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our expectations concerning product candidates for our technologies;
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our expectations concerning existing or potential development and license agreements for third-party collaborations and joint ventures;
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our expectations of when different phases of clinical activity may commence;
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our expectations of when regulatory submissions may be filed or when regulatory approvals may be received; and
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our expectations of when commercial sales of our products may commence and when actual revenue from the product sales may be received.
Any or all of our forward-looking statements may turn out to be wrong. They may be affected by inaccurate assumptions that we might make or by known or unknown risks and uncertainties. Actual outcomes and results may differ materially from what is expressed or implied in our forward-looking statements. Among the factors that could affect future results are:
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the inherent uncertainties of product development based on our new and as yet not fully proven technologies;
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the risks and uncertainties regarding the actual effect on humans of seemingly safe and efficacious formulations and treatments when tested clinically;
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the inherent uncertainties associated with clinical trials of product candidates;
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the inherent uncertainties associated with the process of obtaining regulatory approval to market product candidates; and
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the inherent uncertainties associated with commercialization of products that have received regulatory approval.
Additional factors that could affect future results are set forth below under Item 1A. Risk Factors. We caution investors that the forward-looking statements contained in this Report must be interpreted and understood in light of conditions and circumstances that exist as of the date of this Report. We expressly disclaim any obligation or undertaking to update or revise forward-looking statements made in this Report to reflect any changes in management's expectations resulting from future events or changes in the conditions or circumstances upon which such expectations are based.
Part I
Item 1. Business.
General
We were incorporated in Delaware in September 1997 for the purpose of acquiring Generex Pharmaceuticals Inc., a Canadian corporation formed in November 1995 to engage in pharmaceutical and biotechnological research and development and other activities. Our acquisition of Generex Pharmaceuticals was completed in October 1997 in a transaction in which the holders of all outstanding shares of Generex Pharmaceuticals exchanged their shares for shares of our common stock.
In January 1998, we participated in a "reverse acquisition" with Green Mt. P. S., Inc., an inactive Idaho corporation formed in 1983. As a result of this transaction, our shareholders (the former shareholders of Generex Pharmaceuticals) acquired a majority (approximately 90%) of the outstanding capital stock of Green Mt., we became a wholly-owned subsidiary of Green Mt., Green Mt. changed its corporate name to Generex Biotechnology Corporation ("Generex Idaho"), and we changed our corporate name to GB Delaware, Inc. Because the reverse acquisition resulted in our shareholders becoming the majority holders of Generex Idaho, we were treated as the acquiring corporation in the transaction for accounting purposes. Thus, our historical financial statements, which essentially represented the historical financial statements of Generex Pharmaceuticals, were deemed to be the historical financial statements of Generex Idaho.
In April 1999, we completed a reorganization in which we merged with Generex Idaho. In this transaction, all outstanding shares of Generex Idaho were converted into our shares, Generex Idaho ceased to exist as a separate entity, and we changed our corporate name back to "Generex Biotechnology Corporation." This reorganization did not result in any material change in our historical financial statements or current financial reporting.
Subsidiaries
Following our reorganization in 1999, Generex Pharmaceuticals Inc., which is incorporated in Ontario, Canada, remained as our wholly-owned subsidiary. All of our Canadian operations are performed by Generex Pharmaceuticals.
We formed Generex (Bermuda), Inc., which is organized in Bermuda, in January 2001 in connection with a joint venture with Elan International Services, Ltd., a wholly-owned subsidiary of Elan Corporation, plc, to pursue the application of certain of our and Elan's drug delivery technologies, including our platform technology for the buccal delivery of pharmaceutical products. In December 2004, we and Elan agreed to terminate the joint venture. Under the termination agreement, we retained all of our intellectual property rights and obtained full ownership of Generex (Bermuda). Generex (Bermuda) currently does not conduct any business activities.
In August 2003, we acquired Antigen Express, Inc. Antigen is engaged in the research and development of technologies and immunomedicines for the treatment of malignant, infectious, autoimmune and allergic diseases.
We formed Generex Pharmaceuticals (USA) LLC, which is organized in North Carolina, USA, in February 2006 as a wholly-owned subsidiary. Generex Pharmaceuticals (USA) LLC has not yet commenced any business operations. We formed Generex Marketing & Distribution Inc., which is organized in Ontario, Canada, in September 2006. Generex Marketing & Distribution Inc. has not yet commenced any business operations.
Overview of Business
We are engaged primarily in the research, development and commercialization of drug delivery systems and technologies. Our primary focus at the present time is our proprietary technology for the administration of formulations of large molecule drugs to the oral (buccal) cavity using a hand-held aerosol applicator. Through our wholly-owned subsidiary, Antigen, we have expanded our focus to include immunomedicines.
We seek to develop proprietary formulations of large molecule drugs that can be administered through the buccal mucosa, primarily the inner cheek walls, thereby eliminating or reducing the need for injections. All injection therapies involve varying degrees of discomfort and inconvenience. With chronic and sub-chronic diseases, the discomfort and inconvenience associated with injection therapies frequently results in less than optimal patient acceptance of, and compliance with, the prescribed treatment plan. Poor acceptance and compliance can lead to medical complications and higher disease management costs. Also, elderly, infirm and pediatric patients with chronic or sub-chronic conditions may not be able to self-inject their medications. In such cases, assistance is required which increases both the cost and inconvenience of the therapy.
We believe that our buccal delivery technology is a platform technology that has application to many large molecule drugs and provides a convenient, non-invasive, accurate and cost-effective way to administer such drugs. We have identified several large molecule drugs as possible candidates for development, including estrogen, heparin, monoclonal antibodies, human growth hormone and fertility hormone, but to date have focused our development efforts on only one product, Generex Oral-lyn™, an insulin formulation administered as a fine spray into the oral cavity using our proprietary hand-held aerosol spray applicator known as RapidMist™.
Our subsidiary, Antigen, concentrates on developing proprietary vaccine formulations that work by stimulating the immune system to either attack offending agents (i.e., cancer cells, bacteria, and viruses) or to stop attacking benign elements (i.e., self proteins and allergens). Our immunomedicine products are based on two platform technologies that were discovered by Antigen’s founder and are in the early stages of development. Development efforts are underway in breast cancer, melanoma, prostate cancer, HIV, influenza virus, smallpox, SARS and Type I diabetes mellitus. We have established collaborations with clinical investigators at academic centers to advance these technologies.
We are a development stage company. From inception through the end of the 2006 fiscal year, we had not received any revenues from product sales. We have only two products that have been approved for commercial marketing and sale: our oral insulin formulation, Generex Oral-lyn™, which was approved for commercial marketing and sale in Ecuador; and our confectionary, Glucose RapidSpray™, which will be available for purchase in the United States and Canada. We expect to receive revenues from product sales in the fiscal year ending July 31, 2007.
We operate in only one segment: the research, development and commercialization of drug delivery systems and technologies for metabolic and immunological diseases.
Buccal Delivery Technology and Products
Our buccal delivery technology involves the preparation of proprietary formulations in which an active pharmaceutical agent is placed in a solution with a combination of absorption enhancers and other excipients classified “generally recognized as safe” ("GRAS") by the United States Food and Drug Administration (the "FDA") when used in accordance with specified quantities and other limitations. The resulting formulations are aerosolized with a pharmaceutical grade chemical propellant and are administered to patients using our proprietary RapidMist™ device. The device is a small, lightweight, hand-held, easy-to-use aerosol applicator comprised of a container for the formulation, a metered dose valve, an actuator and dust cap. Using the device, patients self-administer the formulations by spraying them into the mouth. The device contains multiple applications, the number being dependent, among other things, on the concentration of the formulation. Absorption of the pharmaceutical agent occurs in the buccal cavity, principally through the inner cheek walls. In clinical studies of our flagship oral insulin product Generex Oral-lyn™, insulin absorption in the buccal cavity has been shown to be very efficacious.
Buccal Insulin Product
Insulin is a hormone that is naturally secreted by the pancreas to regulate the level of glucose, a type of sugar, in the bloodstream. The term “diabetes” refers to a group of disorders that are characterized by the inability of the body to properly regulate blood glucose levels. When glucose is abundant, it is converted into fat and stored for use when food is not available. When glucose is not available from food, these fats are broken down into free fatty acids that stimulate glucose production. Insulin acts by stimulating the use of glucose as fuel and by inhibiting the production of glucose. In a healthy individual, a balance is maintained between insulin secretion and glucose metabolism.
There are two major types of diabetes. Type 1 diabetes (juvenile onset diabetes or insulin dependent diabetes) refers to the condition where the pancreas produces little or no insulin. Type 1 diabetes accounts for 5-10 percent of diabetes cases. It often occurs in children and young adults. Type 1 diabetics must take daily insulin injections, typically three to five times per day, to regulate blood glucose levels.
In Type 2 diabetes (adult onset or non-insulin dependent diabetes mellitus), the body does not produce enough insulin, or cannot properly use the insulin produced. Type 2 diabetes is the most common form of the disease and accounts for 90-95 percent of diabetes cases. In addition to insulin therapy, Type 2 diabetics may take oral drugs that stimulate the production of insulin by the pancreas or that help the body to more effectively use insulin.
If not treated, diabetes can lead to blindness, kidney disease, nerve disease, amputations, heart disease and stroke. Each year, between 12,000 and 24,000 people suffer vision impairment or complete blindness because of diabetes. Diabetes is also the leading cause of end-stage renal disease (kidney failure), accounting for about 40 percent of new cases.
