VZV testing being performed.
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 ocular herpes per year are reported in
the United States alone, and in a small proportion of the patients, the disease escalates to v-ARN. We anticipate that ocular herpes
or 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.
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 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 are 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.
Our current development has focused on
API suitable for formulating into a skin ointment for the treatment of VZV shingles, HSV-1 cold sores, or HSV-2 genital ulcers.
As these drug candidates advance further, we plan on performing fully integrated drug development for developing eye drops for
treatment of external eye infections such as herpes keratitis (a disease of the external eye). Thereafter we plan on undertaking
the development of suitable materials for intravitreous or sub-retinal injections for the treatment of certain viral diseases involving
the retina.
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, such as occurs in diabetics. 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.
External eye 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.
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 estimates of incidence rates 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 drop formulations 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, and reduction in shingles related PHN.
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 (varicella
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 five topical indications, namely, (a) shingles, (b) oral herpes
(“cold sores”), (c) genital herpes, (d) herpes keratitis (external eye infection), and (e) ocular herpes including
v-ARN (internal eye infection). 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 clinical trials for the treatment of shingles by Bristol-Myers Squibb, and later by Contravir.
FV-100 works only against VZV and does not work against other herpesviruses. A Phase 3 study with PHN as end-point was completed
in November 2017. Further development appears to have been stopped for FV-100.
There is also a new preventive vaccine
for shingles, “Shingrix”. 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, even with a successful introduction of this vaccine. The Shingrix
vaccine has been recently also been shown to produce adverse effects such as painful injection site reactions and pain in a significant
number of patients. Local application of a nanoviricide drug 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. Brincidofovir (CMX001) is being developed by Chimerix. It failed in a Phase 3 clinical trial for hCMV in organ
transplants, and its Phase1/2 clinical trial for HSV in neonates was withdrawn recently. Cidofovir is a known highly effective
but also toxic, broad-spectrum nucleoside analog drug that was modified with a lipidic chain structure to create brincidofovir.
Pritelivir, by AiCuris, is a DNA Helicase/Primase inhibitor (HSV-1 and HSV-2) that has successfully completed certain Phase 2 clinical
trials, and its indication in immune-compromised patients has received a fast track status from the US FDA. Letermovir (Merck/AiCuris),
a terminase complex inhibitor, is effective only against hCMV and has entered a Phase 3 clinical study in kidney transplant patients.
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.
We believe that when effective topical
treatments against VZV shingles, HSV-1 cold sores and HSV-2 genital ulcers are introduced, their market sizes are 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.
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-shingles and anti-Herpes-virus programs. In particular, we
have focused on a work plan towards our clinical development candidate for the topical skin ointment for the treatment of shingles
rash, namely, NV-HHV-101. Because of the broad-spectrum nature of our anti-herpes drug candidates, we have also simultaneously
continued further development of our drug candidates for four additional indications in the HerpeCide™ project, namely, cold
sores, genital ulcers, and external ocular viral infections. We have prioritized our resources with the goal of filing our first
IND in the shortest possible timeframe.
The Company has continued the development
of anti-HSV-1 and anti-HSV-2 drug candidates, and has tested the same against VZV in cell cultures, in addition to against HSV-1
and HSV-2. Since the candidates showed preliminary efficacy against VZV as well, the Company added shingles as an additional indication
to pursue under the HerpeCide™ program.
Our earlier animal studies for efficacy
testing of HSV-1 drug candidates in a mouse dermal model of the infection were performed by Professor Ken Rosenthal’s Lab
at NEOUCOM/NEOMED. Professor Rosenthal has retired and his lab has closed.
We therefore engaged Dr. Brandt’s
Lab at CORL, University of Wisconsin, Madison, WI, to further develop their animal models of dermal HSV-1 and HSV-2 infections
in mice and to make them suitable for screening of drugs for relative efficacy. They are working on validating their HSV-1 mouse
model for discriminative efficacy of different existing drugs. Once they can establish that the model distinguishes different effective
drugs, we will be able to use the model for testing our HerpeCide drug candidates against HSV-1, and optimizing the same only if
necessary. Following HSV-1 model development, we have commissioned Dr. Brandt’s Lab to perform similar studies for their
HSV-2 genital infection mouse model as well. Dr. Brandt’s Lab also developed the mouse model of viral Acute Retinal Necrosis
(v-ARN) caused by HSV-1 that we have tested some of our drug candidates in as reported elsewhere.