In addition, about 60-70 percent of people with diabetes have mild to severe forms of diabetic nerve damage, which, in severe forms, can lead to lower limb amputations. Diabetics are also two to four times more likely to have heart disease, which is present in 75 percent of diabetes-related deaths, and are two to four times more likely to suffer a stroke.
There is no known cure for diabetes. The World Health Organization estimates that there are currently over 1.5 billion diabetics worldwide. It is further estimated that this number will almost double by the year 2025. There are estimated to be 17 million people suffering from diabetes in North America alone, approximately 5 million of whom are undiagnosed, and diabetes is the second largest cause of death by disease in North America.
A substantial number of large molecule drugs ( i.e. , drugs composed of molecules with a higher than specified molecular weight) have been approved for sale in the United States or are presently undergoing clinical trials as part of the process to obtain such approval, including various proteins, peptides, monoclonal antibodies, hormones and vaccines. Unlike small molecule drugs, which generally can be administered by various methods, large molecule drugs historically have been administered predominately by injection. The principal reasons for this have been the vulnerability of large molecule drugs to digestion and the relatively large size of the molecule itself, which makes absorption into the blood stream through the skin inefficient or ineffective.
We conducted the first clinical trials of our buccal insulin formulation with human subjects in Ecuador in January 1998. We ultimately conducted a number of studies in Ecuador in 1998, each of which involved a selection of between 8 and 10 patients. The principal purpose of these studies was to evaluate the effectiveness of our oral insulin formulation in humans compared with injected insulin and placebos. In March 2004, we entered into a Letter of Intent for the establishment of a joint venture with PharmaBrand S.A., a distributor of pharmaceutical products in Central and Latin America. In August 2004, we sought approval for the manufacturing, marketing, distribution and sale of Generex Oral-lyn™ and the RapidMist™ Diabetes Management System from the Ecuadorian Ministry of Public Health. In May 2005, we received approval from the Ecuadorian Ministry of Public Health for the commercial marketing and sale of Generex Oral-lyn™ for treatment of Type 1 and Type 2 diabetes. We have successfully completed of the delivery and installation of a turnkey Generex Oral-lyn™ filling operation at the facilities of PharmaBrand in Quito, Ecuador. PharmaBrand is our joint venture partner for the commercialization of Generex Oral-lyn™ in Latin America. The first commercial production run of Generex Oral-lyn™ in Ecuador was completed in May, 2006. The first commercial sales of Generex Oral-lyn™ by PharmaBrand in Ecuador occurred in June, 2006. We expect to receive the revenues from the sale of Generex Oral-lyn™ in Ecuador in the second quarter of our 2007 fiscal year.
On the basis of the test results in Ecuador and other pre-clinical data, we made an Investigatory New Drug submission to the Health Protection Branch in Canada (Canada's equivalent to the FDA) in July 1998, and received permission from the Canadian regulators to proceed with clinical trials in September 1998. We filed an Investigational New Drug application with the FDA in October 1998, and received FDA approval to proceed with human trials in November 1998. Annual reports have been filed with the FDA each year since that time.
We began our clinical trial programs in Canada and the United States in January 1999. Between January 1999 and September 2000, we conducted clinical trials of our insulin formulation involving approximately 200 Type 1 and Type 2 diabetic patients and healthy volunteers. The study protocols in most trials involved administration of two different doses of our insulin formulation following either a liquid Sustacal meal or a standard meal challenge. The objective of these studies was to evaluate our insulin formulation's efficacy in controlling post-prandial (meal related) glucose levels. These trials demonstrated that our insulin formulation controlled post-prandial hyperglycemia in a manner comparable to injected insulin.
In April 2003, a Phase II-B clinical trial protocol was approved in Canada. Thereafter, a pilot trial was successfully undertaken in Ecuador (the results of which have been reported at several scientific symposia) to optimize the oral insulin formulation to transition to late-stage clinical trials. In September 2006 a Clinical Trial Application relating to our Generex Oral-lyn™ protocol for late-stage trials was approved by Health Canada; we expect to use the data collected from these trials in the New Drug Submission that will be prepared concurrently with the progression of the late-stage trials .
In anticipation of undertaking late-stage clinical trials of Generex Oral-lyn™ in Canada, we entered into an agreement with Cardinal Health PTS, LLC for the manufacture of clinical trial batches of Generex Oral-lyn™. Under the terms of the agreement, which we entered into in June 2006, production is contingent upon several conditions, including the execution of a quality agreement between the parties and our submission of a purchase order. We executed a clinical supply agreement with Cardinal Health and a related quality agreement in September 2006.
Buccal Glucose Product - Glucose RapidSpray™
In August 2006, we introduced our new Glucose RapidSpray™ product in the U.S. at the American Association of Diabetes Educators 33rd Annual Meeting & Exhibition in Los Angeles. Using our proprietary RapidMist™ platform technology, this product provides an alternative for people who require or want additional glucose in their diet and delivers a fat-free, low-calorie glucose formulation directly into the mouth. In September 2006, we entered into wholesale purchase agreement with Cardinal Health for the distribution of Glucose RapidSpray™ in retail stores across United States. We expect to procure additional distribution agreements with wholesalers and retail chains to distribute this product in stores throughout the United States. We anticipate that the product will be available in such stores in October, 2006.
Metformin Gum Product/Strategic Alliance
In May 2006, we established a collaborative alliance with Fertin Pharma A/S, a leading Danish manufacturer of medicinal chewing gum, for the development of a metformin medicinal chewing gum for the treatment of Type-2 diabetes mellitus and obesity. Metformin is a generic drug used to regulate blood glucose levels by reducing the amount of glucose produced by the liver, reducing the amount of glucose absorbed from food in the stomach, and by making the insulin produced by the body work more effectively to reduce the amount of glucose already in the blood. It is an important staple of the standard of care for patients with Type-2 diabetes mellitus.
Through this collaborative relationship, we will seek to combine our proprietary buccal drug delivery platform technologies with Fertin's know-how related to gum base formulations, solubilization systems, and taste masking/modification to create a metformin medicinal chewing gum that will deliver metformin into the body via the buccal mucosa rather than in its current tablet form. We anticipate that this delivery method, in addition to being much more rapid and providing a much more specific and effective dosing regimen, could avoid some of the adverse side effects associated with taking metformin in tablet form, such as nausea, vomiting, abdominal pain, diarrhea, abdominal bloating, and increased gas production. In addition, metformin gum could avoid the bitter taste and large doses associated with the tablet form and thus improve therapeutic compliance, particularly among younger patients.
We anticipate that we will conduct a clinical study in Canada during in late 2006 to establish bioequivalence with a Canadian Reference Product. This will encompass the preparation and submission of a Clinical Trial Application (“CTA”) to Health Canada, the authorization to proceed, and the actual execution of the clinical study, which we estimate will be completed in the third or fourth quarter of our 2007 fiscal year. Once completed, we anticipate that an Abbreviated New Drug Submission with full support data will be prepared and submitted to Health Canada, where we will be seeking regulatory approval/authorization for the manufacturing, marketing, and sale of the product. A pre-CTA meeting may be initiated to provide Health Canada with the Study plans and receive concurrence of our initiatives. Similar regulatory activities will be conducted in Ecuador in fiscal 2007.
If we successfully develop the metformin medicinal chewing gum, we would market it as a companion product to Generex Oral-lyn™. We believe that a combination therapy of Generex Oral-lyn™, metformin gum, and other traditional oral agents could optimize the treatment of Type-2 diabetes and, possibly, delay the onset of certain complications associated with diabetes.
Potential Buccal Morphine and Fentanyl Products
The delivery of morphine and fentanyl by oral formulation (pills) and injection for the treatment of moderate to severe breakthrough and postoperative pain often fails to provide patients with adequate relief and control because, among other reasons, breakthrough and postoperative pain are characterized as being moderate to severe in intensity and have a rapid onset of action and a short to medium duration. Not only does delivery by pills have a slow onset of action, it is often difficult for patients to adjust their doses, with the result that patients are either over or under medicated. Injections are invasive and require an attendant to administer the medication which reduces the patient's control over the pain and may cause increased anxiety. We believe that a buccal delivery formulation for morphine and fentanyl would have a critical series of attributes well suited for the treatment of breakthrough and post operative pain, would be cost-effective and would have a demonstrable improvement over current delivery methods, including fast access to the circulatory system, precise dosing control and a simple, self-administration procedure.
We made an Investigatory New Drug submission for buccal morphine to the Health Protection Branch in Canada in January 2002, and received permission from the Canadian regulators to proceed with clinical trials in March 2002. We made an Investigatory New Drug submission for fentanyl to the Health Protection Branch in Canada in August 2002, and received permission from the Canadian regulators to proceed with clinical trials in October 2002. During fiscal year ended July 31, 2006, we did not actively pursue our buccal morphine and buccal fentanyl projects.
Other Potential Buccal Products
We have had discussions of possible research collaborations with various pharmaceutical companies concerning use of our large molecule drug delivery technology with other compounds, including monoclonal antibodies, human growth hormone, fertility hormone, estrogen and heparin, and a number of vaccines. We have not aggressively pursued development opportunities apart from insulin because we believe it is more advantageous to concentrate our resources, particularly our financial resources, on commercializing the insulin product.
Immunomedicine Technology and Products
Our wholly-owned subsidiary Antigen is developing proprietary vaccine formulations based upon two platform technologies that were discovered by its founder, the Ii-Key hybrid peptides and Ii-Suppression. These technologies are applicable for either antigen-specific immune stimulation or suppression, depending upon the dosing and formulation of its products. Using active stimulation, we are focusing on major diseases such as breast and prostate cancer, H5 avian influenza and HIV. Autoimmune disease such as diabetes, multiple sclerosis and allergic asthma are the focus of our antigen-specific immune suppression work.
A peptide immunotherapeutic for patients with HER-2/neu positive breast cancer is currently in Phase I clinical trials. Based on positive results in that trial, we entered into an agreement in August 2006 with the Euroclinic, a private center in Athens, Greece, to commence clinical trials with the same compound as an immunotherapeutic vaccine for prostate cancer. We expect that the new prostate cancer studies will involve 30 patients and will evaluate primarily immunological responsiveness to a dose of the vaccine previously shown to be well tolerated in breast cancer patients. These studies are expected to begin in December, 2006.
The same technology used to enhance immunogenicity is being applied in the development of a synthetic peptide vaccine for H5N1 avian influenza, which could be produced more quickly and cost-efficiently than current inactivated influenza vaccines that contain trace levels of egg protein and involve time-consuming and costly production. In February 2006, representatives of Antigen held a Pre-Investigational New Drug application meeting with the FDA regarding plans for the commencement of clinical trials of this technology. We expect to conduct toxicology and pre-clinical lethal virus challenge studies in animals prior to submitting any Investigational New Drug application with respect to this technology.
We have not filed an Investigational New Drug application to begin clinical trials with respect to Antigen’s technology, other than a Physician’s Investigational New Drug application for the Phase 1 trial in patients with stage II HER-2/neu positive breast cancer. All other immunomedicine products are in the pre-clinical stage of development.
Government Regulation
Our research and development activities and the manufacturing and marketing of our products are subject to extensive regulation by the FDA in the United States and comparable regulatory authorities in other countries. Among other things, extensive regulation puts a burden on our ability to bring products to market. While these regulations apply to all competitors in our industry, many of our competitors have more experience in dealing with the FDA and other regulators. Also, other companies in our industry are not limited primarily to products which still need to be approved by government regulators, as we are now.
If requisite regulatory approvals are not obtained and maintained, our business will be substantially harmed. In many cases, we expect that extant and prospective development partners will participate in the regulatory approval process. The following discussion summarizes the principal features of food and drug regulation in the United States and other countries as they affect our business.
United States
All aspects of our research, development and foreseeable commercial activities are subject to extensive regulation by the FDA and other regulatory authorities in the United States. United States federal and state statutes and regulations govern, among other things, the testing, manufacturing, safety, efficacy, labeling, storage, record keeping, approval, advertising and promotion of pharmaceutical products. The regulatory approval process, including clinical trials, usually takes several years and requires the expenditure of substantial resources. If regulatory approval of a product is granted, the approval may include significant limitations on the uses for which the product may be marketed.
The steps required before a pharmaceutical product may be marketed in the United States include:
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quality test/studies;
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pre-clinical tests /studies;
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submission to the FDA of Investigational New Drug Applications (“INDs”) and/or Amendments for each planned human clinical trial;
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FDA acceptance of INDs, which permit human clinical trials to commence;
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commencement and completion of numerous human clinical trials to establish the safety and efficacy of the subject drug;
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submission of a New Drug Application to the FDA; and
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FDA approval of the New Drug Application, including approval of all product labeling
Quality and pre-clinical tests and studies include: laboratory evaluation of Drug Substance and Drug Product chemistry, formulation/manufacturing, and stability profiling, as well as a large number of animal studies to assess the potential safety and efficacy of each product. Typically, the pre-clinical studies consist of the following:
Pharmacology
· Primary and Secondary Pharmacodynamics
· Safety Pharmacology
· Other Pharmacodynamics
Pharmacokinetics (“PK”)
· Single and Multiple Dose Kinetics
· Tissue Distribution
· Metabolism
· PK Drug Interactions
· Other PK studies
Toxicology
· Single and Multiple Dose Toxicity
· Genotoxicity
· Carcinogenicity
· Reproduction Toxicity
· Other Toxicity
The results of the quality and pre-clinical tests/studies, in addition to any non-clinical pharmacology, are submitted to the FDA along with the initial clinical study protocol (see descriptive of process below) as part of the initial IND and are reviewed by the FDA before the commencement of human clinical trials. Unless the FDA objects to it, the IND becomes effective 30 days following its receipt by the FDA. Subsequent clinical studies may begin as soon as the protocols are submitted. FDA reviews all protocols, protocol amendments, adverse event reports, study reports, and annual reports in connection with a new pharmacological product.
The IND for our oral insulin formulation became effective in November 1998. Amendments are also subsequently filed as new Clinical Studies and their corresponding Study Protocols are proposed. We filed an Investigational New Drug Application for buccal morphine in January 2002. The Physician’s Investigational New Drug Application for the Phase 1 trial of AE37, Antigen’s synthetic peptide vaccine designed to stimulate a potent and specific immune response against tumors expressing the HER-2/neu oncogene, in patients with stage II HER-2/neu positive breast cancer became effective in March 2006.
Clinical trials involve the administration of a new drug to humans under the supervision of qualified investigators. The protocols for the trials must be submitted to the FDA as part of the IND. Also, each clinical trial must be approved and conducted under the auspices of an Institutional Review Board (IRB), which considers, among other things, ethical factors, the safety of human subjects, and the possible liability of the institution conducting the clinical trials.
Clinical trials are typically conducted in three sequential phases (Phase I, Phase II, and Phase III), but the phases may overlap. Phase I clinical trials test the drug on healthy human subjects for safety and other aspects, but not effectiveness. Phase II clinical trials are conducted in a limited patient population to gather evidence about the efficacy of the drug for specific purposes, to determine dosage tolerance and optimal dosages, and to identify possible adverse effects and safety risks. When a compound has shown evidence of efficacy and acceptable safety in Phase II evaluations, Phase III clinical trials are undertaken to evaluate clinical efficacy and to test for safety in an expanded patient population at clinical trial sites in different geographical locations. The FDA and other regulatory authorities require that the safety and efficacy of therapeutic product candidates be supported through at least two adequate and well-controlled Phase III clinical trials (known as “Pivotal Trials”). The successful completion of Phase III clinical trials is a mandatory step in the approval process for the manufacturing, marketing, and sale of products.
In the United States, the results of quality, pre-clinical studies and clinical trials, if successful, are submitted to the FDA in a New Drug Application (“NDA”) to seek approval to market and commercialize the drug product for a specified use. The NDA is far more specific than the IND and must also include proposed labeling and detailed technical sections based on the data collected. The FDA has 10 months to take an action for a standard application (and shorter for a priority application). It may deny a NDA if it believes that applicable regulatory criteria are not satisfied. The FDA also may require additional testing for safety and efficacy of the drug. We cannot be sure that any of our proposed products will receive FDA approval. The multi-tiered approval process means that our products could fail to advance to subsequent steps without the requisite data, studies, and FDA approval along the way. Even if approved by the FDA, our products and the facilities used to manufacture our products will remain subject to review and periodic inspection by the FDA.
To supply drug products for use in the United States, foreign and domestic manufacturing facilities must be registered with, and approved by, the FDA. Manufacturing facilities must also comply with the FDA's current Good Manufacturing Practices (cGMPs), and such facilities are subject to periodic inspection by the FDA. Products manufactured outside the United States are inspected by regulatory authorities in those countries under agreements with the FDA. To comply with cGMPs, manufacturers must expend substantial funds, time and effort in the area of production and quality control. The FDA stringently applies its regulatory standards for manufacturing. Discovery of previously unknown problems with respect to a product, manufacturer or facility may result in consequences with commercial significance. These include restrictions on the product, manufacturer or facility, suspensions of regulatory approvals, operating restrictions, delays in obtaining new product approvals, withdrawals of the product from the market, product recalls, fines, injunctions and criminal prosecution.
One final hurdle that is closely associated with the cGMP inspections is the Pre Approval Inspection that FDA carries out prior to the issuance of a marketing license. FDA inspectors combine cGMP compliance with a review of research and development documents that were used in the formal New Drug Application. A close inspection of historic data is reviewed to confirm data and to demonstrate that a company has carried out the activities as presented in the New Drug Application. This is generally a long inspection and requires a team of individuals from the company to “host” the FDA inspector(s).
Foreign Countries
Before we are permitted to market any of our products outside of the United States, those products will be subject to regulatory approval by foreign government agencies similar to the FDA. These requirements vary widely from country to country. Generally, however, no action can be taken to market any drug product in a country until an appropriate application has been submitted by a sponsor and approved by the regulatory authorities in that country. Again, similar to the FDA, each country will mandate a specific financial consideration for the Marketing Application dossiers being submitted. Although an important consideration, FDA approval does not assure approval by other regulatory authorities. The current approval process varies from country to country, and the time spent in gaining approval varies from that required for FDA approval. The Canadian regulatory process is substantially similar to that of the United States. We obtained regulatory approval to begin clinical trials of our oral insulin formulation in Canada in November 1998. We obtained regulatory approval to begin clinical trials of our buccal morphine product in Canada in March 2002. In April 2003, we received approval of an Oral-lyn™ Phase II-B clinical trial protocol in Canada. We received regulatory approval to begin clinical trials of our fentanyl product in Canada in October 2002. In May 2005, we received approval from the Ecuadorian Ministry of Public Health for the commercial marketing and sale of Generex Oral- lyn™ for treatment of Type 1 and Type 2 diabetes. In September 2006 Health Canada approved our Clinical Trial Application in respect of our proposed Generex Oral-lyn™ protocol for late-stage trials; we expect to use the data collected from these trials in the New Drug Submission that will be prepared concurrently with the progression of the late-stage trials.