Based on our discussions with our regulatory
advisors and consultants that indicated that the shingles drug candidate would be likely to reach the human clinical evaluation
phase earliest compared to the other drug candidates we have focused on the treatment of shingles rashusing our skin cream formulation
of NV HHV-101 as the lead drug candidate . 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.
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 in April 2015, from Professor Emeritus Ken Rosenthal’s lab at NEOMED, and in August 2015, from TransPharm Preclinical
Solutions, LLC, Jackson, MI (TransPharm), 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. 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 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 intends to re-engage its anti-influenza
drug candidates upon sufficient financing or upon achieving grants or collaborations for the same. We are 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. Development of an anti-Influenza drug candidate
has been estimated to be an extremely expensive process with a long drug development timeframe. This is because of the large number
of virus types and subtypes that change rapidly within and over seasons. The Company at present does not have the resources to
engage into a full-fledged anti-Influenza drug development program. Additionally, Xofluza®, a new drug with a novel mechanism
of action (an endonuclease inhibitor) was very recently approved in the USA (Roche/Genentech). While it reduced viral load significantly
in clinical trials, it did not have a significant effect on the time course of the clinical pathology of influenza infection in
the clinical trials that led to its approval. Xofluza is approved for uncomplicated influenza. Information on its usage and effectiveness
in the field in the current influenza seasonal cycle in the USA is not yet available. All of the current influenza drugs, including
Xofluza have resulted in mutated influenza viruses that are drug-resistant.
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.
Because of our limited resources, we have
now 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).
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
Our campus at Shelton, CT, is fully
operative. With our R&D discovery labs, Analytical Labs, the Bio labs for virology R&D, the Process Scale-Up production
facility, and the cGMP-capable manufacturing facility established at our new Shelton campus, we are in a strong position than ever
to move our drug development programs into the clinic rapidly. Staff is being trained to achieve full cGMP compliance to support
clinical trial manufacture.
Process Scale-Up Production Capability
The Process Scale-up area is operational
at kilogram to multi-kg scales for different chemical synthesis and processing steps now. It comprises reactors and process vessels
on chassis or skids, ranging from 1L to 50L capacities, as needed. Many of the reactors and vessels have been designed by us for
specific tasks related to our unique manufacturing processes.
cGMP Production Capability
Our versatile, customizable cGMP-capable
manufacturing facility is designed to support the production of multi-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 plan to produce multiple batches of
a drug product and satisfy that said drug product is within our own defined specifications. If 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 suite 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. Our current staff is busy developing our pre-clinical
HerpeCide programs. Given our limited financing, we have not been able to attract the necessary talent for replacing the lost staff
and for building out additional resources for QA/QC. We are working with available staff, training them further in cGMP requirements
and operations, as well as in QA/QC. This inherently leads to serialization of efforts, and can lead to extending the timeline.
We have been working diligently to meet our goals in the shortest timeframe possible given these constraints.
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
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 established several different
types of assays for screening of candidates against VZV, HSV-1 and HSV-2 in our lab, and is 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 and accelerated 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.
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 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
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 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.
We have engaged contracted NorthEast BioLab,
Hamden CT, to conduct the bio-analytical studies and facilitate the toxicokinetic analyses of NV-HHV-101. These studies and analyses
are part of the required general safety and toxicology studies that will go into an IND Application to the US FDA. NorthEast BioLab
has already performed the bio-analytical assay development and validation and is in the process of determining the concentrations
of NV-HHV-101 in blood samples from the general safety and toxicology studies that are required for IND.
We also engaged MB Research Labs, Spinnerstown,
PA, to conduct the studies to assess the dermal sensitization and ocular irritation potential of the drug candidate. These initial
studies involve two separate types of studies: 1) Assess the direct potential of the drug candidate to induce skin sensitization
after repeated treatment of the skin (contact dermal sensitization); and 2) Assess the potential of the drug candidate to cause
ocular irritation following potential exposure. The ocular irritation test (EpiOcularTM Eye Irritation Test, EIT) is
a non-animal test in compliance with multi-national regulatory guidelines. Additional IND-enabling studies are in progress. Upon
completion of all of these required studies, the Company anticipates filing an IND with the US FDA to advance NV-HHV-101 into human
clinical trials for topical dermal treatment of the shingles rash as the initial indication.
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. Our lead program, NV-HHV-101 skin cream for the treatment of shingles rash, is in
advanced pre-clinical stage, as we await final reports from external collaborators to produce and file the IND application with
the US FDA. All of our remaining drug development programs are presently at pre-clinical or advanced pre-clinical stage.
Patents, Trademarks, Proprietary
Rights: Intellectual Property
The nanomedicine technologies licensed
from TheraCour Pharma, Inc. (“TheraCour”) serve as the foundation for our intellectual property. NanoViricides 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-1 and HSV-2), Influenza and Asian Bird Flu Virus. The Company has entered into
an Additional License Agreement with TheraCour granting NanoViricides 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.
In addition, on November 1, 2019, NanoViricides
entered into a world-wide, exclusive, sub-licensable, license to use, promote, offer for sale, import, export, sell and distribute
drugs that treat Varicella Zoster Virus (“VZV”) infections, using TheraCour’s proprietary as well as patented
technology and intellectual property. The discovery of ligands and polymer materials as well as formulations, the chemistry and
chemical characterization, as well as process development and related work will be performed by TheraCour under the same compensation
terms as prior agreements between the parties, with no duplication of costs allowed. The Company was not required to make any upfront
payments to TheraCour and agreed to the following milestone payments to TheraCour; the issuance of 75,000 shares of the Company’s
Series A Convertible Preferred Stock upon the grant of an IND Application; $1,500,000 in cash upon completion of Phase I Clinical
Trials; $2,500,000 in cash upon completion of Phase II clinical trials; and $5,000,000 in cash upon completion of Phase III clinical
trials.
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, unless there is an event of default, in which case the License would revert to
TheraCour, 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. 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, in the case of the VZV license a failure to make a
milestone payment within 90 days or a failure to use its commercially reasonable efforts to obtainFDA approval for 24 consecutive
months.
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 who 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.
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, would 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.
The estimated expiry date for HerpeCide
patents, if and when issued, would be no earlier than 2038. 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 compounds on or
about when the drug candidates are entering human clinical trials, depending upon prevailing considerations regarding the confidentiality
of the information.
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, 2019, we had cash and
cash equivalents of $874,953, prepaid expenses of $220,795 and net property and equipment of $10,058,575. Accounts payable and
accrued expenses were $1,432,433, inclusive of account payables of $714,417 to a related party. At September 30, 2019, we reported
a derivative liability of $1,224,079 arising from warrants issued in conjunction with a registered direct offering. Stockholders’
equity was $9,129,783 at September 30, 2019.
In comparison, as of June 30, 2019, we
had cash and cash equivalents of $2,555,207, $270,214 in prepaid expenses, and net property and equipment of $10,227,247. Accounts
payable and accrued expenses were $1,202,547 and current derivative liability-warrants was $1,645,006. Stockholders’ equity
was $10,600,360 at June 30, 2019.
During the three-month period ended
September 30, 2019 we used approximately $1,434,000 in cash toward operating activities. During the three-month period ended
September 30, 2018 we used approximately $962,000 in cash toward operating activities. We do not anticipate any major capital
costs going forward in the near future.
The Company believes that our spending
continues to be in line with our estimates. Management is actively exploring additional required funding through debt or equity
financing pursuant to its plan. There is no assurance that the Company will be successful in obtaining sufficient financing on
terms acceptable to the Company to fund continuing operations. Management believes that it will have to raise additional capital
to fund and perform additional projected work, which is beyond normal pre-clinical development operations, leading towards an IND
Application filing with the U.S. Food and Drug Administration (FDA), to continue.
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. 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.
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 enable us to file an IND, towards the goal of obtaining FDA approval for testing the drugs in human patients.
Results of Operations
The Company is a biopharmaceutical company
and did not have any revenue for the three-month periods ended September 30, 2019 and 2018.
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, 2019 increased $70,922 to $1,482,405 from $1,411,483
for the three months ended September 30, 2018. The increase in the cost of research and development for the three months ended
September 30, 2019 is largely attributable to an increase in outside laboratory fees to collaborators. The increased expenses were
offset by a decrease in lab supplies and materials during the three-month period ended September 30, 2019.