Marketing
PharmaBrand, our joint venture partner for the commercialization of Generex Oral-lyn™ in Latin and South America, launched commercial sales of Generex Oral-lyn TM in Ecuador in June, 2006. Together with PharmaBrand, we implemented education, marketing and training programs for physicians in Ecuador to support the sale of Generex Oral-lyn™. Generex Oral-lyn™ is available through physician referrals in Ecuador. We possess the worldwide marketing rights to our oral insulin product.
In September 2006, we entered into wholesale purchase agreement with Cardinal Health for the distribution of Glucose RapidSpray™ in retail stores across United States. We expect to procure additional distribution agreements with wholesalers and retail chains for the purposes of distribution of Glucose RapidSpray™ across United States and Canada in fiscal 2007.
With respect to marketing, we intend to rely on contracting or collaborative arrangements with other companies that possess strong pharmaceutical marketing and distribution resources to perform these functions for us. Accordingly, we may not have the same control over marketing and distribution that we would have if we conducted these functions ourselves. Except for our arrangements with Cardinal Health for the distribution of Glucose RapidSpray™, we do not have any agreements with any other companies for marketing or distributing our products.
Manufacturing
In December 2000, we completed our pilot manufacturing facility for Generex Oral-lyn™ in Toronto, Canada in the same commercial complex in which our laboratories are located. In the first quarter of fiscal year 2006, we initiated a scale-up commercial production run of several thousand canisters of Generex Oral-lyn™ at this facility. We shipped the production run to PharmaBrand in support of the launch of commercial sales of Generex Oral-lyn™ in Ecuador.. We will need to significantly increase our manufacturing capability or engage contract manufacturers in order to manufacture any product in significant commercial quantities.
In March 2006, we successfully completed of the delivery and installation of a turnkey Generex Oral-lyn™ filling operation at the facilities of PharmaBrand, S.A. in Quito, Ecuador for the purposes of commercial supply and sales in that country and, as we procure the necessary registrations, in other South American countries. We anticipate that the capacity of this facility will be sufficient to support additional clinical trials requirements in other countries in Latin America and initial commercial sales in Ecuador.
In anticipation of undertaking late-stage clinical trials of Generex Oral-lyn™ in Canada, we entered into an agreement with Cardinal Health PTS, LLC in June 2006, pursuant to which Cardinal Health will manufacture clinical trial batches of Generex Oral-lyn™. Under the terms of the agreement, Cardinal Health will formulate and fill clinical trial batches of canisters at its manufacturing and analytical services facility in Research Triangle Park, North Carolina. Cardinal Health will schedule production after certain conditions are satisfied, including the execution of a quality agreement between the parties and receipt of a purchase order from us. The parties’ performance under the agreement will be subject to a clinical supply agreement, which we signed in September 2006.
Our subsidiary Antigen leases office and laboratory space in Worcester, Massachusetts, which is sufficient for its present needs. The laboratory is approximately 820 square feet and has permission to store and use biohazardous (including recombinant DNA materials) and flammable chemicals.
Raw Material Supplies
The excipients used in our formulation are available from numerous sources in sufficient quantities for clinical purposes, and we believe that they will be available in sufficient quantities for commercial purposes when required, although we have not yet attempted to secure a guaranteed commercial supply of any such products. Components suitable for our RapidMist™ device are available from a limited number of potential suppliers, as is the chemical propellant used in the device. The components which now comprise the device will be utilized with the commercial version of our insulin product in Ecuador and other South American countries, as well as the components for the commercial version of our new glucose product in the United States. We have secured supply arrangements with manufacturers for each of the components and the propellant that we presently use in our RapidMist™ device for commercial quantities of such components All such suppliers are prominent, reputable and reliable suppliers to the pharmaceutical industry. Because we now have a single supplier for each of these components and propellant, however, we are more vulnerable to supply interruptions than would be the case if we had multiple suppliers for each component. We do not believe that the risk of supply for proprietary raw materials or device components is unusual in the pharmaceutical industry.
Insulin is available worldwide from only a few sources. However, alternative supplies of insulin are under development. We currently procure recombinant human insulin crystals for clinical trials and commercial production in Ecuador from time to time from a European supplier whose production facility is GMP certified by the FDA and European health authorities. We are working towards the establishment of a guaranteed long-term supply arrangement with this supplier. We are also exploring potential alternative sources of supply. We also believe future development and marketing partners under licensing and development agreements, if any, will provide, or assist us to obtain, pharmaceutical compounds that are used in products covered under such agreements. Components used in the production of our Glucose RapidSpray™, glucose and all excipients, are available from a number of potential suppliers. We have not secured commercial supply agreements with any of them.
While morphine is a controlled substance, it is readily available for use in clinical trials. We currently have the appropriate licenses and facilities for acquiring and storing morphine in Canada. Various regulatory issues surround the import of morphine into the United States, and we will need to address these issues prior to commencing clinical trials in the United States.
Raw materials for our pre-clinical development stage immunomedicine products include amino acids (for peptide therapeutics) and oligonucleotides (for genetic constructs). These materials are readily available from commercial suppliers. We utilize the services of several commercial laboratories for the manufacturing of our pre-clinical development stage immunomedicine products.
Intellectual Property
We hold a number of patents in the United States and foreign countries covering our buccal and other delivery technologies. We also have developed brand names and trademarks for products in all areas. We consider the overall protection of our patent, trademark and other intellectual property rights to be of material value and acts to protect these rights from infringement.
Patents are a key determinant of market exclusivity for most branded pharmaceutical products. Protection for individual products or technologies extends for varying periods in accordance with the expiration dates of patents in the various countries. The protection afforded, which may also vary from country to country, depends upon the type of patent, its scope of coverage and the availability of meaningful legal remedies in the country.
We currently have nineteen issued U.S. patents and three pending U.S. patent application pertaining to aspects of buccal delivery technology including oral administration of macromolecular formulations (including insulin) as well as pain relief medications (e.g. morphine, fentanyl). We currently hold two issued Canadian patents and eleven pending Canadian patent applications also relating to aspects of buccal drug delivery technology. We also hold fifty-three issued patents and forty-eight pending patent applications covering our drug delivery technology in jurisdictions other than the U.S. and Canada, including Japan. In addition, we have one issued Canadian patent, one U.S. patent and one pending U.S. patent application pertaining to delivery technologies other than our buccal delivery technology.
We also have an indirect interest in seven drug delivery patents held by another company, Centrum Biotechnologies, Inc.
Our subsidiary Antigen currently holds six issued U.S. patents, three Australian patents, four other foreign patents, six pending U.S. patent applications and thirty foreign patent applications concerning technology for modulating the immune system via activation of antigen-specific helper T lymphocytes. Some of these patents are held under exclusive licenses from the University of Massachusetts. Dr. Robert Humphreys, a retired officer of Antigen, and Dr. Minzhen Xu, an officer of Antigen, are the listed inventors or co-inventors on all of these patents and patent applications, including those licensed from the University of Massachusetts.
In addition to patents, we hold intellectual property in the form of trademark applications worldwide on products such as Generex Oral-lyn™. Trademarks have no effect on market exclusivity for a product, but are considered to have marketing value. Trademark protection continues in some countries as long as used; in other countries, as long as registered. Registration is for fixed terms and can be renewed indefinitely.
We possess the worldwide manufacturing and marketing rights to our oral insulin product.
Our long-term success will substantially depend upon our ability to obtain patent protection for our technology and our ability to protect our technology from infringement, misappropriation, discovery and duplication. We cannot be sure that any of our pending patent applications will be granted, or that any patents which we own or obtain in the future will fully protect our position. Our patent rights, and the patent rights of biotechnology and pharmaceutical companies in general, are highly uncertain and include complex legal and factual issues. We believe that our existing technology and the patents which we hold or for which we have applied do not infringe any one else's patent rights. We believe our patent rights will provide meaningful protection against others duplicating our proprietary technologies. We cannot be sure of this, however, because of the complexity of the legal and scientific issues that could arise in litigation over these issues. See Part I - Item 3. Legal Proceedings for a discussion of certain legal proceedings involving intellectual property issues.
We also rely on trade secrets and other unpatented proprietary information. We seek to protect this information, in part, by confidentiality agreements with our employees, consultants, advisors and collaborators.
Competition
We expect that products based upon our buccal delivery technology and any other products that we may develop will compete directly with products developed by other pharmaceutical and biotechnology companies, universities, government agencies and public and private research organizations.
Products developed by our competitors may use a different active pharmaceutical agent or treatment to treat the same medical condition or indication as our product or may provide for the delivery of substantially the same active pharmaceutical ingredient as our products using different methods of administration. For example, a number of pharmaceutical and biotechnology companies are engaged in various stages of research, development and testing of alternatives to insulin therapy for the treatment of diabetes, as well as new methods of delivering insulin. These methods, including nasal, transdermal, needle-free (high pressure) injection and pulmonary, may ultimately successfully deliver insulin to diabetic patients. Some biotechnology companies also have developed different technologies to enhance the presentation of peptide antigens. Some of our competitors and potential competitors have substantially greater scientific research and product development capabilities, as well as financial, marketing and human resources, than we do.
Where the same or substantially the same active ingredient is available using alternative delivery means or the same or substantially the same result is achievable with a different treatment or technology, we expect that competition among products will be based, among other things, on product safety, efficacy, ease of use, availability, price, marketing and distribution. When different active pharmaceutical ingredients are involved, these same competitive factors will apply to both the active agent and the delivery method.