General and Administration Expenses –
General and administrative expenses for the three months ended September 30, 2019 decreased $122,143 to $505,472 from $627,615
for the three months ended September 30, 2018. The decrease in expenses during the three month period ended September 30, 2019
compared to the prior period resulted primarily from decreases in officers compensation arising from the resignation of the Company’s
former Chief Executive Officer and travel costs offset by an increase in professional fees, insurance costs and operating expenses
in general.
Interest Income –
Interest income decreased $16,867 to $5,217 for the three months ended September 30, 2019 from $22,084 for the three months ended
September 30, 2019. The decrease is due to a decrease in the cash and cash equivalents.
Change in fair value of derivative –
Change in fair value of derivative for the three months ended September 30, 2019 increased $245,976 to $421,527 from $175,551 for
the three months ended September 30, 2018.
Income Taxes –
There is no provision for income taxes due to ongoing operating losses.
Net Loss - For
the three months ended September 30, 2019, the Company had a net loss of ($1,561,133), or ($0.41) per share on a fully
diluted basis compared to a net loss of ($1,841,463) or ($0.53) per share on a fully diluted basis for the three months
ended September 30, 2018. The decrease in the net loss for the three-months ended September 30, 2019 is attributable mainly
to an increase in the Change in fair value of derivatives of $245,976 and a decrease in operating expenses of $51,221.
Additionally, the cost of compensation paid in Company securities was reduced.
Liquidity and Capital Reserves
The Company had cash and cash equivalents
of $874,953, and prepaid expenses of $220,795, as of September 30, 2019, accounts payable and accrued expenses were $1,432,433,
inclusive of account payables of $714,417 to a related party. At September 30, 2019, we reported a derivative liability of $1,224,079
arising from warrants issued in conjunction with a registered direct offering. 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 $93,678,000 at September 30, 2019. Such losses are expected to continue for the foreseeable future and until such
time, if ever, as the Company is able to attain sales levels sufficient to support its operations. There can be no assurance that
the Company will achieve or maintain profitability in the future. As of September 30, 2019, the Company had available cash and
cash equivalents of approximately $.9 million. These factors raise substantial doubt about the Company’s ability to continue
as a going concern.
Management adjusted its planned expenditures,
activities, and programs, in accordance with budgetary constraints and in accordance with its expectations of obtaining additional
financing.
The Company has made several adjustments
to its past expenditures in the ensuing annual budget, eliminating several expenses including a reduction in workforce and consultants
to the extent feasible without affecting its program of drug development. In addition, the Company has focused its efforts primarily
on a single lead program to minimize cost outlays, namely, taking the shingles drug candidate against VZV into human clinical
trials. Management’s budget indicates that these changes have freed up sufficient funds to allow for the costs of the external
advanced IND-enabling studies of this drug candidate. Management has considered several options for financing the net working
capital deficit as well as to obtain additional funds that will be needed for future human clinical trials. The Company is also
evaluating the possibility of obtaining a mortgage on its fully owned cGMP-capable laboratory facility in Shelton, CT, in order
to free up a portion of the fixed capital for usage as liquid working capital.
We will be required to raise
additional funds. To this end, the Board of Directors agreed to engage Maxim Group, LLC, in July 2019 and filed a
registration statement on Form S-1 for follow-on public offering with the SEC on September 27, 2019. The Company performed a
20-for-1 reverse split of our capital stock which was effective on September 24, 2019. While there have been no fundamental
changes in the Company’s business or drug development programs, the stock price declined further, trading well below
the Company’s balance sheet value including fixed assets. The engagement of Maxim Group expired on October 31, 2019,
and was not extended and the registration statement was withdrawn on November 5, 2019.
On
November 7, 2019, the Company engaged Aegis Capital Corp to continue the offering. The amount of any capital raise is
dependant upon and subject to the Company’s stock price and market conditions.
Management is actively exploring additional
required funding through debt or equity financing pursuant to its plan. There is no assurance that the Company will be successful
in obtaining sufficient financing on terms acceptable to the Company to fund continuing operations. Management believes that the
results of the management plan, the Company’s existing resources and access to the capital markets will permit the Company
to fund planned operations and expenditures. The Company believes that it will need to raise additional capital by way of equity,
debt, debentures, or other methods, to support the upcoming clinical trials and operational expenses.
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 continue as a going concern
or 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 will continue to adjust its priorities of drug development and its plan of operations as necessary, if it is unable
to raise sufficient funds for its multiple drug programs.
We anticipate undertaking additional expenditures
towards the goal of filing at least one 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.
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, 2019.