We consider other drug delivery and biotechnology companies to be direct competitors for the cooperation and support of major drug and biotechnology companies that own or market proprietary pharmaceutical compounds and technologies, as well as for the ultimate patient market. Of primary concern to us are the competitor companies that are known to be developing delivery systems for insulin and other pharmaceutical agents that we have identified as product candidates and technologies to enhance the presentation of peptide antigens.
The following descriptions of our competitors and their products were obtained from their filings with the Securities and Exchange Commission and/or information available on their websites.
Buccal Insulin Product
Nektar Therapeutics, formerly Inhale Therapeutic Systems, Inc. ("Nektar"), has developed, in collaboration with Pfizer Inc., a customized insulin formulation that is processed into a fine, dry powder and administered to the deep lung using a proprietary inhalation device developed for this purpose. In July 2006, Nektar announced that Pfizer will begin a phased-in rollout of Exubera® Inhalation Powder in the United States. It is expected that initial supplies of Exubera will be available across the U.S. beginning in September 2006. Nektar manufactures the Exubera Inhalers and supports the manufacturing of the powder processing for the insulin powder. Exubera has been approved in the United States, the European Union and Brazil for the treatment of adults with Type 1 or Type 2 diabetes for the control of high blood sugar levels. Nektar also is developing pulmonary products with large molecule drugs other than insulin and has stated that it is investigating the use of its inhalation technology with small molecule drugs.
Aradigm Corporation ("Aradigm"), which has announced a joint development agreement with Novo Nordisk A/S to jointly develop a pulmonary delivery system for insulin by inhalation, also may be considered a direct competitor of ours in the insulin area. Novo Nordisk is one of the two leading manufacturers of insulin in the world, the other being Eli Lilly and Company. Aradigm and Novo Nordisk initiated Phase III clinical trials in September 2002 in Australia. In April 2004, Novo Nordisk announced results from a planned interim analysis of the initial Phase III trial and decided to amend the current trial protocol. In April 2006, Novo Nordisk announced that it expected to re-initiate the Phase III clinical trials of the AERx® insulin Diabetes Management System in the second quarter of 2006 on a worldwide basis with a primary focus on the European Union and the United States. The program is estimated to take three years to complete.
Other companies have announced development efforts relating to non-injection methods of delivering insulin or other large molecule drugs, including Alkermes Pharmaceuticals, Inc., which announced a collaboration with Lilly in April 2000 to develop a pulmonary method of administering insulin and is currently conducting Phase III clinical trials. MannKind Corporation is developing an inhaled insulin product named Technosphere™ Insulin, which is currently conducting Phase III clinical trials in the United States and in Europe. There are also a number of companies developing alternative means of delivering insulin in the form of oral pills, transdermal patches, and intranasal methods, which are at early stages of development.
In addition to other delivery systems for insulin, there are numerous products which have been approved for use in the treatment of Type 2 diabetics in substitution of, or in addition to, insulin therapy. These products may also be considered competitive with insulin products.
Buccal Morphine and Fentanyl Products
Cephalon, Inc. currently markets Actiq® in the United States and has recently acquired the rights to the product in Europe. Actiq® delivers buccal transmucosal fentanyl to the cheek walls through the use of a lollipop. In November 1998, the FDA cleared Actiq® for marketing for use in the management of breakthrough cancer pain. The product was launched in March 1999 in the United States. In June 2006, Cephalon announced that it received an approval letter from the FDA for Fentora™ (fentanyl buccal tablet) and intends to submit a response to the FDA by the end of July. Apparently, the FDA has indicated that no additional safety or efficacy data for this product are required and that the labeling has been essentially finalized. Fentora™ is a fentanyl buccal tablet that is placed between the patient’s upper cheek and gum.
Nastech Pharmaceuticals is developing an intranasal formulation of morphine that is in Phase II clinical trials. Results reported to date show the product to be safe and efficacious in the treatment of episodes of breakthrough pain. Nastech is currently seeking a licensing partner for this product.
Immunomedicine Technology and Products
A number of companies that are engaged in the development of immunomedicines employ technologies that are competitive to our subsidiary Antigen. Zycos Inc. has developed the Biotope® technology, and Cel-Sci Corporation has developed the LEAPS delivery technology. Epimmune, Inc., now Pharmexa-Epimmune, has developed the PADRE® technology. Pharmexa-Epimmune is a U.S. subsidiary of Pharmexa A/S, an international biotechnology company in the field of active immunotherapy and vaccines for the treatment of cancer, serious chronic and infectious diseases. These companies have initiated early stage clinical trials for several products for the treatment of cancer, autoimmune, and allergic diseases. These companies also have established collaborations with academic centers and other companies for the development of certain products.
Environmental Compliance
Our manufacturing, research and development activities involve the controlled use of hazardous materials and chemicals. We believe that our procedures for handling and disposing of these materials comply with all applicable government regulations. However, we cannot eliminate the risk of accidental contamination or injury from these materials. If an accident occurred, we could be held liable for damages, and these damages could severely impact our financial condition. We are also subject to many environmental, health and workplace safety laws and regulations, particularly those governing laboratory procedures, exposure to blood-borne pathogens, and the handling of hazardous biological materials. Violations and the cost of compliance with these laws and regulations could adversely affect us. However, we do not believe that compliance with the United States, Canadian or other environmental laws will have a material effect on us in the foreseeable future.
Research and Development Expenditures
A substantial portion of our activities to date have been in research and development. In the period from inception to July 31, 2006, our expenditures on research and development were $61,330,191. These included $6,191,528 in the year ended July 31, 2006, $7,750,731 in the year ended July 31, 2005 and $8,522,984 in the year ended July 31, 2004. The decrease in our research and development activities in 2006 compared to 2005 is due primarily to a reduction of clinical trial activities due to preparations for the Generex Oral-lyn™ Clinical Trial Application in Canada. The decrease in our research and development expenses in 2005 compared to 2004 was due principally to reduction of our level of research and development activities, offset by increased activities of Antigen and regulatory consultants.
Financial Information About Geographic Areas
The regions in which we had identifiable assets and revenues and the amounts of such identifiable assets and revenues for each of the last three fiscal years are presented Note 19 in the Notes to Consolidated Financial Statements in Part II - Item. 8 Financial Statements and Supplementary Data of this Annual Report on Form 10-K. Identifiable assets are those that can be directly associated with a geographic area.
Employees
At September 30, 2006, we had twenty-three full-time employees, including our executive officers and other individuals who work for us full-time but are employed by management companies that provide their services, and ten employees of our subsidiary Antigen. Twelve of our employees are executive and administrative, nine are scientific and technical personnel who engage primarily in development activities and in preparing formulations for testing and clinical trials, and two are engaged in corporate and product promotion, public relations and investor relations. We believe our employee relations are good. None of our employees is covered by a collective bargaining agreement.
We will continue to need qualified scientific personnel and personnel with experience in clinical testing, government regulation and manufacturing. We may have difficulty in obtaining qualified scientific and technical personnel as there is strong competition for such personnel from other pharmaceutical and biotechnology companies, as well as universities and research institutions. Our business could be materially harmed if we are unable to recruit and retain qualified scientific, administrative and executive personnel to support our expanding activities, or if one or more members of our limited scientific and management staff were unable or unwilling to continue their association with us. With the exception of employment agreements with Anna Gluskin, our Chief Executive Officer and President, Rose Perri, our Chief Operating Officer and Chief Financial Officer, Mark Fletcher, our Executive Vice-President and General Counsel, ,Dr. Gerald Bernstein, our Vice President Medical Affairs, Eric von Hofe, our Vice-President Technology Development, Minzhen Xu, Vice-President Biology of Antigen, and Nikoletta Kallinteris, Senior Research Associate, we do not have fixed term agreements with any of our key management or scientific staff. Our former Vice President, Research and Development, Dr. Pankaj Modi, had a Consulting Agreement with us, the effective termination date of which was August 25, 2005. Dr. Modi resigned from his position with us on August 26, 2004. We do not believe that Dr. Modi's resignation or the termination of his Consulting Agreement with us has, or will, materially adversely affect us.
We use non-employee consultants to assist us in formulating research and development strategy, in preparing regulatory submissions, in developing protocols for clinical trials, and in designing, equipping and staffing our manufacturing facilities. We also use non-employee consultants to assist us in business development. These consultants and advisors usually have the right to terminate their relationship with us on short notice. Loss of some of these key advisors could interrupt or delay development of one or more of our products or otherwise adversely affect our business plans.
Executive Officers and Directors
|
Name
|
Age
|
Position
Held with Generex
|
||
|
Anna
E. Gluskin
|
55
|
Chairman,
President, Chief Executive Officer and Director
|
||
|
Rose
C. Perri
|
39
|
Chief
Operating Officer, Chief Financial Officer, Treasurer, Secretary
and
Director
|
||
|
Gerald
Bernstein, M.D.
|
73
|
Director,
Vice President Medical Affairs
|
||
|
Mark
Fletcher, Esquire
|
40
|
Executive
Vice President and General Counsel
|
||
|
John
P. Barratt
|
62
|
Director
|
||
|
Mindy
J. Allport-Settle
|
36
|
Director
|
||
|
Brian
T. McGee
|
45
|
Director
|
||
|
Peter
G. Amanatides
|
42
|
Director
|
||
|
David
E. Wires
|
55
|
Director
|
All directors are elected to hold office until the next annual meeting of stockholders following election and until their successors are duly elected and qualified. Executive officers are appointed by the Board of Directors and serve at the discretion of the Board.
Anna E. Gluskin : Director since September 1997. Ms. Gluskin has served as the President and Chief Executive Officer of Generex since October 1997 and the Chairperson of the Generex Board of Directors since November 2002. She held comparable positions with Generex Pharmaceuticals Inc. from its formation in 1995 until its acquisition by Generex in October 1997.
Rose C. Perri . Director since September 1997. Ms. Perri has served as Treasurer and Secretary of Generex since October 1997, and as Chief Operating Officer since August 1998. She served as Acting Chief Financial from November 2002 until April 2005 when she was appointed Chief Financial Officer. She was an officer of Generex Pharmaceuticals Inc. from its formation in 1995 until its acquisition by Generex in October 1997.
Gerald Bernstein, M.D . Director since October 2002. Dr. Bernstein has served as Vice President Medical Affairs of Generex since October 1, 2001. Dr. Bernstein acts as a key liaison for Generex on medical and scientific affairs to the medical, scientific and financial communities and consults with Generex under a consulting agreement on research and medical affairs and on development activities. Dr. Bernstein is an associate clinical professor at the Albert Einstein College of Medicine in New York and an attending physician at Beth Israel Medical Center, Lenox Hill Hospital and Montefore Medical Center, all in New York. He was president of the American Diabetes Association from 1998 to 1999.
Mark Fletcher, Esq . Mr. Fletcher has served as our Executive Vice President and General Counsel since April 2003. From October 2001 to March 2003, Mr. Fletcher was engaged in the private practice of law as a partner at Goodman and Carr LLP, a leading Toronto law firm. From March 1993 to September 2001, Mr. Fletcher was a partner at Brans, Lehun, Baldwin LLP, a law firm in Toronto. Mr. Fletcher received his LL.B. from the University of Western Ontario in 1989 and was admitted to the Ontario Bar in 1991.
John P. Barratt . Independent Director since March 2003. Mr. Barratt is currently a member of the Generex Audit Committee. Mr. Barratt currently serves as the Board Liaison Officer of The Caldwell Partners International, a role he commenced in July 2006. From April 2005 to July 2006 Mr. Barratt served as Chief Operating Officer of The Caldwell Partners International. The Caldwell Partners International is a Canadian based human capital professional services company. Mr. Barratt continues, concurrently, as the court-appointed Responsible Person and Liquidation Manager of Beyond.com Corporation, Debtor-in-Possession, a U.S. Chapter 11 Bankruptcy case, in which capacity Mr. Barratt reports to the bankruptcy court and to the U.S. Trustee’s Office. The Beyond.com case is expected to be granted final decree in 2006 at which point the Chapter 11 case will terminate as will his duties to the court and the U.S. Trustee’s Office. From September 2000 until the date of its Chapter 11 bankruptcy filing in January 2002, Mr. Barratt acted in the capacity of Chief Operating Officer of Beyond.com Corporation, an electronic fulfillment provider. Between 1996 and 2000, Mr. Barratt was partner-in-residence with the Quorum Group of Companies, an international investment partnership specializing in providing debt and/or equity capital coupled with strategic direction to emerging technology companies. Between 1988 and 1995, Mr. Barratt held a number of positions with Coscan Development Corporation, a real estate development company, the last position of which was Executive Vice-President and Chief Operating Officer. Mr. Barratt currently serves on a number of Boards of Directors, including Brascade Corporation, GLP NT Corporation and BNN Split Corporation, and is a member of the Board of Directors and Chairman of the Risk Policy Committee of the Bank of China (Canada). Mr. Barratt also serves on the Advisory Boards of the following Brascan SoundVest funds: Diversified Income Fund, Total Return Fund, Rising Distribution Split Trust and Focused Business Trust. In addition, Mr. Barratt is a member of the Advisory Board of the Brascan Adjustable Rate Trust I.
Mindy J. Allport-Settle . Independent Director since February 2004. Ms. Allport-Settle is a member of the Generex Audit and Regulatory Compliance Committees and Chairperson of the Generex Compensation Committee. Ms. Allport-Settle has been President and Chief Executive Officer of Integrated Development, LLC ("Integrated") since 1998. Integrated is an independent consulting firm to the pharmaceutical industry, providing informed guidance in operational, project and contract management, new business development and regulatory compliance. In addition to her position with Integrated, Ms. Allport-Settle has been a Vice-President of Impact Management Services, Inc. ("IMS") from 2003 to 2005, which also provides consulting services to the pharmaceutical industry. In her positions at Integrated and IMS, Ms. Allport-Settle has worked with several major pharmaceutical companies. From 2001 to 2002, Ms. Allport-Settle was Director of Client Services for Scriptorium Publishing Services. From 1992 to 1994, Ms. Allport-Settle was an Eye Bank Technician/Organ Procurement Surgeon for the NC Eye & Human Tissue Bank; and from 1991 to 1998, Ms. Allport-Settle was a healthcare and general medical compliance training consultant and a contract writer and photographer. Ms. Allport-Settle holds a Bachelor’s degree from the University of North Carolina, a Master of Business Administration in Global Management from the University of Phoenix, and completed Harvard Business School's executive education program Compensation Committees: Preparing for the Challenges Ahead .
Brian T. McGee . Independent Director since March 2004. Mr. McGee is currently the Chairman of the Generex Audit Committee. Mr. McGee has been a partner of Zeifman & Company, LLP ("Zeifman") since 1995. Mr. McGee began working at Zeifman shortly after receiving a B.A. degree in Commerce from the University of Toronto in 1985. Zeifman is a Chartered Accounting firm based in Toronto, Ontario. A significant element of Zeifman's business is public corporation accounting and auditing. Mr. McGee is a Chartered Accountant. Throughout his career, Mr. McGee has focused on, among other areas, public corporation accounting and auditing. In 1992, Mr. McGee completed courses focused on International Taxation and Corporation Reorganizations at the Canadian Institute of Chartered Accountants and in 2003, Mr. McGee completed corporate governance courses on compensation and audit committees at Harvard Business School. In April 2004 Mr. McGee received his CPA designation from The American Institute of Certified Public Accountants.
Peter G. Amanatides . Independent Director since April 2005. Mr. Amanatides is currently the Chairman of the Generex Regulatory Compliance Committee and a member of the Generex Compensation Committee. Mr. Amanatides has been working in the pharmaceutical and biotechnology industry since 1988. Since November 2004, Mr. Amanatides has been President and Chief Operating Officer of Pharmalogika, Inc., a North Carolina-based service provider for the pharmaceutical and biotechnology industry. Since April 2002, Mr. Amanatides has held the positions of Director and Vice President within the Quality Organization for DSM Pharmaceuticals and DSM Biologics, both divisions of DSM Pharmaceutical Products, Inc. From February 1999 to April 2002, Mr. Amanatides served as Director of Quality Systems for Celera Genomics, a division of Applied Biosystems involved in genomics and pharmaceutical discovery. Mr. Amanatides received a B.S. degree in biology from Regents College, Albany, New York and a M.S. degree in Biotechnology and Molecular Biology from Hood College, Frederick, Maryland. Mr. Amanatides has also held ASQ Certification as a certified Quality Manager.
David E. Wires . Independent Director since April 2006. Mr. Wires is currently a member of the Generex Compensation Committee. Mr. Wires has been a partner in the Toronto law firm of Wires Jolley, LLP since its founding in 2002. Prior to that, he was a partner in McCague Wires Peacock Borlack McInnis & Lloyd. In 1997, he was appointed a commissioner of the Ontario Pension Commission, and from 1998 to 2003, he continued as a member of the Ontario Financial Services Tribunal on appointment by the Lieutenant Governor in Council. He graduated from Carleton University with a Bachelor of Arts in 1973 and continued his education at the University of Ottawa where he graduated in 1976 with a Bachelor of Laws, Magna Cum Laude, and at Osgoode Hall Law School, York University where he graduated with a Master of Laws in 1988. He is certified as a specialist in civil litigation by the Law Society of Upper Canada. Outside his practice, David is a panelist on the China International Trade and Arbitration Commission, Beijing. The Certified General Accountants Association of Ontario awarded David their Ontario Distinguished Service Award. David is a member of the Canadian Bar Association and an associate of the American Bar Association, the Advocate Society and past Chair of the Joint Committee on Court Reform, the Toronto Case Management Advisory Committee. He has been engaged as an instructor and lecturer for the Law Society of Upper Canada, the Advocates Society, the Canadian Institute, the Advocate's Society Intensive Trial Advocacy Program, York University, the Canadian Society for the Advancement of Legal Technology, the Canadian Bar Association and the Canadian Corporation Counsel Association.
Our Board of Directors nominated Mr. Wires for election as director at our Annual Meeting of the Stockholders held on May 30, 2006, which increased the size of our Board to eight directors. Five of the eight directors are independent of Generex management.
Other Key Employees and Consultants
Slava Jarnitskii is our Financial Controller. He began his employment with Generex Pharmaceuticals in September 1996 and has been in the employment of Generex since its acquisition of Generex Pharmaceuticals in October 1997. Before his employment with Generex Pharmaceuticals, Mr. Jarnitskii received a Masters of Business Administration degree from York University in September 1996.
George Markus is our Manager of Regulatory Affairs. Mr. Markus holds a B.Sc. (Honours) in theoretical chemistry from Dalhousie University and an M.Sc. in analytical chemistry from McGill University. He is an instructor at the Academy of Applied Pharmaceutical Sciences in Toronto, Canada. In his more than twenty years in the industry, he has been President & Chief Executive Officer of Consolidated Clinical Research of Canada Inc., a site management organization (SMO) that manages the coordination of clinical research sites, and has worked in Quality Assurance / Special Projects / Clinical Operations and as a Director, Regulatory Affairs for Dimethaid Research Inc. Mr. Markus has also held regulatory affairs positions with Pasteur Merieux Connaught, Biovail Corporation International, Sanofi Winthrop, Genpharm Inc. Pharmaceuticals, and Sandoz Canada Inc.
Dr. Jaime Davidson, MD, FACP, FACE was appointed a consultant Medical Director for Generex in July, 2006. Dr. Davidson is the President of Endocrine and Diabetes Associates of Texas, based at the Medical City Dallas Hospital complex, and a Clinical Associate Professor of Internal Medicine at University of Texas Southwestern Medical Center in Dallas, Texas. Dr. Davidson chaired the Diabetes Consensus Guidelines for the American College of Endocrinology and serves as Director of the Annual Intensive Diabetes, Endocrinology and Metabolic Diseases Course for the University of Southern California Keck School of Medicine. He serves as a council member for the Texas Department of Health Services, appointed by Texas Governor Rick Perry. In 2006 Dr. Davidson was distinguished by the American Association of Clinical Endocrinologists with an award for his contributions to the improvement of endocrine health for under-served populations, and by the American Diabetes Association with the Harold Rifkin MD award for his international contributions in the diabetes field. In the past, he has held positions with the National Diabetes Advisory Board, the National Institutes of Health, the Centers for Disease Control, the Institute of Medicine, and the boards of directors of the American Diabetes Association, the American Association of Clinical Endocrinologists, and the American College of Endocrinology. He served in higher education for a six year term as a Regent of Midwestern State University in Texas appointed by then Governor George W. Bush. He has also served in the President's Council for Fitness and Sports, chaired the Texas Diabetes Council of the Texas Department of Health for several years where he instituted the Texas Diabetes Algorithm, and under his guidance the Texas Diabetes Institute was established with the University of Texas Health Science Center in San Antonio, Texas. Dr. Davidson's experience in clinical pharmacology began with a Clinical Pharmacology Fellowship at Lilly Laboratories for Clinical Research and it continued with multiple clinical trials. In addition, he was an advisor to the Food and Drug Administration (FDA) on the Endocrinology and Metabolism Advisory Board. Dr. Davidson's Internal Medicine training was completed at Scott and White Hospital (now known as Texas A&M University) and his Endocrinology training at University Of Indiana.
Eric von Hofe, Ph.D., is currently President of Antigen. He has extensive experience with technology development projects, including his previous position at Millennium Pharmaceuticals as Director of Programs & Operations, Discovery Research. Prior to that, Dr. von Hofe was Director, New Targets at Hybridon, Inc., where he coordinated in-house and collaborative research that critically validated gene targets for novel antisense medicines. Dr. von Hofe also held the position of Assistant Professor of Pharmacology at the University of Massachusetts Medical School, where he received a National Cancer Institute Career Development Award for defining mechanisms by which alkylating carcinogens create cancers. He received his Ph.D. from the University of Southern California in Experimental Pathology and was a postdoctoral fellow at both the University of Zurich and Harvard School of Public Health. His work has been published in twenty-eight articles in peer-reviewed journals, and he has been an inventor on four patents.
Dr. Minzhen Xu is Vice President - Biology of Antigen. Dr. Xu received an M.D. from Shanghai Medical University in China and a Ph.D. in immunology from University of Massachusetts Medical School. He has been with Antigen since its inception and is the company’s chief experimentalist.
Item 1A. Risk Factors
Our business and results of operations are subject to numerous risks, uncertainties and other factors that you should be aware of, some of which are described below. The risks, uncertainties and other factors described below are not the only ones facing our company. Additional risks, uncertainties and other factors not presently known to us or that we currently deem immaterial may also impair our business operations.
Any of the risks, uncertainties and other factors could have a materially adverse effect on our business, financial condition or results of operations and could cause the trading price of our common stock to decline substantially.
Risks Related to Our Financial Condition
We have a history of losses and will incur additional losses.
We are a development stage company with a limited history of operations, and do not expect sufficient revenues to support our operation in the immediately foreseeable future. We do expect to receive some revenue from the sale of our oral insulin product in Ecuador in the second quarter of fiscal 2007. To date, we have not been profitable and our accumulated net loss before preferred stock dividend was $186,200,255 at July 31, 2006. Our losses have resulted principally from costs incurred in research and development, including clinical trials, and from general and administrative costs associated with our operations. While we seek to attain profitability, we cannot be sure that we will ever achieve product and other revenue sufficient for us to attain this objective.
With the exception of Generex Oral-lyn™ which is currently selling in Ecuador and Glucose RapidSpray™ which we expect to begin selling in the United States in October, 2006 our product candidates are in research or early stages of pre-clinical and clinical development. We will need to conduct substantial additional research, development and clinical trials. We will also need to receive necessary regulatory clearances both in the United States and foreign countries and obtain meaningful patent protection for and establish freedom to commercialize each of our product candidates. We cannot be sure that we will obtain required regulatory approvals, or successfully research, develop, commercialize, manufacture and market any other product candidates. We expect that these activities, together with future general and administrative activities, will result in significant expenses for the foreseeable future.
We will need additional capital.
To progress in product development or marketing, we will need additional capital which may not be available to us. This may delay our progress in product development or market.
We will require funds in excess of our existing cash resources:
·
to proceed with the development of our buccal insulin product;
·
to finance the research and development of new products based on our buccal delivery and immunomedicine technologies, including clinical testing relating to new products;
·
to finance the research and development activities of our subsidiary Antigen with respect to other potential technologies;
·
to commercially launch and market developed products;
·
to develop or acquire other technologies or other lines of business;
·
to establish and expand our manufacturing capabilities;
·
to finance general and administrative activities that are not related to specific products under development; and
·
to otherwise carry on business.
In the past, we have funded most of our development and other costs through equity financing. We anticipate that our existing capital resources will enable us to maintain currently planned operations through the next 12 months. However, this expectation is based on our current operating plan, which could change as a result of many factors, and we may need additional funding sooner than anticipated. Because our operating and capital resources are insufficient to meet future requirements, we will have to raise additional funds in the near future to continue the development and commercialization of our products. Unforeseen problems, including materially negative developments in our clinical trials or in general economic conditions, could interfere with our ability to raise additional equity capital or materially adversely affect the terms upon which such funding is available.
It is possible that we will be unable to obtain additional funding as and when we need it. If we were unable to obtain additional funding as and when needed, we could be forced to delay the progress of certain development efforts. Such a scenario poses risks. For example, our ability to bring a product to market and obtain revenues could be delayed, our competitors could develop products ahead of us, and/or we could be forced to relinquish rights to technologies, products or potential products.
Any new equity financing will dilute current stockholders.
If we raise funds through equity financing to meet the needs discussed above, it will have a dilutive effect on existing holders of our shares by reducing their percentage ownership. The shares may be sold at a time when the market price is low because we need the funds. This will dilute existing holders more than if our stock price was higher. In addition, equity financings normally involve shares sold at a discount to the current market price.
Our research and development and marketing efforts may be highly dependent on corporate collaborators and other third parties who may not devote sufficient time, resources and attention to our programs, which may limit our efforts to successfully develop and market potential products.
Because we have limited resources, we have sought to enter into collaboration agreements with other pharmaceutical companies that will assist us in developing, testing, obtaining governmental approval for and commercializing products using our buccal delivery and immunomedicine technologies. Any collaborator with whom we may enter into such collaboration agreements may not support fully our research and commercial interests since our program may compete for time, attention and resources with such collaborator's internal programs. Therefore, these collaborators may not commit sufficient resources to our program to move it forward effectively, or that the program will advance as rapidly as it might if we had retained complete control of all research, development, regulatory and commercialization decisions.
Risks Related to Our Technologies
With the exception of Generex Oral-lyn™ and Glucose RapidSpray™, our technologies and products are at an early stage of development and we cannot expect revenues in respect thereof in the foreseeable future.
We have no products approved for commercial sale at the present time with the exception of Generex Oral-lyn™ and Glucose RapidSpray™. To be profitable, we must not only successfully research, develop and obtain regulatory approval for our products under development, but also manufacture, introduce, market and distribute them once development is completed. We may not be successful in one or more of these stages of the development or commercialization of our products, and/or any of the products we develop may not be commercially viable.
Although Generex Oral-lyn™, our proprietary oral insulin spray formulation, has been approved for commercial marketing and sale in Ecuador, and Glucose RapidSpray™, our confectionary product, will be available for purchase in the United States, we have yet to manufacture, market and distribute these products on a large-scale commercial basis. Until we can establish that they are commercially viable products, we will not receive significant revenues from ongoing operations.
Until we receive regulatory approval to sell our products in additional countries, our ability to generate revenues from operations may be limited and those revenues may be insufficient to sustain operations. Many factors impact our ability to obtain approvals for commercially viable products.*
Only our oral insulin product has been approved for commercial sale by drug regulatory authorities, and that approval was obtained in Ecuador. We have begun the regulatory approval process for our oral insulin, buccal morphine and fentanyl products in other countries. Our immunomedicine products are in the pre-clinical stage of development, with the exception of our Phase 1 trial in human patients with stage II HER-2/neu positive breast cancer.
Pre-clinical and clinical trials of our products, and the manufacturing and marketing of our technologies, are subject to extensive, costly and rigorous regulation by governmental authorities in the United States, Canada and other countries. The process of obtaining required regulatory approvals from the FDA and other regulatory authorities often takes many years, is expensive and can vary significantly based on the type, complexity and novelty of the product candidates. For these reasons, it is possible we will not receive regulatory approval for any prescription pharmaceutical product candidate in any country other than Ecuador.
In addition, we cannot be sure when or if we will be permitted by regulatory agencies to undertake additional clinical trials or to commence any particular phase of clinical trials. Because of this, statements in this Annual Report on Form 10-K regarding the expected timing of clinical trials cannot be regarded as actual predictions of when we will obtain regulatory approval for any "phase" of clinical trials.
Delays in obtaining United States or other foreign approvals for our products could result in substantial additional costs to us, and, therefore, could adversely affect our ability to compete with other companies. If regulatory approval is ultimately granted in any country other than Ecuador, the approval may place limitations on the intended use of the product we wish to commercialize, and may restrict the way in which we are permitted to market the product.
Due to legal and factual uncertainties regarding the scope and protection afforded by patents and other proprietary rights, we may not have meaningful protection from competition.
Our long-term success will substantially depend upon our ability to protect our proprietary technologies from infringement, misappropriation, discovery and duplication and avoid infringing the proprietary rights of others. Our patent rights, and the patent rights of biotechnology and pharmaceutical companies in general, are highly uncertain and include complex legal and factual issues. Because of this, our pending patent applications may not be granted. These uncertainties also mean that any patents that we own or will obtain in the future could be subject to challenge, and even if not challenged, may not provide us with meaningful protection from competition. Due to our financial uncertainties, we may not possess the financial resources necessary to enforce our patents. Patents already issued to us or our pending applications may become subject to dispute, and any dispute could be resolved against us.
Because a substantial number of patents have been issued in the field of alternative drug delivery and because patent positions can be highly uncertain and frequently involve complex legal and factual questions, the breadth of claims obtained in any application or the enforceability of our patents cannot be predicted. Consequently, we do not know whether any of our pending or future patent applications will result in the issuance of patents or, to the extent patents have been issued or will be issued, whether these patents will be subject to further proceedings limiting their scope, will provide significant proprietary protection or competitive advantage, or will be circumvented or invalidated.
Also because of these legal and factual uncertainties, and because pending patent applications are held in secrecy for varying periods in the United States and other countries, even after reasonable investigation we may not know with certainty whether any products that we (or a licensee) may develop will infringe upon any patent or other intellectual property right of a third party. For example, we are aware of certain patents owned by third parties that such parties could attempt to use in the future in efforts to affect our freedom to practice some of the patents that we own or have applied for. Based upon the science and scope of these third-party patents, we believe that the patents that we own or have applied for do not infringe any such third-party patents; however, we cannot know for certain whether we could successfully defend our position, if challenged. We may incur substantial costs if we are required to defend our intellectual property in patent suits brought by third parties. These legal actions could seek damages and seek to enjoin testing, manufacturing and marketing of the accused product or process. In addition to potential liability for significant damages, we could be required to obtain a license to continue to manufacture or market the accused product or process.
Risks Related to Marketing of Our Potential Products
We may not become, or stay, profitable even if our products are approved for sale.
Even if we obtain regulatory approval to market our oral insulin product or any other prescription pharmaceutical product candidate in another country other than Ecuador, many factors may prevent the product from ever being sold in commercial quantities. Similarly, the successful commercialization of our confectionary may be hindered. Some of these factors are beyond our control, such as:
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acceptance of the formulation or treatment by health care professionals and diabetic patients;
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the availability, effectiveness and relative cost of alternative diabetes or immunomedicine treatments that may be developed by competitors; and
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the availability of third-party (i.e., insurer and governmental agency) reimbursements.
We will not receive significant revenues from Generex Oral-lyn™ in Ecuador or Glucose RapidSpray™ in the United States or any of our other products that may receive regulatory approval until we can successfully manufacture, market and distribute them in the relevant market.
We will have to depend upon others for marketing and distribution of our products, and we may be forced to enter into contracts limiting the benefits we may receive and the control we have over our products. We intend to rely on collaborative arrangements with one or more other companies that possess strong marketing and distribution resources to perform these functions for us. We may not be able to enter into beneficial contracts, and we may be forced to enter into contracts for the marketing and distribution of our products that substantially limit the potential benefits to us from commercializing these products. In addition, we will not have the same control over marketing and distribution that we would have if we conducted these functions ourselves.
We may not be able to compete with treatments now being marketed and developed, or which may be developed and marketed in the future by other companies.
Our products will compete with existing and new therapies and treatments. We are aware of a number of companies that have developed or are currently seeking to develop alternative means of delivering insulin, as well as new drugs intended to replace insulin therapy at least in part. We are also aware of a number of companies currently seeking to develop alternative means of enhancing and suppressing peptides. In the longer term, we also face competition from companies that seek to develop cures for diabetes and other malignant, infectious, autoimmune and allergic diseases through techniques for correcting the genetic deficiencies that underlie such diseases.
Numerous pharmaceutical, biotechnology and drug delivery companies, hospitals, research organizations, individual scientists and nonprofit organizations are engaged in the development of alternatives to our technologies. Some of these companies have greater research and development capabilities, experience, manufacturing, marketing, financial and managerial resources than we do. Accordingly, our competitors may succeed in developing competing technologies, obtaining FDA approval for products or gaining market acceptance more rapidly than we can.
In January, 2006, the FDA approved Pfizer, Inc.’s inhalable form of insulin, the first non-injected insulin to be approved by the FDA. Pfizer’s product in inhaled through the mouth and absorbed in the lungs. While we believe that absorption though the buccal cavity offers several advantages over absorption through the lungs, Pfizer’s early approval could allow it to capture a large portion of the market. It is expected that initial supplies of Pfizer’s inhalable form of insulin, marketed as Exubera®, will be available across the U.S. beginning in September 2006.
If government programs and insurance companies do not agree to pay for or reimburse patients for our products, our success will be impacted.
Sales of our oral insulin formulation in Ecuador and our potential products in other markets depend in part on the availability of reimbursement by third-party payers such as government health administration authorities, private health insurers and other organizations. Third-party payers often challenge the price and cost-effectiveness of medical products and services. Governmental approval of health care products does not guarantee that these third-party payers will pay for the products. Even if third-party payers do accept our product, the amounts they pay may not be adequate to enable us to realize a profit. Legislation and regulations affecting the pricing of pharmaceuticals may change before our products are approved for marketing and any such changes could further limit reimbursement.
Risks Related to Potential Liabilities
We face significant product liability risks, which may have a negative effect on our financial condition.
The administration of drugs or treatments to humans, whether in clinical trials or commercially, can result in product liability claims whether or not the drugs or treatments are actually at fault for causing an injury. Furthermore, our products may cause, or may appear to have caused, serious adverse side effects (including death) or potentially dangerous drug interactions that we may not learn about or understand fully until the drug or treatment has been administered to patients for some time. Product liability claims can be expensive to defend and may result in large judgments or settlements against us, which could have a severe negative effect on our financial condition. We maintain product liability insurance in amounts we believe to be commercially reasonable for our current level of activity and exposure, but claims could exceed our coverage limits. Furthermore, due to factors in the insurance market generally and our own experience, we may not always be able to purchase sufficient insurance at an affordable price. Even if a product liability claim is not successful, the adverse publicity and time and expense of defending such a claim may interfere with our business.
Risks Related to the Market for Our Common Stock
Our common stock could be delisted from The NASDAQ Capital Market.
In the past, we have failed to comply with certain of NASDAQ’s listing requirements. In late 2004, we did not comply with NASDAQ Rule 4310(c)(2)(B) which requires us to have a minimum of $2,500,000 in stockholders' equity or $35,000,000 market value of listed securities or $500,000 of net income from continuing operations for the most recently completed fiscal year or two of the three most recently completed fiscal years. While we regained compliance with this standard, we are still in the development stage. Consequently, there is no guarantee that we will sustain compliance with this standard. In the event we cannot sustain compliance, our shares of common stock may be delisted from The NASDAQ Capital Market and begin trading on the over-the-counter bulletin board, assuming we meet the requisite criteria.
In addition, from October 2004 until October 2005, we failed to comply with NASDAQ Rule 4310(c)(4) which requires us to have a minimum bid price per share of at least $1.00. Although we regained compliance with the minimum bid price requirement in November 2005, there is no guarantee that the bid price of our common stock will remain at or above $1.00 per share. In the event that the price of our common stock falls below $1.00 per share for thirty (30) consecutive trading days, we would likely receive a notice from The NASDAQ Stock Market LLC informing us of our noncompliance with NASDAQ Rule 4310(c)(4) and giving us 180 calendar days, subject to extension, to regain compliance with the Rule. In the event that we could not demonstrate compliance with NASDAQ Rule 4310(c)(4) by the specified deadline and were not eligible for an additional compliance period, the Staff would notify us that our stock would be delisted, at which time we could appeal the Staff’s determination to a Listing Qualifications Panel. Pending the decision of the Listing Qualification Panel, our common stock would continue to trade on the NASDAQ Capital Market. If we were not successful in such an appeal, our stock would likely trade on NASDAQ’s over-the-counter bulletin board, assuming we meet the requisite criteria.
If we fail to maintain compliance with applicable NASDAQ Rules and our stock is delisted from the NASDAQ Capital Market, it may become subject to Penny Stock Regulations and there will be less interest for our stock in the market. This may result in lower prices for our stock and make it more difficult for us to obtain financing.
If our stock is not listed on NASDAQ and fails to maintain a price of $5.00 or more per share, our stock would become subject to the Securities and Exchange Commission's "Penny Stock" rules. These rules require a broker to deliver, prior to any transaction involving a Penny Stock, a disclosure schedule explaining the Penny Stock Market and its risks. Additionally, broker/dealers who recommend Penny Stocks to persons other than establishe